§ 53735. Fisheries financing and capacity reduction

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 2006

   Pub. L. 109–304 § 8(c) · 120 Stat. 1485

   Enacted · 46 U.S.C. § 53735

   Pub. L. 109–304, § 8(c), Oct. 6, 2006, 120 Stat. 1625

   Source evidence

   Code source credit
   Pub. L. 109–304, § 8(c), Oct. 6, 2006, 120 Stat. 1625

   Enacted provision · exact public law section
   (c) Chapters Following Chapter 531.— Subtitle V of title 46, United States Code, is amended by adding at the end the following: “CHAPTER 533— CONSTRUCTION RESERVE FUNDS “Sec. “53301.  Definitions. “53302.  Authority for construction reserve funds. “53303.  Persons eligible to establish funds. “53304.  Vessel ownership. “53305.  Eligible fund deposits. “53306.  Recognition of gain for tax purposes. “53307.  Basis for determining gain or loss and for depreciating new vessels. “53308.  Order and proportions of deposits and withdrawals. “53309.  Accumulation of deposits. “53310.  Obligation of deposits and period for construction of certain vessels. “53311.  Taxation of deposits on failure of conditions. “53312.  Assessment and collection of deficiency tax. “§ 53301.  Definitions “(a) In General.— In this chapter: “(1) Construction contract.— The term ‘construction contract’ includes, for a taxpayer constructing a new vessel in a shipyard owned by that taxpayer, an agreement between the taxpayer and the Secretary of Transportation for that construction containing provisions the Secretary considers advisable to carry out this chapter. “(2) New vessel.— The term ‘new vessel’ means— “(A) a vessel— “(i) constructed in the United States after December 31, 1939, constructed with a construction-differential subsidy under title V of the Merchant Marine Act, 1936, or constructed with financing or a financing guarantee under chapter 537 or 575 of this title; “(ii) documented or agreed with the Secretary to be documented under the laws of the United States; and “(iii) (I) of a type, size, and speed that the Secretary determines is suitable for use on the high seas or Great Lakes in carrying out this subtitle, but not less than 2,000 gross tons or less than 12 knots speed unless the Secretary certifies in each case that a vessel of lesser tonnage or speed is desirable for use by the United States Government in case of war or national emergency; or “(II) constructed to replace a vessel bought or requisitioned by the Government; and “(B) a vessel reconstructed or reconditioned for use only on the Great Lakes, including the Saint Lawrence River and Gulf, if the Secretary finds that the reconstruction or reconditioning will promote the objectives of this subtitle. “(b) Additional Tax-Related Terms.— Other terms used in this chapter have the same meaning as in chapter 1 of the Internal Revenue Code of 1986 (26 U.S.C. ch. 1). “§ 53302.  Authority for construction reserve funds “(a) General Authority.— An eligible person under section 53303 of this title may establish a construction reserve fund for the construction, reconstruction, reconditioning, or acquisition of a new vessel or for other purposes authorized by this chapter. “(b) Application of Certain Laws and Regulations.— The fund shall be established, maintained, expended, and used as provided by this chapter and regulations prescribed jointly by the Secretary of Transportation and the Secretary of the Treasury. “§ 53303.  Persons eligible to establish funds   “A construction reserve fund may be established by a citizen of the United States that— “(1) is operating a vessel in the foreign or domestic commerce of the United States or in the fisheries; “(2) owns, in whole or in part, a vessel being operated in the foreign or domestic commerce of the United States or in the fisheries; “(3) was operating a vessel in the foreign or domestic commerce of the United States or in the fisheries when it was bought or requisitioned by the United States Government; “(4) owned, in whole or in part, a vessel being operated in the foreign or domestic commerce of the United States or in the fisheries when it was bought or requisitioned by the Government; or “(5) had acquired or was having constructed a vessel to operate in the foreign or domestic commerce of the United States or in the fisheries when it was bought or requisitioned by the Government. “§ 53304.  Vessel ownership   “In this chapter, a vessel is deemed to be constructed or acquired by a taxpayer if constructed or acquired by a corporation when the taxpayer owns at least 95 percent of each class of stock of the corporation. “§ 53305.  Eligible fund deposits   “A construction reserve fund may include deposits of— “(1) the proceeds from the sale of a vessel; “(2) indemnities for the loss of a vessel; “(3) earnings from the operation of a documented vessel and from services incident to the operation; and “(4) interest or other amounts accrued on deposits in the fund. “§ 53306.  Recognition of gain for tax purposes “(a) Definitions.— In this section, the terms ‘net proceeds’ and ‘net indemnity’ mean the sum of— “(1) the adjusted basis of the vessel; and “(2) the amount of gain the taxpayer would recognize without regard to this section. “(b) Recognition of Gain.— In computing net income under the income or excess profits tax laws of the United States, a taxpayer does not recognize a gain on the sale or the actual or constructive total loss of a vessel if the taxpayer— “(1) Deadline. deposits an amount equal to the net proceeds of the sale or the net indemnity for the loss in a construction reserve fund within 60 days after receiving the payment of proceeds or indemnity; and “(2) elects under this section not to recognize the gain. “(c) When Election Must Be Made.— “(1) In general.— Except as provided in paragraph (2), the taxpayer must make the election referred to in subsection (b) in the taxpayer’s income tax return for the taxable year in which the gain was realized. “(2) Receipt after taxable year.— If the vessel is bought or requisitioned by the United States Government, or is lost, and the taxpayer receives payment for the vessel or indemnity for the loss from the Government after the end of the taxable year in which it was bought, requisitioned, or lost, the taxpayer must make the election referred to in subsection (b) within 60 days after receiving the payment or indemnity, on a form prescribed by the Secretary of the Treasury. “(d) Effect of Statute of Limitation.— If the taxpayer makes an election under subsection (c)(2), and computation or recomputation under this section is otherwise allowable but is prevented by a statute of limitation on the date the election is made or within 6 months thereafter, the computation or recomputation nevertheless shall be made notwithstanding the statute if the taxpayer files a claim for the computation or recomputation within 6 months after the date of making the election. “§ 53307.  Basis for determining gain or loss and for depreciating new vessels   “Under the income or excess profits tax laws of the United States, the basis for determining a gain or loss and for depreciation of a new vessel constructed, reconstructed, reconditioned, or acquired by the taxpayer, or for which purchase-money indebtedness is liquidated as provided in section 53310 of this title, with amounts from a construction reserve fund, shall be reduced by that part of the deposits in the fund expended in the construction, reconstruction, reconditioning, acquisition, or liquidation of purchase-money indebtedness of the new vessel that represents a gain not recognized for tax purposes under section 53306 of this title. “§ 53308.  Order and proportions of deposits and withdrawals   “In this chapter— “(1) if the net proceeds of a sale or the net indemnity for a loss is deposited in more than one deposit, the amount consisting of the gain shall be deemed to be deposited first; “(2) amounts expended, obligated, or otherwise withdrawn shall be applied against the amounts deposited in the fund in the order of deposit; and “(3) if a deposit consists in part of a gain not recognized under section 53306 of this title, any expenditure, obligation, or withdrawal applied against that deposit shall be deemed to be a gain in the proportion that the part of the deposit consisting of a gain bears to the total amount of the deposit. “§ 53309.  Accumulation of deposits   “For any taxable year, amounts on deposit in a construction reserve fund on the last day of the taxable year, for which the requirements of section 53310 of this title have been satisfied (to the extent they apply on the last day of the taxable year), are deemed to have been retained for the reasonable needs of the business within the meaning of section 537(a) of the Internal Revenue Code of 1986 (26 U.S.C. 537(a)). “§ 53310.  Obligation of deposits and period for construction of certain vessels “(a) Application of Sections 53306 and 53309.— Sections 53306 and 53309 of this title apply to a deposit in a construction reserve fund only if, within 3 years after the date of the deposit (and any extension under subsection (c))— “(1) (A) a contract is made for the construction or acquisition of a new vessel or, with the approval of the Secretary of Transportation, for a part interest in a new vessel or for the reconstruction or reconditioning of a new vessel; “(B) the deposit is expended or obligated for expenditure under that contract; “(C) at least 12.5 percent of the construction or contract price of the vessel is paid or irrevocably committed for payment; and “(D) the plans and specifications for the vessel are approved by the Secretary to the extent the Secretary considers necessary; or “(2) the deposit is expended or obligated for expenditure for the liquidation of existing or subsequently incurred purchase-money indebtedness to a person not a parent company of, or a company affiliated or associated with, the mortgagor on a new vessel. “(b) Additional Requirements for Certain Vessels.— In addition to the requirements of subsection (a)(1), for a vessel not constructed under a construction-differential subsidy contract or not bought from the Secretary of Transportation— “(1) at least 5 percent of the construction (or, if the contract covers more than one vessel, at least 5 percent of the construction of the first vessel) must be completed within 6 months after the date of the construction contract (or within the period of an extension under subsection (c)), as estimated by the Secretary and certified by the Secretary to the Secretary of the Treasury; and “(2) construction under the contract must be completed with reasonable dispatch thereafter. “(c) Extensions.— The Secretary of Transportation may grant extensions of the period within which the deposits must be expended or obligated or within which the construction must have progressed to the extent of 5 percent completion under this section. However, the extensions may not be for a total of more than 2 years for the expenditure or obligation of deposits or one year for the progress of construction. “§ 53311.  Taxation of deposits on failure of conditions   “A deposited gain, if otherwise taxable income under the law applicable to the taxable year in which the gain was realized, shall be included in gross income for that taxable year, except for purposes of the declared value excess profits tax and the capital stock tax, if— “(1) the deposited gain is not expended or obligated within the appropriate period under section 53310 of this title; “(2) the deposited gain is withdrawn before the end of that period; “(3) the construction related to that deposited gain has not progressed to the extent of 5 percent of completion within the appropriate period under section 53310 of this title; or “(4) the Secretary of Transportation finds and certifies to the Secretary of the Treasury that, for causes within the control of the taxpayer, the entire construction related to that deposited gain is not completed with reasonable dispatch. “§ 53312.  Assessment and collection of deficiency tax   “Notwithstanding any other provision of law, a deficiency in tax for a taxable year resulting from the inclusion of an amount in gross income as provided by section 53311 of this title, and the amount to be treated as a deficiency under section 53311 instead of as an adjustment for the declared value excess profits tax, may be assessed or a civil action may be brought to collect the deficiency without assessment, at any time. Interest on a deficiency or amount to be treated as a deficiency does not begin until the date the deposited gain or part of the deposited gain in question is required to be included in gross income under section 51111. “CHAPTER 535— CAPITAL CONSTRUCTION FUNDS “Sec. “53501.  Definitions. “53502.  Regulations. “53503.  Establishing a capital construction fund. “53504.  Deposits and withdrawals. “53505.  Ceiling on deposits. “53506.  Investment and fiduciary requirements. “53507.  Nontaxation of deposits. “53508.  Separate accounts within a fund. “53509.  Qualified withdrawals. “53510.  Tax treatment of qualified withdrawals and basis of property. “53511.  Tax treatment of nonqualified withdrawals. “53512.  FIFO and LIFO withdrawals. “53513.  Corporate reorganizations and partnership changes. “53514.  Relationship of old fund to new fund. “53515.  Records and reports. “53516.  Termination of agreement after change in regulations. “53517.  Reports. “§ 53501.  Definitions   “In this chapter: “(1) Agreement vessel.— The term ‘agreement vessel’ means— “(A) an eligible vessel or a qualified vessel that is subject to an agreement under this chapter; and “(B) a barge or container that is part of the complement of a vessel described in subparagraph (A) if provided for in the agreement. “(2) Eligible vessel.— The term ‘eligible vessel’ means— “(A) a vessel— “(i) constructed in the United States (and, if reconstructed, reconstructed in the United States), constructed outside the United States but documented under the laws of the United States on April 15, 1970, or constructed outside the United States for use in the United States foreign trade pursuant to a contract made before April 15, 1970; “(ii) documented under the laws of the United States; and “(iii) operated in the foreign or domestic trade of the United States or in the fisheries of the United States; and “(B) a commercial fishing vessel— “(i) constructed in the United States and, if reconstructed, reconstructed in the United States; “(ii) of at least 2 net tons but less than 5 net tons; “(iii) owned by a citizen of the United States; “(iv) having its home port in the United States; and “(v) operated in the commercial fisheries of the United States. “(3) Joint regulations.— The term ‘joint regulations’ means regulations prescribed jointly by the Secretary and the Secretary of the Treasury under section 53502(b) of this title. “(4) Noncontiguous trade.— The term ‘noncontiguous trade’ means— “(A) trade between— “(i) one of the contiguous 48 States; and “(ii) Alaska, Hawaii, Puerto Rico, or an insular territory or possession of the United States; and “(B) trade between— “(i) a place in Alaska, Hawaii, Puerto Rico, or an insular territory or possession of the United States; and “(ii) another place in Alaska, Hawaii, Puerto Rico, or an insular territory or possession of the United States. “(5) Qualified vessel.— The term ‘qualified vessel’ means— “(A) a vessel— “(i) constructed in the United States (and, if reconstructed, reconstructed in the United States), constructed outside the United States but documented under the laws of the United States on April 15, 1970, or constructed outside the United States for use in the United States foreign trade pursuant to a contract made before April 15, 1970; “(ii) documented under the laws of the United States; and “(iii) agreed, between the Secretary and the person maintaining the capital construction fund established under section 53503 of this title, to be operated in the United States foreign, Great Lakes, or noncontiguous domestic trade or in the fisheries of the United States; and “(B) a commercial fishing vessel— “(i) constructed in the United States and, if reconstructed, reconstructed in the United States; “(ii) of at least 2 net tons but less than 5 net tons; “(iii) owned by a citizen of the United States; “(iv) having its home port in the United States; and “(v) operated in the commercial fisheries of the United States. “(6) Secretary.— The term ‘Secretary’ means— “(A) the Secretary of Commerce with respect to an eligible vessel or a qualified vessel operated or to be operated in the fisheries of the United States; and “(B) the Secretary of Transportation with respect to other vessels. “(7) United states foreign trade.— The term ‘United States foreign trade’ includes those areas in domestic trade in which a vessel built with a construction-differential subsidy is allowed to operate under the first sentence of section 506 of the Merchant Marine Act, 1936. “(8) Vessel.— The term ‘vessel’ includes— “(A) cargo handling equipment that the Secretary determines is intended for use primarily on the vessel; and “(B) an ocean-going towing vessel, an ocean-going barge, or a comparable towing vessel or barge operated on the Great Lakes. “§ 53502.  Regulations “(a) In General.— Except as provided in subsection (b), the Secretary shall prescribe regulations to carry out this chapter. “(b) Tax Liability.— The Secretary and the Secretary of the Treasury shall prescribe joint regulations for the determination of tax liability under this chapter. “§ 53503.  Establishing a capital construction fund “(a) In General.— A citizen of the United States owning or leasing an eligible vessel may make an agreement with the Secretary under this chapter to establish a capital construction fund for the vessel. “(b) Allowable Purpose.— The purpose of the agreement shall be to provide replacement vessels, additional vessels, or reconstructed vessels, built in the United States and documented under the laws of the United States, for operation in the United States foreign, Great Lakes, or noncontiguous domestic trade or in the fisheries of the United States. “§ 53504.  Deposits and withdrawals “(a) Required Deposits.— An agreement to establish a capital construction fund shall provide for the deposit in the fund of the amounts agreed to be appropriate to provide for qualified withdrawals under section 53509 of this title. “(b) Applicable Requirements.— Deposits in and withdrawals from the fund are subject to the requirements included in the agreement or prescribed by the Secretary by regulation. However, the Secretary may not require a person to deposit in the fund for a taxable year more than 50 percent of that portion of the person’s taxable income for that year (as determined under section 53505(a)(1) of this title) that is attributable to the operation of an agreement vessel. “§ 53505.  Ceiling on deposits “(a) Maximum Deposits.— The amount deposited in a capital construction fund for a taxable year may not exceed the sum of— “(1) that portion of the taxable income of the owner or lessee for the taxable year (computed under chapter 1 of the Internal Revenue Code of 1986 (26 U.S.C. ch. 1) but without regard to the carryback of net operating loss or net capital loss or this chapter) that is attributable to the operation of agreement vessels in the foreign or domestic trade of the United States or in the fisheries of the United States; “(2) the amount allowable as a deduction under section 167 of such Code (26 U.S.C. 167) for the taxable year for agreement vessels; “(3) if the transaction is not taken into account for purposes of paragraph (1), the net proceeds (as defined in joint regulations) from the disposition of an agreement vessel or from insurance or indemnity attributable to an agreement vessel; and “(4) the receipts from the investment or reinvestment of amounts held in the fund. “(b) Reductions for Lessees.— For a lessee, the maximum amount that may be deposited for an agreement vessel under subsection (a)(2) for any period shall be reduced by any amount the owner is required or permitted, under the capital construction fund agreement, to deposit for that period for the vessel under subsection (a)(2). “§ 53506.  Investment and fiduciary requirements “(a) In General.— Amounts in a capital construction fund shall be kept in the depository specified in the agreement and shall be subject to trustee and other fiduciary requirements prescribed by the Secretary. Except as provided in subsection (b), amounts in the fund may be invested only in interest-bearing securities approved by the Secretary. “(b) Stock Investments.— “(1) In general.— With the approval of the Secretary, an agreed percentage (but not more than 60 percent) of the assets of the fund may be invested in the stock of domestic corporations that— “(A) is fully listed and registered on an exchange registered with the Securities and Exchange Commission as a national securities exchange; and “(B) would be acquired by a prudent investor seeking a reasonable income and the preservation of capital. “(2) Preferred stock.— The preferred stock of a corporation is deemed to satisfy the requirements of this subsection, even though it may not be registered and listed because it is nonvoting stock, if the common stock of the corporation satisfies the requirements and the preferred stock otherwise would satisfy the requirements. “(c) Maintaining Agreed Percentage.— If at any time the fair market value of the stock in the fund is more than the agreed percentage of the assets in the fund, any subsequent investment of amounts deposited in the fund, and any subsequent withdrawal from the fund, shall be made in a way that tends to restore the fair market value of the stock to not more than the agreed percentage. “§ 53507.  Nontaxation of deposits “(a) Tax Treatment.— Subject to subsection (b), under the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.)— “(1) taxable income (determined without regard to this chapter and section 7518 of such Code (26 U.S.C. 7518)) for the taxable year shall be reduced by the amount deposited for the taxable year out of amounts referred to in section 53505(a)(1) of this title; “(2) a gain from a transaction referred to in section 53505(a)(3) of this title shall not be taken into account if an amount equal to the net proceeds (as defined in joint regulations) from the transaction is deposited in the fund; “(3) the earnings (including gains and losses) from the investment and reinvestment of amounts held in the fund shall not be taken into account; “(4) the earnings and profits of a corporation (within the meaning of section 316 of such Code (26 U.S.C. 316)) shall be determined without regard to this chapter and section 7518 of such Code (26 U.S.C. 7518); and “(5) in applying the tax imposed by section 531 of such Code (26 U.S.C. 531), amounts held in the fund shall not be taken into account. “(b) Condition.— This section applies to an amount only if the amount is deposited in the fund under the agreement within the time provided in joint regulations. “§ 53508.  Separate accounts within a fund “(a) In General.— A capital construction fund shall have three accounts: “(1) The capital account. “(2) The capital gain account. “(3) The ordinary income account. “(b) Capital Account.— The capital account shall consist of— “(1) amounts referred to in section 53505(a)(2) of this title; “(2) amounts referred to in section 53505(a)(3) of this title, except that portion representing a gain not taken into account because of section 53507(a)(2) of this title; “(3) the percentage applicable under section 243(a)(1) of the Internal Revenue Code of 1986 (26 U.S.C. 243(a)(1)) of any dividend received by the fund for which the person maintaining the fund would be allowed (were it not for section 53507(a)(3) of this title) a deduction under section 243 of such Code (26 U.S.C. 243); and “(4) interest income exempt from taxation under section 103 of such Code (26 U.S.C. 103). “(c) Capital Gain Account.— The capital gain account shall consist of— “(1) amounts representing capital gains on assets held for more than 6 months and referred to in section 53505(a)(3) or (4) of this title; minus “(2) amounts representing capital losses on assets held in the fund for more than 6 months. “(d) Ordinary Income Account.— The ordinary income account shall consist of— “(1) amounts referred to in section 53505(a)(1) of this title; “(2) (A) amounts representing capital gains on assets held for not more than 6 months and referred to in section 53505(a)(3) or (4) of this title; minus “(B) amounts representing capital losses on assets held in the fund for not more than 6 months; “(3) interest (except tax-exempt interest referred to in subsection (b)(4)) and other ordinary income (except any dividend referred to in paragraph (5)) received on assets held in the fund; “(4) ordinary income from a transaction described in section 53505(a)(3) of this title; and “(5) that portion of any dividend referred to in subsection (b)(3) not taken into account under subsection (b)(3). “(e) When Losses Allowed.— Except on termination of a fund, capital losses referred to in subsection (c) or (d)(2) shall be allowed only as an offset to gains referred to in subsection (c) or (d)(2), respectively. “§ 53509.  Qualified withdrawals “(a) In General.— Subject to subsection (b), a withdrawal from a capital construction fund is a qualified withdrawal if it is made under the terms of the agreement and is for— “(1) the acquisition, construction, or reconstruction of a qualified vessel or a barge or container that is part of the complement of a qualified vessel; or “(2) the payment of the principal on indebtedness incurred in the acquisition, construction, or reconstruction of a qualified vessel or a barge or container that is part of the complement of a qualified vessel. “(b) Barges and Containers.— Except Regulations. as provided in regulations prescribed by the Secretary, subsection (a) applies to a barge or container only if it is constructed in the United States. “(c) Treatment as Nonqualified Withdrawal.— Under joint regulations, if the Secretary determines that a substantial obligation under an agreement is not being fulfilled, the Secretary, after notice and opportunity for a hearing to the person maintaining the fund, may treat any amount in the fund as an amount withdrawn from the fund in a nonqualified withdrawal. “§ 53510.  Tax treatment of qualified withdrawals and basis of property “(a) Order of Withdrawals.— A qualified withdrawal from a capital construction fund shall be treated as made— “(1) first from the capital account; “(2) second from the capital gain account; and “(3) third from the ordinary income account. “(b) Ordinary Income Account Withdrawals.— If a portion of a qualified withdrawal for a vessel, barge, or container is made from the ordinary income account, the basis of the vessel, barge, or container shall be reduced by an amount equal to that portion. “(c) Capital Gain Account Withdrawals.— If a portion of a qualified withdrawal for a vessel, barge, or container is made from the capital gain account, the basis of the vessel, barge, or container shall be reduced by an amount equal to that portion. “(d) Withdrawals To Pay Principal.— If Regulations. a portion of a qualified withdrawal to pay the principal on indebtedness is made from the ordinary income account or the capital gain account, an amount equal to the total reduction that would be required by subsections (b) and (c) if the withdrawal were a qualified withdrawal for a purpose described in those subsections shall be applied, in the order provided in joint regulations, to reduce the basis of vessels, barges, and containers owned by the person maintaining the fund. The remaining amount of the withdrawal shall be treated as a nonqualified withdrawal. “(e) Gain on Property With Reduced Basis.— If property, the basis of which was reduced under subsection (b), (c), or (d), is disposed of, any gain realized on the disposition, to the extent it does not exceed the total reduction in the basis of the property under those subsections, shall be treated as an amount referred to in section 53511(c)(1) of this title withdrawn on the date of disposition of the property. Subject to conditions prescribed in joint regulations, this subsection does not apply to a disposition if there is a redeposit, in an amount determined under joint regulations, that restores the fund as far as practicable to the position it was in before the withdrawal. “§ 53511.  Tax treatment of nonqualified withdrawals “(a) In General.— Except as provided in section 53513 of this title, a withdrawal from a fund that is not a qualified withdrawal shall be treated as a nonqualified withdrawal. “(b) Order of Withdrawals.— A nonqualified withdrawal shall be treated as made— “(1) first from the ordinary income account; “(2) second from the capital gain account; and “(3) third from the capital account. “(c) Tax Treatment.— For purposes of the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.)— “(1) a nonqualified withdrawal from the ordinary income account shall be included in income as an item of ordinary income for the taxable year in which the withdrawal is made; “(2) a nonqualified withdrawal from the capital gain account shall be included in income for the taxable year in which the withdrawal is made as an item of gain realized during that year from the disposition of an asset held for more than 6 months; and “(3) for the period through the last date prescribed for payment of tax for the taxable year in which the withdrawal is made— “(A) no interest shall be payable under section 6601 of such Code (26 U.S.C. 6601) and no addition to the tax shall be payable under section 6651 of such Code (26 U.S.C. 6651); “(B) interest on the amount of the additional tax attributable to an amount treated as a nonqualified withdrawal from the ordinary income account or the capital gain account shall be paid at the rate determined under subsection (d) from the last date prescribed for payment of the tax for the taxable year for which the amount was deposited in the fund; and “(C) no interest shall be payable on amounts treated as withdrawn on a last-in-first-out basis under section 53512 of this title. “(d) Interest Rate.— The Regulations. rate of interest under subsection (c)(3)(B) for a nonqualified withdrawal made in a taxable year beginning after 1971 shall be determined and published jointly by the Secretary and the Secretary of the Treasury. The rate shall be such that its relationship to 8 percent is comparable, as determined by the Secretaries under joint regulations, to the relationship between— “(1) the money rates and investment yields for the calendar year immediately before the beginning of the taxable year; and “(2) the money rates and investment yields for the calendar year 1970. “(e) Nonqualified Withdrawals.— “(1) In general.— The following applicable percentage of any amount that remains in a capital construction fund at the close of the following specified taxable year following the taxable year for which the amount was deposited shall be treated as a nonqualified withdrawal: “If the amount remains in the fund at  the close of the—The applicable percentage is— “26th taxable year20 percent   “27th taxable year40 percent   “28th taxable year60 percent   “29th taxable year80 percent   “30th taxable year100 percent. “(2) Earnings.— The earnings of a capital construction fund for any taxable year (except net gains) shall be treated under this subsection as an amount deposited for the taxable year. “(3) Contract for qualified withdrawal.— Under paragraph (1), an amount shall not be treated as remaining in a capital construction fund at the close of a taxable year to the extent there is a binding contract at the close of the taxable year for a qualified withdrawal of the amount for an identified item for which the withdrawal may be made. “(4) Excess earnings.— If the Secretary determines that the balance in a capital construction fund exceeds the amount appropriate to meet the vessel construction program objectives of the person that established the fund, the amount of the excess shall be treated as a nonqualified withdrawal under paragraph (1) unless the person develops appropriate program objectives within 3 years to dissipate the excess. “(5) Amounts in fund on january 1, 1987.— Under this subsection, amounts in a capital construction fund on January 1, 1987, shall be treated as having been deposited in that fund on that date. “(f) Tax Determinations.— “(1) In general.— For a taxable year for which there is a nonqualified withdrawal (including an amount treated as a nonqualified withdrawal under subsection (e)), the tax imposed by chapter 1 of the Internal Revenue Code of 1986 (26 U.S.C. ch. 1) shall be determined by— “(A) excluding the withdrawal from gross income; and “(B) increasing the tax imposed by chapter 1 of such Code by the product of the amount of the withdrawal and the highest tax rate specified in section 1 (or section 11 for a corporation) of such Code (26 U.S.C. 1, 11). “(2) Maximum tax rate.— For that portion of a nonqualified withdrawal made from the capital gain account during a taxable year to which section 1(h) or 1201(a) of such Code (26 U.S.C. 1(h), 1201(a)) applies, the tax rate used under paragraph (1)(B) may not exceed 15 percent (or 34 percent for a corporation). “(3) Tax benefit rule.— If any portion of a nonqualified withdrawal is properly attributable to deposits (except earnings on deposits) made by the taxpayer in a taxable year that did not reduce the taxpayer’s liability for tax under chapter 1 of such Code (26 U.S.C. ch. 1) for a taxable year before the taxable year in which the withdrawal occurs— “(A) that portion shall not be taken into account under paragraph (1); and “(B) an amount equal to that portion shall be allowed as a deduction under section 172 of such Code (26 U.S.C. 172) for the taxable year in which the withdrawal occurs. “(4) Coordination with deduction for net operating losses.— A nonqualified withdrawal excluded from gross income under paragraph (1) shall be excluded in determining taxable income under section 172(b)(2) of such Code (26 U.S.C. 172(b)(2)). “§ 53512.  FIFO and LIFO withdrawals “(a) FIFO.— Except as provided in subsection (b), an amount withdrawn from an account under this chapter shall be treated as withdrawn on a first-in-first-out basis. “(b) LIFO.— An amount withdrawn from an account under this chapter shall be treated as withdrawn on a last-in-first-out basis if it is— “(1) a nonqualified withdrawal for research, development, and design expenses incident to new and advanced vessel design, machinery, and equipment; or “(2) an amount treated as a nonqualified withdrawal under section 53510(d) of this title. “§ 53513.  Corporate reorganizations and partnership changes   “Under joint regulations— “(1) a transfer of a capital construction fund from one person to another person in a transaction to which section 381 of the Internal Revenue Code of 1986 (26 U.S.C. 381) applies may be treated as if the transaction is not a nonqualified withdrawal; and “(2) a similar rule shall be applied to a continuation of a partnership (within the meaning of subchapter K of chapter 1 of such Code (26 U.S.C. 701 et seq.)). “§ 53514.  