Applicability of the Cargo Preference Act to the Transportation of Alaskan Oil to the Strategic Petroleum Reserve ( 1983 )

Applicability of the Cargo Preference Act to the
Transportation of Alaskan Oil
to the Strategic Petroleum Reserve
Shipments of Alaskan oil for the Strategic Petroleum Reserve, made on commercial United
States-flag ships as required by the Jones Act, 46 U.S.C. § 883, may be counted by the
Department o f Energy towards the 50% United States-flag cargo preference share required by
the Cargo Preference Act, 46 U.S.C. § 1241(b).
The Cargo Preference Act, 46 U.S.C. § 1241(b), applies to both foreign and domestic cargoes
procured by the United States, and is not limited to commerce in which United States-flag
vessels face foreign com petition. In addition, the Act is an “otherwise applicable Federal
procurement statute” that may be waived by the Secretary of Energy under § 804(b) o f the
Energy Security Act, 10 U.S.C. § 7340(k).
September 15, 1983
M em orandum O p in io n f o r t h e Secretary of T r a n s p o r t a t io n
and the Secretary of E nergy
This responds to your joint request to the Attorney General for an opinion on
the following question:
Whether commercial United States-flag oil shipments to the
Strategic Petroleum Reserve from Alaska may be counted to­
wards the 50% United States-flag cargo preference share re­
quired by the Cargo Preference Act.
Under the terms of an interagency agreement, you agreed to submit this
question to the Attorney General in order to resolve a dispute between your two
Departments. The Attorney General has referred your request to this Office for
decision.
For the reasons set forth below, we conclude that shipments of Alaskan oil
for the Strategic Petroleum Reserve, made on commercial United States-flag
ships as required by the Jones Act, 46 U.S.C. § 883, may be counted towards
the 50% United States- flag cargo preference share required by the Cargo
Preference Act, 46 U.S.C. § 1241(b).
In addition, the Department of Energy (DOE) has asked us to address two
related questions:
Where oil produced from the Naval Petroleum Reserves is ex­
changed for other oil to be delivered to the Strategic Petroleum
139
Reserve, pursuant to § 804(b) of the Energy Security Act, 10
U.S.C. § 7430(k), may the exchange be conducted without re­
gard to the Cargo Preference Act, and the deliveries excluded from
the 50% United States-flag compliance calculation under that Act?
Does the Cargo Preference Act require that the Department of
Energy and its procurement agents at the Department of De­
fense, in future oil deliveries to the Strategic Petroleum Reserve,
make up any past year shortfalls from the Act’s 50% United
States-flag standard?
The Department of Transportation (DOT) takes the view that the two additional
questions submitted by DOE are covered by the interagency agreement be­
tween DOT and DOE, and therefore no outstanding dispute exists between the
two agencies with respect to those questions. In an effort to provide as much
guidance as possible to both agencies, we address below the strictly legal issues
raised by DOE’s separate questions. That legal analysis, however, does not
dispose of the problem, because your agencies take different views as to the
scope and intent of their obligations as agreed upon in the interagency agree­
ment. We are not in a position to interpret that agreement and do not attempt to
do so here. We recommend that, if you cannot resolve your differing interpreta­
tions of the agreement, the matter be referred to appropriate higher levels in the
Executive Branch.
In analyzing the questions presented to us, we have examined the views of
each of your departments, the views of the Office of Management and Budget,
and our independent research.
I
The questions we consider here arise out of the interplay between DOE’s
obligation to comply with congressional mandates to fill the Strategic Petro­
leum Reserve (SPR), a stockpile of crude oil intended to provide protection
against interruption in energy supplies to the United States, and its obligations
and authority under three other statutes: (a) the Cargo Preference Act, 46
U.S.C. § 1241(b); (b) the Jones Act, 46 U.S.C. § 883; and (c) the Energy
Security Act, 10 U.S.C. § 7430(k). We outline below the relevant portions of
each of those statutes.1
1 T he SPR w as authorized by Title I, P a rt B, o f the Energy Policy and C onservation Act, Pub. L. No. 9 4 -
163, 89 Stat. 8 8 1 -9 0 (1975) (codified at 4 2 U.S.C. §§ 6 2 3 1 -6422). C ongress has repeatedly legislated with
resp ect to the fill rate fo r the SPR. See P ub. L. No. 9 7 -3 5 , T itle X, 95 Stat. 619 (1981); Pub. L. No. 96-294,
§ 8 0 1 , 94 Stat. 775 (1980); Pub. L. N o. 9 6 -5 1 4 , 94 Stat. 2964 (1980). Most recently, in the Energy
E m ergency Preparedness A ct o f 1982, Pub. L. No. 9 7 -2 2 9 , § 4 , 96 Stat. 250-52, Congress required the
P resident to fill the SPR at a rate o f 300,000 barrels per day unless he finds that this rate is not in the national
interest, in w hich ev en t the minimum req u ired fill rate is 220,000 barrels per day if appropriations are
availab le to achieve this rate, o r the highest practicable fill rate that would fully use available appropriations.
