US-SOVIET SHIP ACCORD SURROUNDED BY QUESTIONS

US-SOVIET SHIP ACCORD SURROUNDED BY QUESTIONS

Word that the Soviet Union is reflagging vessels under the flag of Cyprus stumped U.S. government officials conducting a briefing on the recently signed U.S.-Soviet maritime agreement.

The status of such vessels under the agreement, along with the pact's effect on the use of service contracts, were among several questions for which officials had no ready answers in the briefing late Tuesday.At the briefing, Warren Leback, maritime administrator, and Reginald Bourdon, the Maritime Administration's associate administrator for policy and international affairs, broke a long agency silence about the agreement. They met with reporters, representatives of the maritime industry and congressional staffers.

Mr. Leback said the five-year agreement opens up U.S. and Soviet ports under a two-day notification process and features a non-discriminatory cargo access provision for vessels of both nations. It also opens the U.S. "cross- trades" between the United States and other nations to Soviet carriers.

Peter J. Finnerty, Sea-Land Service Inc.'s vice president of public affairs, referred to reports that the Soviets are reflagging "40 or 50" vessels under the flag of Cyprus. The vessels will still be manned by Soviet crews, he said.

He asked about the U.S. rate regulation implications of the action and how those vessels will be treated under the terms of the bilateral agreement.

Mr. Bourdon said that issue "has to be examined . . . We have not dealt with that issue in the agreement." He noted, however, that the pact addresses U.S.-flag and Soviet-flag vessels only.

He said the question of whether the flag or the crew governs will have to answered.

An industry source said U.S. carriers will "take a beating" if the Soviet reflagged vessels are not subject to rate scrutiny by the Federal Maritime Commission under the 1978 Controlled Carrier Act.

Mr. Leback tried to dispel concerns about potential Soviet rate-cutting in the U.S. cross-trades.

Soviet operators "are expected to adhere to competitive rates and practices and not undercut U.S. carriers," he said. He noted that in recent years U.S. carriers have invested over $3 billion in the Pacific trades and ''we intend to protect that."

Another question was whether rate regulation under the more stringent terms of the controlled carrier act will apply to special Soviet rate deals with individual shippers, knownas service contracts, in which a shipper commits a given volume of cargo in return for a discount rate.

Mr. Leback said Soviet carriers could negotiate service contracts ''within the context of conference membership," provided the contracts do not contain "predatory or non-compensatory rates" as compared with U.S. carriers.

In a recent report, the FMC said controlled carriers "have the potential, through the use of service contracts, to accomplish what the (1984 Shipping) Act was intended to prevent: predatory, below-market pricing." The agency said the restrictions of the controlled carrier provisions of the law may not apply to service contracts.

A congressional source said legislation to clarify the situation may be necessary, but felt the commission has the power to issue an administrative decision on the issue.

Concerns about the potential impact of most-favored-nation status for the Soviets under a trade agreement were discussed. A nation with such status is not subject to the controlled carrier act.

But Mr. Bourdon said such status in a trade agreement "doesn't apply to shipping." That status has to be applied specifically for vessels before controlled carrier rate regulation would end, he said.

The agreement's consultation process for cargo forecasting and dispute settlement mechanism was explained during the meeting. But it is still

uncertain when the initial consultations will occur and when the agreement will take effect.

Mr. Bourdon said the cargo forecast process will begin "within the next few months." The agreement takes effect after an exchange of notes on the forecasts.

The Marad officials didn't know whether Soviet operators will participate in rate-setting carrier conferences.