911.5331/6–1550

The Secretary of State to the Embassy in Venezuela 1

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No. 87

The Secretary of State refers to the Department’s telegram No. 157 of May 252 and previous messages on the Venezuelan shipping problem. The Department appreciates the excellent manner in which the Embassy has presented this Government’s position in using its good offices to try to bring about a mutually satisfactory solution to this difficult problem. The telegram under reference refers to the question of rates and the operation of the conference with respect to the nonconference carrier and is not intended to prevent the Embassy’s giving appropriate assistance in other regards to American shipping interests operating in Venezuela. Further detailed consideration of the problem in Washington has led to the conclusions which were transmitted in summary form in the reference telegram in order that the Embassy might have them for its guidance prior to the start of the discussions between the conference and Venezuelan companies. An elaboration of these points is given below:3

1.
Shipping conferences are voluntary associations of shipping lines permitted by United States legislation for the purpose of cooperating in providing service to and from certain areas. Both United States lines and foreign lines are involved and while agreement on rates are permitted, there is no legal compulsion on non-conference shipping lines to charge similar rates. It has been the practice of conference lines to charge two sets of rates, a lower one for shippers using only conference carriers and a higher rate for others. This practice, however, is now the subject of antitrust litigation before the second District Court of New York (Isbrandtsen v. U.S.) and is being attacked by the Department of Justice, supported by the Department of Agriculture, in the District Court for the District of New Jersey (U.S. v. Far East Conference, U.S. Lines, et al.). In the first case a temporary injunction against use by a shipping conference of such discriminatory practices has been granted, pending adversary proceedings before the Federal Maritime Board. The decision in the second case, it is understood, will depend on the outcome of the Isbrandtsen case.4 Therefore, [Page 1023] in view of the fact that the legality in this country of the dual rate structure has been questioned, it would be inappropriate for the Department to intervene in any way on behalf of the shipping conference to bring about the adoption of its rates by independent foreign shipping lines.
2.
There is a further consideration with respect to the rate problem. Inquiry was made of the Department of Justice as to its views on the contemplated rate agreement inasmuch as the Venezuelan shipping line is not a member of the conference. While agreements on rates within the conference framework are exempt under present shipping legislation from the application of the antitrust legislation the Department of Justice indicated that it would probably consider an agreement between an American conference member and a non-conference member involving the foreign commerce of the United States as a violation of the antitrust laws. The Federal Maritime Board states in this regard, however, that “any agreement arrived at between the conference and non-conference carriers would have to be submitted to the Federal Maritime Board for its approval pursuant to the provisions of Section 15 of the Shipping Act, 1916,5 as amended, and if so approved would then be excepted from the antitrust laws, and therefore any attempt to secure such an agreement cannot be inferred to be an attempt to break the laws of the United States.”6 It is obvious that in view of such divergent views, the Department must proceed with caution.
3.
The United States long has opposed governmental fixing of ocean freight rates, except in time of war. The Department has supported such a position. Also, subject to safeguards contained in United States law, a carrier has the basic right to set rates according to his own judgment. It must be recognized that under some circumstances the use of the dual rate system by conferences may make it necessary to charge lower rates to compete effectively. Whether in fact a shipping line would charge lower rates would depend on such considerations as the volume of cargo carried by the conference at the contract and the non-contract rates, the spread between the two rates and the amount of service which the independent line can provide in relation to the conference. It would be unwise for this Government to take the position that it should be concerned with the level of shipping rates or the relationship between the conference and non-conference rates. To do so in the dispute between the conference and the Venezuelan shipping line might be construed as a change of policy which looked toward closer governmental regulation or control of shipping rates.

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In view of the above considerations, the Department thoroughly agrees with the Embassy’s decision7 not to have the requested experts from the Department and the Federal Maritime Board participate in any way in discussions between the shipping interests.8

  1. Drafted by L. James Falck, Assistant Chief of the Shipping Policy Staff, and Harold E. Fassberg of the Internaional Business Practices Policy Staff.
  2. In it the Department had stated in part: “Conclusion reached US Govt shld not make representations to Venz Govt for assurances there will be no further rate reductions by Venz cos or that they comply with shipping conference practices.” (911.5331/5–2550)
  3. In addition to the points elaborated here, telegram 157 had stated: “In-appropriate for US Govt intervene in private commercial dispute except for compelling reasons such as discrimination against US interests.”
  4. District and appellate court decisions favorable to Isbrandtsen’s suit against the dual rate practice were upheld by the Supreme Court in 1958; this result was later modified by legislation. For discussion and legal citations, see Marjorie M. Whiteman, Digest of International Law, vol. 9 (Washington: Government Printing Office, 1968), pp. 249–253.
  5. 39 Stat. 728.
  6. From a letter of June 5, 1950, from John T. Koehler, Acting Chairman, Federal Maritime Board, to Secretary Acheson. In this letter Mr. Koehler had also said in part that the forthcoming Caracas meeting of Conference and Venezuelan shipping lines had only been made possible through Ambassador Donnelly’s discussions with the Venezuelan Government. “His action in this respect was predicated on the fact that the Venezuelan lines are government owned and that therefore this cannot be regarded as merely a private commercial dispute.” (911.5331/6–550)
  7. In despatch No. 673 from Caracas, April 26, Ambassador Donnelly had reported on his conversation that day with Sr. Gómez Ruiz and had stated in part: “He indicated the Venezuelan Government has instructed both the Venezuelan Division of the Gran Colombiana Steamship Line and the Compañía Navigación Venezolana to seek an understanding with the American lines and by all means to avoid a freight rate war.

    “I told the Minister that the Department had approved of my suggestion that representatives of the Maritime Commission and the Department be detailed to the Embassy here for the duration of the conference, for the purpose of being available in the event their technical assistance is found to be desirable, but with the understanding that they shall not participate in the conversations which will be conducted between the interested parties.” (911.5331/4–2650)

  8. In telegram 388 from Caracas, June 20, Ambassador Donnelly reported in part that Conference and Venezuelan lines had reached agreement on a number of matters, including a uniform rate structure and Conference support for any application by the Venezuelan lines for 50 percent participation in cargo financed by the ExImBank and destined for Venezuela. Compliance with the new agreement was to be supervised by a Chamber of Overseas Transportation in Caracas made up of members from each participating line. (911.5331/6–2050)