D O E is resp o n sib le fo r administration o f the SPR, including the acquisition, transportation, and storage o f
crud e oil. See 42 U .S.C. §§ 6233, 6240. Pursuant to an interagency agreem ent, the Defense Fuel Supply
C en ter acts as the D epartm ent of E n e rg y 's procurem ent ag en t and actually solicits offers and awards
contracts (w ith D O E’s approval) for the acquisition o f oil.
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A. Cargo Preference Act
Ocean shipments of crude oil for the SPR are generally subject to the
requirements of the Cargo Preference Act, Pub. L. No. 83-664, 68 Stat. 832(1954) (codified as amended at 46 U.S.C. § 1241(b)).2 The Act provides in
pertinent part that:
Whenever the United States shall procure, contract for, or
otherwise obtain for its own account, or shall furnish to or for
the account of any foreign nation without provision for reim­
bursement, any equipment, materials, or commodities, within or
without the United States, or shall advance funds or credits or
guarantee the convertibility of foreign currencies in connection
with the furnishing of such equipment, materials, or commodi­
ties, the appropriate agency or agencies shall take such steps as
may be necessary and practicable to assure that at least 50 per
centum of the gross tonnage of such equipment, materials, or
commodities . . . which may be transported on ocean vessels
shall be transported on privately owned United States-flag com­
mercial vessels, to the extent such vessels are available at fair
and reasonable rates for United States-flag commercial vessels,
in such manner as will insure a fair and reasonable participation
of United States-flag commercial vessels in such cargoes by
geographic areas.
Thus, the Cargo Preference Act requires DOE to take “such steps as may be
necessary and practicable to assure that at least 50 per centum” of oil for the
SPR that is transported on ocean vessels be transported on United States-flag
commercial vessels, if such vessels are available at fair and reasonable rates for
United States-flag commercial vessels.
B. Jones A ct
Although most of the oil shipped to the SPR has been obtained from foreign
sources, such as the Persian Gulf, the North Sea, North Africa, and the Carib­
bean, a substantial volume was shipped, particularly in 1981, from the Alaskan
North Slope Fields via Valdez, Alaska, to SPR receiving docks in Texas and
Louisiana.3 Because these shipments of Alaskan oil took place between United
States ports, they were subject to the Jones Act, Act of June 5,1920, ch. 250,41
Stat. 988, 999 (codified as amended at 46 U.S.C. § 883).4 The Jones Act
provides in relevant part that:
2 The C argo Preference Act added a new subparagraph (b) to § 901 o f the M erchant M arine Act o f 1936,
Pub. L. No. 7 4 -8 3 5 , 49 Stat. 1985.
3 DOE has inform ed us that approxim ately 10 7 percent o f oil stored in the SPR as of D ecem ber 31, 1982,
was produced in Alaska.
4 The Jones Act is one in a series o f statutes, beginning in 1789, w hich have im posed general restrictions on
the transportation o f freight in coastw ise traffic by vessels not ow ned by citizens o f the U nited States. See
Central Vermont Co. v. D u m in g , 294 U.S. 33, 38 & n .l (1935).
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No merchandise shall be transported by water, or by land and
water, on penalty of forfeiture thereof, between points in the
United States, including Districts, Territories, and possessions
thereof embraced within the coastwise laws, either directly or
via a foreign port, or for any part of the transportation, in any
other vessel than a vessel built in and documented under the
laws of the United States and owned by persons who are citizens
of the United States, or vessels to which the privilege of engag­
ing in the coastwise trade is extended by section 13 or 808 of
this title.
46 U.S.C. § 883. In accordance with the terms of the Jones Act, we understand
that shipments of Alaskan oil for the SPR have been made entirely in United
States-flag commercial vessels.
C. E nergy Security A ct
The Energy Security Act (ESA), Pub. L. No. 96-294, 94 Stat. 611 (1980),
was passed in the aftermath o f the 1979 Iranian supply disruption, when efforts
to fill the SPR fell behind the approved fill schedule and oil purchases for the
SPR came to a halt. In the ESA, passed in June 1980, Congress required that the
SPR oil fill be resumed and sustained at an average rate of at least 100,000
barrels per day. In order to facilitate this fill rate, Congress authorized the
Secretary of Energy to store oil from the Naval Petroleum Reserves (NPR)5 in
the SPR, or to:
(B) exchange, directly or indirectly, that petroleum [from the
NPR] for other petroleum to be placed in the Strategic Petroleum
Reserve under such terms and conditions and by such methods as
the Secretary determines to be appropriate, without regard to other­
wise applicable Federal procurement statutes and regulations.
Pub. L. No. 96-294, § 804(b), 94 Stat. 777 (1980) (codified at 10 U.S.C.
§ 7430(k)(l)). In 1980 and 1981 DOE used the authority in the ESA to place in
the SPR a substantial amount of crude oil that had been exchanged for NPR oil.
II
A. A p p licability o f the Cargo Preference A ct to Jones Act Cargoes
The question you have jointly referred to us for decision is whether ship­
ments of Alaskan oil — 100 percent of which were made in United States-flag
commercial vessels pursuant to the Jones Act — may be counted towards the
50 percent Cargo Preference Act share for the SPR program. DOT takes the
5 The N aval Petroleum Reserves in c lu d e several specific crude oil or petroleum reserves designated
originally by executive o rd er and now specifically authorized by 10 U .S.C. §§ 7420-7438. In general, the
reserves may be used for production o f petroleum only if specifically authorized by joint resolution of
C ongress and approved by the President. Id. § 7422(b).