Relationship of old fund to new fund “(a) Definition.— In this section, the term ‘old fund’ means a capital construction fund maintained before October 21, 1970. “(b) Election To Maintain Old Fund.— A person maintaining an old fund may elect to continue the old fund, but may not— “(1) hold amounts in the old fund beyond the expiration date provided in the agreement under which the old fund is maintained (determined without regard to an extension or renewal made after April 14, 1970); or “(2) maintain simultaneously the old fund and a new fund established under this chapter. “(c) Application of New Fund Agreement to Old Fund Amounts.— If a person makes an agreement under this chapter to establish a new fund, the person may agree to extend the agreement to some or all of the amounts in an old fund. Each item in the old fund to be transferred shall be transferred in a nontaxable transaction to the appropriate account in the new fund. For purposes of section 53511(c)(3) of this title, the date of the deposit of an item so transferred shall be July 1, 1971, or the date of the deposit in the old fund, whichever is later. “§ 53515.  Records and reports   “A person maintaining a fund under this chapter shall keep records and make reports as required by the Secretary or the Secretary of the Treasury. “§ 53516.  Termination of agreement after change in regulations   “If, after an agreement has been made under this chapter, a change is made either in the joint regulations or in the regulations prescribed by the Secretary under this chapter that could have a substantial effect on the rights or duties of a person maintaining a fund under this chapter, that person may terminate the agreement. “§ 53517.  Reports “(a) In General.— Within 120 days after the close of each calendar year, the Secretary of Transportation and the Secretary of Commerce each shall provide the Secretary of the Treasury a written report on the capital construction funds under the particular Secretary’s jurisdiction for the calendar year. “(b) Contents.— The report shall state the name and taxpayer identification number of each person— “(1) establishing a capital construction fund during the calendar year; “(2) maintaining a capital construction fund on the last day of the calendar year; “(3) terminating a capital construction fund during the calendar year; “(4) making a deposit to or withdrawal from a capital construction fund during the calendar year, and the amount of the deposit or withdrawal; or “(5) having been determined during the calendar year to have failed to fulfill a substantial obligation under a capital construction fund agreement to which the person is a party. “CHAPTER 537— LOANS AND GUARANTEES “SUBCHAPTER I— GENERAL “Sec. “53701.  Definitions. “53702.  General authority. “53703.  Application procedures. “53704.  Funding limits. “53705.  Pledge of United States Government. “53706.  Eligible purposes of obligations. “53707.  Findings related to obligors and operators. “53708.  Findings related to economic soundness. “53709.  Amount of obligations. “53710.  Contents of obligations. “53711.  Security interest. “53712.  Monitoring financial condition and operations of obligor. “53713.  Administrative fees. “53714.  Guarantee fees. “53715.  Escrow fund. “53716.  Deposit fund. “53717.  Management of funds in the Treasury. “53718.  Annual report to Congress. “SUBCHAPTER II— DEFAULT PROVISIONS “53721.  Rights of obligee. “53722.  Actions by Secretary. “53723.  Payments by Secretary and issuance of obligations. “53724.  Rights to secured property. “53725.  Actions against obligor. “SUBCHAPTER III— PARTICULAR PROJECTS “53731.  Commercial demonstration ocean thermal energy conversion facilities and plantships. “53732.  Eligible export vessels. “53733.  Shipyard modernization and improvement. “53734.  Replacement of vessels because of changes in operating standards. “53735.  Fisheries financing and capacity reduction. “SUBCHAPTER I— GENERAL “§ 53701.  Definitions   “In this chapter: “(1) Actual cost.— The term ‘actual cost’ means the sum of— “(A) all amounts paid by or for the account of the obligor as of the date on which a determination is made under section 53715(d)(1) of this title; and “(B) all amounts that the Secretary reasonably estimates the obligor will become obligated to pay from time to time thereafter, for the construction, reconstruction, or reconditioning of the vessel, including guarantee fees that will become payable under section 53714 of this title in connection with all obligations issued for construction, reconstruction, or reconditioning of the vessel or equipment to be delivered, and all obligations issued for the delivered vessel or equipment. “(2) Construction, reconstruction, and reconditioning.— The terms ‘construction’, ‘reconstruction’, and ‘reconditioning’ include designing, inspecting, outfitting, and equipping. “(3) Depreciated actual cost.— The term ‘depreciated actual cost’ of a vessel means— “(A) if the vessel was not reconstructed or reconditioned, the actual cost of the vessel depreciated on a straight line basis over the useful life of the vessel as determined by the Secretary, not to exceed 25 years from the date of delivery by the builder; or “(B) if the vessel was reconstructed or reconditioned, the sum of— “(i) the actual cost of the vessel depreciated on a straight line basis from the date of delivery by the builder to the date of the reconstruction or reconditioning, using the original useful life of the vessel, and from the date of the reconstruction or reconditioning, using a useful life of the vessel determined by the Secretary; and “(ii) any amount paid or obligated to be paid for the reconstruction or reconditioning, depreciated on a straight line basis using a useful life of the vessel determined by the Secretary. “(4) Eligible export vessel.— The term ‘eligible export vessel’ means a vessel that— “(A) is constructed, reconstructed, or reconditioned in the United States for use in world-wide trade; and “(B) will, on delivery or redelivery, become or remain documented under the laws of a country other than the United States. “(5) Fishery facility.— “(A) In general.— Subject to subparagraph (B), the term ‘fishery facility’ means— “(i) for operations on land— “(I) a structure or appurtenance thereto designed for the unloading and receiving from vessels, the processing, the holding pending processing, the distribution after processing, or the holding pending distribution, of fish from a fishery; “(II) the land necessary for the structure or appurtenance; and “(III) equipment that is for use with the structure or appurtenance and that is necessary for performing a function referred to in subclause (I); “(ii) for operations not on land, a vessel built in the United States and used for, equipped to be used for, or of a type normally used for, the processing of fish; or “(iii) for aquaculture, including operations on land or elsewhere— “(I) a structure or appurtenance thereto designed for aquaculture; “(II) the land necessary for the structure or appurtenance; “(III) equipment that is for use with the structure or appurtenance and that is necessary for performing a function referred to in subclause (I); and “(IV) a vessel built in the United States and used for, equipped to be used for, or of a type normally used for, aquaculture. “(B) Required ownership.— Under subparagraph (A), the structure, appurtenance, land, equipment, or vessel must be owned by— “(i) an individual who is a citizen of the United States; or “(ii) an entity that is a citizen of the United States under section 50501 of this title and that is at least 75 percent owned (as determined under that section) by citizens of the United States. “(6) Fishing vessel.— The term ‘fishing vessel’ has the meaning given that term in section 3 of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1802), and any reference in this chapter to a vessel designed principally for commercial use in the fishing trade or industry is deemed to be a reference to a fishing vessel. “(7) Mortgage.— The term ‘mortgage’ includes— “(A) a preferred mortgage as defined in section 31301 of this title; and “(B) a mortgage on a vessel that will become a preferred mortgage when filed or recorded under chapter 313 of this title. “(8) Obligation.— The term ‘obligation’ means an instrument of indebtedness issued for a purpose described in section 53706 of this title, except— “(A) an obligation issued by the Secretary under section 53723 of this title; and “(B) an obligation eligible for investment of funds under section 53715(f) or 53717 of this title. “(9) Obligee.— The term ‘obligee’ means the holder of an obligation. “(10) Obligor.— The term ‘obligor’ means a party primarily liable for payment of the principal of or interest on an obligation. “(11) Ocean thermal energy conversion facility or plantship.— The term ‘ocean thermal energy conversion facility or plantship’ means an at-sea facility or vessel, whether mobile, floating unmoored, moored, or standing on the seabed, that uses temperature differences in ocean water to produce electricity or another form of energy capable of being used directly to perform work, and includes— “(A) equipment installed on the facility or vessel to use the electricity or other form of energy to produce, process, refine, or manufacture a product; “(B) a cable or pipeline used to deliver the electricity, freshwater, or product to shore; and “(C) other associated equipment and appurtenances of the facility or vessel to the extent they are located seaward of the high water mark. “(12) Secretary.— The term ‘Secretary’ means— “(A) the Secretary of Commerce with respect to fishing vessels and fishery facilities; and “(B) the Secretary of Transportation with respect to other vessels and general shipyard facilities (as defined in section 53733(a) of this title). “(13) Vessel.— The term ‘vessel’ means any type of vessel, whether in existence or under construction, including— “(A) a cargo vessel; “(B) a passenger vessel; “(C) a combination cargo and passenger vessel; “(D) a tanker; “(E) a tug or towboat; “(F) a barge; “(G) a dredge; “(H) a floating drydock with a capacity of at least 35,000 lifting tons and a beam of at least 125 feet between the wing walls; “(I) an oceanographic research vessel; “(J) an instruction vessel; “(K) a pollution treatment, abatement, or control vessel; “(L) a fishing vessel whose ownership meets the citizenship requirements under section 50501 of this title for documenting vessels to operate in the coastwise trade; and “(M) an ocean thermal energy conversion facility or plantship that is or will be documented under the laws of the United States. “§ 53702.  General authority “(a) In General.— The Secretary, on terms the Secretary may prescribe, may guarantee or make a commitment to guarantee the payment of the principal of and interest on an obligation eligible to be guaranteed under this chapter. A guarantee or commitment to guarantee shall cover 100 percent of the principal and interest. “(b) Direct Loans for Fisheries.— “(1) In general.— Notwithstanding any other provision of this chapter, any obligation involving a fishing vessel, fishery facility, aquaculture facility, individual fishing quota, or fishing capacity reduction program issued under this chapter after October 11, 1996, shall be a direct loan obligation for which the Secretary shall be the obligee, rather than an obligation issued to an obligee other than the Secretary and guaranteed by the Secretary. A direct loan obligation under this subsection shall be treated in the same manner and to the same extent as an obligation guaranteed under this chapter except with respect to provisions of this chapter that by their nature can only be applied to obligations guaranteed under this chapter. “(2) Interest rate.— Notwithstanding any other provision of this chapter, the annual rate of interest an obligor shall pay on a direct loan obligation under this subsection is 2 percent plus the additional percent the Secretary must pay as interest to borrow from the Treasury the funds to make the loan. “§ 53703.  Application procedures “(a) Time for Decision.— “(1) In general.— The Secretary shall approve or deny an application for a loan guarantee under this chapter within 270 days after the date on which the signed application is received by the Secretary. “(2) Extension.— On request by an applicant, the Secretary may extend the 270-day period in paragraph (1) to a date not later than 2 years after the date on which the signed application was received by the Secretary. “(b) Certification of Review.— The Secretary may not guarantee or make a commitment to guarantee an obligation under this chapter unless the Secretary certifies that a full and fair consideration of all the regulatory requirements, including economic soundness and financial requirements applicable to the obligor and related parties, and a thorough assessment of the technical, economic, and financial aspects of the loan application, has been made. “§ 53704.  Funding limits “(a) General Limitations.— The total unpaid principal amount of obligations guaranteed under this chapter and outstanding at one time may not exceed $12,000,000,000. Of that amount— “(1) $850,000,000 shall be limited to obligations related to fishing vessels and fishery facilities; and “(2) $3,000,000,000 shall be limited to obligations related to eligible export vessels. “(b) Additional Limitations.— Additional limitations may not be imposed on new commitments to guarantee loans for any fiscal year, except in amounts established in advance by annual authorization laws. A vessel eligible for a guarantee under this chapter may not be denied eligibility because of its type. “(c) Limits Based on Risk Factors.— “(1) Definition.— In this subsection, the term ‘cost’ has the meaning given that term in section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a). “(2) System of risk categories.— The Secretary shall— “(A) establish, and update annually, a system of risk categories for obligations guaranteed under this chapter that categorizes the relative risk of guarantees based on the risk factors set forth in paragraph (4); “(B) determine annually for each risk category a subsidy rate equivalent to the cost of obligations in the category, expressed as a percentage of the amount guaranteed for obligations in the category; and “(C) ensure that each risk category is comprised of loans that are relatively homogeneous in cost and share characteristics predictive of defaults and other costs, given the facts known at the time of obligation or commitment, using a risk category system that is based on historical analysis of program data and statistical evidence concerning the likely costs of defaults or other costs that are expected to be associated with the loans in the category. “(3) Use of system.— “(A) Placing obligation in category.— Before making a guarantee under this chapter for an obligation, and annually for projects subject to a guarantee, the Secretary shall apply the risk factors specified in paragraph (4) to place the obligation in a risk category established under paragraph (2). “(B) Reduction of available amount.— The Secretary shall consider the total amount available to the Secretary for making guarantees under this chapter to be reduced by the amount determined by multiplying— “(i) the amount guaranteed under this chapter for an obligation; by “(ii) the subsidy rate for the category in which the obligation is placed under subparagraph (A). “(C) Estimated cost.— The estimated cost to the United States Government of a guarantee under this chapter for an obligation is deemed to be the amount determined under subparagraph (B) for the obligation. “(D) Restriction on further guarantees.— The Secretary may not guarantee obligations under this chapter after the total amount available to the Secretary under appropriations laws for the cost of loan guarantees is considered to be reduced to zero under subparagraph (B). “(4) Risk factors.— The risk factors referred to in this subsection are— “(A) if applicable, the country risk for each eligible export vessel financed or to be financed by an obligation; “(B) the period for which an obligation is guaranteed or to be guaranteed; “(C) the amount of an obligation guaranteed or to be guaranteed in relation to the total cost of the project financed or to be financed by the obligation; “(D) the financial condition of an obligor or applicant for a guarantee; “(E) if applicable, other guarantees related to the project; “(F) if applicable, the projected employment of each vessel or equipment to be financed with an obligation; “(G) if applicable, the projected market that will be served by each vessel or equipment to be financed with an obligation; “(H) the collateral provided for a guarantee for an obligation; “(I) the management and operating experience of an obligor or applicant for a guarantee; “(J) whether a guarantee under this chapter is or will be in effect during the construction period of the project; and “(K) the concentration risk presented by an unduly large percentage of loans outstanding by any one borrower or group of affiliated borrowers. “§ 53705.  Pledge of United States Government “(a) Full Faith and Credit.— The full faith and credit of the United States Government is pledged to the payment of a guarantee made under this chapter, for both principal and interest, including interest (as may be provided for in the guarantee) accruing between the date of default under a guaranteed obligation and the date of payment in full of the guarantee. “(b) Incontestability.— A guarantee or commitment to guarantee made under this chapter is conclusive evidence of the eligibility of the obligation for the guarantee. The validity of a guarantee or commitment to guarantee made under this chapter is incontestable. “§ 53706.  Eligible purposes of obligations “(a) In General.— To be eligible for a guarantee under this chapter, an obligation must aid in any of the following: “(1) (A) Financing (including reimbursement of an obligor for expenditures previously made for) the construction, reconstruction, or reconditioning of a vessel (including an eligible export vessel) designed principally for research, or for commercial use— “(i) in the coastwise or intercoastal trade; “(ii) on the Great Lakes, or on bays, sounds, rivers, harbors, or inland lakes of the United States; “(iii) in foreign trade as defined in section 109(b) of this title; “(iv) as an ocean thermal energy conversion facility or plantship; “(v) as a floating drydock in the construction, reconstruction, reconditioning, or repair of vessels; or “(vi) as an eligible export vessel in worldwide trade. “(B) A guarantee under subparagraph (A) may not be made more than one year after delivery of the vessel (or redelivery if the vessel was reconstructed or reconditioned) unless the proceeds of the obligation are used to finance the construction, reconstruction, or reconditioning of a vessel or of facilities or equipment related to marine operations. “(2) Financing (including reimbursement of an obligor for expenditures previously made for) the construction, reconstruction, reconditioning, or purchase of a vessel owned by citizens of the United States and designed principally for research, or for commercial use in the fishing industry. “(3) Financing the purchase, reconstruction, or reconditioning of a vessel or fishery facility— “(A) for which an obligation was guaranteed under this chapter; and “(B) that, under subchapter II of this chapter— “(i) is a vessel or fishery facility for which an obligation was accelerated and paid; “(ii) was acquired by the Federal Ship Financing Fund or successor account under section 53717 of this title; or “(iii) was sold at foreclosure begun or intervened in by the Secretary. “(4) Financing any part of the repayment to the United States Government of any amount of a construction-differential subsidy paid for a vessel. “(5) Refinancing an existing obligation (regardless of whether guaranteed under this chapter) issued for a purpose described in paragraphs (1)–(4), including a short-term obligation incurred to obtain temporary funds with the intention of refinancing. “(6) Financing or refinancing (including reimbursement of an obligor for expenditures previously made for) the construction, reconstruction, reconditioning, or purchase of a fishery facility. “(7) Financing or refinancing (including reimbursement of an obligor for expenditures previously made for) the purchase of an individual fishing quota in accordance with section 303(d)(4) of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1853(d)(4)). “(b) Non-Vessels Treated as Vessels.— An obligation guaranteed under subsection (a)(6) or (7) shall be treated, for purposes of this chapter, in the same manner and to the same extent as an obligation that aids in financing the construction, reconstruction, reconditioning, or purchase of a vessel, except with respect to provisions that by their nature can only be applied to vessels. “(c) Priorities for Certain Vessels.— In guaranteeing or making a commitment to guarantee an obligation under this chapter, the Secretary shall give priority to— “(1) a vessel that is otherwise eligible for a guarantee and is constructed with assistance under subtitle D of the Maritime Security Act of 2003 (46 U.S.C. 53101 note); and “(2) after applying paragraph (1), a vessel that is otherwise eligible for a guarantee and that the Secretary of Defense determines— “(A) is suitable for service as a naval auxiliary in time of war or national emergency; and “(B) meets a shortfall in sealift capacity or capability. “§ 53707.  Findings related to obligors and operators “(a) Responsible Obligor.— The Secretary may not guarantee or make a commitment to guarantee an obligation under this chapter unless the Secretary finds that the obligor is responsible and has the ability, experience, financial resources, and other qualifications necessary for the adequate operation and maintenance of each vessel that will serve as security for the guarantee. “(b) Operators of Liner Vessels.— The Secretary of Transportation may not guarantee or make a commitment to guarantee a loan for the construction, reconstruction, or reconditioning of a liner vessel under this chapter unless the Chairman of the Federal Maritime Commission certifies that the operator of the vessel has not been found by the Commission to have committed, within the previous 5 years— “(1) a violation of part A of subtitle IV of this title that involves unjust or unfair discriminatory treatment or undue or unreasonable prejudice or disadvantage with respect to a United States shipper, ocean transportation intermediary, ocean common carrier, or port; or “(2) a violation of part B of subtitle IV of this title. “(c) Operators of Fishing Vessels.— The Secretary of Commerce may not guarantee or make a commitment to guarantee a loan for the construction, reconstruction, or reconditioning of a fishing vessel under this chapter if the operator of the vessel has been— “(1) held liable, or the vessel has been held liable in rem, for a civil penalty under section 308 of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1858) and the operator has not paid the penalty; “(2) found guilty of an offense under section 309 of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1859) and not paid the assessed fine or served the assessed sentence; “(3) held liable for a civil or criminal penalty under section 105 of the Marine Mammal Protection Act of 1972 (16 U.S.C. 1375) and not paid the assessed fine or served the assessed sentence; or “(4) held liable for a civil penalty by the Coast Guard under this title or title 33 and not paid the assessed fine. “(d) Waivers Concerning Financial Condition.— The Secretary shall prescribe regulations concerning circumstances under which waivers of, or exceptions to, otherwise applicable regulatory requirements concerning financial condition can be made. The regulations shall require that— “(1) the economic soundness requirements in section 53708(a) of this title are met after the waiver of the financial condition requirement; and “(2) the waiver shall provide for the imposition of other requirements on the obligor designed to compensate for the increased risk associated with the obligor’s failure to meet regulatory requirements applicable to financial condition. “§ 53708.  Findings related to economic soundness “(a) By Secretary of Transportation.— The Secretary of Transportation may not guarantee or make a commitment to guarantee an obligation under this chapter unless the Secretary finds that the property or project for which the obligation will be executed will be economically sound. In making that finding, the Secretary shall consider— “(1) the need in the particular segment of the maritime industry for new or additional capacity, including any impact on existing equipment for which a guarantee under this chapter is in effect; “(2) the market potential for employment of the vessel over the life of the guarantee; “(3) projected revenues and expenses associated with employment of the vessel; “(4) any charter, contract of affreightment, transportation agreement, or similar agreement or undertaking relevant to the employment of the vessel; “(5) other relevant criteria; and “(6) for inland waterways, the need for technical improvements, including increased fuel efficiency or improved safety. “(b) By Secretary of Commerce.— The Secretary of Commerce may not guarantee or make a commitment to guarantee an obligation under this chapter unless the Secretary finds, at or prior to the time the commitment is made or the guarantee becomes effective, that— “(1) the property or project for which the obligation will be executed will be economically sound; and “(2) for a fishing vessel, the purpose of the financing or refinancing is consistent with— “(A) the wise use of the fisheries resources and the development, advancement, management, conservation, and protection of the fisheries resources; or “(B) the need for technical improvements, including increased fuel efficiency or improved safety. “(c) Used Fishing Vessels and Facilities.— The Secretary of Commerce may not guarantee or make a commitment to guarantee an obligation under this chapter for the purchase of a used fishing vessel or used fishery facility unless the vessel or facility will be— “(1) reconstructed or reconditioned in the United States and will contribute to the development of the United States fishing industry; or “(2) used— “(A) in the harvesting of fish from an underused fishery; or “(B) for a purpose described in the definition of ‘fishery facility’ in section 53701 of this title with respect to an underused fishery. “(d) Independent Analysis.— The Secretary may make a determination that aspects of an application under this chapter require independent analysis to be conducted by third party experts due to risk factors associated with markets, technology, financial structures, or other risk factors identified by the Secretary. Any independent analysis conducted under this subsection shall be performed by a party chosen by the Secretary. “(e) Additional Equity Because of Increased Risks.— Notwithstanding any other provision of this chapter, the Secretary may make a determination that an application under this title requires additional equity because of increased risk factors associated with markets, technology, financial structures, or other risk factors identified by the Secretary. “§ 53709.  Amount of obligations “(a) In General.— The principal of an obligation may not be guaranteed in an amount greater than the amount determined by multiplying the percentage applicable under subsection (b) by— “(1) the amount paid by or for the account of the obligor (as determined by the Secretary, which determination shall be conclusive) for the construction, reconstruction, or reconditioning of the vessel used as security for the guarantee; or “(2) if the obligor creates an escrow fund under section 53715 of this title, the actual cost of the vessel. “(b) Limitations on Amount Borrowed.— “(1) In general.— Except as otherwise provided, the principal amount of an obligation guaranteed under this chapter may not exceed 75 percent of the actual cost or depreciated actual cost, as determined by the Secretary, of the vessel used as security for the guarantee. “(2) Certain approved vessels.— The principal amount may not exceed 87.5 percent of the actual cost or depreciated actual cost if— “(A) the size and speed of the vessel are approved by the Secretary; “(B) the vessel is or would have been eligible for mortgage aid for construction under section 509 of the Merchant Marine Act, 1936, or would have been eligible except that the vessel was built with a construction-differential subsidy and the subsidy has been repaid; and “(C) the vessel is of a type described in that section for which the minimum down payment required by that section is 12.5 percent of the cost of the vessel. “(3) Barges.— For a barge constructed without a construction-differential subsidy or for which the subsidy has been repaid, the principal amount may not exceed 87.5 percent of the actual cost or depreciated actual cost. “(4) Fishing vessels and fishery facilities.— For a fishing vessel or fishery facility, the principal amount may not exceed 80 percent of the actual cost or depreciated actual cost. However, debt for the vessel or facility may not be placed through the Federal Financing Bank. “(5) OTEC.— For an ocean thermal energy conversion facility or plantship constructed without a construction-differential subsidy, the principal amount may not exceed 87.5 percent of the actual cost or depreciated actual cost of the facility or plantship. “(6) Eligible export vessels.— For an eligible export vessel, the principal amount may not exceed 87.5 percent of the actual cost or depreciated actual cost. “(c) Security Involving Multiple Vessels.— The principal amount of an obligation having more than one vessel as security for the guarantee may not exceed the sum of the principal amounts allowable for all the vessels. “(d) Prohibition on Uniform Percentage Limitations.— The Secretary may not establish a percentage under any provision of subsection (b) that is to be applied uniformly to all guarantees or commitments to guarantee made under that provision. “(e) Prohibition on Minimum Principal Amount.— The Secretary may not establish, as a condition of eligibility for a guarantee under this chapter, a minimum principal amount for an obligation covering the reconstruction or reconditioning of a fishing vessel or fishery facility. For purposes of this chapter, the reconstruction or reconditioning of a fishing vessel or fishery facility does not include the routine minor repair or maintenance of the vessel or facility. “§ 53710.  Contents of obligations “(a) In General.— An obligation guaranteed under this chapter must— “(1) provide for payments by the obligor satisfactory to the Secretary; “(2) provide for interest (exclusive of guarantee fees and other fees) at a rate not more than the annual rate on the unpaid principal that the Secretary determines is reasonable, considering the range of interest rates prevailing in the private market for similar loans and the risks assumed by the Secretary; “(3) have a maturity date satisfactory to the Secretary, but— “(A) not more than 25 years after the date of delivery of the vessel used as security for the guarantee; or “(B) if the vessel has been reconstructed or reconditioned, not more than the later of— “(i) 25 years after the date of delivery of the vessel; or “(ii) the remaining years of useful life of the vessel as determined by the Secretary; and “(4) provide, or a related agreement must provide, that if the vessel used as security for the guarantee is a delivered vessel, the vessel shall be— “(A) in class A–1, American Bureau of Shipping, or meet other standards acceptable to the Secretary, with all required certificates, including marine inspection certificates of the Coast Guard or, in the case of an eligible export vessel, of the appropriate foreign authorities under a treaty, convention, or other international agreement to which the United States is a party, and with all outstanding requirements and recommendations necessary for class retention accomplished, unless the Secretary permits a deferment of repairs necessary to meet these requirements; and “(B) well equipped, in good repair, and in every respect seaworthy and fit for service. “(b) Provisions for Certain Passenger Vessels.— “(1) In general.— With the Secretary’s approval, if the vessel used as security for the guarantee is a passenger vessel having the tonnage, speed, passenger accommodations, and other characteristics described in section 503 of the Merchant Marine Act, 1936, an obligation guaranteed under this chapter or a related agreement may provide that— “(A) the only recourse by the United States Government against the obligor for payments under the guarantee will be repossession of the vessel and assignment of insurance claims; and “(B) the obligor’s liability for payments under the guarantee will be satisfied and discharged by the surrender of the vessel and all interest in the vessel to the Government in the condition described in paragraph (2). “(2) Surrender of vessel.— “(A) In general.— On surrender, the vessel must be— “(i) free and clear of all liens and encumbrances except the security interest conveyed to the Secretary under this chapter; “(ii) in class; and “(iii) in as good order and condition (ordinary wear and tear excepted) as when acquired by the obligor. “(B) Covering deficiencies by insurance.— To the extent covered by insurance, a deficiency related to a requirement in subparagraph (A) may be satisfied by assignment of the obligor’s insurance claims to the Government. “(c) Other Provisions To Protect Security Interests.— An obligation guaranteed under this chapter and any related agreement must contain other provisions for the protection of the security interests of the Government (including acceleration, assumption, and subrogation provisions and the issuance of notes by the obligor to the Secretary), liens and releases of liens, payment of taxes, and other matters that the Secretary may prescribe. “§ 53711.  Security interest “(a) In General.— The Secretary may guarantee an obligation under this chapter only if the obligor conveys or agrees to convey to the Secretary a security interest the Secretary considers necessary to protect the interest of the United States Government. “(b) Multiple Vessels and Types of Security.