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Under the Administrative Procedure Act, when an agency initiates a rulemaking that the governing statute does not require to be undertaken "on the record," the agency is nonetheless bound to comply with the requirements for "notice and comment" rulemaking set out in 5 U.S.C.S. § 553 (1982). One requirement is that after the agency considers the comments presented by the participating parties, it shall incorporate in the rules adopted a concise general statement of their basis and purpose. 5 U.S.C.S. § 553(c). This statement need not be an exhaustive, detailed account of every aspect of the rulemaking proceedings; it is not meant to be the more elaborate document, complete with findings of fact and conclusions of law, that is required in an on-the-record rulemaking. 5 U.S.C.S. § 557(c). At the least, such a statement should indicate the major issues of policy that were raised in the proceedings and explain why the agency decided to respond to these issues as it did, particularly in light of the statutory objectives that the rule must serve.
Appellant merchant ships brought an action against the Secretary alleging that a regulation promulgated by the Department of Transportation, 46 C.F.R. § 276.3 (1985), pursuant to the Merchant Marine Act of 1936, 46 U.S.C.S. §§ 1101-1295g (1982), was invalid. The rule at issue permitted tanker vessels built with the assistance of a federal construction-differential subsidy, which had been barred from competing in domestic trade on account of that subsidy, to undertake domestic operations if they agreed to repay the unamortized portion of the subsidy plus interest during a period that began on June 6, 1985, and closed one year later (also known as the “payback rule”). The merchant ships appealed the district court judgment in favor of the Secretary.
Was the payback rule invalid?
On appeal, the court vacated the contested rule. The court held that although the rule, referred to as "the payback rule," was promulgated within the Secretary's statutory authority, the Secretary failed to fulfill her obligations to set out an adequate statement of basis and purpose for the rule. The court held that the Secretary must spell out in more detail how her decision to adopt this rule and reject alternative measures by relying on policies of competition and deregulation could be squared with the statutory objectives set by Congress.