142
position that the Cargo Preference Act reserves 50 percent of foreign oil
transported to the SPR for United States-flag tankers, and asserts that DOE
must base its Cargo Preference Act compliance calculation only on foreign
shipments. DOT maintains that the purpose and legislative intent of the Cargo
Preference Act is to reserve 50 percent of government-generated cargo for
United States-flag vessels in commerce in which the United States vessels face
competition from foreign-flag vessels, i.e., import or export foreign commerce.
Because foreign-flag vessels are already excluded by operation of the Jones
Act from domestic trade, DOT contends that government-procured or owned
cargoes shipped in such commerce should not be included in the calculation of
Cargo Preference Act compliance. DOT points out that the effect of allowing
Jones Act cargoes to be included in the Cargo Preference Act calculation would
be to reduce the share of foreign trade that must be reserved to United States-
flag commercial ships — a result DOT contends is “entirely inconsistent” with
the purpose of the Cargo Preference Act.
DOE’s position is that the plain language of the Cargo Preference Act covers
all government-procured or owned cargoes, which would include Alaskan oil
shipments, and that, while the Act may have been passed primarily to deal with
foreign cargoes exported from or imported into the United States, the legisla­
tive history of the Act does not demonstrate any clear congressional intent to
limit that language to foreign cargoes. As a policy matter, DOE maintains that
exclusion of Alaskan oil shipments from the calculation of its Cargo Preference
Act share for the SPR program would substantially increase the overall cost of
acquisition of oil for the SPR, inconsistently with the goal of minimizing the
cost of the SPR, see 42 U.S.C. § 6231,6 particularly if DOE is required to make
up shortfalls from the 50 percent level for prior years.7
The question is a close and novel one, and the arguments made in support of
both positions have been skillfully presented and have considerable merit.
After a careful review of the memoranda provided to us, an independent review
of the legislative history of the Cargo Preference Act, and additional research,
we conclude that DOE may include Jones Act shipments of Alaskan oil in the
calculation of its overall 50 percent Cargo Preference Act compliance level for
the SPR program.
6 A lthough DOE notes that “ m inim ization o f the cost o f the Reserve” is an objective set forth in the Energy
Policy and Conservation A ct, 4 2 U.S.C. §§ 6231-6422, it does not assert that the SPR program itse lf has been
exem pted from the C argo Preference Act.
7 For calendar year 1982 alone, DOE calculates that it would be in com pliance w ith the Cargo Preference
Act, whether or not A laskan oil shipm ents are counted. For the years 1981-82, DOE states that it would be in
compliance with the C argo Preference A ct SO percent share if A laskan oil shipm ents were included; if such
shipments w ere excluded, the share o f SPR oil shipm ents carried in United States flag-com m ercial vessels
would fall to roughly 39 percent. For the period 1977-1982, covenng m ost o f the acquisition for the SPR, the
Cargo Preference Act com pliance percentage including Alaskan shipments would be either 48.9 percent (if
Naval Petroleum Reserve exchanges are excluded, see below) o r 46.3 percent (if N aval Petroleum Reserve
exchanges are included); w ithout Alaskan oil shipments, the compliance figure would be 41.9 percent
(excluding N aval Petroleum R eserve exchanges) or 38.6 percent (including Naval Petroleum R eserve ex­
changes). To the extent D OE is required to make up any shortfall from the 50 percent level, it w ould have to
do so by using relatively expensive U nited States com m ercial vessels, which w ould increase the overall cost
o f SPR acquisitions.
143
Our touchstone in reaching that conclusion is “the familiar canon of statu­
tory construction that the starting point for interpreting a statute is the language
of the statute itself. Absent a clearly expressed legislative intention to the
contrary, that language must ordinarily be regarded as conclusive.” Consumer
P roduct Safety C om m ’n v. G T E Sylvania, 447 U.S. 102, 108 (1980); see also
U nited States v. Turkette, 452 U.S. 576,580 (1981); United States Lines, Inc. v.
Baldridge, 677 F.2d 940, 944 (D.C. Cir. 1982).
On its face the language o f the Cargo Preference Act covers all government-
procured or owned cargoes transported on ocean vessels, which would include
government cargoes transported between United States ports, as well as car­
goes transported to or from a foreign port. The Act applies “/ w jhenever the
United States shall procure . . . equipment, materials, or commodities within or
without the United States.” 46 U.S.C. § 1241(b) (emphasis added). The Act
carves out certain explicit exceptions to the 50 percent United States-flag
vessel requirement, but does not make any specific exception for cargo that is
subject to the Jones Act 100 percent United States-flag requirement, or any
general exception for cargoes transported in trades in which there is, by
operation of statute, no foreign competition.8
DOT urges that we must interpret that language in light of the Act’s legisla­
tive history, which DOT maintains demonstrates a clear congressional intent
that the 50 percent United States-flag requirement should apply only to cargoes
shipped in trades in which the United States vessels face foreign competition.