— The security interest may relate to more than one vessel and may consist of more than one type of security. If the security interest relates to more than one vessel, the obligation may have the latest maturity date allowable under section 53710(a)(3) of this title for any of the vessels used as security for the guarantee. However, the Secretary may require such payments of principal prior to maturity, with respect to all related obligations, as the Secretary considers necessary to maintain adequate security for the guarantee. “§ 53712.  Monitoring financial condition and operations of obligor “(a) In General.— The Secretary shall monitor the financial condition and operations of the obligor on a regular basis during the term of the guarantee. The Secretary shall document the results of the monitoring on an annual or quarterly basis depending on the condition of the obligor. If the Secretary determines that the financial condition of the obligor warrants additional protections to the Secretary, the Secretary shall take appropriate action under subsection (b). If the Secretary determines that the financial condition of the obligor jeopardizes its continued ability to perform its responsibilities in connection with the guarantee of an obligation by the Secretary, the Secretary shall make an immediate determination whether default should take place and whether further measures described in subsection (b) should be taken to protect the interests of the Secretary while ensuring that program objectives are met. “(b) Contract Provisions To Protect Secretary.— The Secretary shall include provisions in a loan agreement with an obligor that provides additional authority to the Secretary to take action to limit potential losses in connection with a defaulted loan or a loan that is in jeopardy due to the deteriorating financial condition of the obligor. These provisions include requirements for additional collateral or greater equity contributions that are effective upon the occurrence of verifiable conditions relating to the obligor’s financial condition or the status of the vessel or shipyard project. “§ 53713.  Administrative fees “(a) In General.— The Secretary shall charge and collect from the obligor fees the Secretary considers reasonable for— “(1) investigating an application for a guarantee; “(2) appraising property offered as security for a guarantee; “(3) issuing a commitment; “(4) providing services related to an escrow fund under section 53715 of this title; and “(5) inspecting property during construction, reconstruction, or reconditioning. “(b) Total Fee Limitation.— The total fees under subsection (a) may not exceed 0.5 percent of the original principal amount of the obligations to be guaranteed. “(c) Fees for Independent Analysis.— The Secretary may charge and collect fees to cover the costs of independent analysis under section 53708(d) of this title. Notwithstanding section 3302 of title 31, any fee collected under this subsection shall— “(1) be credited as an offsetting collection to the account that finances the administration of the loan guarantee program; “(2) be available for expenditure only to pay the costs of activities and services for which the fee is imposed; and “(3) remain available until expended. “§ 53714.  Guarantee fees “(a) Regulations.— Subject to this section, the Secretary shall prescribe regulations to assess a fee for guaranteeing an obligation under this chapter. “(b) Computation of Fee.— “(1) In general.— The amount of the fee for a guarantee under this chapter shall be equal to the sum of the amounts determined under paragraph (2) for the years in which the guarantee is in effect. “(2) Present value for each year.— The amount referred to in paragraph (1) for a year in which the guarantee is in effect is the present value of the amount calculated under paragraph (3). To determine the present value, the Secretary shall apply a discount rate determined by the Secretary of the Treasury, considering current market yields on outstanding obligations of the United States Government having periods to maturity comparable to the period to maturity for the guaranteed obligation. “(3) Calculation of amount.— The amount referred to in paragraph (2) shall be calculated by multiplying— “(A) the estimated average unpaid principal amount of the obligation that will be outstanding during the year (excluding the average amount, other than interest, on deposit during the year in an escrow fund under section 53715 of this title); by “(B) the fee rate set under paragraph (4). “(4) Setting fee rates.— To set the fee rate referred to in paragraph (3)(B), the Secretary shall establish a formula that— “(A) takes into account the security provided for the guaranteed obligation; and “(B) is a sliding scale based on the creditworthiness of the obligor, using— “(i) the lowest allowable rate under paragraph (5) for the most creditworthy obligors; and “(ii) the highest allowable rate under paragraph (5) for the least creditworthy obligors. “(5) Permissible range of rates.— The fee rate set under paragraph (4) shall be— “(A) for a delivered vessel or equipment, at least 0.5 percent and not more than 1 percent; and “(B) for a vessel to be constructed, reconstructed, or reconditioned or equipment to be delivered, at least 0.25 percent and not more than 0.5 percent. “(c) When Fee Collected.— A fee for the guarantee of an obligation under this chapter shall be collected not later than the date on which an amount is first paid on the obligation. “(d) Financing the Fee.— A fee paid under this section is eligible to be financed under this chapter and shall be included in the actual cost of the obligation guaranteed. “(e) Not Refundable.— A fee paid under this section is not refundable. However, an obligor shall receive credit for the amount paid for the remaining term of the obligation if the obligation is refinanced and guaranteed under this chapter after the refinancing. “§ 53715.  Escrow fund “(a) In General.— If the proceeds of an obligation guaranteed under this chapter are to be used to finance the construction, reconstruction, or reconditioning of a vessel that will serve as security for a guarantee under this chapter, the Secretary may accept and hold in escrow, under an escrow agreement with the obligor, a portion of the proceeds of all obligations guaranteed under this chapter whose proceeds are to be so used which is equal to— “(1) the excess of— “(A) the principal amount of all obligations whose proceeds are to be so used; over “(B) 75 percent or 87.5 percent, whichever is applicable under section 53709(b) of this title, of the amount paid by or for the account of the obligor for the construction, reconstruction, or reconditioning of the vessel; plus “(2) any interest the Secretary may require on the amount described in paragraph (1). “(b) Security Involving Both Uncompleted and Delivered Vessels.— If the security for the guarantee of an obligation relates both to a vessel to be constructed, reconstructed, or reconditioned and to a delivered vessel, the principal amount of the obligation shall be prorated for purposes of subsection (a) under regulations prescribed by the Secretary. “(c) Disbursement Before Termination of Agreement.— “(1) Purposes.— The Secretary shall disburse amounts in the escrow fund, as specified in the escrow agreement, to— “(A) pay amounts the obligor is obligated to pay for— “(i) the construction, reconstruction, or reconditioning of a vessel used as security for the guarantee; and “(ii) interest on the obligations; “(B) redeem the obligations under a refinancing guaranteed under this chapter; and “(C) pay any excess interest deposits to the obligor at times provided for in the escrow agreement. “(2) Manner of payment.— If a payment becomes due under the guarantee before the termination of the escrow agreement, the amount in the escrow fund at the time the payment becomes due, including realized income not yet paid to the obligor, shall be paid into the appropriate account under section 53717 of this title. The amount shall be credited against amounts due or to become due from the obligor to the Secretary on the guaranteed obligations or, to the extent not so required, be paid to the obligor. “(d) Payments Required Before Disbursement.— “(1) In general.— No disbursement shall be made under subsection (c) to any person until the total amount paid by or for the account of the obligor from sources other than the proceeds of the obligation equals at least 25 percent or 12.5 percent, whichever is applicable under section 53709(b) of this title, of the aggregate actual cost of the vessel, as previously approved by the Secretary. If the aggregate actual cost of the vessel has increased since the Secretary’s initial approval or if it increases after the first disbursement is permitted under this subsection, then no further disbursements shall be made under subsection (c) until the total amount paid by or for the account of the obligor from sources other than the proceeds of the obligation equals at least 25 percent or 12.5 percent, as applicable, of the increase, as determined by the Secretary, in the aggregate actual cost of the vessel. This paragraph does not require the Secretary to consent to finance any increase in actual cost unless the Secretary determines that such an increase in the obligation meets all the terms and conditions of this chapter or other applicable law. “(2) Documented proof of progress requirement.— The Secretary shall, by regulation, establish a transparent, independent, and risk-based process for verifying and documenting the progress of projects under construction before disbursing guaranteed loan funds. At a minimum, the process shall require documented proof of progress in connection with the construction, reconstruction, or reconditioning of a vessel or vessels before disbursements are made from the escrow fund. The Secretary may require that the obligor provide a certificate from an independent party certifying that the requisite progress in construction, reconstruction, or reconditioning has taken place. “(e) Disbursement on Termination of Agreement.— “(1) In general.— If a payment has not become due under the guarantee before the termination of the escrow agreement, the balance of the escrow fund at the time of termination shall be disbursed to— “(A) prepay the excess of— “(i) the principal amount of all obligations whose proceeds are to be used to finance the construction, reconstruction, or reconditioning of the vessel used or to be used as security for the guarantee; over “(ii) 75 percent or 87.5 percent, whichever is applicable under section 53709(b) of this title, of the actual cost of the vessel to the extent paid; and “(B) pay interest on that prepaid amount of principal. “(2) Remaining balance.— Any remaining balance of the escrow fund shall be paid to the obligor. “(f) Investment.— The Secretary may invest and reinvest any part of an escrow fund in obligations of the United States Government with maturities such that the escrow fund will be available as required for purposes of the escrow agreement. Investment income shall be paid to the obligor when received. “(g) Terms To Protect Government.— The escrow agreement shall contain other terms the Secretary considers necessary to protect fully the interests of the Government. “§ 53716.  Deposit fund “(a) In General.— There is a deposit fund in the Treasury for purposes of this section. The Secretary, in accordance with an agreement under subsection (b), may deposit into and hold in the fund cash belonging to an obligor to serve as collateral for a guarantee made under this chapter with respect to the obligor. “(b) Agreement.— The Secretary and an obligor shall make a reserve fund or other collateral account agreement to govern the deposit, withdrawal, retention, use, and reinvestment of cash of the obligor held in the fund. The agreement shall contain— “(1) terms and conditions required by this section; “(2) terms that grant to the United States Government a security interest in all amounts deposited into the fund; and “(3) any additional terms considered by the Secretary to be necessary to protect fully the interests of the Government. “(c) Investment.— The Secretary may invest and reinvest any part of the amounts in the fund in obligations of the Government with maturities such that amounts in the fund will be available as required for purposes of the agreement under subsection (b). Cash balances in the fund in excess of current requirements shall be maintained in a form of uninvested funds, and the Secretary of the Treasury shall pay interest on these funds. “(d) Withdrawals.— “(1) In general.— Cash deposited into the fund may not be withdrawn without the consent of the Secretary. “(2) Use of income.— Subject to paragraph (3), the Secretary may pay any income earned on cash of an obligor deposited into the fund in accordance with the agreement with the obligor under subsection (b). “(3) Retention against default.— The Secretary may retain and offset any or all of the cash of an obligor in the fund, and any income realized thereon, as part of the Secretary’s recovery against the obligor in case of a default by the obligor on an obligation. “§ 53717.  Management of funds in the Treasury “(a) Definition.— In this section, the term ‘FCRA’ means the Federal Credit Reform Act of 1990 (2 U.S.C. 661 et seq.). “(b) Loan Guarantees by Secretary of Transportation.— “(1) When not subject to fcra.— The Secretary of Transportation shall account for payments and disbursements involving obligations guaranteed under this chapter and not subject to FCRA in an account in the Treasury entitled the Federal Ship Financing Fund Liquidating Account (a liquidating account as defined in FCRA). “(2) When subject to fcra.— The Secretary of Transportation shall account for payments and disbursements involving obligations guaranteed under this chapter and subject to FCRA in a separate account in the Treasury entitled the Federal Ship Financing Guaranteed Loan Financing Account (a financing account as defined in FCRA). “(c) Loan Guarantees by Secretary of Commerce.— “(1) When not subject to fcra.— The Secretary of Commerce shall account for payments and disbursements involving obligations guaranteed under this chapter and not subject to FCRA in a separate account in the Treasury established for this purpose. “(2) When subject to fcra.— The Secretary of Commerce shall account for payments and disbursements involving obligations guaranteed under this chapter and subject to FCRA in a separate account in the Treasury established for this purpose. “(d) Direct Loans by Secretary of Commerce.— The Secretary of Commerce shall account for payments and disbursements involving direct loans made under this chapter in a separate account in the Treasury established for this purpose. “§ 53718.  Annual report to Congress   “The Secretary of Transportation shall report to Congress annually on the loan guarantee program under this chapter. Each report shall include— “(1) the size, in dollars, of the portfolio of loans guaranteed; “(2) the size, in dollars, of projects in the portfolio facing financial difficulties; “(3) the number and type of projects covered; “(4) a profile of pending loan applications; “(5) the amount of appropriations available for new guarantees; “(6) a profile of each project approved since the last report; and “(7) a profile of any defaults since the last report. “SUBCHAPTER II— DEFAULT PROVISIONS “§ 53721.  Rights of obligee “(a) Demands by Obligees.— Except as provided in subsection (c), if an obligor has continued in default for 30 days in the payment of principal or interest on an obligation guaranteed under this chapter, the obligee or the obligee’s agent may demand that the Secretary pay the unpaid principal amount of the obligation and the unpaid interest on the obligation to the date of payment. The demand must be made within the earlier of— “(1) a period that may be specified in the guarantee or a related agreement; or “(2) 90 days from the date of the default. “(b) Payments by Secretary.— “(1) In general.— If a demand is made under subsection (a), the Secretary shall pay to the obligee or the obligee’s agent the unpaid principal amount of the obligation and the unpaid interest on the obligation to the date of payment. Payment shall be made within the earlier of— “(A) a period that may be specified in the guarantee or a related agreement; or “(B) 30 days from the date of the demand. “(2) If no existing default.— The Secretary is not required to make payment under this subsection if, within the appropriate period under paragraph (1), the Secretary finds that the obligor was not in default or that the default was remedied before the demand. “(c) Assumption of Rights and Obligations Before Demand.— An obligee or the obligee’s agent may not demand payment under this section if the Secretary, before the demand and on terms that may be provided in the obligation or a related agreement, has assumed the obligor’s rights and duties under the obligation and any related agreement and made any payment in default. However, the guarantee of the obligation remains in effect after the Secretary’s assumption. “§ 53722.  Actions by Secretary “(a) General Authority.— On default under an obligation or related agreement between the Secretary and the obligor, the Secretary, on terms that may be provided in the obligation or agreement, may— “(1) assume the obligor’s rights and duties under the obligation or agreement, make any payment in default, and notify the obligee or the obligee’s agent of the default and the Secretary’s assumption; or “(2) notify the obligee or the obligee’s agent of the default. “(b) Demands by Obligees.— “(1) Demand.— If the Secretary proceeds under subsection (a)(2), the obligee or the obligee’s agent may demand that the Secretary pay the unpaid principal amount of the obligation and the unpaid interest on the obligation. The demand must be made within the earlier of— “(A) a period that may be specified in the guarantee or a related agreement; or “(B) 60 days from the date of the Secretary’s notice. “(2) Payment.— If a demand is made under paragraph (1), the Secretary shall pay to the obligee or the obligee’s agent the unpaid principal amount of the obligation and the unpaid interest on the obligation to the date of payment. Payment shall be made within the earlier of— “(A) a period that may be specified in the guarantee or a related agreement; or “(B) 30 days from the date of the demand. “(c) Continued Effect of Guarantee.— A guarantee of an obligation remains in effect after an assumption of the obligation by the Secretary. “(d) Additional Responses.— If there is a default on an obligation, the Secretary shall conduct operations under this chapter in a manner that— “(1) maximizes the net present value return from the sale or disposition of assets associated with the obligation, including prompt referral to the Attorney General for collection as appropriate; “(2) minimizes the amount of any loss realized in the resolution of the guarantee; “(3) ensures adequate competition and fair and consistent treatment of offerors; and “(4) requires appraisal of assets by an independent appraiser. “§ 53723.  Payments by Secretary and issuance of obligations “(a) Cash Payment.— Amounts required to be paid by the Secretary under section 53721 or 53722 of this title shall be paid in cash. “(b) Issuance of Obligations.— If amounts in the appropriate account under section 53717 of this title are not sufficient to make a payment required under section 53721 or 53722 of this title, the Secretary may issue obligations to the Secretary of the Treasury. The Secretary, with the approval of the Secretary of the Treasury, shall prescribe the form, denomination, maturity, and other terms (except the interest rate) of the obligations. The Secretary of the Treasury shall set the interest rate for the obligations, considering the current average market yield on outstanding marketable obligations of the United States Government of comparable maturities during the month before the obligations are issued. “(c) Purchase of Obligations.— The Secretary of the Treasury shall purchase the obligations issued under this section. To purchase the obligations, the Secretary of the Treasury may use as a public debt transaction the proceeds from the sale of securities issued under chapter 31 of title 31. The purposes for which securities may be issued under that chapter are extended to include the purchase of obligations under this subsection. The Secretary of the Treasury may sell obligations purchased under this section. A redemption, purchase, or sale of the obligations by the Secretary of the Treasury is a public debt transaction of the Government. “(d) Deposits and Redemptions.— The Secretary shall deposit amounts borrowed under this section in the appropriate account under section 53717 of this title and make redemptions of the obligations from that account. “§ 53724.  Rights to secured property “(a) Acquisition of Security Rights.— When the Secretary makes a payment on, or assumes, an obligation under section 53721 or 53722 of this title, the Secretary acquires the rights under the security agreement with the obligor in the security held by the Secretary to guarantee the obligation. “(b) Use and Disposition of Secured Property.— Notwithstanding any other law relating to the acquisition, handling, or disposal of property by the United States Government, the Secretary has the right, in the Secretary’s discretion, to complete, reconstruct, recondition, renovate, repair, maintain, operate, charter, or sell any property acquired under a security agreement with an obligor, or to place a vessel so acquired in the National Defense Reserve Fleet. The terms of a sale under this subsection shall be as approved by the Secretary. “§ 53725.  Actions against obligor “(a) In General.— For a default under a guaranteed obligation or related agreement, the Secretary may take any action against the obligor or another liable party that the Secretary considers necessary to protect the interests of the United States Government. A civil action may be brought in the name of the United States or the obligee. The obligee shall make available to the Government all records and evidence necessary to prosecute the action. “(b) Title, Possession, and Purchase.— “(1) In general.— The Secretary may— “(A) accept a conveyance of title to and possession of property from the obligor or another party liable to the Secretary; and “(B) purchase the property for an amount not greater than the unpaid principal amount of the obligation and interest thereon. “(2) Payment of excess.— If, through the sale of property, the Secretary receives an amount of cash greater than the unpaid principal amount of the obligation, the unpaid interest on the obligation, and the expenses of collecting those amounts, the Secretary shall pay the excess to the obligor. “SUBCHAPTER III— PARTICULAR PROJECTS “§ 53731.  Commercial demonstration ocean thermal energy conversion facilities and plantships “(a) In General.— Under subchapter I of this chapter, the Secretary may guarantee or make a commitment to guarantee the payment of the principal of and interest on an obligation that aids in financing (including reimbursement of an obligor for expenditures previously made for) the construction, reconstruction, or reconditioning of a commercial demonstration ocean thermal energy conversion facility or plantship. This section may be used to guarantee obligations for a total of not more than 5 separate facilities and plantships or a demonstrated 400 megawatt capacity, whichever comes first. “(b) Applicability of Other Provisions.— Except as otherwise provided in this section, a guarantee or commitment to guarantee under this section is subject to all the provisions applicable to a guarantee or commitment to guarantee under subchapter I of this chapter. “(c) Economic Soundness.— The required determination of economic soundness under section 53708 of this title applies to a guarantee or commitment to guarantee for that portion of a facility or plantship not to be supported with appropriated Federal funds. “(d) Reasonableness of Risk.— A guarantee or commitment to guarantee may not be made under this section unless the Secretary of Energy, in consultation with the Secretary, certifies to the Secretary that, for the facility or plantship for which the guarantee or commitment to guarantee is sought, there is sufficient guarantee of performance and payment to lower the risk to the United States Government to a reasonable level. In deciding whether to issue such a certification, the Secretary of Energy shall consider— “(1) the successful demonstration of the technology to be used in the facility at a scale sufficient to establish the likelihood of technical and economic viability in the proposed market; and “(2) the need of the United States to develop new and renewable sources of energy and the benefits to be realized from the construction and successful operation of the facility or plantship. “(e) Amount of Obligation.— The total principal amount of an obligation guaranteed under this section may not exceed 87.5 percent of— “(1) the actual cost or depreciated actual cost of the facility or plantship; or “(2) if the facility or plantship is supported with appropriated Federal funds, the total principal amount of that portion of the actual cost or depreciated actual cost for which the obligor is obligated to secure financing under the agreement between the obligor and the Department of Energy or other Federal agency. “(f) OTEC Demonstration Fund.— “(1) In general.— There is a special subaccount, known as the OTEC Demonstration Fund, in the account established under section 53717(b)(1) of this title. “(2) Use and operation.— The OTEC Demonstration Fund shall be used for obligation guarantees authorized under this section that do not qualify under subchapter I of this chapter. Except as otherwise provided in this section, the OTEC Demonstration Fund shall be operated in the same manner as the parent account. However— “(A) amounts received by the Secretary under subchapter I of this chapter related to guarantees or commitments to guarantee made under this section shall be deposited only in the OTEC Demonstration Fund; and “(B) when obligations issued by the Secretary under section 53723 of this title related to the OTEC Demonstration Fund are outstanding, any amount received by the Secretary under subchapter I of this chapter related to ocean thermal energy conversion facilities or plantships shall be deposited in the OTEC Demonstration Fund. “(3) Transfers.— Assets in the OTEC Demonstration Fund may be transferred to the parent account when and to the extent the balance in the OTEC Demonstration Fund exceeds the total guarantees or commitments to guarantee made under this section then outstanding, plus obligations issued by the Secretary under section 53723 of this title related to the OTEC Demonstration Fund. “(4) Liability.— The parent account is not liable for a guarantee or commitment to guarantee made under this section. “(5) Maximum unpaid principal amount.— The total unpaid principal amount of the obligations guaranteed with the backing of the OTEC Demonstration Fund and outstanding at any one time may not exceed $1,650,000,000. “(g) Issuance and Payment of Obligations.— Section 53723 of this title applies to the OTEC Demonstration Fund. However, obligations issued by the Secretary under that section related to the OTEC Demonstration Fund shall be payable only from proceeds realized by the OTEC Demonstration Fund. “(h) Taxation of Interest.— Interest on an obligation guaranteed under this section shall be included in gross income under chapter 1 of the Internal Revenue Code of 1986 (26 U.S.C. ch. 1). “§ 53732.  Eligible export vessels “(a) Applicable Terms.— The Secretary may guarantee an obligation for an eligible export vessel in accordance with— “(1) the terms applicable under this chapter for vessels documented under the laws of the United States; or “(2) other terms the Secretary determines are more favorable than those terms and compatible with export credit terms offered by foreign governments for the sale of vessels built in foreign shipyards. “(b) Interagency Council.— “(1) Establishment.— There is an interagency council to carry out this section. “(2) Composition.— The council is composed of the following individuals or their designees: “(A) The Secretary of Transportation, who is the chairman of the council. “(B) The Secretary of the Treasury. “(C) The Secretary of State. “(D) The Assistant to the President for Economic Policy. “(E) The United States Trade Representative. “(F) The President and Chairman of the Export-Import Bank of the United States. “(3) Functions.— The council shall— “(A) obtain information on shipbuilding loan guarantees, direct and indirect subsidies, and other favorable treatment of shipyards provided by foreign governments to shipyards in competition with United States shipyards; “(B) consult regularly with United States shipbuilders to obtain the essential information about international shipbuilding competition on which to set terms for loan guarantees under subsection (a)(2); and “(C) provide guidance to the Secretary in establishing terms for loan guarantees under subsection (a)(2). “(4) Annual report.— Not later than January 31 of each year, the Secretary shall submit to Congress a report on activities of the Secretary under this section during the preceding year. The report shall include— “(A) documentation of sources of information about assistance by governments of other countries to shipyards in those countries; and “(B) a summary of recommendations made to the Secretary during the preceding year about applications submitted to the Secretary during that year for loan guarantees to construct eligible export vessels. “(c) Required Findings.— “(1) Benefit to shipbuilding industry.— The Secretary may not guarantee or make a commitment to guarantee an obligation for an eligible export vessel unless the Secretary finds that the construction, reconstruction, or reconditioning of the vessel will aid in the transition of United States shipyards to commercial activities or will preserve shipbuilding assets that would be essential in time of war or national emergency. “(2) Priority of documented vessels.— The Secretary may not make a commitment to guarantee an obligation for an eligible export vessel unless the Secretary determines that making the commitment will not result in denial of an economically sound application for a commitment to guarantee an obligation for a vessel documented under the laws of the United States and operating in the domestic or foreign commerce of the United States. The Secretary has sole discretion in making the determination. In making the determination, the Secretary shall consider— “(A) the status and economic soundness of pending applications for commitments to guarantee obligations for vessels documented under the laws of the United States that are operating or will be operating in the domestic or foreign commerce of the United States; and “(B) the amount of guarantee authority available. “(d) Restriction on Transfer of Vessel.— The Secretary may not guarantee or make a commitment to guarantee an obligation for an eligible export vessel unless the owner of the vessel agrees with the Secretary that the vessel will not be transferred to a country designated by the Secretary of Defense as a country whose interests are hostile to the interests of the United States. “(e) Review by Secretary of Defense.— “(1) Notification.— The Secretary shall promptly notify the Secretary of Defense of the receipt of an application for a loan guarantee for an eligible export vessel. “(2) Disapproval.— The Secretary of Defense, within 30 days after receiving the notice, may disapprove the guarantee based on an assessment of the potential use of the vessel in a manner that may harm the national security interests of the United States. The Secretary may not disapprove a guarantee solely because of the type of vessel to be constructed. “(3) Delegation.— The authority of the Secretary of Defense to disapprove a guarantee under this subsection may be delegated only to a civilian officer of the Department of Defense appointed by the President by and with the advice and consent of the Senate. “(4) Prohibition.— The Secretary may not make a loan guarantee disapproved by the Secretary of Defense under this subsection. “(f) Expiration of Authority.— The Secretary may not issue a commitment to guarantee an obligation for an eligible export vessel under this chapter after the last date on which such a commitment may be issued under any treaty or convention entered into after November 30, 1993, that prohibits guarantee of such an obligation. “§ 53733.  Shipyard modernization and improvement “(a) Definitions.— In this section: “(1) Advanced shipbuilding technology.— The term ‘advanced shipbuilding technology’ includes— “(A) numerically controlled machine tools, robots, automated process control equipment, computerized flexible manufacturing systems, associated computer software, and other technology for improving shipbuilding and related industrial production that advance the state-of-the-art; and “(B) novel techniques and processes designed to improve shipbuilding quality, productivity, and practice, and to promote sustainable development, including engineering design, quality assurance, concurrent engineering, continuous process production technology, energy efficiency, waste minimization, design for recyclability or parts reuse, inventory management, upgraded worker skills, and communications with customers and suppliers. “(2) General shipyard facility.— The term ‘general shipyard facility’ means— “(A) for operations on land— “(i) a structure or appurtenance thereto designed for the construction, reconstruction, repair, rehabilitation, or refurbishment of a vessel, including a graving dock, building way, ship lift, wharf, or pier crane; “(ii) the land necessary for the structure or appurtenance; and “(iii) equipment that is for use with the structure or appurtenance and that is necessary for performing a function referred to in clause (i); and “(B) for operations not on land, a vessel, floating drydock, or barge built in the United States and used for, equipped to be used for, or of a type normally used for, performing a function referred to in subparagraph (A)(i). “(3) Modern shipbuilding technology.— The term ‘modern shipbuilding technology’ means the best available proven technology, techniques, and processes appropriate to enhancing the productivity of shipyards. “(b) General Authority.— Under subchapter I of this chapter, the Secretary may guarantee or make a commitment to guarantee the payment of the principal of and interest on an obligation for advanced shipbuilding technology and modern shipbuilding technology of a general shipyard facility in the United States. Only a private shipyard is eligible to receive a guarantee. “(c) Applicability of Other Provisions.