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1 Representatives of the American institute in Taiwan and the Coo-rdination Council for North American Affairs, with their respec-tive consultants, held technical discussions on shipping issues in Arlingtion, Virginia, April 6-7, 1987. During these discussi-ons the two sides recalled earlier discussions of shipping issu-es held in bilateral trade forums and the technical talks on sh-ipping held in Taipei, november 3-4, 1986. Thery decided on a n-umber of steps to improve the operating environment for ocean c-arriers. These are set forth below. (A) AIT stated that U.S. carriers should be able to operate as container terminal operators, sea cargo forwarders, and shi-pping agencies and be able to conduct shipping agency busin-ess activities. CCNAA informed AIT that, henceforth, in ccordance with Arti-cle 40 of the Shipping Act of 1981, U.S. carriers will be a-ble, as branch offices, to apply for and receive licenses tooperate as container terminal operators, shipping agencies,container freight station operators, and sea cargo forwarde-rs in accordance with local laws and regulations. Containerfreight station operation is contingent on an inland contai-ner terminal license. CCNAA stated further that application for these licenses sh-ould be made to the provincial harbor authorities. Sublicen-ses for operation of container freight stations should be a-pplied for through the customs authorities. CCNAA said thatit would strongly urge the provincial authorities to treatU.S. and domestic carriers' applications equally. CCNAA stated that after it has strongly urged the provincialauthorities, it would provide a copy of its instructions toAIT in Taipei. CCNAA stated that applications would be acce-pted for such activities in three months and that licensesfor shipping agencies and sea cargo forwarders would be act-ed upon within two weeks, provided that all requirements forthe application are complied with. Applications for terminal operator licenses will be acted u-pon as promptly as possible, recognizing that such licensesmust also receive the approval of provincial authorities. (B) AIT stated that U.S. carriers should be able to remit immed-iately all earnings, whether operational or non-operational.CCNAA said that the Central Bank of China issued new regula-tions on March 6,1987, which it believes should resolve thedifficulties and delays encountered by U.S. carriers in rem-itting operational earnings. As for remittance of interestearnings, capital receipts, and other non--operational earn-ings, CCNAA said that the Ministry of Economic affairs is r-eviewing the problem and compiling a list of businesses eli-gible for Foreign Investment Approvals(FIA), which convey r-epatriation privileges. AIT said that its position is that all income should be imm-ediately remittable and asked CCNAA's representative to sup-port inclusion of ocean carriers in the list of business el-igible for FIA. (C) AIT said that U.S. carriers should be allowed to own, opera-te, buy, sell,import, and export dockside container handlingequipment. CCNAA said that there is no legal prohibition of such activ-ities nor is there any legal requirement to depend on harborauthorities for leasing or management of such equipment. U.S. carriers are restricted in such matters only by their cur-rent harbor space leasing contracts with harbor authorities.CCNAA said that carrier ownership of equipment would be sub-ject to commercial negotiation between carriers and harborauthorities when current leases expire or are otherwise ren-egotiated in accordance with the contract provisions. AIT said that it expects that renegotiation of harbor spaceleases will not result in unreasonable rents. CCNAA said th-at it would strongly urge harbor authorities to negotiate r-easonable terms in line with current international practice,without regard to whether the tenant owns or leases contain-er handling equipment. AIT agreed to supply CCNAA with modelport leasing contracts and pricing standards of internation-al ports comparable to Kaohsiung harbor. (D) The two sides discussed the need to conclude a new accord r-elating to dual taxation. In this connection, AIT pointed o-ut that under the Tax Reform Act of 1986, the former exchan-ge of notes on dual taxation expired on December 31,1986. ATT noted that for a new exchange to apply retroadively wit-hout interruption it would have to be concluded during cale-ndar 1987. AIT statedthat as the result of recent rulings bythe Ministry of Finance, the value added tax (VAT) was beingapplied unfairly to U.S. carriers. This and other related t-ax issues should be resolved in the exchange of notes. CCNAA took note of AIT's statements on the taxation issue a-nd requested that the issues be more specifically defined,so that the fairness of the practices can be assessed and t-he issue can be addressed by the proper authorities. CCNAA also raised concerns with respect to unitary taxationof its carriers by U.S. state governments. AIT said that th-ey would be addressed