In order to reach the conclusion advocated by DOT, we would have to infer a
further exception, in addition to the explicit exceptions in the Act, for Jones Act
cargoes. DOT suggests that the implied exception would cover only cargoes
that must be transported in United States vessels pursuant to the first clause of
the Jones Act; DOT takes the position that domestic shipments that may be
made in foreign vessels, pursuant to the third proviso of the Jones Act, would
be covered by the general language of the Cargo Preference Act.9
In general, we find the legislative history of the Cargo Preference Act to be
inconclusive on the question of congressional intent. We are unwilling on the
basis of that history to infer a specific exception, from the broad language used
by Congress, for government cargoes that are otherwise subject to the Jones Act.10
8 Specifically, the A ct does not ap p ly to cargoes carried in vessels o f the Panam a Canal C om pany, or to
certain vessels rebuilt abroad, if the o w n e r notified the M aritim e A dm inistration prior to Septem ber 21, 1961,
o f its intent to docum ent the vessel u n d e r United States registry. 4 6 U.S.C. § 1241(b).
9 T he th ird proviso o f the Jones A ct exem pts from the exclusive U nited States-flag transportation require­
m ent “m erchandise transported betw een points w ithin the continental United States, including Alaska, over
through r o u te s . . . recognized by the In terstate C om m erce C om m ission for which routes rate tariffs have been
o r s h a ll. . . be filed w ith [the ICC] w hen such routes are in part over C anadian rail lines and their own or other
connecting w ater fa cilities.” 46 U .S.C. § 883.
10 W e note that, as a general matter o f statutory construction, im plied exceptions are disfavored, especially
if the statute contains an express ex cep tio n . See, e.g.. C onsum er Product Safety C om m ’n v. GTE Sylvania,
447 U .S. at 108; A n dru s v. Glover C onstr. Co., 446 U.S. 608, 6 1 6 -1 7 (1980); see generally 2A Sands,
S u th erla n d on Statutory Construction (4th ed. 1973). T his principle would not necessarily preclude us, in a
p ro p er case, from reading particular statutory language narrow ly in order to im plem ent clear congressional
intent. H ow ever, as w e discuss above, the legislative history o f the C argo Preference Act is not clear on this
point, and w e are therefore unwilling to infer the exception DOT suggests.
144
As DOT points out and DOE acknowledges, the primary impetus for passage
of the Cargo Preference Act was to promote the United States shipping industry
against low-cost competition from foreign flag vessels, by reserving to United
States-flag vessels a “substantial portion” of cargoes over which the United
States has some control. DOT notes that the congressional debates and reports
on S. 3233, which became the Cargo Preference Act, contain numerous state­
ments emphasizing that the purpose of the bill was to assure to privately owned
United States merchant flag vessels a “substantial portion of the water-borne
export and import foreign commerce,” in which those vessels faced massive
foreign competition. See, e.g., S. Rep. No. 1584, 83d Cong., 2d Sess. 1 (1954);
H.R. Rep. No. 2329, 83d Cong., 2d Sess. 1 (1954); 100 Cong. Rec. 4158-59
(1954) (remarks of Sen. Butler).
These statements, however, do not necessarily indicate that Congress in­
tended that the bill, despite its broad language, would apply only to commerce
in which United States-flag vessels face foreign competition.11 We find it
significant that the bill was intended to apply to two distinct types of cargoes:
foreign-aid cargoes that are furnished or financed by the United States for the
benefit of another nation, which necessarily will be “foreign” cargoes, and
cargoes procured by the United States for its own use, which as a practical
matter could be foreign or domestic. Most of the legislative history focuses on
the first type of cargo, and therefore emphasizes that the primary applicability
of the bill would be with respect to foreign- cargoes.12
The language used in the legislative history to describe the obligations
imposed with respect to cargoes obtained by the United States for its own use,
however, is not restricted to foreign cargoes. For example, the House Report
states that the bill would apply in four situations:
(1) Where the United States procures, contracts, or otherwise ob­
tains for its own account equipment, materials, or commodities;
11 In support o f its reading o f the legislative history and purpose o f the Cargo Preference A ct, DOE cites
recent statem ents made by S enator Slade Gorton, C hairm an o f the Senate Commerce C om m ittee’s M erchant
M arine Subcommittee, during the S ubcom m ittee's June 16, 1982 oversight hearings on adm inistration of the
Act, as well as recent correspondence from the chairm an and ranking mem ber o f the House M erchant Marine
and Fisheries Com m ittee and the chairm en o f the H ouse Committee on Energy and Commerce Subcom m ittee
on Fossil and Synthetic Fuels. Although these statem ents m ight reflect the view s of those particular
legislators on w hether Jones Act shipm ents should, as a m atter o f current legislative policy, be included in
C argo Preference A ct calculations, they may not be accorded significant w eight in determ ining C ongress'
intent when it passed the C argo Preference Act in 1954. Even contem poraneous remarks o f individual
legislators are not controlling in analyzing legislative intent. M oreover, the “views o f a subsequent Congress
form a hazardous basis for inferring the intent o f an earlier one.” C onsum er P roduct Safety Com m 'n v GTE
Sylvania, 447 U.S. at 117 (quoting United States v. Price, 361 U.S. 304, 313 (I960)).