— Except as otherwise provided in this section, a guarantee or commitment to guarantee under this section is subject to all the provisions applicable to a guarantee or commitment to guarantee under subchapter I of this chapter. “(d) Amount of Obligation.— The principal amount of an obligation guaranteed under this chapter may not exceed 87.5 percent of the actual cost of the advanced shipbuilding technology or modern shipbuilding technology. “(e) Transfer of Amounts.— The Secretary may accept the transfer of amounts from a department, agency, or instrumentality of the United States Government and may use those amounts to cover the cost (as defined in section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) of making guarantees or commitments to guarantee under this section. “§ 53734.  Replacement of vessels because of changes in operating standards “(a) General Authority.— Notwithstanding any other provision of this chapter, the Secretary, on terms the Secretary may prescribe, may guarantee or make a commitment to guarantee the payment of the principal of and interest on an obligation that aids in financing or refinancing (including reimbursement of an obligor for expenditures previously made for) a contract for the construction or reconstruction of a vessel if— “(1) the vessel is designed and to be used for commercial use in coastwise, intercoastal, or foreign trade; “(2) the construction or reconstruction is necessary to replace a vessel that cannot continue to be operated because of a change required by law in the standards for the operation of vessels, and the applicant for the guarantee or commitment would not otherwise legally be able to continue operating vessels in the trades in which the applicant operated vessels before the change; “(3) the applicant is presently engaged in transporting cargoes in vessels of the type and class that will be constructed or reconstructed under this section and agrees to employ vessels constructed or reconstructed under this section as replacements only for vessels made obsolete by the change in operating standards; “(4) the capacity of the vessels to be constructed or reconstructed under this section will not increase the cargo carrying capacity of the vessels being replaced; “(5) the Secretary has not determined that the market demand for the vessel over its useful life will diminish so as to make granting the guarantee fiduciarily imprudent; “(6) the vessel, if to be reconstructed, will have a useful life of at least 15 years after the reconstruction; and “(7) the Secretary has considered the criteria specified in section 53708(a)(3)–(5) of this title. “(b) Term and Amount of Obligation.— “(1) Term.— The term of an obligation guaranteed under this section may not exceed 25 years. “(2) Amount.— The amount of an obligation guaranteed under this section may not exceed 87.5 percent of the actual cost or depreciated actual cost to the applicant for the construction or reconstruction of the vessel. The Secretary may not establish a percentage under this paragraph that is to be applied uniformly to all guarantees or commitments to guarantee made under this section. “(c) Applicability of Other Provisions.— A guarantee or commitment to guarantee under this section is also subject to sections 53701, 53702(a), 53704, 53705, 53707(a), 53708(d) and (e), 53709(a), 53710(a)(1), (2), and (4) and (c), 53711(a), 53713, 53714, 53717, and 53721–53725 of this title. “(d) Security Against Default.— The Regulations. Secretary shall require by regulation that an applicant under this section provide adequate security against default. “(e) Guarantee Fees.— The Secretary may establish a fee for the guarantee of an obligation under this section that is in addition to the fee established under section 53714 of this title. The fee may be— “(1) an annual fee of not more than an additional 1 percent added to the fee established under section 53714 of this title; or “(2) a fee based on the amount of the obligation versus the percentage of the obligor’s fleet being replaced by vessels constructed or reconstructed under this section. “§ 53735.  Fisheries financing and capacity reduction “(a) Definition.— In this section, the term ‘program’ means a fishing capacity reduction program established under section 312 of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1861a). “(b) Guarantee Authority.— The Secretary may guarantee the repayment of debt obligations issued by entities under this section. Debt obligations to be guaranteed may be issued by any entity that has been approved by the Secretary and has agreed with the Secretary to conditions the Secretary considers necessary for this section to achieve the objective of the program and to protect the interest of the United States. “(c) Requirements of Obligations.— A debt obligation guaranteed under this section shall— “(1) be treated in the same manner and to the same extent as other obligations guaranteed under this chapter, except with respect to provisions of this chapter that by their nature cannot be applied to obligations guaranteed under this section; “(2) have the fishing fees established under the program paid into a separate subaccount of the fishing capacity reduction fund established under this section; “(3) not exceed $100,000,000 in an unpaid principal amount outstanding at any one time for a program; “(4) have such maturity (not to exceed 20 years), take such form, and contain such conditions as the Secretary determines necessary for the program to which they relate; “(5) have as the exclusive source of repayment (subject to the second sentence of subsection (d)(2)) and as the exclusive payment security, the fishing fees established under the program; and “(6) at the discretion of the Secretary be issued in the public market or sold to the Federal Financing Bank. “(d) Fishing Capacity Reduction Fund.— “(1) In general.— There is a separate account in the Treasury, known as the Fishing Capacity Reduction Fund. Within the Fund, at least one subaccount shall be established for each program into which shall be paid all fishing fees established under the program and other amounts authorized for the program. “(2) Availability of amounts.— Amounts in the Fund shall be available, without appropriation or fiscal year limitation, to the Secretary to pay the cost of the program, including payments to financial institutions to pay debt obligations incurred by entities under this section. Funds available for this purpose from other amounts available for the program may also be used to pay those debt obligations. “(3) Investment.— Amounts in the Fund that are not currently needed for the purpose of this section shall be kept on deposit or invested in obligations of the United States Government. “(e) Regulations.— The Secretary shall prescribe regulations the Secretary considers necessary to carry out this section. “CHAPTER 539— WAR RISK INSURANCE “Sec. “53901.  Definitions. “53902.  Authority to provide insurance. “53903.  Insurable interests. “53904.  Liability insurance for persons involved in war or defense efforts. “53905.  Agency insurance. “53906.  Hull insurance valuation. “53907.  Reinsurance. “53908.  Additional insurance privately obtained. “53909.  War risk insurance revolving fund. “53910.  Administrative. “53911.  Civil actions for losses. “53912.  Expiration date. “§ 53901.  Definitions   “In this chapter: “(1) American vessel.— The term ‘American vessel’ includes— “(A) a documented vessel with a registry or coastwise endorsement under chapter 121 of this title; “(B) an undocumented vessel owned or chartered by or made available to the United States Government; and “(C) a tug, barge, or other watercraft (whether or not documented) owned by a citizen of the United States and used in essential water transportation or in the fisheries, except only for sport fishing. “(2) Cargo.— The term ‘cargo’ includes a loaded or empty container on a vessel. “(3) Transportation in the waterborne commerce of the united states.— The term ‘transportation in the waterborne commerce of the United States’ includes the operation of a vessel in the fisheries, except only for sport fishing. “(4) War risks.— The term ‘war risks’ includes, to the extent the Secretary of Transportation determines— “(A) any part of a loss excluded from marine insurance coverage under a ‘free of capture or seizure’ clause or analogous clause; and “(B) any other loss from a hostile act, including confiscation, expropriation, nationalization, or deprivation. “§ 53902.  Authority to provide insurance “(a) In General.— With the approval of the President, and after such consultation with interested agencies of United States Government as the President may require, the Secretary of Transportation may provide insurance and reinsurance against loss or damage from war risks as provided by this chapter whenever it appears to the Secretary that insurance adequate for the needs of the waterborne commerce of the United States cannot be obtained on reasonable terms and conditions from companies authorized to do insurance business in a State of the United States. “(b) Consideration of Risk.— Insurance or reinsurance under this chapter shall be based, insofar as practicable, on consideration of the risk involved. “(c) Availability of Vessel During War or National Emergency.— Insurance or reinsurance for a vessel may be provided under this chapter only on the condition that the vessel will be available to the Government in time of war or national emergency. “§ 53903.  Insurable interests “(a) In General.— The Secretary of Transportation may provide insurance and reinsurance under this chapter for— “(1) an American vessel, including a vessel under construction; “(2) a foreign vessel— “(A) owned by a citizen of the United States; or “(B) engaged in transportation in the waterborne commerce of the United States or in such other transportation by water or such other services as the Secretary considers to be in the interest of the national defense or national economy of the United States, when so engaged; “(3) cargo— “(A) shipped or to be shipped on a vessel insurable under this section, including by express or registered mail; “(B) owned by a citizen or resident of the United States; “(C) imported to or exported from the United States, or sold or purchased by a citizen or resident of the United States, under a contract of sale or purchase the terms of which provide that the risk of loss by war risks or the obligation to provide insurance against war risks is on a citizen or resident of the United States; or “(D) shipped between ports in the United States; “(4) disbursements, including advances to masters and general average disbursements, and freight and passage money of a vessel insurable under this section; “(5) personal effects of an individual on a vessel insurable under this section; “(6) loss of life, injury, or detention by an enemy of the United States after capture, with respect to an individual on a vessel insurable under this section; and “(7) statutory or contractual obligations or other liabilities of a vessel insurable under this section or of the owner or charterer of such a vessel, of a nature customarily covered by insurance. “(b) Considerations for Foreign Vessels.— In determining whether to provide insurance or reinsurance for a foreign vessel, the Secretary shall consider the characteristics, employment, and general management of the vessel by the owner or charterer. “(c) Non-War Risks.— Insurance of a risk under subsection (a)(5)–(7), insofar as it involves a liability related to an individual on the vessel, may include risks other than war risks to the extent the Secretary considers advisable. “§ 53904.  Liability insurance for persons involved in war or defense efforts “(a) In General.— The Secretary of Transportation may provide insurance under this chapter against legal liability that a person may incur in providing services or facilities for a vessel if, in the opinion of the Secretary, the insurance— “(1) is required in prosecuting a war or for national defense; and “(2) cannot be obtained at reasonable rates or on reasonable terms and conditions from approved companies authorized to do insurance business in a State of the United States. “(b) Limitations.— Employer liability insurance and worker compensation insurance against legal liability to employees may not be provided under this section. “§ 53905.  Agency insurance “(a) In General.— With the approval of the President, an agency of the United States Government may obtain insurance provided for by this chapter from the Secretary of Transportation, except as provided in sections 17302 and 17303 of title 40. “(b) Premium Waivers.— With the approval of the President, the Secretary of Transportation may provide insurance under this chapter at the request of the Secretary of Defense and other agencies the President may prescribe, without payment of an insurance premium if the Secretary of Defense or agency agrees to indemnify the Secretary of Transportation against loss covered by the insurance. The Secretary of Defense and agencies may make such an indemnity agreement. “(c) Presidential Approval.— The signature of the President (or an official designated by the President) on the agreement shall be treated as the approval required by section 53902(a) of this title. “§ 53906.  Hull insurance valuation “(a) Stated Valuation.— The valuation in a hull insurance policy for actual or constructive total loss of the insured vessel shall be a stated valuation determined by the Secretary of Transportation. The stated valuation— “(1) shall exclude national defense features paid for by the United States Government; and “(2) may not exceed the amount that would be payable if the ownership of the vessel had been requisitioned under chapter 563 of this title at the time the insurance attached under the policy. “(b) Rejecting Stated Valuation.— Within 60 days after the insurance attaches under a policy referred to in subsection (a) or within 60 days after the Secretary determines the valuation, whichever is later, the insured may reject the valuation and pay, at the rate provided in the policy, premiums based on the asserted valuation the insured specifies at the time of rejection. However, the asserted valuation is not binding on the Government in any subsequent action on the policy. “(c) Amount of Claim.— If a vessel is actually or constructively totally lost and the insured under a policy referred to in subsection (a) has not rejected the stated valuation determined by the Secretary, the amount of a claim adjusted, compromised, settled, adjudged, or paid may not exceed the stated valuation. However, if the insured has rejected the valuation, the insured— “(1) shall be paid, as a tentative advance only, 75 percent of the stated valuation; and “(2) may bring a civil action against the United States in a court having jurisdiction of the claim to recover a valuation equal to the just compensation the court determines would have been payable if the ownership of the vessel had been requisitioned under chapter 563 of this title at the time the insurance attached under the policy. “(d) Adjusting Premiums.— If a court makes a determination as provided under subsection (c)(2), premiums paid under the policy shall be adjusted based on the court’s determination and the rates provided for in the policy. “§ 53907.  Reinsurance “(a) In General.— To the extent the Secretary of Transportation is authorized to provide insurance under this chapter, the Secretary may provide reinsurance to a company authorized to do insurance business in a State of the United States. The Secretary may obtain reinsurance from such a company for any insurance provided by the Secretary under this chapter. “(b) Rates.— The Secretary may not provide reinsurance at rates less than, nor obtain reinsurance at rates more than, the rates established by the Secretary on the same or similar risks or the rates charged by the insurance company for the insurance reinsured, whichever is more advantageous to the Secretary. However, the Secretary may provide an allowance to the insurance company for the costs of services and facilities the company provides, in an amount the Secretary considers reasonable according to good business practice. The allowance to the company may not include any amount for soliciting or stimulating insurance business. “§ 53908.  Additional insurance privately obtained   “With the approval of the Secretary of Transportation, a person having an insurable interest in a vessel may obtain insurance on the vessel with other underwriting agents in addition to the insurance with the Secretary. The Secretary is not entitled to the benefit of the additional insurance. “§ 53909.  War risk insurance revolving fund “(a) In General.— There is a war risk insurance revolving fund in the Treasury. “(b) Deposits.— There shall be deposited in the fund amounts appropriated to carry out this chapter and amounts received in carrying out this chapter. “(c) Payments.— There shall be paid from the fund amounts for return premiums, losses, settlements, judgments, and all liabilities incurred by the United States Government under this chapter. “(d) Investment.— The Secretary of Transportation may request the Secretary of the Treasury to invest such portion of the fund as is not, in the judgment of the Secretary of Transportation, required to meet the current needs of the fund. These investments shall be made by the Secretary of the Treasury in public debt securities of the Government, with maturities suitable to the needs of the fund, and bearing interest rates determined by the Secretary of the Treasury, taking into consideration current market yields on outstanding marketable obligations of the Government of comparable maturity. Interest and benefits from the securities shall be deposited in the fund. “§ 53910.  Administrative “(a) Accordance With Commercial Practice.— In carrying out this chapter, the Secretary of Transportation may act in accordance with commercial practice in the marine insurance business. “(b) Regulations.— The Secretary may prescribe regulations the Secretary considers appropriate to carry out this chapter. “(c) Policies, Rates, and Annual Fees.— The Secretary may prescribe and change forms and policies, and fix and change the amounts insured and rates of premium, under this chapter. “(d) Annual Fees.— The Secretary may charge and collect an annual fee in an amount calculated to cover the expenses of processing applications for insurance, employing underwriting agents, and appointing experts under this chapter. “(e) Payment of Claims and Judgments.— The Secretary may settle and pay claims, and pay judgments against the United States, related to insurance under this chapter. “(f) Underwriting Agents.— “(1) In general.— The Secretary may, and when the Secretary finds it practical to do so shall, employ a domestic company or group of domestic companies, authorized to do marine insurance business in a State of the United States, to act as underwriting agent for the Secretary. The services of an underwriting agent may be used in adjusting claims, but a claim may not be paid until approved by the Secretary. “(2) Compensation.— The Secretary may allow the company or group of companies reasonable compensation for services as the underwriting agent. The compensation may include an allowance for expenses reasonably incurred by the agent, but may not include any amount for soliciting or stimulating business. “(g) Fees For Arranging Insurance.— Except as provided in subsection (f)(2), the Secretary may not pay an insurance broker or other person acting in a similar intermediary capacity a fee or other consideration for participating in arranging insurance when the Secretary directly insures any of the risk. “(h) Employment of Marine Insurance Experts.— The Secretary, without regard to the laws and regulations on the employment of Federal employees, may appoint and prescribe the duties of experts in marine insurance as the Secretary considers necessary to carry out this chapter. “(i) Services of Other Government Agencies.— With the consent of another agency of the United States Government, the Secretary may use information, services, facilities, officers, and employees of the agency in carrying out this chapter. “(j) Vessel Location Reporting.— The Secretary may prescribe by regulation vessel location reporting requirements for a vessel insured under this chapter. “§ 53911.  Civil actions for losses “(a) In General.— If there is a disagreement about a loss insured under this chapter, a civil action in admiralty may be brought against the United States in the district court of the United States for the district in which the plaintiff or the plaintiff’s agent resides. If the plaintiff has no residence in the United States, the action may be brought in the United States District Court for the District of Columbia or in the district court for any district in which the Attorney General agrees to accept service. Any person who may have an interest in the insurance may be made a party, either initially or on the motion of either party. “(b) Exclusive Remedy.— A civil action against the United States under this section is exclusive of any other action by reason of the same subject matter against an officer, employee, or agent employed or retained by the Government under this chapter. “(c) Procedure.— A civil action under this section shall be heard and determined under chapter 309 of this title. “(d) Tolling of Limitations Period.— If a claim is filed with the Secretary of Transportation, the running of the limitations period for bringing a civil action is suspended until the Secretary denies the claim, and for 60 days thereafter. The Secretary is deemed to have denied the claim if the Secretary does not act on the claim within 6 months after the claim is filed, unless the Secretary for good cause shown agrees with the claimant on a different period for the Secretary to act on the claim. “(e) Interpleader.— If the Secretary acknowledges the indebtedness of the Government under the insurance and there is a dispute about the persons entitled to receive payment, the Government may bring a civil action interpleading those persons. The action shall be brought in the United States District Court for the District of Columbia or in the district court for the district in which any of those persons resides. A person not residing or found in the district may be made a party by service in any reasonable manner the court directs. If the court is satisfied that unknown persons might make a claim under the insurance, the court may direct service on those unknown persons by publication in the Federal Register. Judgment after service by publication in the Federal Register discharges the Government from further liability to all persons. “§ 53912.  Expiration date   “The authority of the Secretary of Transportation to provide insurance and reinsurance under this chapter expires on December 31, 2010. “Part D— Promotional Programs “CHAPTER 551— COASTWISE TRADE “Sec. “55101.  Application of coastwise laws. “55102.  Transportation of merchandise. “55103.  Transportation of passengers. “55104.  Transportation of passengers between Puerto Rico and other ports in the United States. “55105.  Transportation of hazardous waste. “55106.  Merchandise transferred between barges. “55107.  Empty cargo containers and barges. “55108.  Platform jackets. “55109.  Dredging. “55110.  Transportation of dredged material. “55111.  Towing. “55112.  Vessel escort operations and towing assistance. “55113.  Use of foreign documented oil spill response vessels. “55114.  Unloading fish from foreign vessels. “55115.  Supplies on fish processing vessels. “55116.  Canadian rail lines. “55117.  Great Lakes rail route. “55118.  Foreign railroads whose road enters by ferry, tugboat, or towboat. “55119.  Yukon River. “55120.  Transshipment of imported merchandise intended for immediate exportation. “55121.  Transportation of merchandise and passengers on Canadian vessels. “§ 55101.  Application of coastwise laws “(a) In General.— Except as provided in subsection (b), the coastwise laws apply to the United States, including the island territories and possessions of the United States. “(b) Exceptions.— The coastwise laws do not apply to— “(1) American Samoa; “(2) the Northern Mariana Islands, except as provided in section 502(b) of the Covenant To Establish a Commonwealth of the Northern Mariana Islands in Political Union With the United States of America (48 U.S.C. 1801 note); “(3) Canton Island until the President declares by proclamation that the coastwise laws apply to Canton Island; or “(4) the Virgin Islands until the President declares by proclamation that the coastwise laws apply to the Virgin Islands. “§ 55102.  Transportation of merchandise “(a) Definition.— In this section, the term ‘merchandise’ includes— “(1) merchandise owned by the United States Government, a State, or a subdivision of a State; and “(2) valueless material. “(b) Requirements.— Except as otherwise provided in this chapter or chapter 121 of this title, a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel— “(1) is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and “(2) has been issued a certificate of documentation with a coastwise endorsement under chapter 121 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement. “(c) Penalty.— Merchandise transported in violation of subsection (b) is liable to seizure by and forfeiture to the Government. Alternatively, an amount equal to the value of the merchandise (as determined by the Secretary of Homeland Security) or the actual cost of the transportation, whichever is greater, may be recovered from any person transporting the merchandise or causing the merchandise to be transported. “§ 55103.  Transportation of passengers “(a) In General.— Except as otherwise provided in this chapter or chapter 121 of this title, a vessel may not transport passengers between ports or places in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel— “(1) is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and “(2) has been issued a certificate of documentation with a coastwise endorsement under chapter 121 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement. “(b) Penalty.— The penalty for violating subsection (a) is $300 for each passenger transported and landed. “§ 55104.  Transportation of passengers between Puerto Rico and other ports in the United States “(a) Definitions.— In this section: “(1) Certificate.— The term ‘certificate’ means a certificate of financial responsibility for indemnification of passengers for nonperformance of transportation issued by the Federal Maritime Commission under section 44102 of this title. “(2) Passenger vessel.— The term ‘passenger vessel’ means a vessel of similar size, or offering similar service, as any other vessel transporting passengers under subsection (b). “(b) Exemption.— Except as otherwise provided in this section, a vessel not qualified to engage in the coastwise trade may transport passengers between a port in Puerto Rico and another port in the United States. “(c) Expiration of Exemption.— “(1) When coastwise-qualified vessel offering service.— On a showing to the Secretary of the department in which the Coast Guard is operating, by the vessel owner or charterer, that a United States passenger vessel qualified to engage in the coastwise trade is offering or advertising passenger service between a port in Puerto Rico and another port in the United States pursuant to a certificate, the Secretary shall notify the owner or operator of each vessel transporting passengers under subsection (b) Deadline. to terminate that transportation within 270 days after the Secretary’s notification. Except as provided in subsection (d), the authority to transport passengers under subsection (b) expires at the end of that 270-day period. “(2) When non-coastwise-qualified vessel offering service.— On Notification. a showing to the Secretary, by the vessel owner or charterer, that a United States passenger vessel not qualified to engage in the coastwise trade is offering or advertising passenger service between a port in Puerto Rico and another port in the United States pursuant to a certificate, the Secretary shall notify the owner or operator of each foreign vessel transporting passengers under subsection (b) to terminate that transportation within 270 days after the Secretary’s notification. Except as provided in subsection (d), the authority of a foreign vessel to transport passengers under subsection (b) expires at the end of that 270-day period. “(d) Delaying Expiration.— If the vessel offering or advertising the service described in subsection (c) has not begun that service within 270 days after the Secretary’s notification, the expiration provided by subsection (c) is delayed until 90 days after the vessel offering or advertising the service begins that service. “(e) Reinstatement of Exemption.— If the Secretary finds that the service on which an expiration was based is no longer available, the expired authority to transport passengers is reinstated. “§ 55105.  Transportation of hazardous waste “(a) In General.— The transportation of hazardous waste, as defined in section 1004(5) of the Resource Conservation and Recovery Act of 1976 (42 U.S.C. 6903(5)), from a point in the United States to sea for incineration is deemed to be transportation of merchandise under section 55102 of this title. “(b) Nonapplication to Certain Foreign Vessels.— “(1) In general.— Subsection (a) does not apply to transportation performed by a foreign ocean incineration vessel owned by or under construction on May 1, 1982, for a corporation wholly owned by citizens of the United States under section 50501(a)–(c) of this title. “(2) Standards for incineration equipment.— Incineration equipment on a vessel described in paragraph (1) must meet standards of the Coast Guard and the Environmental Protection Agency. “(3) Inspection.— A vessel described in paragraph (1) shall be inspected by the Coast Guard, regardless of whether inspected by the nation in which it is registered. The inspection shall be the same as would be required of a vessel of the United States, including drydock inspection and internal examination of tanks and void spaces. The inspection may be made concurrently with an inspection by that nation or within one year after the initial issuance or next scheduled issuance of the Safety of Life at Sea Safety Construction Certificate. In making the inspection, the Coast Guard shall refer to the condition of the hull and superstructure established by the initial foreign certification as the basis for evaluating the current condition of the hull and superstructure. The Coast Guard shall allow the substitution of fittings, material, apparatus, equipment, and appliances different from those required for vessels of the United States if satisfied they are equivalent and at least as effective as those required for vessels of the United States. A satisfactory inspection under this paragraph shall be certified in writing by the Secretary of the department in which the Coast Guard is operating. “(c) Effective Date.— Subsection (a) is not effective until an appropriate vessel has been built and documented under chapter 121 of this title. “§ 55106.  Merchandise transferred between barges “(a) In General.— On terms and conditions the Secretary of Homeland Security may prescribe by regulation, the Secretary may suspend the application of section 55102 of this title to the transportation of merchandise that is transferred, when moving in the foreign trade of the United States, from a barge certified by the owner or operator as designed specifically for carriage on a vessel and carried regularly on a vessel in foreign trade, to another such barge owned or leased by the same owner or operator. However, this subsection does not apply to transportation between the continental United States and noncontiguous States, territories, or possessions to which the coastwise laws apply. “(b) Reciprocity Requirement for Foreign Vessels.— This section applies to a vessel of foreign registry only if the Secretary of Homeland Security finds, based on information from the Secretary of State, that the government of the nation of registry extends reciprocal privileges to vessels of the United States. “§ 55107.  Empty cargo containers and barges “(a) In General.— Subject to subsections (b) and (c), and on terms and conditions the Secretary of Homeland Security may prescribe by regulation, section 55102 of this title does not apply to the transportation of— “(1) empty cargo vans, empty lift vans, or empty shipping tanks; “(2) equipment for use with cargo vans, lift vans, or shipping tanks; “(3) empty barges specifically designed for carriage aboard a vessel and equipment (except propulsion equipment) for use with those barges; “(4) empty instruments for international traffic exempted from the customs laws under section 322(a) of the Tariff Act of 1930 (19 U.S.C. 1322(a)); or “(5) stevedoring equipment and material. “(b) Conditions.— “(1) Paragraphs (1)–(4).— Paragraphs (1)–(4) of subsection (a) apply only if the items named are owned or leased by the owner or operator of the vessel and transported for its use in handling its cargo in foreign trade. “(2) Paragraph (5).— Paragraph (5) of subsection (a) applies only if the items named are— “(A) owned or leased by the owner or operator of the vessel or by the stevedoring company having the contract for the loading or unloading of the vessel; and “(B) transported without charge for use in the handling of cargo in foreign trade. “(c) Reciprocity Requirement for Foreign Vessels.— This section applies to a vessel of foreign registry only if the Secretary of Homeland Security finds, based on information from the Secretary of State, that the government of the nation of registry extends reciprocal privileges to vessels of the United States. “§ 55108.  Platform jackets “(a) Definitions.— In this section: “(1) Coastwise qualified vessel.— The term ‘coastwise qualified vessel’ means a vessel that has been issued a certificate of documentation with a coastwise endorsement under chapter 121 of this title. “(2) Platform jacket.— The term ‘platform jacket’ refers to a single physical component and includes any type of offshore exploration, development, or production structure or component thereof, including— “(A) platform jackets; “(B) tension leg or SPAR platform superstructures (including the deck, drilling rig and support utilities, and supporting structure); “(C) hull (including vertical legs and connecting pontoons or vertical cylinder); “(D) tower and base sections of a platform jacket; “(E) jacket structures; and “(F) deck modules (known as ‘topsides’). “(b) Authorized Transportation.