FMC proposes rule to help U.S. NVOs meet China’s financial proof
The Federal Maritime Commission will move ahead with a proposed rulemaking to help U.S. non-vessel-operating common carriers more easily demonstrate proof of financial responsibility to the Chinese government.
The agency’s five-person commission voted unanimously Wednesday, Jan. 21, to proceed with the proposed rulemaking, which will be published in the Federal Register. The FMC will propose to change the commission’s rules to allow licensed NVOs, at their option, to add $21,000 riders to their existing $75,000 bonds with the agency, instead of each depositing at least $96,000 in a Chinese bank.
China’s Ministry of Communications implemented new international maritime regulations early last year that called for the $96,000 deposit in order to collect fines and penalties from U.S. NVOs that violate the rules.
The Washington-based National Customs Brokers and Forwarders Association of America said the $96,000 deposit would shut out many small NVOs from the Chinese cargo market. The association petitioned the FMC to develop the bond rider regulations to both ease the financial burden on small NVOs and at the same time comply with China’s new international maritime rules.
The commission’s general counsel Amy W. Larson acknowledged that the proposed bond rider puts the agency in a “very strange position,” because this type of financial proof is not needed for NVOs to operate in other countries. Another problem is that China has no surety industry.
The American Surety Association (ASA), while not protesting the NCBFAA’s petition, raised several questions about the implementation of the bond rider and its use by China to settle U.S. NVO-related fines and penalties.
“It is important that the FMC provide guidance to its licensed NVOCCs and the surety companies that elect to provide this rider,” ASA said in comments regarding the NCBFAA petition. “The FMC should give comprehensive examples of how it interprets the financial responsibility instrument as amended by this proposed change to the regulations, including whether a bond amended by the rider will secure OTI [ocean transportation intermediary] activity in all ocean trade lanes with China, not just U.S.-China trade lanes.”
ASA’s members include XL Specialty Insurance Co., Washington International Insurance Co., Roanoke Trade Services, American Contractors Indemity Co. of Los Angeles, Fleetwood Agency, International Bond & Marine Brokerage, American Bankers Insurance Co., Corp. for International Business, and Avalon Risk Management. Together, these firms underwrite more than 75 percent of ocean freight forwarder and NVO bonds in the United States.
The FMC hopes to address these concerns among others in its proposed rulemaking.
Rebecca Dye, an FMC commissioner, thanked Chairman Steven R. Blust for proceeding with the proposed rulemaking vote. “We look forward to our NVOs doing business in China,” she said.
“We hope the action proposed today in response to the NCBFAA’s request will make it less burdensome for U.S. NVOCCs to do business in China, consistent with commitments made in connection with the recently signed U.S.-China bilateral maritime agreement,” Blust said in a statement.
At the encouragement of the U.S. Maritime Administration, which led the negotiations for the new bilateral maritime agreement with China, the FMC also agreed at its Jan. 21 meeting to consider petitions to liberalize the U.S. Controlled Carrier Act’s 30-day advance notice requirements for tariff rate reductions for China’s three state-owned liner carriers.
The Chinese carriers regulated under the U.S. Controlled Carrier Act are China Ocean Shipping (Group) Co. (COSCO), China Shipping Container Lines, and Sinotrans Container Lines. With the exception of COSCO, which has partial tariff reduction exemption under the act, the Chinese carriers must wait 30 days to make rate changes in response to competitors.
The FMC said it will accept comments regarding the Chinese carrier petitions through Feb. 23. The commission will schedule a meeting to consider the petitions and comments shortly after. “I look forward to the swift conclusion of these proceedings,” Blust said.
In addition, the commission discussed Docket No. 98-14, “Shipping Restrictions, Requirements and Practices of the People’s Republic of China,' and said it would take up the issue again when more information becomes available about the changes resulting from the U.S.-China bilateral maritime agreement.