12 For exam ple, the legislative history behind inclusion o f the phrase “w ithin or w ithout the U nited States”
em phasizes that C ongress’ prim ary purpose was to reach “off-shore procurem ent” foreign-aid c argoes — i.e.,
situations in which the U nited States purchased o r financed the purchase of cargoes in one foreign country,
for shipment to another foreign country. See, e.g., 100 C ong. Rec. 41 5 8 -5 9 (1954) (remarks o f Sen. Butler).
The language “ without the U nited States” was intended to assure that the transportation o f such cargoes
w ould be subject to the 50 percent preference requirem ent. This legislative history is not, how ever, necessar­
ily inconsistent with the conclusion that the 50% preference share m ight also apply to domestic cargoes, but
rather reflects C ongress’ principal focus on foreign aid-type cargoes. See generally United States Lines, Inc.
v. Baldridge, 677 F.2d at 944.
145
(2) furnishes equipment, materials, or commodities to or for the
account of any foreign nation without provision for reimbursement;
(3) advances funds or credits; or
(4) guarantees the convertibility of foreign currencies in con­
nection with the furnishing of such equipment, materials, or
commodities.
H.R. Rep. No. 2329, supra, at 1-2. There is no suggestion in the language used
to describe government-procured or owned cargoes that the reach of the Act
must be limited to foreign cargoes procured by the United States.
In fact, there is some indication in the legislative history that Congress was
aware that the Act could apply to cargoes acquired domestically by the United
States for its own use. The Senate Report notes that the bill affirmed the
principle established by Congress in 1904, when it required that “vessels of the
United States or belonging to the United States, and no others, shall be
employed in the transportation by sea of coal, provisions, fodder, or supplies of
any description, purchased pursuant to law, for the use of the Army or Navy,”
Act of Apr. 28, 1904, ch. 1766, 33 Stat. 518, as amended, 70A Stat. 146 (1956)
(codified at 10 U.S.C. § 2631). See S. Rep. No. 1584, supra, at 2. The 1904
legislation, which was not repealed by the 1954 Cargo Preference Act, is
clearly not limited to transportation of foreign cargoes, but applies also to
cargoes acquired domestically by the Army or Navy. See generally 38 Cong.
Rec. 2464-65 (1904) (remarks of Rep. Perkins) (quoted in 43 Comp. Gen. 792,
797-98 (1964)).
Our conclusion that the language of the Cargo Preference Act applies to
domestic, as well as foreign, cargoes has some support in a 1964 decision of the
Comptroller General with respect to application of the 1904 act cited above, the
Cargo Preference Act, and the Jones Act to a proposed trainship service
between the United States and Alaska, via Canada. With respect to the applica­
bility of the Cargo Preference Act, the Comptroller General stated that:
The 1954 Cargo Preference Act by amending section 901 of
the Merchant Marine Act of 1936, 49 Stat. 2015, 46 U.S.C.
§ 1241, provided permanent legislation covering the transporta­
tion of a substantial portion of waterborne cargoes in United
States-flag vessels. In H. Rept. No. 80, Administration of Cargo
Preference Act, 84th Congress, 1st Sess., page 2, it is stated that
the 50-percent provisions of the 1954 Cargo Preference Act are
to apply “in four kinds of situations” the first being where the
United States “procures, contracts or otherwise obtains for its
own account equipment, materials, or commodities,” and the
remaining three covering transactions involving foreign sub­
jects or nations. This fir s t situation is not restricted in terms to
either fo reig n or dom estic commerce. In harmony with the basic
maritime policy of the United States as stated in section 101 of
146
the Merchant Marine Act of 1936,46 U.S.C. § 1101, and on the
basis of the language alone, the 1954 act might be regarded as
relating to Government waterborne cargo transported between
p oin ts in the United States.
43 Comp. Gen. 792, 802 (1964) (emphasis added). The Comptroller General
did not, however, find it necessary in that decision to determine whether the
Act covers transportation in domestic, as well as foreign commerce.
We do not find persuasive DOT’s further argument that inclusion of Jones
Act cargoes in the calculation of DOE’s Cargo Preference Act share for the
SPR program would be so inconsistent with the purpose of the Cargo Prefer­
ence Act that we must imply an exception from that Act for Jones Act ship­
ments. The purpose of both acts, however it may be characterized, is the same:
to reserve cargoes for United States-flag vessels in order to promote and protect
the United States shipping industry, which may be called upon in times of war
or national emergency to play a vital sealift role in supplying American forces.
The Cargo Preference Act achieves this purpose by requiring United States
agencies to reserve a substantial portion of their cargoes for United States-flag
commercial vessels. The Jones Act achieves that purpose by reserving all
domestic coastwise trade to United States vessels.13 In practical terms, we
understand that allowing Jones Act cargoes of Alaskan oil to be counted in
DOE’s Cargo Preference Act share for the SPR program may disadvantage
United States-flag tankers in the foreign crude oil trades, because inclusion of
Jones Act shipments would lower the ;percentage of foreign oil cargoes that
must be shipped on United States vessels in order to reach the 50 percent Cargo
Preference Act share. However, we do not understand that the effect of inclu­
sion of the Jones Act shipments will be so great as to undermine or frustrate the
purposes served by the Cargo Preference Act, and we cannot say that this result
is so contrary to Congress’ intent in enacting the Cargo Preference Act that it
would justify an Executive Branch revision of the statutory language. See
generally United States v. American Trucking A s s ’n, 310 U.S. 534,543 (1940).