— Section 55102 of this title does not apply to the transportation of a platform jacket in or on a non-coastwise qualified launch barge between two points in the United States, at one of which there is an installation or other device within the meaning of section 4(a) of the Outer Continental Shelf Lands Act (43 U.S.C. 1333(a)), if— “(1) the launch barge was built before December 31, 2000, and has a launch capacity of at least 12,000 long tons; and “(2) the Secretary of Transportation makes a determination, in accordance with procedures established under subsection (c), that a suitable coastwise qualified vessel is not available for use in the transportation and, if needed, launch or installation of a platform jacket. “(c) Procedures To Maximize Use of Coastwise Qualified Vessels.— The Secretary of Transportation shall adopt procedures implementing this section that are reasonably designed to provide timely information so as to maximize the use of coastwise qualified vessels. The procedures shall, among other things, establish that for purposes of this section, a coastwise qualified vessel shall be deemed to be not available only if— “(1) Notification. Federal Register, publication. on application by an owner or operator for the use of a non-coastwise qualified launch barge for transportation of a platform jacket under this section (which application shall include all relevant information, including engineering details and timing requirements), the Secretary promptly publishes a notice in the Federal Register— “(A) describing the project and the platform jacket involved; “(B) advising that all relevant information reasonably needed to assess the transportation requirements for the platform jacket will be made available to interested parties on request; and “(C) Deadline. requesting that information on the availability of coastwise qualified vessels be submitted within 30 days after publication of that notice; and “(2) (A) Deadline. no information is submitted to the Secretary within that 30 day period; or “(B) the owner or operator of a coastwise qualified vessel submits information to the Secretary asserting that the owner or operator has a suitable coastwise qualified vessel available for the transportation, but the Secretary determines, within 90 days after the notice is first published, that the coastwise qualified vessel is not suitable or reasonably available for the transportation. “§ 55109.  Dredging “(a) In General.— Except as provided in subsection (b), a vessel may engage in dredging in the navigable waters of the United States only if— “(1) the vessel is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; “(2) the charterer, if any, is a citizen of the United States for purposes of engaging in the coastwise trade; and “(3) the vessel has been issued a certificate of documentation with a coastwise endorsement under chapter 121 of this title or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement. “(b) Dredging of Gold in Alaska.— A documented vessel with a registry endorsement may engage in the dredging of gold in Alaska. “(c) Penalty.— If a vessel is operated in knowing violation of this section, the vessel and its equipment are liable to seizure by and forfeiture to the United States Government. “§ 55110.  Transportation of dredged material   “Section 55102 of this title applies to the transportation of valueless material or dredged material, regardless of whether it has commercial value, from a point in the United States or on the high seas within the exclusive economic zone, to another point in the United States or on the high seas within the exclusive economic zone. “§ 55111.  Towing “(a) In General.— Except when towing a vessel in distress, a vessel may not do any part of any towing described in subsection (b) unless the towing vessel— “(1) is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and “(2) has been issued a certificate of documentation with a coastwise endorsement under chapter 121 of this title or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement. “(b) Applicable Towing.— Subsection (a) applies to the towing of— “(1) a vessel between ports or places in the United States to which the coastwise laws apply, either directly or via a foreign port or place; “(2) a vessel from point to point within the harbors of ports or places to which the coastwise laws apply; or “(3) a vessel transporting valueless material or dredged material, regardless of whether it has commercial value, from a point in the United States or on the high seas within the exclusive economic zone, to another point in the United States or on the high seas within the exclusive economic zone. “(c) Penalties.— “(1) Owner and master.— The owner and master of a vessel towing another vessel in violation of this section are each liable for a penalty of at least $350 but not more than $1,100. A penalty under this paragraph constitutes a lien on the vessel. The lien is enforceable in a district court of the United States for any district in which the vessel is found. Clearance may not be granted to the vessel until the penalties have been paid. “(2) Vessel.— In addition to the penalties under paragraph (1), the towing vessel is liable for a penalty of $60 per ton based on the tonnage of each towed vessel. “§ 55112.  Vessel escort operations and towing assistance “(a) In General.— Except in the case of a vessel in distress, only a vessel of the United States may perform the following escort vessel operations within the navigable waters of the United States: “(1) Operations that commence or terminate at a port or place in the United States. “(2) Operations required by United States law or regulation. “(3) Operations provided in whole or in part within or through navigation facilities owned, maintained, or operated by the United States Government or the approaches to those facilities, other than facilities operated by the St. Lawrence Seaway Development Corporation on the St. Lawrence River portion of the Seaway. “(b) Escort Vessels.— For purposes of this section, an escort vessel is— “(1) any vessel that is assigned and dedicated to assist another vessel, whether or not tethered to that vessel, solely as a safety precaution to assist in controlling the speed or course of the assisted vessel in the event of a steering or propulsion equipment failure, or any other similar emergency circumstance, or in restricted waters where additional assistance in maneuvering the vessel is required to ensure its safe operation; and “(2) in the case of a vessel being towed under section 55111 of this title, any vessel that is assigned and dedicated to the vessel being towed in addition to any towing vessel required under that section. “(c) Relationship to Other Law.— This section does not affect section 55111 of this title. “(d) Penalty.— A person violating this section is liable to the Government for a civil penalty of not more than $10,000 for each day during which the violation occurs. “§ 55113.  Use of foreign documented oil spill response vessels   “Notwithstanding any other provision of law, an oil spill response vessel documented under the laws of a foreign country may operate in waters of the United States on an emergency and temporary basis, for the purpose of recovering, transporting, and unloading in a United States port oil discharged as a result of an oil spill in or near those waters, if— “(1) an adequate number and type of oil spill response vessels documented under the laws of the United States cannot be engaged to recover oil from an oil spill in or near those waters in a timely manner, as determined by the Federal On-Scene Coordinator for a discharge or threat of a discharge of oil; and “(2) the foreign country has by its laws accorded to vessels of the United States the same privileges accorded to vessels of the foreign country under this section. “§ 55114.  Unloading fish from foreign vessels “(a) Prohibitions.— Except as otherwise provided by this section or a treaty or convention to which the United States is a party, a foreign vessel may not unload, in a port of the United States— “(1) its catch of fish taken on board on the high seas or fish products processed from that catch of fish; or “(2) fish or fish products taken on board that vessel on the high seas from a vessel engaged in fishing operations or the processing of fish or fish products. “(b) Regulations on Obtaining Information.— The Secretary of Commerce may prescribe regulations the Secretary considers necessary to obtain information on the transportation of fish products by vessels of the United States for foreign fish processing vessels to points in the United States. “(c) Virgin Islands.— “(1) In general.— A foreign vessel of not more than 50 feet overall in length may unload its catch of fresh fish (whole or with the heads, viscera, or fins removed, but not frozen, otherwise processed, or further advanced) in a port of the Virgin Islands for immediate consumption in those islands. Fish unloaded under this paragraph may be sold or transferred only for immediate consumption. In the absence of satisfactory evidence that a sale or transfer to an agent, representative, or employee of a freezer or cannery is for immediate consumption, the sale or transfer is deemed not to be for immediate consumption. This paragraph does not prohibit the freezing, smoking, or other processing of fresh fish by the ultimate consumer of the fish. “(2) Seizure, forfeiture, and penalty.— Fish unloaded in the Virgin Islands that are retained, sold, or transferred, except as allowed by paragraph (1), are liable to seizure by and forfeiture to the United States Government. A person retaining, selling, transferring, buying, or receiving the fish is liable to the Government for a civil penalty of not more than $1,000 for each violation. A penalty or forfeiture under this paragraph may be compromised, modified, or remitted under section 2107(b) of this title. “(d) Northern Mariana Islands.— Subsection (a) does not apply to the Northern Mariana Islands. “§ 55115.  Supplies on fish processing vessels   “Section 55102 of this title does not apply to supplies aboard a United States documented fish processing vessel that are necessary and used for processing or assembling fishery products aboard such a vessel. “§ 55116.  Canadian rail lines   “Section 55102 of this title does not apply to the transportation of merchandise between points in the continental United States, including Alaska, over through routes in part over Canadian rail lines and connecting water facilities if the routes are recognized by the Surface Transportation Board and rate tariffs for the routes have been filed with the Board. “§ 55117.  Great Lakes rail route   “Section 55102 of this title does not apply to the transportation of merchandise loaded on a railroad car or to a motor vehicle with or without a trailer, and with its passengers or contents when accompanied by the operator, when the railroad car or motor vehicle is transported in a railroad car ferry operated between fixed terminals on the Great Lakes as part of a rail route, if— “(1) the car ferry is owned by a common carrier by water and operated as part of a rail route with the approval of the Surface Transportation Board; “(2) the stock of the common carrier by water, or its predecessor, was owned or controlled by a common carrier by rail prior to June 5, 1920; “(3) the stock of the common carrier owning the car ferry is, with the approval of the Board, now owned or controlled by a common carrier by rail; and “(4) the car ferry is built in and documented under the laws of the United States. “§ 55118.  Foreign railroads whose road enters by ferry, tugboat, or towboat   “A foreign railroad, whose road enters the United States by ferry, tugboat, or towboat, may own and operate a vessel not having a coastwise endorsement in connection with the water transportation of the passenger, freight, express, baggage, and mail cars used by that road, together with the passengers, freight, express matter, baggage, and mails transported in those cars. However, the foreign railroad is subject to the same restrictions imposed by law on a vessel of the United States entering a port of the United States from the same foreign country. Except as otherwise authorized by this chapter, the ferry, tugboat, or towboat may not, under penalty of forfeiture, be used in the transportation of merchandise between ports or places in the United States to which the coastwise laws apply. “§ 55119.  Yukon River   “Section 55102 of this title does not apply to the transportation of merchandise on the Yukon River until the Alaska Railroad is completed and the Secretary of Transportation finds that proper facilities will be available for transportation by citizens of the United States to properly handle the traffic. “§ 55120.  Transshipment of imported merchandise intended for immediate exportation   “The Secretary of Homeland Security may prescribe regulations for the transshipment and transportation of merchandise that is imported into the United States by sea for immediate exportation to a foreign port by sea, or by a river, the right to ascend or descend which for the purposes of commerce is secured by treaty to the citizens of the United States and the subjects of a foreign power. “§ 55121.  Transportation of merchandise and passengers on Canadian vessels “(a) Between Rochester and Alexandria Bay.— Until passenger service is established by vessels of the United States between the port of Rochester, New York, and the port of Alexandria Bay, New York, the Secretary of Homeland Security may issue annually permits to Canadian passenger vessels to transport passengers between those ports. Canadian vessels holding such a permit are not subject to section 55103 of this title. “(b) Within Alaska or Between Alaska and Other Points in the United States.— Until the Secretary of Transportation determines that service by vessels of the United States is available to provide the transportation described in paragraph (1) or (2), sections 55102 and 55103 of this title do not apply to the transportation on Canadian vessels of— “(1) passengers between ports in southeastern Alaska; or “(2) passengers or merchandise between Hyder, Alaska, and other points in southeastern Alaska or in the United States outside Alaska. “CHAPTER 553— PASSENGER AND CARGO PREFERENCES “SUBCHAPTER I— GENERAL “Sec. “55301.  Priority loading for coal. “55302.  Transportation of United States Government personnel. “55303.  Motor vehicles owned by United States Government personnel. “55304.  Exports financed by the United States Government. “55305.  Cargoes procured, furnished, or financed by the United States Government. “SUBCHAPTER II— EXPORT TRANSPORTATION OF AGRICULTURAL COMMODITIES “55311.  Findings and purposes. “55312.  Determining prevailing world market price. “55313.  Exemption of certain agricultural exports from cargo preference provisions. “55314.  Transportation requirements for certain exports sponsored by the Secretary of Agriculture. “55315.  Minimum tonnage. “55316.  Financing the transportation of agricultural commodities. “55317.  Termination of subchapter. “55318.  Effect on other law. “SUBCHAPTER III— AMERICAN GREAT LAKES VESSELS “55331.  Definitions. “55332.  Designating American Great Lakes vessels. “55333.  Exemption from restriction on transporting certain cargo. “55334.  Restrictions on operations. “55335.  Revocations and terminations of designations. “55336.  Civil penalty. “SUBCHAPTER I— GENERAL “§ 55301.  Priority loading for coal   “A vessel engaged in the coastwise transportation of coal produced in the United States, from a port in the United States to another port in the United States, shall be given priority in loading at any of those ports ahead of a waiting vessel engaged in the export transportation of coal produced in the United States. However, if the Secretary of Transportation finds that it is in the national interest, the Secretary may eliminate this priority loading at any port. The Secretary shall Reports. report to Congress within 30 days an action eliminating priority loading under this section. “§ 55302.  Transportation of United States Government personnel “(a) In General.— An officer or employee of the United States Government traveling by sea on official business overseas or to or from a territory or possession of the United States shall travel and transport personal effects on a vessel documented under the laws of the United Sates if such a vessel is available, unless the necessity of the mission requires the use of a foreign vessel. “(b) Regulations.— The Administrator of General Services shall prescribe regulations under which agencies may not pay for or reimburse an officer or employee for travel or transportation expenses incurred on a foreign vessel in the absence of satisfactory proof of the necessity of using the vessel. “§ 55303.  Motor vehicles owned by United States Government personnel   “Notwithstanding any other law, privately-owned American shipping services may be used to transport motor vehicles owned by personnel of the United States Government whenever transportation of those vehicles at Government expense is otherwise authorized by law. “§ 55304.  Exports financed by the United States Government   “It is the sense of Congress that any loans made by an instrumentality of the United States Government to foster the exporting of agricultural or other products shall provide that the products may be transported only on vessels of the United States unless, as to any or all of those products, the Secretary of Transportation, after investigation, certifies to the instrumentality that vessels of the United States are not available in sufficient number, in sufficient tonnage capacity, on necessary schedules, or at reasonable rates. “§ 55305.  Cargoes procured, furnished, or financed by the United States Government “(a) Definition.— In this section, the term ‘privately-owned commercial vessel of the United States’ does not include a vessel that, after September 21, 1961, was built or rebuilt outside the United States or documented under the laws of a foreign country, until the vessel has been documented under the laws of the United States for at least 3 years. “(b) Minimum Tonnage.— When the United States Government procures, contracts for, or otherwise obtains for its own account, or furnishes to or for the account of a foreign country without provision for reimbursement, any equipment, materials, or commodities, within or without the United States, or advances funds or credits, or guarantees the convertibility of foreign currencies in connection with the furnishing of the equipment, materials, or commodities, the appropriate agencies shall take steps necessary and practicable to ensure that at least 50 percent of the gross tonnage of the equipment, materials, or commodities (computed separately for dry bulk carriers, dry cargo liners, and tankers) which may be transported on ocean vessels is transported on privately-owned commercial vessels of the United States, to the extent those vessels are available at fair and reasonable rates for commercial vessels of the United States, in a manner that will ensure a fair and reasonable participation of commercial vessels of the United States in those cargoes by geographic areas. “(c) Waivers.— The President, the Secretary of Defense, or Congress (by concurrent resolution or otherwise) may waive this section temporarily by— “(1) declaring the existence of an emergency justifying a waiver; and “(2) notifying the appropriate agencies of the waiver. “(d) Programs of Other Agencies.— An Regulations. agency having responsibility under this section shall administer its programs with respect to this section under regulations prescribed by the Secretary of Transportation. Reports. The Secretary shall review the administration of those programs and report annually to Congress on their administration. “SUBCHAPTER II— EXPORT TRANSPORTATION OF AGRICULTURAL COMMODITIES “§ 55311.  Findings and purposes “(a) Findings.— Congress finds that— “(1) a productive and healthy agricultural industry and a strong and active United States maritime industry are vitally important to the economic well-being and security of the United States; “(2) both industries must compete in international markets increasingly dominated by foreign trade barriers and the subsidization practices of foreign governments; and “(3) increased agricultural exports and the use of merchant vessels of the United States contribute positively to the United States balance of trade and generate employment opportunities in the United States. “(b) Purposes.— The purposes of this subchapter are to— “(1) enable the Secretary of Agriculture to plan export programs effectively, by clarifying the ocean transportation requirements applicable to those programs; “(2) take immediate and positive steps to promote the growth of the cargo-carrying capacity of the United States merchant marine; “(3) expand international trade in United States agricultural commodities and products and develop, maintain, and expand markets for United States agricultural exports; “(4) improve the efficiency of administration of both the commodity purchasing and selling activities and the ocean transportation activities associated with export programs sponsored by the Secretary; “(5) stimulate and promote the agricultural and maritime industries of the United States and encourage cooperative efforts by both industries to address their common problems; and “(6) provide for the appropriate disposition of these findings and purposes. “§ 55312.  Determining prevailing world market price “(a) Agricultural Commodities and Products.— The prevailing world market price for agricultural commodities or their products shall be determined under this subchapter under procedures prescribed by the Secretary of Agriculture. Regulations. Notification. Public comment. The Secretary shall prescribe the procedures by regulation, with notice and opportunity for public comment under section 553 of title 5. “(b) Services and Non-Agricultural Commodities and Products.— If a determination of the prevailing world market price of any other type of materials, goods, equipment, or service is required to determine whether a barter or exchange transaction is subject to section 55314(b)(6) or (7) of this title, the determination shall be made by the Secretary of Agriculture in consultation with the heads of other appropriate agencies. “§ 55313.  Exemption of certain agricultural exports from cargo preference provisions   “Sections 55304 and 55305 of this title do not apply to export activities of the Secretary of Agriculture or the Commodity Credit Corporation under which— “(1) agricultural commodities or their products acquired by the Corporation are made available to United States exporters, users, processors, or foreign purchasers for the purpose of developing, maintaining, or expanding export markets for United States agricultural commodities or their products at prevailing world market prices; “(2) payments are made available to United States exporters, users, or processors or, except as provided in section 55314 of this title, cash grants are made available to foreign purchasers, for the purpose described in paragraph (1); “(3) commercial credit guarantees are blended with direct credits from the Corporation to reduce the effective rate of interest on export sales of United States agricultural commodities or their products; “(4) credit or credit guarantees for not more than 3 years are extended by the Corporation to finance or guarantee export sales of United States agricultural commodities or their products; or “(5) agricultural commodities or their products owned or controlled by or under loan from the Corporation are exchanged or bartered for materials, goods, equipment, or services at least equal in value to the agricultural commodities or their products for which they are exchanged or bartered (determined on the basis of prevailing world market prices at the time of the exchange or barter), but this paragraph does not exempt from the cargo preference provisions referred to in section 55314(b) of this title any requirement otherwise applicable to the materials, goods, equipment, or services imported under the transaction. “§ 55314.  Transportation requirements for certain exports sponsored by the Secretary of Agriculture “(a) Minimum Tonnage.— “(1) In general.— In addition to the requirement under section 55305 of this title for the transportation of a percentage of gross tonnage on commercial vessels of the United States, 25 percent of the gross tonnage of agricultural commodities or their products specified in subsection (b) shall be transported each calendar year on commercial vessels of the United States that— “(A) are necessary for national security; and “(B) if more than 25 years old, were rebuilt within the last 5 years and certified by the Secretary of Transportation as having a useful life of at least 5 years after that rebuilding. “(2) Calendar year.— To provide for effective and equitable administration of the cargo preference laws, the calendar year for the purpose of compliance with minimum percentage requirements is the 12-month period beginning October 1 of each year. “(b) Applicable Export Activity.— This section applies to export activity (except inspection or weighing activities, other activities carried out for health or safety, or technical assistance provided in the handling of commercial transactions) of the Secretary of Agriculture or the Commodity Credit Corporation— “(1) carried out under the Agricultural Trade Development and Assistance Act of 1954 (7 U.S.C. 1691 et seq.); “(2) carried out under section 416 of the Agricultural Act of 1949 (7 U.S.C. 1431); “(3) carried out under the Bill Emerson Humanitarian Trust Act (7 U.S.C. 1736f–1); “(4) under which agricultural commodities or their products are— “(A) donated through foreign governments or private or public agencies, including intergovernmental organizations; or “(B) sold for foreign currencies or for dollars on credit terms of more than 10 years; “(5) under which agricultural commodities or their products are made available for emergency food relief at less than prevailing world market prices; “(6) under which a cash grant is made directly or through an intermediary to a foreign purchaser to enable the purchaser to obtain United States agricultural commodities or their products in an amount greater than the difference between the prevailing world market price and the United States market price, free along side vessel at a United States port; or “(7) under which agricultural commodities owned or controlled by or under loan from the Corporation are exchanged or bartered for materials, goods, equipment, or services produced in foreign countries, except export activities described in section 55313(5) of this title. “(c) Additional Requirements.— “(1) Application of section 55305.— The requirement for transportation on vessels of the United States under subsection (a) is subject to the same terms and conditions as provided in section 55305 of this title. “(2) Allocation of commodities.— Subject to paragraph (3), in carrying out this section and section 55305 of this title, the Corporation shall take steps necessary and practicable, and consistent with this section and section 55305, without detriment to any port range to allocate, on the principle of lowest landed cost without regard to the country of registry of the vessel, 25 percent of the bagged, processed, or fortified commodities provided under title II of the Agricultural Trade Development and Assistance Act of 1954 (7 U.S.C. 1721 et seq.). “(3) Calculations.— In carrying out paragraph (2), first there shall be calculated the allocation of 100 percent of the quantity to be procured on an overall lowest landed cost basis without regard to the country of registry of the vessel, and then there shall be allocated to the Great Lakes port range any cargoes for which it has the lowest landed cost under that calculation. The requirements for transportation on vessels of the United States under this section and section 55305 of this title do not apply to commodities allocated to the Great Lakes port range under paragraph (2). Commodities allocated to the Great Lakes port range under paragraph (2) may not be reallocated or diverted to another port range to meet those requirements to the extent that the total tonnage of commodities to which paragraph (2) applies that is furnished and transported from the Great Lakes port range is less than 25 percent of the total annual tonnage of the commodities furnished. “(4) Awarding contracts.— In awarding a contract for the transportation by vessel of commodities from the Great Lakes port range pursuant to an export activity referred to in subsection (b), an agency— “(A) shall consider expressions of freight interest for any vessel from a vessel operator who meets reasonable requirements for financial and operational integrity; and “(B) may not deny award of the contract to a person based on the type of vessel on which the transportation would be provided (including on the basis that the transportation would not be provided on a liner vessel, as that term is used in the Shipping Act of 1984, as in effect on November 14, 1995), if the person otherwise satisfies reasonable requirements for financial and operational integrity. “(5) Nonavailability of vessels.— A determination of nonavailability of vessels of the United States resulting from the application of this subsection may not reduce the gross tonnage of commodities required by this section and section 55305 of this title to be transported on vessels of the United States. “§ 55315.  Minimum tonnage “(a) Definition.— In this section, the term ‘base period’ means the 5-year period running from the sixth through the second prior fiscal years. “(b) Requirement.— For each fiscal year, the minimum quantity of agricultural commodities to be exported under programs subject to section 55314 of this title is the average of the tonnage exported under those programs during the base period, discarding the high and low years. “(c) Waivers.— The President may waive the minimum quantity for a fiscal year under this section if the President determines and reports to Congress, together with reasons, that the quantity cannot be used effectively for the purposes of those programs or, based on a certification by the Secretary of Agriculture, that the commodities are not available for reasons that include the unavailability of funds. “§ 55316.  Financing the transportation of agricultural commodities “(a) Financing of Increased Charges.— The Secretary of Transportation shall finance any increased ocean freight charges incurred in any fiscal year that result from the application of section 55314 of this title. “(b) Reimbursement of Increased Charges.— “(1) In general.— The Secretary of Transportation shall reimburse the Secretary of Agriculture and the Commodity Credit Corporation for the amount by which, in any fiscal year— “(A) the total cost of ocean freight and ocean freight differential for which obligations are incurred by the Secretary of Agriculture and the Corporation on exports of agricultural commodities and their products under the agricultural export programs specified in section 55314(b) of this title; exceeds “(B) 20 percent of the value of the commodities and their products and the cost of the ocean freight and ocean freight differential on which obligations are incurred by the Secretary of Agriculture and the Corporation during that fiscal year. “(2) Commodities shipped from inventory.— For purposes of this subsection, commodities shipped from the inventory of the Corporation shall be valued as provided in section 412(d) of the Agricultural Trade Development and Assistance Act of 1954 (7 U.S.C. 1736f(d)). “(c) Issuance and Purchase of Obligations.— “(1) Issuance.— To meet the expenses required to be assumed under subsections (a) and (b), the Secretary of Transportation shall issue obligations to the Secretary of the Treasury. The Secretary of Transportation, with the approval of the Secretary of the Treasury, shall prescribe the form, denomination, maturity, and other terms (except the interest rate) of the obligations. The Secretary of the Treasury shall set the interest rate for the obligations, considering the average market yield on outstanding marketable obligations of the United States Government of comparable maturities during the month before the obligations are issued. “(2) Purchase.— The Secretary of the Treasury shall purchase the obligations issued under this subsection. To purchase the obligations, the Secretary of the Treasury may use as a public debt transaction the proceeds from the sale of securities issued under chapter 31 of title 31. The purposes for which securities may be issued under that chapter are extended to include the purchase of obligations under this subsection. A redemption or purchase of the obligations by the Secretary of the Treasury is a public debt transaction of the Government. “(d) Source of Funds for Reimbursement.— Reimbursement of the Secretary of Transportation for costs incurred under this section shall be made with appropriated funds rather than through cancellation of notes. “(e) Appropriations.— “(1) Authorization.— Each fiscal year, there is authorized to be appropriated an amount sufficient to reimburse the Secretary of Transportation for the costs incurred under this section, including administrative expenses and the principal and interest due on obligations issued to the Secretary of the Treasury. “(2) Appropriation for administrative expenses.— Each fiscal year, such amounts as may be necessary are hereby appropriated to pay interest and to liquidate debt on obligations issued to the Secretary of the Treasury under this section. “(f) Notification to Congress of Insufficiency.— If the Secretary of Transportation is unable to obtain the funds necessary to finance the increased ocean freight charges resulting from the requirements of subsections (a) and (b) and section 55314(a) of this title, the Secretary shall notify Congress within 10 working days of the discovery of the insufficiency. “§ 55317.  Termination of subchapter   “This subchapter terminates 90 days after the date on which a notification is made under section 55316(f) of this title, except for shipments of agricultural commodities and their products subject to contracts made before the end of that 90-day period, unless within that 90-day period the Secretary of Transportation proclaims that funds are available to finance increased freight charges resulting from the requirements of sections 55314(a) and 55316(a) and (b) of this title. On the termination of this subchapter under this section— “(1) this subchapter does not exempt export activities from, or subject export activities to, the cargo preference laws; and “(2) the 50-percent requirement in section 55305 of this title remains in effect. “§ 55318.  Effect on other law   “This subchapter does not affect chapter 5 of title 5. “SUBCHAPTER III— AMERICAN GREAT LAKES VESSELS “§ 55331.  Definitions   “In this subchapter: “(1) American great lakes vessel.— The term ‘American Great Lakes vessel’ means a vessel so designated under section 55332 of this title, but only during the period the designation is in effect. “(2) Great lakes.