in the taxation discussions. (E) AIT said that U.S. carriers should be able to own and opera-te trucking services for land transport of containers as pa-rt of the intermodal movement of cargo. CCNAA said that national highway law prohibits foreign owne-rship of trucking services. Amendment of the law is difficu-lt and requires persuasive justification to the legislature.CCNAA said that, if the law were amended, foreign truck ope-rators would be subject to (1) expropriation and other meas-ures in case of national emergency, (2) security inspection,(3) taxation, (4) tariff regulation, and (5) other actionsapplicable to domestic businesses. CCNAA said further in th-is regard that foreign intermodal truck operators would notbe subject to "need" test or public convenience and necessi-ty determination in any less favorable manner than that acc-orded domestic businesses. AIT asked CCNAA to seek an amendment to the law permittingforeign oceancarriers to operate trucking services in suppo-rt of intermodal freight movement. CCNAA responded that it would consider AIT's suggestion aft-er CCNAA received from AIT a written confirmation that the U.S. carriers would be willing to subject themselves to theabove--mentioned regulations. AIT said that the authority represented by CCNAA should all-ow truck transport of double container loads on its roads.CCNAA said that movement of double container loads had beenended after a six--month trial period in 1982, for safety r-easons and because of the deterioration of its single super-highway. It said that use of double container loads would beconsidered again after the highway is renewed. AIT said that it was unpersuaded by CCNAA's accident data t-hat double container loads are any more dangerous than otherheavy trucks now operating in Taiwan. On CCNAA's request, A-IT offered to provide truck design and safety information r-elated to operation of double container loads. AIT also ask-ed CCNAA to consider allowing transport of double containerloads during restricted hours or on restricted routes. (F) AIT said that U.S. carriers should receive equal priority for berthing and equal access to container storage faciliti-es. CCNAA said that national carriers do not have overriding priori-ty for berthing. It said that berthing priorities are based on the annual number of port calls and on access to container stor-age yards leased by the carriers. It also said that at least oneU.S. carrier had shown no interest when a survey was conducted on the need for additonal container storage space at Keelung. AIT also expressed concern over the Kaoshiung Harbor Bureau's f-ailure to negotiate fairly on berthing of U.S. carrier--operatedfeeder vessels whose economical operation are important to U. S.carriers. CCNAA responded that such contract negotiations are a matter be-tween the harbor bureau and the affected carriers. ATT also rai-sed the Kaoshiung Harbor Bureau's restrictions on the number of joint users at rented piers, as well as the KHB's restrictions against U. S.carrier--operated barges. CCNAA requested evidence that barges are treated as containersh-ips in other ports around the world and stated that upon receiptof such evidence, CCNAA would urge KHB through the provincial g-overnment to change its policy in this regard. AIT expressed appreciation for the concrete steps announced by CCNAA. AIT pledged its readiness to work closely with CCNAA and U.S. c-arriers to ensure that the new procedures outlined above are un-derstood and are fully and fairly implemented. AIT said in conc-lusion that it expects to see progress on the outstanding issues, especially those related to trucking, and that it will closelymonitor conditions during the next six months. CCNAA raised a number of issues of concern to it and to its oce-an carriers. They are as follows : (A) CCNAA expressed concern over legislative bills that have be-en introduced in the U.S. Congress, including H.R. 300 and H.R. 1290, which it views as protectionist proposals. For ex-ample, in the view of CCNAA, the following are objectionableand a violation of the basic spirit of fairness and due pro-cess : the automatic trigger of a U.S. agency investigationon the basis of market share in a single class of goods, theshifting of the burden of proof onto carriers on the basisof statistics, and the chilling effect that automatic inves-tigation will have on shipping entrepreneurs. AIT responded that the Administration opposes both these bi-lls and the Maritime Administrator so testified before theHouse Merchant Marine Subcommittee on March 12. AIT explain-ed its view that these bills would create an unwarranted in-tervention by government in the free shipping market. (B) CCNAA also raised a number of unfair practices that its shi-pping industry experiences in the United States, as follows: (1) The shipping companies on the CCNAA side conducting bus-iness in the United States have complained about their revenue loss on the senrice contract provisions and the mandatory right of independent action under the Shipping Act