DOT has also argued that, as a matter of statutory construction, the Cargo
Preference Act must be interpreted to cover only cargoes transported in trades
in which United States-flag ships face foreign competition, because the Act
would be unnecessary in a domestic trade from which foreign-flag vessels are
already excluded. Therefore, DOT contends, it would be “inconsistent with
accepted norms of statutory construction to interpret the Cargo Preference Act
to apply to a trade where it was unneeded.” The question we address here,
however, is not whether, when the United States procures cargoes that are
13 W e see no reason here to address the effect o f the A ttorney G en eral's opinion in 1907 that a predecessor
statute to the Jones Act did not apply to governm ent-ow ned cargoes. See 26 Op. A tt’y Gen. 415 (1907). The
applicability o f that opinion to the Jones Act and its continued validity is, as D OT notes, open to some
question. DO E states, how ever, that the A laskan oil acquired for the SPR was bought on an f.o.b. destination
basis, so that title was held during the transportation by the private ow ner and not by the U nited States
Governm ent. The Jones A ct clearly applies to transportation o f privately ow ned cargoes, and therefore
applied to the transportation o f SPR oil.
147
subject to the Jones Act, it must also comply with the Cargo Preference Act. If
that were the question, we might concur with DOT’s analysis, because it would
arguably be superfluous to require compliance with the Cargo Preference Act’s
50 percent United States-flag ship requirement in a situation in which the Jones
Act already requires 100 percent United States-flag ship carriage. However, the
question we address is whether, when the United States engages in a program
of acquisition that includes both Jones Act and non-Jones Act shipments, it
may count the Jones Act shipments towards its overall Cargo Preference Act
share. Seen in that light, we do not believe the Cargo Preference Act can be
regarded as superfluous, because it would still require the agency to take
necessary and practicable steps to reach an overall 50 percent compliance
level.14
In sum, while the arguments made by DOT in support of its interpretation of
the Cargo Preference Act have considerable merit, we believe in this case that
the plain language of the statute should prevail. Therefore, it is our opinion that
shipments of Alaskan oil by or on behalf of DOE for the SPR may be counted in
calculation of DOE’s Cargo Preference Act share for the SPR program.
B. Exchange o f NPR Oil
The first of the two questions posed separately by DOE also arises out of the
SPR program, but involves interpretation of the language of § 804(b) of the
Energy Security Act (ESA), codified at 10 U.S.C. § 7430(k), that allows the
Secretary of Energy to exchange oil from the NPR for oil to be placed in the
SPR “without regard to otherwise applicable Federal procurement statutes and
regulations.” The question posed by DOE is whether the Cargo Preference Act
may be considered to be an “otherwise applicable Federal procurement statute”
within the meaning of § 804(b) of the ESA, which may therefore be waived by
the Secretary of Energy.
We concur with DOE’s legal conclusion that, at least for the purpose of
§ 804(b), the Cargo Preference Act would be an “otherwise applicable Federal
procurement statute,” which may be waived by the Secretary of Energy if he
determines that application of the Cargo Preference Act would hamper efforts
to exchange NPR oil for other oil to be placed in the SPR.15 Although the terms
of the Cargo Preference Act do not expressly characterize the Act as a “pro­
curement” statute, the Act applies, inter alia, when the United States “pro­
cures” goods to be transported by ocean vessels. See 46 U.S.C. § 1241(b).
Certainly in practical terms the Cargo Preference Act regulates the government’s
procurement of ocean transportation services and the transportation by vessel
14 In fact, it appears to us to be possible that some shipm ents m ade betw een dom estic ports could be carried
on fo reig n -flag vessels, pursuant to th e third proviso o f the Jones Act or to w aivers o f the Jones Act
requirem ents. D O T has noted that, upon occasion, Jones Act w aivers have been granted for governm ent-
ow ned cargo. In that event, it would c learly not be superfluous to apply the Cargo Preference Act to those
dom estic cargoes, in o rd er to assure a 50 percent overall share to U nited States-flag vessels.
15 W e do not suggest here that the C arg o Preference A ct w ould necessarily also be considered a “Federal
procurem ent statute” under a different statutory schem e.
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of commodities procured by the government, and is an integral part of the
acquisition process.16
In addition, the purpose of the waiver authority in § 804(b) supports the
conclusion that the Cargo Preference Act can be considered a “procurement
statute” for the purpose of exchanges of NPR oil. Although the legislative
history of the ESA does not list or otherwise describe in detail what is included
in the term “Federal procurement statutes and regulations,” the purpose of the
waiver authority is clearly to grant the Secretary of Energy sufficient flexibility
to use the exchange authority effectively to meet the pressing need to increase
the fill rate of the SPR. See H.R. Rep. No. 1104, 96th Cong., 2d Sess. 317-18
(1980). To the extent that it regulates some aspect of the acquisition process,
and could substantially frustrate efforts by the Secretary of Energy to use the
authority granted in the ESA to exchange NPR oil, we believe the Cargo
Preference Act is a “procurement” statute covered by the ESA. Therefore if, in
the Secretary of Energy’s judgment, limiting the NPR exchange in order to
assure 50 percent Cargo Preference Act shipping would have frustrated the
objectives of the ESA, reliance on the waiver authority in § 804(b) to permit
the exchange without regard to the Cargo Preference Act would be consistent
with the letter and the spirit of the ESA. Any resulting shortfall in meeting
Cargo Preference Act requirements for the NPR exchange should thus not be
counted as a Cargo Preference Act deficiency.