— The term ‘Great Lakes’ means Lake Superior, Lake Michigan, Lake Huron, Lake Erie, Lake Ontario, the Saint Lawrence River west of Saint Regis, New York, and their connecting and tributary waters. “(3) Great lakes shipping season.— The term ‘Great Lakes shipping season’ means the period each year during which the Saint Lawrence Seaway is open for navigation by vessels, as declared by the Saint Lawrence Seaway Development Corporation. “§ 55332.  Designating American Great Lakes vessels “(a) Designations.— The Secretary of Transportation shall designate a vessel as an American Great Lakes vessel if— “(1) an application for designation is submitted to the Secretary under regulations prescribed by the Secretary; “(2) the vessel is documented under the laws of the United States; “(3) the vessel, on the effective date of the designation, is— “(A) at least 1, but not more than 6, years old; or “(B) at least 1, but not more than 11, years old if the Secretary finds that suitable vessels are not available to provide the type of service for which the vessel will be used after the designation; “(4) the vessel has not previously been designated as an American Great Lakes vessel; and “(5) the owner makes an agreement as provided under subsection (b). “(b) Agreements.— A vessel may be designated as an American Great Lakes vessel only if the person that will be the owner of the vessel at the time of the designation makes an agreement with the Secretary providing that if the Secretary determines that the vessel is necessary to the defense of the United States, the United States Government will have an exclusive right, during the 120-day period following the date of a revocation of the designation under section 55335 of this title, to purchase the vessel for a price equal to the greater of— “(1) the approximate world market value of the vessel; or “(2) the cost of the vessel to the owner less a reasonable amount for depreciation. “(c) Certain Foreign Documentation and Sale Not Prohibited.— Notwithstanding any other law, if the Government does not exercise its right of purchase under an agreement under subsection (b), the owner of the vessel is not prohibited from— “(1) documenting the vessel under the laws of a foreign country; or “(2) selling the vessel to a person not a citizen of the United States. “(d) Regulations.— The Secretary shall prescribe regulations establishing requirements for submitting applications under this section. “§ 55333.  Exemption from restriction on transporting certain cargo   “The 3-year documentation requirement of section 55305(a) of this title does not apply to a vessel designated as an American Great Lakes vessel during the period of its designation. “§ 55334.  Restrictions on operations “(a) Prohibitions.— Except as provided in subsection (b), an American Great Lakes vessel may not be used to— “(1) engage in trade— “(A) from a port in the United States that is not located on the Great Lakes; or “(B) between ports in the United States; “(2) transport bulk cargo (as defined in section 40102 of this title) that is subject to section 55305 or 55314 of this title or section 2631 of title 10; or “(3) provide a service (except ocean freight service) as— “(A) a contract carrier; or “(B) a common carrier on a fixed advertised schedule offering frequent sailings at regular intervals in the foreign trade of the United States. “(b) Off-Season Exception.— An American Great Lakes vessel may be used for not more than 90 days during any 12-month period to engage in trade prohibited by subsection (a)(1)(A), except during the Great Lakes shipping season. “§ 55335.  Revocations and terminations of designations “(a) Revocations.— After notice and an opportunity for a hearing, the Secretary of Transportation may revoke a designation of a vessel as an American Great Lakes vessel if the Secretary finds that— “(1) the vessel does not meet a requirement for the designation; “(2) the vessel has been operated in violation of this subchapter; or “(3) the owner or operator of the vessel has violated an agreement made under section 55332(b) of this title. “(b) Terminations.— On petition and a showing of good cause by the owner of a vessel, the Secretary may terminate the designation of a vessel as an American Great Lakes vessel. The Secretary may impose conditions in a termination order to prevent significant adverse effects on other operators of vessels of the United States. “§ 55336.  Civil penalty   “After notice and an opportunity for a hearing, the Secretary of Transportation may impose a civil penalty of not more than $1,000,000 on the owner of an American Great Lakes vessel for any act for which the designation may be revoked under section 55335 of this title. “CHAPTER 555— MISCELLANEOUS “Sec. “55501.  Mobile trade fairs. “§ 55501.  Mobile trade fairs “(a) In General.— The Secretary of Commerce shall encourage and promote the development and use of mobile trade fairs designed to show and sell the products of United States business and agriculture at foreign ports and at other commercial centers throughout the world where the operators of the fairs use, insofar as practicable, vessels and aircraft of the United States in transporting their exhibits. “(b) Technical and Financial Assistance.— When the Secretary determines that a mobile trade fair provides an economical and effective means of promoting export sales, the Secretary may provide to the operator of the fair— “(1) technical assistance and support; and “(2) financial assistance to defray certain expenses incurred outside the United States, except the cost of transportation on foreign vessels and aircraft. “(c) Use of Foreign Currencies.— To carry out this section, the President may use, in addition to amounts appropriated to carry out trade promotion activities, foreign currencies owned by or owed to the United States Government. “Part E— Control of Merchant Marine Capabilities “CHAPTER 561— RESTRICTIONS ON TRANSFERS “Sec. “56101.  Approval required to transfer vessel to noncitizen. “56102.  Additional controls during war or national emergency. “56103.  Conditional approvals. “56104.  Penalty for false statements. “56105.  Forfeiture procedure. “§ 56101.  Approval required to transfer vessel to noncitizen “(a) Restrictions.— “(1) In General.— Except as otherwise provided in this section, section 12119 of this title, or section 611 of the Merchant Marine Act, 1936, a person may not, without the approval of the Secretary of Transportation— “(A) sell, lease, charter, deliver, or in any other manner transfer, or agree to sell, lease, charter, deliver, or in any other manner transfer, to a person not a citizen of the United States, an interest in or control of— “(i) a documented vessel owned by a citizen of the United States; or “(ii) a vessel last documented under the laws of the United States; or “(B) place under foreign registry, or operate under the authority of a foreign country, a documented vessel or a vessel last documented under the laws of the United States. “(2) Exceptions.— Paragraph (1)(A) does not apply to a vessel that has been operated only for pleasure or only as a fishing vessel, fish processing vessel, or fish tender vessel (as defined in section 2101 of this title). “(b) Approval Before Documentation.— To promote financing with respect to a vessel to be documented under chapter 121 of this title, the Secretary may grant approval under subsection (a) before the vessel is documented. “(c) Exceptions.— Notwithstanding any other provision of this subtitle, the Merchant Marine Act, 1936, or any contract with the Secretary made under this subtitle or that Act, a person may place a vessel under foreign registry without the approval of the Secretary if— “(1) (A) the Secretary, in conjunction with the Secretary of Defense, determines that at least one replacement vessel of equal or greater military capability and of a capacity that is equivalent or greater, as measured by deadweight tons, gross tons, or container equivalent units, as appropriate, is documented under chapter 121 of this title by the owner of the vessel placed under foreign registry; and “(B) the replacement vessel is not more than 10 years old on the date of that documentation; or “(2) an operating agreement covering the vessel under chapter 531 of this title has expired. “(d) Status of Prohibited Transaction.— A charter, sale, or transfer of a vessel, or of an interest in or control of a vessel, in violation of this section is void. “(e) Penalties.— “(1) Criminal penalty.— A person that knowingly sells, charters, or transfers a vessel, or an interest in or control of a vessel, in violation of this section shall be fined under title 18, imprisoned for not more than 5 years, or both. “(2) Civil penalty.— A person that sells, charters, or transfers a vessel, or an interest in or control of a vessel, in violation of this section is liable to the United States Government for a civil penalty of not more than $10,000 for each violation. “(3) Forfeiture.— A documented vessel may be seized by and forfeited to the Government if, in violation of this section, a person— “(A) knowingly sells, charters, or transfers the vessel or an interest in or control of the vessel; or “(B) places the vessel under foreign registry or operates the vessel under the authority of a foreign country. “§ 56102.  Additional controls during war or national emergency “(a) In General.— During war, or a national emergency declared by Presidential proclamation, a person may not, without the approval of the Secretary of Transportation— “(1) place under foreign registry a vessel owned in whole or in part by a citizen of the United States or a corporation incorporated under the laws of the United States or of a State; “(2) sell, mortgage, lease, charter, deliver, or in any other manner transfer, or agree to sell, mortgage, lease, charter, deliver, or in any other manner transfer, to a person not a citizen of the United States— “(A) a vessel owned as described in paragraph (1), or an interest therein; “(B) a vessel documented under the laws of the United States, or an interest therein; or “(C) a facility for building or repairing vessels, or an interest therein; “(3) issue, assign, or transfer to a person not a citizen of the United States an instrument of indebtedness secured by a mortgage of a vessel to a trustee, by an assignment of an owner’s interest in a vessel under construction to a trustee, or by a mortgage of a facility for building or repairing vessels to a trustee, unless the trustee or a substitute trustee is approved by the Secretary under subsection (b); “(4) enter into an agreement or understanding to construct a vessel in the United States for, or to be delivered to, a person not a citizen of the United States without expressly stipulating that construction will not begin until after the war or national emergency has ended; “(5) enter into an agreement or understanding whereby there is vested in, or for the benefit of, a person not a citizen of the United States the controlling interest in a corporation that is incorporated under the laws of the United States or a State and that owns a vessel or facility for building or repairing vessels; or “(6) cause or procure a vessel, constructed in whole or in part in the United States and never cleared for a foreign port, to depart from a port of the United States before it has been documented under the laws of the United States. “(b) Trustees.— “(1) Approval.— The Secretary shall approve a trustee or substitute trustee under subsection (a)(3) if and only if the trustee is a bank or trust company that— “(A) is organized as a corporation, and is doing business, under the laws of the United States or a State; “(B) is authorized under those laws to exercise corporate trust powers; “(C) is a citizen of the United States; “(D) is subject to supervision or examination by Federal or State authority; and “(E) has a combined capital and surplus (as set forth in its most recent published report of condition) of at least $3,000,000. “(2) Disapproval.— If a trustee or substitute trustee ceases to meet the conditions in paragraph (1), the Secretary shall disapprove the trustee or substitute trustee. After the disapproval, the restrictions on transfer or assignment without the Secretary’s approval in subsection (a)(3) apply. “(3) Operation of vessel.— During a period when subsection (a) applies, a trustee referred to in subsection (a)(3), even though approved as a trustee by the Secretary, may not operate the vessel under the mortgage or assignment without the Secretary’s approval. “(c) Status of Prohibited Transaction.— A transaction in violation of this section is void. “(d) Recovery of Consideration.— “(1) In general.— A person that deposited or paid consideration in connection with a transaction prohibited by this section may recover the consideration after tender of the vessel, facility, stock, or other security, or interest therein, to the person entitled to it, or the forfeiture thereof to the United States Government. “(2) Exception.— Paragraph (1) does not apply if the person in whose interest the consideration was deposited, or to whom it was paid, entered into the transaction in the belief that the person depositing or paying the consideration was a citizen of the United States. “(e) Penalties.— “(1) Criminal penalty.— A person that violates, or attempts or conspires to violate, this section shall be fined under title 18, imprisoned for not more than 5 years, or both. “(2) Forfeiture.— The following shall be forfeited to the Government: “(A) A vessel, a facility for building or repairing vessels, or an interest in a vessel or such a facility, that is sold, mortgaged, leased, chartered, delivered, transferred, or documented, or agreed to be sold, mortgaged, leased, chartered, delivered, transferred, or documented, in violation of this section. “(B) Stock and other securities sold or transferred, or agreed to be sold or transferred, in violation of this section. “(C) A vessel departing in violation of subsection (a)(6). “§ 56103.  Conditional approvals “(a) In General.— In approving an act or transaction under section 56101 or 56102 of this title, the Secretary of Transportation may do so absolutely or upon conditions the Secretary considers advisable. The Secretary shall state the conditions in the notice of approval. “(b) Violations.— A violation of a condition of approval is subject to the same penalties as a violation resulting from an act done without the required approval. The violation occurs at the time the condition is violated. “§ 56104.  Penalty for false statements   “A person that knowingly makes a false statement of a material fact to the Secretary of Transportation or another officer, employee, or agent of the Department of Transportation, to obtain the Secretary’s approval under section 56101 or 56102 of this title, shall be fined under title 18, imprisoned for not more than 5 years, or both. “§ 56105.  Forfeiture procedure “(a) In General.— A forfeiture under this chapter may be enforced in the same way as a forfeiture under the laws on the collection of duties. However, such a forfeiture may be remitted without seizure of the vessel. “(b) Prior Convictions.— In a proceeding under this chapter to enforce a forfeiture, a prior criminal conviction of a person for a violation of this chapter with respect to the subject matter of the forfeiture is prima facie evidence of the violation against the person convicted. “CHAPTER 563— EMERGENCY ACQUISITION OF VESSELS “Sec. “56301.  General authority. “56302.  Charter terms. “56303.  Compensation. “56304.  Disputed compensation. “56305.  Vessel encumbrances. “56306.  Use and transfer of vessels. “56307.  Return of vessels. “§ 56301.  General authority   “During a national emergency declared by Presidential proclamation, or a period for which the President has proclaimed that the security of the national defense makes it advisable, the Secretary of Transportation may requisition or purchase, or requisition or charter the use of, a vessel owned by citizens of the United States, a documented vessel, or a vessel under construction in the United States. “§ 56302.  Charter terms “(a) In General.— If a vessel is requisitioned for use but not ownership under this chapter, the Secretary of Transportation, at the time of requisition or as soon thereafter as the situation allows, shall offer the person entitled to possession of the vessel a charter containing— “(1) the terms the Secretary believes should govern the relationship between the United States Government and the person; and “(2) the rate of hire the Secretary considers just compensation for the use of the vessel and the services required under the charter. “(b) Refusal To Accept.— If the person does not accept the charter and rate of hire, the parties shall proceed as provided in section 56304 of this title. “§ 56303.  Compensation “(a) In General.— As soon as practicable, the Secretary of Transportation shall determine and pay just compensation for a vessel requisitioned under this chapter. “(b) Factors Not Affecting Value.— The value of a vessel may not be considered enhanced by the circumstances requiring its requisition. Consequential damages arising from the requisition may not be paid. “(c) Effect of Construction-Differential Subsidy.— “(1) If paid.— If a construction-differential subsidy has been paid for the vessel, the value of the vessel at the time of requisition shall be determined under section 802 of the Merchant Marine Act, 1936. “(2) If not paid.— If a construction-differential subsidy has not been paid for the vessel, the value of any national defense features previously paid for by the United States Government shall be excluded. “(d) Loss or Damage During Charter.— If a vessel is lost or damaged by a risk assumed by the Government under the charter, but a valuation for the vessel or a means of compensation has not been agreed to, the Secretary shall pay just compensation for the loss or damage, to the extent the person is not reimbursed through insurance. “§ 56304.  Disputed compensation   “If the person entitled to compensation disputes the amount of just compensation determined by the Secretary of Transportation under this chapter, the Secretary shall pay the person, as a tentative advance, 75 percent of the amount determined. The person may bring a civil action against the United States to recover just compensation. If the tentative advance paid under this section is greater than the amount of the court’s judgment, the person shall refund the difference. “§ 56305.  Vessel encumbrances “(a) In General.— The existence of an encumbrance on a vessel does not prevent the requisition of the vessel under this chapter. “(b) Deposit in Treasury.— “(1) In general.— If an encumbrance exists, the Secretary of Transportation may deposit part of the compensation or advance of compensation to be paid under this chapter (but not more than the total amount of all encumbrances) in a fund in the Treasury. Notification. Federal Register, publication. The Secretary shall publish notice of the creation of the fund in the Federal Register. “(2) Availability of amounts deposited.— Amounts deposited in the fund shall be available to pay the compensation or any of the encumbrances (including encumbrances stipulated to in a court of the United States or a State) existing at the time the vessel was requisitioned. “(c) Civil Action.— “(1) In general.— Within 6 months after publication of notice under subsection (b), the holder of an encumbrance may bring a civil action in admiralty, according to the principles of libels in rem, against the fund. “(2) Venue.— The action must be brought in the district court of the United States— “(A) from whose custody the vessel was or may be requisitioned; or “(B) in whose district the vessel was located when it was requisitioned. “(3) Service of process.— Service of process shall be made on the appropriate United States Attorney, the Attorney General, and the Secretary, in the manner provided by the Federal Rules of Civil Procedure (28 App. U.S.C.). Notice of the action shall be given to all interested persons as ordered by the court. “(4) As between private parties.— The action shall proceed and be determined according to the principles of law and the rules of practice applicable in like cases between private parties. “§ 56306.  Use and transfer of vessels “(a) In General.— The Secretary of Transportation may repair, recondition, reconstruct, operate, or charter for operation, a vessel acquired under this chapter. “(b) Transfer to Other Agencies.— The Secretary may transfer the possession or control of a vessel acquired under this chapter to another department or agency of the United States Government on terms and conditions approved by the President. The department or agency shall promptly reimburse the Secretary for expenditures for just compensation, purchase price, charter hire, repairs, reconditioning, or reconstruction. “§ 56307.  Return of vessels   “When a vessel requisitioned for use but not ownership is returned to the owner, the Secretary of Transportation shall— “(1) return the vessel in a condition at least as good as when taken, less ordinary wear and tear; or “(2) pay the owner an amount sufficient to recondition the vessel to that condition, less ordinary wear and tear. “CHAPTER 565— ESSENTIAL VESSELS AFFECTED BY NEUTRALITY ACT “Sec. “56501.  Definition. “56502.  Adjusting obligations and arranging maintenance. “56503.  Types of adjustments and arrangements. “56504.  Changes in adjustments and arrangements. “§ 56501.  Definition   “In this chapter, the term ‘essential vessel’ means a vessel that is— “(1) (A) security for a mortgage indebtedness to the United States Government; or “(B) constructed under this subtitle or required by a contract under this subtitle to be operated on a certain essential foreign trade route; and “(2) necessary in the interests of commerce and national defense to be maintained in condition for prompt use. “§ 56502.  Adjusting obligations and arranging maintenance “(a) General Authority.— On written application, the Secretary of Transportation may adjust obligations and arrange for maintenance of an essential vessel as provided in this chapter if the Secretary determines, after any investigation or proceeding the Secretary considers desirable, that— “(1) the operation of the vessel in the service, route, or line to which it is assigned under this subtitle, or in which it otherwise would be operated, is not— “(A) lawful under the Neutrality Act of 1939 (22 U.S.C. 441 et seq.) or a proclamation issued under that Act; or “(B) compatible with maintaining the availability of the vessel for national defense and commerce; “(2) it is not feasible under existing law to employ the vessel in any other service or operation in foreign or domestic trade (except temporary or emergency operation under section 56503(b)(5) of this title); and “(3) the applicant, because of the restrictions of the Neutrality Act of 1939 (22 U.S.C. 441 et seq.) or the withdrawal of vessels for national defense under paragraph (1), is not earning or will not earn a reasonable return on the capital necessarily employed in its business. “(b) Effective Period.— Adjustments and arrangements under subsection (a) shall continue in effect only as long as the circumstances described in subsection (a) continue to exist. “§ 56503.  Types of adjustments and arrangements “(a) Suspension Requirements.— An adjustment or arrangement under this chapter shall include suspension of— “(1) the requirement to operate the vessel in foreign trade under the applicable operating-differential or construction-differential subsidy contract or mortgage or other agreement; and “(2) the right to operating-differential subsidy for the vessel. “(b) Discretionary Adjustments and Arrangements.— To the extent the Secretary of Transportation considers appropriate to carry out the purposes of this subtitle, an adjustment or arrangement under this chapter may include any of the following: “(1) Lay-up of the vessel by the owner or in the custody of the Secretary, with payment or reimbursement by the Secretary of necessary and proper expenses (including reasonable overhead and insurance) or a fixed periodic allowance instead of payment or reimbursement. “(2) Postponement, for not more than the total period of the lay-up, of the maturity date of each installment of the principal of obligations to the United States Government for the vessel (regardless of whether the maturity date is during a lay-up period), or rearrangement of those maturities. “(3) Postponement or cancellation of interest accruing on the obligations during a lay-up period. “(4) Extension, for not more than the total period of the lay-up, of the 20-year life limitation for the vessel and other limitations and provisions of this subtitle based on a 20-year life. “(5) Provision for temporary or emergency employment of the vessel (instead of lay-up) as may be practicable, with such arrangements for management of the vessel, payment of expenses, and application of the proceeds of the employment, as the Secretary may approve, with any period of operation being included as part of the lay-up period. “(6) Payment to the Secretary, on termination of the arrangements with the applicant, of the applicant’s net profits (earned while the arrangements were in effect) in excess of 10 percent a year on the capital necessarily employed in the applicant’s business, as reimbursement for obligations postponed or canceled and expenses incurred or paid by the Secretary under this section. “(c) Laid-Up Vessels.— Under subsection (b)(6), capital of the applicant represented by a vessel of the applicant laid-up or operated under this section shall be included in capital necessarily employed in the applicant’s business. The Secretary may require a vessel laid-up or operated under this section to be security for reimbursement. “§ 56504.  Changes in adjustments and arrangements   “The Secretary of Transportation may change an adjustment or arrangement made under this chapter as the Secretary considers necessary to carry out this chapter. “Part F— Government-Owned Merchant Vessels “CHAPTER 571— GENERAL AUTHORITY “Sec. “57101.  Placement of vessels in National Defense Reserve Fleet. “57102.  Disposition of vessels not worth preserving. “57103.  Sale of obsolete vessels in National Defense Reserve Fleet. “57104.  Acquisition of vessels from sale of obsolete vessels. “57105.  Acquisition of vessels for essential services, routes, or lines. “57106.  Maintenance, improvement, and operation of vessels. “57107.  Vessels for other agencies. “57108.  Consideration of ballast and equipment in determining selling price. “57109.  Operation of vessels purchased, chartered, or leased from Secretary of Transportation. “§ 57101.  Placement of vessels in National Defense Reserve Fleet “(a) In General.— Any vessel acquired by the Maritime Administration shall be placed in the National Defense Reserve Fleet maintained under section 11 of the Merchant Ship Sales Act of 1946 (50 App. U.S.C. 1744). “(b) Removal From Fleet.— A vessel placed in the Fleet under subsection (a) may not be traded out or sold from the Fleet, except as provided in section 57102, 57103, or 57104 or chapter 533, 537, 573, or 575 of this title. “§ 57102.  Disposition of vessels not worth preserving “(a) In General.— If the Secretary of Transportation determines that a vessel owned by the Maritime Administration is of insufficient value for commercial or military operation to warrant its further preservation, the Secretary may scrap the vessel or sell the vessel for cash. “(b) Selling Procedure.— The sale of a vessel under subsection (a) shall be made on the basis of competitive sealed bids, after an appraisal and due advertisement. The purchaser does not have to be a citizen of the United States. The purchaser shall provide a surety bond, with a surety approved by the Secretary, to ensure that the vessel will not be operated in the foreign trade of the United States at any time within 10 years after the sale, in competition with a vessel owned by a citizen of the United States and documented under the laws of the United States. “§ 57103.  Sale of obsolete vessels in National Defense Reserve Fleet “(a) In General.— The Secretary of Transportation may convey the right, title, and interest of the United States Government in any vessel of the National Defense Reserve Fleet that has been identified by the Secretary as an obsolete vessel of insufficient value to warrant its further preservation, if the recipient— “(1) is a non-profit organization, a State, or a municipal corporation or political subdivision of a State; “(2) agrees not to use, or allow others to use, the vessel for commercial transportation purposes; “(3) agrees to make the vessel available to the Government whenever the Secretary indicates that it is needed by the Government; “(4) agrees to hold the Government harmless for any claims arising from exposure to asbestos, polychlorinated biphenyls, lead paint, or other hazardous substances after conveyance of the vessel, except for claims arising from use of the vessel by the Government; “(5) has a conveyance plan and a business plan that describes the intended use of the vessel, each of which has been submitted to and approved by the Secretary; “(6) has provided proof, as determined by the Secretary, of resources sufficient to accomplish the transfer, necessary repairs and modifications, and initiation of the intended use of the vessel; and “(7) agrees that when the recipient no longer requires the vessel for use as described in the business plan required under paragraph (5)— “(A) the recipient will, at the discretion of the Secretary, reconvey the vessel to the Government in good condition except for ordinary wear and tear; or “(B) if the Board of Trustees of the recipient has decided to dissolve the recipient according to the laws of the State in which the recipient is incorporated, then— “(i) the recipient shall distribute the vessel, as an asset of the recipient, to a person that has been determined exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3)), or to the Federal Government or a State or local government for a public purpose; and “(ii) the vessel shall be disposed of by a court of competent jurisdiction of the county in which the principal office of the recipient is located, for such purposes as the court shall determine, or to such organizations as the court shall determine are organized exclusively for public purposes. “(b) Other Equipment.— At the Secretary’s discretion, additional equipment from other obsolete vessels of the Fleet may be conveyed to assist the recipient with maintenance, repairs, or modifications. “(c) Additional Terms.— The Secretary may require any additional terms the Secretary considers appropriate. “(d) Delivery of Vessel.— If conveyance is made under this section, the vessel shall be delivered to the recipient at a time and place to be determined by the Secretary. The vessel shall be conveyed in an ‘as is’ condition. “(e) Limitations.— If at any time prior to delivery of the vessel to the recipient, the Secretary determines that a different disposition of the vessel would better serve the interests of the Government, the Secretary shall pursue the more favorable disposition of the obsolete vessel and shall not be liable for any damages that may result from an intended recipient’s reliance upon a proposed transfer. “(f) Reversion.— The Secretary shall include in any conveyance under this section terms under which all right, title, and interest conveyed by the Secretary shall revert to the Government if the Secretary determines the vessel has been used other than as described in the business plan required under subsection (a)(5). “§ 57104.  Acquisition of vessels from sale of obsolete vessels “(a) In General.— The Secretary of Transportation may acquire suitable documented vessels with amounts in the Vessel Operations Revolving Fund derived from the sale of obsolete vessels in the National Defense Reserve Fleet. “(b) Valuation.— The acquired and obsolete vessels shall be valued at their scrap value in domestic or foreign markets as of the date of the acquisition for or sale from the Fleet. However, the value assigned to those vessels shall be determined on the same basis, with consideration given to the fair value of the cost of moving the vessel sold from the Fleet to the place of scrapping. “(c) Costs Incident to Lay-Up.— Costs incident to the lay-up of the vessel acquired under this section may be paid from amounts in the Fund. “(d) Transfers to Non-Citizens.— A vessel sold from the Fleet under this section may be scrapped in an approved foreign market without obtaining additional separate approval from the Secretary to transfer the vessel to a person not a citizen of the United States. “§ 57105.  Acquisition of vessels for essential services, routes, or lines “(a) In General.— The Secretary of Transportation may acquire a vessel, by purchase or otherwise, if— “(1) the Secretary considers the vessel necessary to establish, maintain, improve, or serve as a replacement on an essential service, route, or line in the foreign commerce of the United States, as determined under section 50103 of this title; “(2) the vessel was constructed in the United States; and “(3) the Secretary of the Navy has certified to the Secretary of Transportation that the vessel is suitable for economical and speedy conversion into a naval or military auxiliary or otherwise suitable for use by the United States Government in time of war or national emergency. “(b) Price.— The price paid for the vessel shall be based on a fair and reasonable valuation. However, the price may not exceed by more than 5 percent the cost of the vessel to the owner (excluding any construction-differential subsidy and the cost of national defense features paid by the Secretary of Transportation) plus the actual cost previously expended for reconditioning, less depreciation based on a 25-year life for a dry-cargo or passenger vessel and a 20-year life for a tanker or other liquid bulk carrier vessel. “(c) Documentation.— A vessel acquired under this section that is not documented under the laws of the United States at the time of acquisition shall be so documented as soon as practicable. “§ 57106.  Maintenance, improvement, and operation of vessels “(a) In General.— The Secretary of Transportation may maintain, repair, recondition, remodel, and improve vessels owned by the United States Government and in the possession or under the control of the Secretary, to equip them adequately for competition in the foreign trade of the United States. The Secretary may operate such a vessel or charter the vessel on terms and conditions the Secretary considers appropriate to carry out the purposes of this subtitle. “(b) Documentation and Restrictions on Operation.