of 1984. They consider that service contracts under the Shipping Act, being a one-sided mechanism, only ser- ve to guarantee a shipper "the lowest rate." They offer little protection to the carrier. The carriers suggested that the essential terms of a service contract be kept confidential or the legal requirements of filing of ser- vice contracts with the FMC be abolished. As to independent action, CCNAA indicated that carriers have suggested that the Shipping Act of 1984 be amended so that it will take a minimum of 30 days to be effecti- ve instead of 10 days as it is currently provided in the Act, if the mandatory independent action cannot be enti- rely eliminated. CCNAA recommended that favorable consi- derations be given to the carriers'suggestion. In response, AIT noted that the FMC is to conduct a five -year review of the Shipping Act of 1984. CCNAA and its carriers would be able to contribute comments in the co- urse of this review. AIT added that service contracts are not mandatory but are freely negotiated between shipper and carrier. AIT also informed CCNAA that the Box Club has petitioned the FMC for a rulemaking to impose limits on terms of servi- ce contracts. That issue is currently understudy by the FMC. AIT agreed to keep CCNAA informed on the study's p- rogress. (2) CCNAA stated its view that operating-differential subsi-dy (ODS) is a major, and one of the foremost, U.S. rest- riction on free competition. CCNAA noted that while the United States has established the ODS system in 1937 to subsidize the U.S. shipping industry competing with for- eign companies, authorities represented by CCNAA have n- ever provided any operating subsidy to their shipping i- ndustry operating in the United States. ODS is a perfect example of U.S. protectionism so as to justify foreign governments' protective measures adopted for their own shipping industry. AIT noted that ODS is provided for under Title VI of the Merchant Marine Act of 1936. The specific concept under- lying the payment of ODS is that there is a differential between certain U.S. and foreign operating costs (i.e., wages, insurance, and maintenance and repair) and that, if these differentials are compensated by subsidy, the operation of U.S. --flag vessels will be on a parity with those of foreign competitors. ODS, AIT explained, is intended to suppo- rt a merchant marine capacity to meet national defense needs. Moreover, AIT pointed out that it had found in- stances where the authority repressented by CCNAA pro- vides subsidies to its maritime indurtry. AIT added that, unlike the restrictions imposed by the authority represented by CCNAA on U.S. carriers, ODS do- es not restrict its carriers' ability to do business in the United States. (3) CCNAA stated that shipping is an international industry.Movement of staff internationally is a common practice. The practice of the U.S. Immigration and Naturalization Service of Strict scrutiny and time--consuming procedur- es,in CCNAA's view, constitutes barriers to foreign shi- pping companies conduct of operations in the United Sta- tes. In addition CCNAA views INS's policy as disguised protectionism of the U.S. labor market. AIT responded that INS is responsible for enforcing U.S . immigration law.This enforcement is not discriminator- y; it applies to all foreign nationals. AIT offered gui- dance to CCNAA on ways of reducing the visa difficulties of the carriers' employees. (4) CCNAA expressed concern over recent investigations of i-ts national carriers undertaken by the FMC. In the view of these carriers, said CCNAA, these investigations int- rude into their operations in the United States. CCNAA expressed the concern that its carriers are being treat- ed as scapegoats. CCNAA noted that under the 1981 Shipp- ing Act, the authorities represented by CCNAA could lau- nch similar investigations of U.S. carriers, but have n- ever used such investigations as a means of retaliation. CCNAA asked the AIT to urge the FMC not to apply such i- nvestigations as a means of retaliation against foreign governments, so as to avoid unnecessary counteraction. AIT replied that the current investigations are not ret- aliatory in nature but are examinations of alleged proh- ibited practices by carriers on the CCNAA side. If evidence of such malpractices is not found, no action will be taken. AIT said it will insure an appropriate t- ransmittal of CCNAA's concerns on this subject. (C) CCNAA also raised its serious concern over the impact of theclosing of U.S. Lines. CCNAA requested assistance in dealingwith the concerns of U.S. Lines' creditors and former employees. AIT responded that itis concerned and that it will assist CCNAA in answering allits questions. AIT noted that it cannot act in U.S. Lines'behalf but will provide to CCNAA all avaiable information a-nd seek answers to questions posed by CCNAA on the subject.[Signed] Joseph B. Kyle Corporate Secretary American Institute in Taiwan [Signe] Benjamin C.Lu Director of Economic Division Coordination Council for North American Affairs Economic