We take no view, however, as to whether the Secretary of Energy has
actually waived or could yet waive applicability of the Cargo Preference Act to
NPR exchanges that have already taken place. DOT takes the position that the
ocean transportation of foreign oil delivered to the SPR in exchange for NPR
oil was included in calculating DOE’s existing obligations under the inter­
agency agreement, and therefore DOE cannot now maintain that such ex­
changes should be excluded from calculation of its Cargo Preference Act
compliance for past years. DOE asserts that the agreement does not address
treatment of NPR exchanges, and therefore that the Secretary of Energy is not
barred by the agreement from exercising his waiver authority.17
16 The definition o f the term “procurem ent” as used in the Federal Procurem ent Policy Act A m endm ents o f
1979, Pub. L. No. 9 6 -8 3 , § 3, 93 Stat. 649 (41 U.S.C. § 403(b)), is certainly broad enough to cover the C argo
Preference Act. That definition reads as follows:
As used in this ch ap ter the term “procurem ent” includes all stages of the acquisition process,
beginning w ith the process for determ ining a need for property and services through to the
Federal G overnm ent’s disposition o f such property and services.
Sim ilarly, the definition o f “procurem ent” contained in the Federal Procurem ent Regulations includes the
“acquisition (and directly related m a tte rs ). . . o f personal property and non-personal services,” which w ould
also appear broad enough to cover C argo Preference Act requirem ents. FPR § 1-1.209. Finally, w e note that
rules governing Cargo Preference Act com pliance are included in the Federal Procurem ent Regulations and
the Defense Acquisition R egulations. FPR § 1 -19.108-2; DAR § 1-1404.
17 DO E does not address w hether the Secretary has m fact exercised that authority for som e or all NPR
exchanges, o r what action w ould be necessary to exercise that authority. We understand from conversations
with DOE that no official w aiver action was taken at the tim e the NPR exchange cargoes w ere acquired.
Section 804(b) o f the ESA does not explicitly require such form al action and, to o u r know ledge, there are no
regulations that establish particular procedures o r prerequisites for such w aivers. As a m atter of logic,
how ever, it seems to us that the w aiver authority should be exercised at the time o f acquisition o f the cargoes.
Continued
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As we were not privy to the negotiations that led to the interagency agree­
ment, we are not in a position to determine whether the treatment of past NPR
oil exchanges was resolved during those negotiations. We recommend that this
issue be addressed again by DOE and DOT and, if necessary, resolved at a
higher level within the Executive Branch.
C. R em edies f o r Shortfalls in Cargo Preference A ct Compliance
The second question posed separately by DOE concerns the available rem­
edies under the Cargo Preference Act for a calendar year shortfall in United
States-flag vessel shipments. We understand that the Maritime Administration
(MarAd), which is the component of DOT responsible for administering the
Cargo Preference Act, see 46 U.S.C. § § 1 1 14(b), 1122(d), took the position in
discussions and correspondence with DOE, prior to negotiation of the inter­
agency agreement, that annual shortfalls in meeting the 50 percent United
States-flag ship share must be made up in succeeding years. DOT now also
asserts that in the interagency agreement DOE agreed, independently of its
undertaking to make up its 1981 Cargo Preference Act deficiency and to
transport at least 50 percent of foreign oil delivered to the SPR on United
States-flag tankers — both o f which are contingent to some degree on issuance
of our opinion here — that it would carry forward calendar year deficits or
surpluses in calculating Cargo Preference Act requirements for United States-
flag vessels in future years.
For its part, DOE asserts that it is not required, as a matter of law, to carry
deficiencies forward from one year to the next in order to reach the 50 percent
level, and that there had been, at least prior to 1980, a “longstanding” agree­
ment between MarAd and DOE that Cargo Preference Act compliance would
be measured on a calendar year basis, without carrying forward either a surplus
or a deficiency from one year to the next. With respect to the effect of the
interagency agreement, DOE maintains that its obligation to carry forward
deficits and surpluses is contingent on the issuance of an opinion on the
question jointly referred to the Attorney General, and therefore ceases with the
issuance of that opinion.
The fundamental disagreement between DOE and DOT as to what they
agreed upon in the interagency agreement makes it impossible for us to provide
specific guidance to either agency with respect to remedying shortfalls in
Cargo Preference Act compliance.18 Obviously, the method of complying with
17 (. . . continued)
w heo the Secretary can make a determ ination that com pliance w ith the C argo Preference Act fo r those
p a rtic u la r cargoes w ould frustrate the D ep artm en t's ability to m aintain or increase the SPR fill rate to levels
m andated by C ongress. W e have some d o u b t that the w aiver authority in the ESA w as intended to provide a
post hoc rationalization fo r overall program m atic shortfalls in an a g en cy 's Cargo Preference Act compliance.