— A vessel reconditioned, remodeled, or improved under subsection (a) shall be documented under the laws of the United States and remain so documented for at least 5 years after completion of the reconditioning, remodeling, or improvement. During that period, it shall be operated on voyages that are not exclusively coastwise. “§ 57107.  Vessels for other agencies “(a) In General.— The Secretary of Transportation may construct, reconstruct, repair, equip, and outfit, by contract or otherwise, vessels or parts thereof, for any other department or agency of the United States Government to the extent the other department or agency is authorized by law to do so for its own account. “(b) Effect on Contract Authorization.— An obligation incurred or expenditure made by the Secretary under this section does not affect any contract authorization of the Secretary, but instead shall be charged against the existing appropriation or contract authorization of the department or agency. “§ 57108.  Consideration of ballast and equipment in determining selling price   “The Maritime Administration may not sell a vessel until its ballast and equipment have been inventoried and their value considered in determining the selling price of the vessel. “§ 57109.  Operation of vessels purchased, chartered, or leased from Secretary of Transportation   “Unless otherwise authorized by the Secretary of Transportation, a vessel purchased, chartered, or leased from the Secretary may be operated only under a certificate of documentation with a registry or coastwise endorsement. Such a vessel, while employed solely as a merchant vessel, is subject to the laws, regulations, and liabilities governing merchant vessels, whether the United States Government has an interest in the vessel as an owner or holds a mortgage, lien, or other interest. “CHAPTER 573— VESSEL TRADE-IN PROGRAM “Sec. “57301.  Definitions. “57302.  Authority to acquire vessels. “57303.  Utility value and tonnage requirements. “57304.  Eligible acquisition dates. “57305.  Determination of trade-in allowance. “57306.  Payment of trade-in allowance. “57307.  Recognition of gain for tax purposes. “57308.  Use of vessels at least 25 years old. “§ 57301.  Definitions   “In this chapter: “(1) New vessel.— The term ‘new vessel’ means a vessel— “(A) constructed under this subtitle and acquired within 2 years after the date of completion; or “(B) constructed in a domestic shipyard on private account and not under this subtitle, and documented under the laws of the United States. “(2) Obsolete vessel.— The term ‘obsolete vessel’ means a vessel that— “(A) is of at least 1,350 gross tons; “(B) the Secretary of Transportation believes should, because of its age, obsolescence, or other reasons, be replaced in the public interest; and “(C) has been owned by a citizen of the United States for at least 3 years immediately before its acquisition under this chapter. “§ 57302.  Authority to acquire vessels   “To promote the construction of new, safe, and efficient vessels to carry the domestic and foreign waterborne commerce of the United States, the Secretary of Transportation may acquire an obsolete vessel in exchange for an allowance of credit toward the cost of construction or purchase of a new vessel as provided in this chapter. “§ 57303.  Utility value and tonnage requirements “(a) Utility Value.— The utility value of a new vessel to be acquired under this chapter for operation in the domestic or foreign commerce of the United States may not be substantially less than that of the obsolete vessel acquired in exchange under this chapter. “(b) Tonnage.— If the Secretary of Transportation finds that the new vessel will have a utility value at least equal to that of the obsolete vessel, the new vessel may be of lesser gross tonnage than the obsolete vessel. However, the gross tonnage of the new vessel must be at least one-third the gross tonnage of the obsolete vessel. “§ 57304.  Eligible acquisition dates   “At the option of the owner, the acquisition of an obsolete vessel under this chapter shall occur— “(1) when the owner contracts for the construction or purchase of a new vessel; or “(2) within 5 days of the actual date of delivery of the new vessel to the owner. “§ 57305.  Determination of trade-in allowance “(a) In General.— The Secretary of Transportation shall determine the trade-in allowance for an obsolete vessel at the time of acquisition of the vessel. The allowance shall be the fair value of the vessel. In determining the value, the Secretary shall con- sider— “(1) the scrap value of the obsolete vessel in American and foreign markets; “(2) the depreciated value based on a 20-year or 25-year life, whichever applies to the obsolete vessel; and “(3) the market value of the obsolete vessel for operation in world commerce or in the domestic or foreign commerce of the United States. “(b) Use of Obsolete Vessels.— If acquisition of the obsolete vessel occurs when the owner contracts for the construction of the new vessel, and the owner uses the obsolete vessel during the period of construction of the new vessel, the Secretary shall reduce the trade-in allowance by an amount representing the fair value of that use. The Secretary shall establish the rate for use of the obsolete vessel when the contract for construction of the new vessel is made. “§ 57306.  Payment of trade-in allowance “(a) Acquisition at Time of Contract.— If acquisition of an obsolete vessel under this chapter occurs when the owner contracts for the construction or purchase of the new vessel, the Secretary of Transportation shall apply the trade-in allowance to the purchase price of the new vessel rather than paying it to the owner. If the new vessel is constructed under this subtitle, the Secretary may apply the trade-in allowance to the required cash payments on terms and conditions the Secretary may prescribe. If the new vessel is not constructed under this subtitle, the Secretary shall pay the trade-in allowance to the builder of the vessel for the account of the owner when the Secretary acquires the obsolete vessel. “(b) Acquisition at Time of Delivery.— If acquisition of the obsolete vessel occurs when the new vessel is delivered to the owner, the Secretary shall deposit the trade-in allowance in the owner’s capital construction fund. “§ 57307.  Recognition of gain for tax purposes   “The owner of an obsolete vessel does not recognize a gain under the Federal income tax laws when the vessel is transferred to the Secretary of Transportation in exchange for a trade-in allowance under this chapter. The basis of the new vessel acquired with the allowance is the same as the basis of the obsolete vessel— “(1) increased by the difference between the cost of the new vessel and the trade-in allowance of the obsolete vessel; and “(2) decreased by the amount of loss recognized on the transfer. “§ 57308.  Use of vessels at least 25 years old   “An obsolete vessel acquired under this chapter that is or becomes at least 25 years old may not be used for commercial operation. However, the vessel may be used— “(1) during a period in which vessels may be requisitioned under chapter 563 of this title; or “(2) except as otherwise provided in this subtitle, on trade routes serving only the foreign trade of the United States. “CHAPTER 575— CONSTRUCTION, CHARTER, AND SALE OF VESSELS “SUBCHAPTER I— GENERAL “Sec. “57501.  Completion of long-range program. “57502.  Construction, reconditioning, and remodeling of vessels. “57503.  Competitive bidding. “57504.  Charter or sale of vessels acquired by Department of Transportation. “57505.  Employment of vessels on foreign trade routes. “57506.  Minimum selling price of vessels. “SUBCHAPTER II— CHARTERS “57511.  Demise charters. “57512.  Competitive bidding. “57513.  Minimum bid. “57514.  Qualifications of bidders. “57515.  Awarding of charters. “57516.  Operating-differential subsidies. “57517.  Recovery of excess profits. “57518.  Performance bond. “57519.  Insurance. “57520.  Vessel maintenance. “57521.  Termination of charter during national emergency. “SUBCHAPTER III— MISCELLANEOUS “57531.  Construction and charter of vessels for unsuccessful routes. “57532.  Operation of experimental vessels. “SUBCHAPTER I— GENERAL “§ 57501.  Completion of long-range program   “Whenever the Secretary of Transportation determines that the objectives and policies declared in sections 50101 and 50102 of this title cannot be fully realized within a reasonable time under titles V and VI of the Merchant Marine Act, 1936, and the President approves the determination, the Secretary, in accordance with this chapter, shall complete the long-range program described in section 50102 of this title. “§ 57502.  Construction, reconditioning, and remodeling of vessels “(a) In General.— The Secretary of Transportation may have new vessels constructed, and have old vessels reconditioned or remodeled, as the Secretary determines necessary to carry out the objectives of this subtitle. “(b) Place of Work.— Construction, reconditioning, and remodeling of vessels under subsection (a) shall take place in shipyards in the continental United States (including Alaska and Hawaii). However, if satisfactory contracts cannot be obtained from private shipbuilders, the Secretary may have the work done in navy yards. “(c) Applicability of Construction-Differential Subsidy Provisions.— Contracts for the construction, reconstruction, or reconditioning of a vessel by a private shipbuilder under this chapter are subject to the provisions of title V of the Merchant Marine Act, 1936, applicable to a contract with a private shipbuilder for the construction of a vessel under title V of that Act. “§ 57503.  Competitive bidding “(a) Advertisement and Bidding.— The Secretary of Transportation may make a contract with a private shipbuilder for the construction of a new vessel, or for the reconstruction or reconditioning of an existing vessel, only after due advertisement and upon sealed competitive bids. “(b) Opening of Bids.— Bids required under this section shall be opened at the time and place stated in the advertisement for bids. All interested persons, including representatives of the press, shall be permitted to attend. The results of the bidding shall be publicly announced. “§ 57504.  Charter or sale of vessels acquired by Department of Transportation   “Vessels transferred to or otherwise acquired by the Department of Transportation in any manner may be chartered or sold by the Secretary of Transportation as provided in this chapter. “§ 57505.  Employment of vessels on foreign trade routes “(a) In General.— The Secretary of Transportation shall arrange for the employment of the Department of Transportation’s vessels in steamship lines on such trade routes, exclusively serving the foreign trade of the United States, as the Secretary determines are essential for the development and maintenance of the commerce of the United States and the national defense. However, the Secretary shall first determine that those routes are not being adequately served by existing steamship lines privately owned and operated by citizens of the United States and documented under the laws of the United States. “(b) Policy To Encourage Private Operation.— The Secretary shall have a policy of encouraging private operation of each essential steamship line now owned by the United States Government by— “(1) selling the line to a citizen of the United States; or “(2) demising the Secretary’s vessels on bareboat charter to citizens of the United States who agree to maintain the line in the manner provided in this chapter. “§ 57506.  Minimum selling price of vessels “(a) In General.— A vessel constructed under this subtitle or the Merchant Marine Act, 1936, may not be sold by the Secretary of Transportation for less than the price specified in this section. “(b) Operation in Foreign Trade.— If the vessel is to be operated in foreign trade, the minimum price is the estimated foreign construction cost (exclusive of national defense features) determined as of the date the construction contract is executed, less depreciation under subsection (d). “(c) Operation in Domestic Trade.— If the vessel is to be operated in domestic trade, the minimum price is the cost of construction in the United States (exclusive of national defense features), less depreciation under subsection (d). “(d) Depreciation.— Depreciation under subsections (b) and (c) shall be based on— “(1) a 25-year life for dry-cargo and passenger vessels; and “(2) a 20-year life for tankers and other bulk liquid carrier vessels. “SUBCHAPTER II— CHARTERS “§ 57511.  Demise charters   “A charter by the Secretary of Transportation under this chapter shall demise the vessel to the charterer subject to all usual conditions contained in a bareboat charter. The charter shall be for a term the Secretary considers to be in the best interest of the United States Government and the merchant marine. “§ 57512.  Competitive bidding “(a) In General.— The Secretary of Transportation may charter a vessel of the Department of Transportation to a private operator only on the basis of competitive sealed bidding. The bids must be submitted in strict compliance with the terms and conditions of a public advertisement soliciting the bids. “(b) Advertisement for Bids.— An advertisement for bids shall state— “(1) the number, type, and tonnage of the vessels being offered for bareboat charter for operation as a steamship line on a designated trade route; “(2) the minimum number of sailings required; “(3) the length of time of the charter; “(4) the right of the Secretary to reject all bids; and “(5) other information the Secretary considers necessary for the information of prospective bidders. “(c) Opening of Bids.— Bids required under this section shall be opened at the time and place stated in the advertisement for bids. All interested persons, including representatives of the press, shall be permitted to attend. The results of the bidding shall be publicly announced. “§ 57513.  Minimum bid   “The Secretary of Transportation shall reject any bid for the charter under this subchapter of a vessel constructed under this subtitle or the Merchant Marine Act, 1936, if the charter hire offered is lower than the minimum charter hire would be if the vessel were chartered under section 57531 of this title. “§ 57514.  Qualifications of bidders “(a) Considerations.— In deciding whether to award a charter to a bidder, the Secretary of Transportation shall consider— “(1) the bidder’s financial resources, credit standing, and practical experience in operating vessels; and “(2) other factors a prudent business person would consider in entering into a transaction involving a large capital investment. “(b) Disqualifications.— The Secretary may not charter a vessel to a person appearing to lack sufficient capital, credit, and experience to operate the vessel successfully over the period covered by the charter. “§ 57515.  Awarding of charters “(a) In General.— The Secretary of Transportation shall award the charter to the bidder proposing to pay the highest monthly charter hire. However, the Secretary may reject the highest or most advantageous or any other bid if the Secretary considers the charter hire offered too low or determines that the bidder lacks the qualifications required by section 57514 of this title. “(b) Highest Bid Rejected.— If the Secretary rejects the highest bid, the Secretary may— “(1) award the charter to the next highest bidder; or “(2) reject all bids and either readvertise the line or operate the line until conditions appear more favorable to reoffer the line for private charter. “(c) Reason for Rejection.— On request of a bidder, the reason for rejection shall be stated in writing to the bidder. “§ 57516.  Operating-differential subsidies   “If the Secretary of Transportation considers it necessary, the Secretary may make a contract with a charterer of a vessel owned by the Secretary for payment of an operating-differential subsidy, on the same terms and conditions, and subject to the same limitations and restrictions, as otherwise provided with respect to payment of operating-differential subsidies to operators of privately-owned vessels. “§ 57517.  Recovery of excess profits “(a) In General.— A charter under this chapter shall provide that if, at the end of a calendar year subsequent to the execution of the charter, the cumulative net voyage profit (after payment of the charter hire reserved in the charter and payment of the charterer’s fair and reasonable overhead expenses applicable to operation of the chartered vessel) exceeds 10 percent a year of the charterer’s capital necessarily employed in the business of the chartered vessel, the charterer shall pay to the Secretary of Transportation, as additional charter hire, half the cumulative net voyage profit in excess of 10 percent a year. However, any cumulative net voyage profit accounted for under this subsection is not to be included in the calculation of cumulative net voyage profit in any subsequent year. “(b) Terms To Be Defined and Used.— The Secretary shall define the terms ‘net voyage profit’, ‘fair and reasonable overhead expenses’, and ‘capital necessarily employed’ for this section. Each advertisement for bids and each charter shall contain these definitions, stating the formula for determining each of these three amounts. “§ 57518.  Performance bond   “The Secretary of Transportation shall require a charterer of a vessel of the Secretary to deposit with the Secretary an undertaking, with approved sureties, in such amount as the Secretary may require as security for the faithful performance of the terms of the charter, including indemnity against liens on the chartered vessel. “§ 57519.  Insurance   “A charter under this chapter shall require the charterer to carry, at the charterer’s expense, insurance on the chartered vessel covering all marine and port risks, protection and indemnity risks, and all other hazards and liabilities, adequate to cover damages claimed against and losses sustained by the chartered vessel arising during the term of the charter. The insurance shall be in such form, in such amount, and with such companies as the Secretary of Transportation may require. In accordance with law, any of the insurance risks may be underwritten by the Secretary. “§ 57520.  Vessel maintenance “(a) In General.— A charter under this chapter shall require the charterer, at the charterer’s expense, to— “(1) keep the chartered vessel in good repair and efficient operating condition; and “(2) make any repairs required by the Secretary of Transportation. “(b) Inspection.— The charter shall provide that the Secretary has the right to inspect the vessel at any time to ascertain its condition. “§ 57521.  Termination of charter during national emergency   “A charter under this chapter shall provide that during a national emergency proclaimed by the President or a period for which the President has proclaimed that the security of the national defense makes it advisable, the Secretary of Transportation may terminate the charter without cost to the United States Government on such notice to the charterer as the President determines. “SUBCHAPTER III— MISCELLANEOUS “§ 57531.  Construction and charter of vessels for unsuccessful routes “(a) In General.— If the Secretary of Transportation finds that a trade route determined to be essential under section 50103 of this title cannot be successfully developed and maintained and the Secretary’s replacement program cannot be achieved under private operation of the trade route by a citizen of the United States with vessels documented under chapter 121 of this title, without further aid by the United States Government in addition to the financial aid authorized under titles V and VI of the Merchant Marine Act, 1936, the Secretary, without advertisement or competition, may— “(1) have constructed, in private shipyards or in navy yards, vessels of the types necessary for the trade route; and “(2) demise charter those new vessels to the operator of vessels of the United States established on the trade route. “(b) Amount of Charter Hire.— “(1) In general.— The annual charter hire under subsection (a) shall be at least 4 percent of the price (referred to in this section as the ‘foreign cost’) at which the vessel would be sold if constructed under title V of the Merchant Marine Act, 1936, plus— “(A) a percentage of the depreciated foreign cost computed annually determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the Government with remaining periods to maturity comparable to the term of the charter, adjusted to the nearest one-eighth percent; and “(B) an allowance adequate in the judgment of the Secretary of Transportation to cover administrative costs. “(2) Depreciation.— Depreciation under paragraph (1)(A) shall be based on— “(A) a 25-year life for dry-cargo and passenger vessels; and “(B) a 20-year life for tankers and other bulk liquid carrier vessels. “(c) Option To Purchase.— The charter may contain an option to the charterer to purchase the vessels from the Secretary of Transportation within 5 years after delivery under the charter, on the same terms and conditions as provided in title V of the Merchant Marine Act, 1936, for the purchase of new vessels from the Secretary. However— “(1) the purchase price shall be the foreign cost less depreciation to the date of purchase based on the useful life specified in subsection (b)(2); “(2) the required cash payment payable at the time of the purchase shall be 25 percent of the purchase price; “(3) the charter may provide that any part of the charter hire paid in excess of the minimum charter hire provided for in this section may be credited against the cash payment payable at the time of the purchase; “(4) the balance of the purchase price shall be paid within the remaining years of useful life (as specified in subsection (b)(2)) after the date of delivery of the vessel under the charter and in approximately equal annual installments, except that the first installment, which shall be payable on the next ensuing anniversary date of the delivery under the charter, shall be a proportionate part of the annual installment; and “(5) interest shall be payable on the unpaid balances from the date of purchase, at a rate not less than— “(A) a rate determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the Government with remaining periods to maturity comparable to the average maturities of the loans, adjusted to the nearest one-eighth percent; plus “(B) an allowance adequate in the judgment of the Secretary of Transportation to cover administrative costs. “(d) Operation of Vessel.— “(1) Permissible voyages.— The charter shall provide for operation of the vessel exclusively— “(A) in foreign trade; “(B) on a round-the-world voyage; “(C) on a round voyage from the west coast of the United States to a European port that includes an intercoastal port of the United States; “(D) on a round voyage from the Atlantic coast of the United States to the Orient that includes an intercoastal port of the United States; or “(E) on a voyage in foreign trade on which the vessel may stop at Hawaii or an island territory or possession of the United States. “(2) Domestic trade.— The charter shall provide if the vessel is operated in domestic trade on any of the services specified in paragraph (1), the charterer will pay annually to the Secretary of Transportation that proportion of 1⁄25 of the difference between the domestic and foreign cost of the vessel as the gross revenue derived from the domestic trade bears to the gross revenue derived from the entire voyages completed during the preceding year. “§ 57532.  Operation of experimental vessels “(a) Definition.— In this section, the term ‘experimental vessel’ means a vessel owned by the United States Government (including a vessel in the National Defense Reserve Fleet) that has been constructed, reconditioned, or remodeled for experimental or testing purposes. “(b) Authority To Operate.— The Secretary of Transportation, for the purpose of practical development, trial, and testing, may operate an experimental vessel under a bareboat charter or general agency agreement in the foreign or domestic trade of the United States or for use for the account of a department or agency of the Government, without regard to other provisions of this subtitle and other laws related to chartering and general agency operations. Not more than 10 vessels may be operated and tested under this section in any one year. “(c) Terms of Operation.— Operation of a vessel under this section shall be on terms the Secretary considers appropriate to carry out the purposes of this subtitle. A bareboat charter under this section shall be at reasonable rates and include restrictions the Secretary considers appropriate to protect the public interest, including provisions for recapture of profits under section 57517 of this title. A charter or general agency agreement under this section shall be reviewed annually to determine whether conditions exist to justify continuance of the charter or agreement. “(d) Rights of Seamen.— A seaman engaged in vessel operations of the Secretary under this section and employed through a general agent in connection with a charter or agreement under this section is entitled to all the rights and remedies provided in sections 1(a) and (c), 3(c), and 4 of the Act of March 24, 1943 (50 App. U.S.C. 1291(a), (c), 1293(c), 1294). “Part G— Restrictions and Penalties “CHAPTER 581— RESTRICTIONS AND PENALTIES “Sec. “58101.  Operating in domestic intercoastal or coastwise service. “58102.  Default on payment or maintenance of reserves. “58103.  Employing another person as managing or operating agent. “58104.  Willful violation constitutes breach of contract or charter. “58105.  Preferences for cargo in which charterer has interest. “58106.  Concerted discriminatory activities. “58107.  Discrimination at ports by water common carriers. “58108.  Charges for transportation subject to subtitle IV of title 49. “58109.  Penalties. “§ 58101.  Operating in domestic intercoastal or coastwise service “(a) Prohibition.— A subsidy may not be awarded or paid to a contractor under the operating-differential subsidy program, and a vessel may not be chartered to a person under chapter 575 of this title, if the contractor or charterer, or a holding company, subsidiary, affiliate, or associate of the contractor or charterer, or an officer, director, agent, or executive thereof, directly or indirectly— “(1) owns, charters, or operates a vessel engaged in the domestic intercoastal or coastwise service; or “(2) owns a pecuniary interest in a person that owns, charters, or operates a vessel in the domestic intercoastal or coastwise service. “(b) Waiver.— A person may apply to the Secretary of Transportation for a waiver of subsection (a). Before deciding on the waiver, the Secretary shall give the applicant and other interested persons an opportunity for a hearing. The Secretary may not grant the waiver if the Secretary finds it would— “(1) result in unfair competition to a person operating exclusively in the domestic intercoastal or coastwise service; or “(2) be prejudicial to the objectives and policy of this subtitle. “(c) Continuous Operation Since 1935.— The Secretary shall grant an application under subsection (b) without requiring further proof that the public interest and convenience will be served and without further proceedings as to the competition in the route or trade, if the contractor or other person, or a predecessor in interest, was in bona-fide operation as a common carrier by water in the domestic intercoastal or coastwise trade in 1935 over the route or in the trade for which the application is made and has so operated since that time or, if engaged in furnishing seasonal service only, was in bona-fide operation in 1935 during the season ordinarily covered by its operation, except in either event as to interruptions of service over which the applicant or its predecessor in interest had no control. “(d) Diversion Into Intercoastal or Coastwise Operations.— If an application under subsection (b) is approved, a person referred to in this section may not divert, directly or indirectly, money, property, or any other thing of value, used in a foreign-trade operation for which a subsidy is paid by the United States Government, into intercoastal or coastwise operations. “§ 58102.  Default on payment or maintenance of reserves   “The Secretary of Transportation may supervise the number and compensation of all officers and employees of a contractor under the operating-differential subsidy program or a charterer under chapter 575 of this title, receiving an operating-differential subsidy, if the contractor or charterer— “(1) is in default on a mortgage, note, purchase contract, or other obligation to the Secretary; or “(2) has not maintained, in a manner satisfactory to the Secretary, all of the reserves provided for in this subtitle. “§ 58103.  Employing another person as managing or operating agent “(a) Prohibition.— Except with the written consent of the Secretary of Transportation, a contractor holding a contract under the operating-differential subsidy program or under chapter 575 of this title may not— “(1) employ another person as the managing or operating agent of the operator; or “(2) charter a vessel, on which an operating-differential subsidy is to be paid, for operation by another person. “(b) Applicability of Provisions to Charterer.— If a charter prohibited by this section is made, the person operating the chartered vessel is subject to all the provisions of this subtitle and the operating-differential subsidy program, including limitations of profits and salaries. “§ 58104.  Willful violation constitutes breach of contract or charter   “A willful violation of any provision of sections 58101–58103 of this title constitutes a breach of the contract or charter. On determining that a violation has occurred, the Secretary of Transportation may declare the contract or charter rescinded. “§ 58105.  Preferences for cargo in which charterer has interest   “A contractor receiving an operating-differential subsidy, or a charterer under chapter 575 of this title, may not unjustly discriminate in any manner so as to give preference, directly or indirectly, to cargo in which the contractor or charterer has a direct or indirect ownership, purchase, or vending interest. “§ 58106.  Concerted discriminatory activities “(a) Prohibition.— A contractor receiving an operating-differential subsidy, or a charterer under chapter 575 of this title, may not continue as a party to or conform to an agreement with another carrier by water, or engage in a practice in concert with another carrier by water, that is unjustly discriminatory or unfair to any other citizen of the United States operating a common carrier by water employing only vessels documented under the laws of the United States on an established trade route from and to a United States port. “(b) Government Payment Prohibited.— No payment or subsidy of any kind may be paid, directly or indirectly, out of funds of the United States Government to a contractor or charterer that has violated subsection (a). “(c) Civil Action.— A person whose business or property is injured by a violation of subsection (a) may bring a civil action in the district court of the United States for the district in which the defendant resides, is found, or has an agent. If the person prevails, the person shall be awarded— “(1) 3 times the damages; and “(2) costs, including reasonable attorney fees. “§ 58107.  Discrimination at ports by water common carriers “(a) Prohibition.— A common carrier by water may not, directly or indirectly, through an agreement, conference, association, understanding, or otherwise, prevent or attempt to prevent any other common carrier by water from serving any port described in subsection (b) at the same rates the first carrier charges at the nearest port already regularly served by it. “(b) Ports.— A port referred to in subsection (a) is one that is— “(1) designed for the accommodation of ocean-going vessels; “(2) located on an improvement project authorized by law or by a Federal agency; and “(3) located within the continental limits of the United States. “(c) Other Authority Not Limited.— This section does not limit the authority otherwise vested in the Secretary of Transportation and the Federal Maritime Commission. “§ 58108.  Charges for transportation subject to subtitle IV of title 49 “(a) Prohibition.— A carrier may not charge, collect, or receive for transportation subject to subtitle IV of title 49 of persons or property, under any joint rate, fare, or charge, or under any export, import, or other proportional rate, fare, or charge, that is based in whole or in part on the fact that the persons or property affected are to be transported to, or have been transported from, a port in a territory or possession of the United States or in a foreign country, by a carrier by water in foreign commerce, any lower rate, fare, or charge than the carrier charges, collects, or receives for the transportation of persons or similar property for the same distance, in the same direction, and over the same route, in commerce wholly within the United States, unless the vessel used for the transportation is or was at the time of the transportation documented under the laws of the United States. “(b) Suspension of Prohibition.— Whenever Certification. the Secretary of Transportation believes that adequate shipping facilities to or from any port in a territory or possession of the United States or a foreign country are not being provided by vessels documented under the laws of the United States, the Secretary shall certify this fact to the Surface Transportation Board. On receiving the certification, the Board may by order suspend the operation of subsection (a) with respect to the rates, fares, and charges for the transportation by rail of persons and property transported from or to be transported to those ports, for such time and under such terms and conditions as the Secretary may specify in the order or in any supplemental order. “(c) Termination of Suspension.— Whenever the Secretary believes that adequate shipping facilities are being provided to those ports by vessels documented under the laws of the United States, and certifies that fact to the Board, the Board may order the termination of the suspension. “§ 58109.  Penalties “(a) Individuals.— An individual convicted of violating section 58101(d), 58103, or 58105 of this title shall be fined under title 18, imprisoned for at least one year but not more than 5 years, or both. “(b) Organizations.— An organization convicted of committing an act prohibited by this subtitle shall be fined under title 18. “(c) Ineligibility To Receive Benefits.— An individual or organization convicted of violating a section referred to in subsection (a) is ineligible, at the discretion of the Secretary of Transportation, to receive any benefit under the construction-differential subsidy or operating-differential subsidy programs, or a charter under chapter 575 of this title, for 5 years after the conviction.” .