18 A t best, the interagency agreement is am biguous on this point. Subparagraph 1(D) of the agreem ent
recites in p art that “commencing w ith calendar year 1981, deficits from and surpluses over 50% in the
calculation o f the SP R ’s cargo preference obligation w ill be cum ulative, to be carried forward in calculating
the requirem ents for U nited States-flag vessels in future years." DOG m aintains that this obligation is subject
C ontinued
150
the Act can be a proper matter for negotiation and agreement between MarAd,
which is charged with administering the Act, and a federal agency, such as
DOE, that ships cargoes subject to the Act. We would not disturb such an
agreement unless it were predicated on an incorrect reading of the applicable
law and regulations — a conclusion we could not draw with respect to either
interpretation advanced here.19 We are not the appropriate office within the
Executive Branch to resolve the questions of fact and policy that should have
been addressed by both agencies in the course of negotiation of the interagency
agreement, or that must be addressed now in order to resolve the outstanding
disagreement between those agencies. We suggest therefore that DOT and
DOE attempt to resolve that disagreement in further discussions between the
two agencies or, if need be, with the participation of other appropriate Execu­
tive Branch officials.
Ill
We have considered carefully the thorough presentations by both agencies
with respect to the application of the Cargo Preference Act to SPR shipments of
18 (. . . continued)
to the general condition in paragraph 1 that the obligations each agency undertakes last “until such tim e as the
A ttorney General may rule affirm atively” on the issue presented by both agencies for decision. A lthough the
structure o f the agreem ent appears to support D O E’s position that this general condition was intended to
apply to all obligations undertaken in subparagraph (A) through (D) o f the agreem ent, the language used in
subparagraph (D) suggests an independent obligation. In addition, if DOE is correct in its interpretation of
subparagraph (D), it appears that the subparagraph is largely redundant with subparagraphs (B) and (C),
which outline specific rem edies for D O E 's 1981 Cargo Preference Act shortfall.
19 We can provide some guidance to both agencies on the issue w hether an agency, as a m atter o f law, is
required to reach the SO percent United States-flag ship level established in the Cargo Preference Act. We
believe it is clear that the Act does not impose an absolute duty on federal agencies to ship 50 percent o f the
cargo of a particular program (or o f the agency) in United States-flag vessels, regardless o f the availability of
such vessels or o f unforeseen circum stances that might prevent an agency from reaching the 50 percent level.
An early version o f S. 3233 w ould have set 50 percent as a mandatory minimum com pliance level, by
requiring that “a t lea st 50 p er centum o f the gross tonnage . . which may be transported on ocean vessels
shall be transported on privately-ow ned United States-flag com m ercial vessels.” S. Rep. No. 1584, supra , at
2 (em phasis added). The bill w as subsequently am ended, however, to require only that agencies “take such
steps as may be necessary and practicable to assure that at least 50 per centum . . . ” Id. (em phasis added). In
discussing this am endm ent. Senator Butler, the sponsor o f the bill, specifically noted that the “unequivocal
provision for shipm ent o f at least 50 percent o f all aid or federally ow ned or financed cargoes was softened to
require only such steps as may be reasonable and practicable to assure shipm ent o f at least 50 percent in
American bottom s.” 100 Cong. Rec. 8228 (1954) (remarks o f Sen. Butler). M oreover, the Act by its terms
requires 50 percent shipm ent in U nited States-flag vessels only “to the extent such vessels are available at fair
and reasonable rates for U nited States-flag com m ercial vessels.” 46 U.S.C. § 1241(b).
T he language o f the statute, particularly when read in light o f its legislative history, therefore clearly
contem plates that agencies may not be able to meet the 50 percent level — i.e., if, despite the best efforts of
the agency, it could not arrange for 50 percent shipment o f its cargo on U nited States-flag vessels, or if United
States-flag vessels were not available for particular shipm ents at fair and reasonable rates for such vessels.
Therefore, we do not believe that, as a m atter o f law, a federal agency is required to m eet an absolute 50
percent m inimum in its shipm ents o f cargo subject to the C argo Preference Act.
If M ar A d 's position on D O E’s obligation to remedy C argo Preference Act deficits were predicated on the
legal assum ption that the Act requires DOE to reach a m inimum 50 percent United States-flag vessel share
for the SPR program , we believe it would have to be revised to reflect the legal conclusion we have ju st
outlined. However, w e do not understand that to be M arA d’s position, and therefore cannot provide addi­
tional guidance on the issue raised by DOE.
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Alaskan oil, and have concluded that the plain language of the Cargo Prefer­
ence Act allows such shipments to be included in DOE’s calculation of its
Cargo Preference Act compliance for the SPR program. We understand that
our analysis of this issue will resolve much of the actual dispute between DOT
and DOE with respect to DOE’s Cargo Preference Act compliance obligations.
With respect to the two questions raised independently by DOE, however, we
cannot fully resolve the disagreement between DOT and DOE, because of the
continuing controversy between those agencies as to the intent and effect of
their interagency agreement.
T h eo d o r e B. O lso n
Assistant Attorney General
Office o f Legal Counsel
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