2. 2006

   National Defense Authorization Act for Fiscal Year 2006

   Pub. L. 109–163 § 3507(a)(1)(H) · 119 Stat. 3136

   Repealed · 46 U.S.C. § 53735

   Pub. L. 109–163, § 3507(a)(1)(H), which directed the amendment of section 1279f of the former Appendix to this title from which this section was derived by substituting “Secretary or Administrator” for “Secretary” wherever appearing, was repealed by Pub. L. 110–181, § 3522(b). See Historical and Revision notes above

   Source evidence

   Code amendment note
   Pub. L. 109–163, § 3507(a)(1)(H), which directed the amendment of section 1279f of the former Appendix to this title from which this section was derived by substituting “Secretary or Administrator” for “Secretary” wherever appearing, was repealed by Pub. L. 110–181, § 3522(b). See Historical and Revision notes above.

   Enacted provision · exact public law section
   (H) sections 1108, 1109 (except the second place it appears in subsection (c)), 46 USC app. 1279a, 1279b, 1279f. and 1113 (as redesignated by subsection (d) of this section);

3. 2008

   National Defense Authorization Act for Fiscal Year 2008

   Pub. L. 110–181 div. C title XXXV § 3522(b) · 122 Stat. 3

   Repealed · 46 U.S.C. § 53735

   Pub. L. 110–181 repealed Pub. L. 109–163, § 3507(a)(1)(H), (d). See 2006 Amendment note below and Codification note above

   Source evidence

   Code amendment note
   Pub. L. 110–181 repealed Pub. L. 109–163, § 3507(a)(1)(H), (d). See 2006 Amendment note below and Codification note above.

   Enacted provision · exact public law section
   (b) Repeal of Superseded Amendments.— Section 3507 (except subsection (c)(4)) of the National Defense Authorization Act for Fiscal Year 2006 (Public Law 109–163) is 46 USC 53701 et seq. repealed.

3 of 3 references resolved to an enrolled provision