VES-3-02 CO:R:P:C 110967 LLB

Mr. Robert W. McCormick
Operations Manager
Western Alaska Contractors, J.V.
6120 A Street
Anchorage, Alaska 99518-1817

RE: Applicability of the coastwise laws to the transportation of certain persons and equipment via hovercraft between coastwise points

Dear Mr. McCormick:

Reference is made to your letter of April 4, 1990, in which you request that we provide a ruling on the possible applica- bility of the coastwise transportation of persons and equipment within Prince William Sound, Alaska.


It is proposed that workmen and their equipment be trans- ported between coastwise points within the confines of Prince William Sound aboard a foreign-built hovercraft of less than 5 net tons. The workmen transported would all be employees of the owner and/or operator of the hovercraft, and it would be operated under one of two circumstances:

1. A U.S. citizen would own and operate a foreign-built hovercraft, and would transport his own employees and their equipment to and from coastwise worksites ashore.

2. A U.S. citizen would bareboat charter and operate a foreign-owned and foreign-built hovercraft. Persons transported to shore- side worksites would be employees of the bareboat charter party operating the hovercraft, and would be accompanied by their work equipment.


Whether the transportation of workmen and their equipment between coastwise points on a non-coastwise qualified hovercraft of less than 5 net tons, either owned by or bareboat chartered to a U.S. citizen, is prohibited under the coastwise laws.


The Customs Service has held that hovercraft are considered "vessels" for purposes of the navigation laws, of which the coastwise passenger statute is one (see T.D. 56390(1), April 8, 1965). This Treasury Decision remains a viable statement of agency policy, having been consistently cited since its issuance (Ruling Letter 104772, dated October 12, 1980). It is settled, therefore, that hovercraft are "vessels."

Generally, the laws referred to as the coastwise laws (e.g., 46 U.S.C. App. 289 and 883, and 46 U.S.C. 12106, and 12110) prohibit the transportation of merchandise or passengers between points in the United States embraced within the coastwise laws by any vessel other than a vessel built in, properly documented under the laws of, and owned by citizens of the United States (i.e., a coastwise-qualified vessel). Points embraced within the coastwise laws include all points within the territorial and navigable waters of the United States. The United States territorial waters consist of the territorial sea, defined as the belt, 3 nautical miles wide, adjacent to the coast of the United States and seaward of the territorial sea baseline.

Pursuant to section 67.11-1, Coast Guard Regulations (46 CFR 67.11-1) vessels which are of less than 5 net tons cannot be documented under the United States flag by the Coast Guard. However, qualified vessels of less than 5 net tons are not precluded from engaging in the coastwise trade simply because they cannot be documented under the laws of the United States. Section 4.80(a), Customs Regulations (19 CFR 4.80(a)), lists the requirements for vessels which are qualified to engage in the coastwise trade. Subparagraph (2) of this section (19 CFR 4.80(a)(2)) provides that no vessel exempt from documentation (e.g., of less than 5 net tons) shall transport any passengers or merchandise between United States coastwise points unless the vessel is owned by a citizen of the United States and is entitled to or, except for its tonnage, would be entitled to be documented with a coastwise license.

Section 27 of the Act of June 5, 1920, as amended (41 Stat. 999; 46 U.S.C. App. 883, often called the Jones Act), provides, in pertinent part, that:

No merchandise shall be transported by water, or by land and water, on penalty of forfeiture of the merchandise (or a monetary amount up to the value thereof as determined by the Secretary of the Treasury, or the actual cost of the transportation, whichever is greater, to be recovered from any consignor, seller, owner, importer, consignee, agent, or other person or persons so transporting or causing said merchandise to be transported), between points in the United States * * * 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 * * *.

The passenger coastwise law, 46 U.S.C. App. 289, provides that:

No foreign vessel shall transport passengers between ports or places in the United States, either directly or by way of a foreign port, under a penalty of $200 for each passenger so transported and landed.

Pursuant to 46 U.S.C. 12106 and 12110 and their predecessors (46 U.S.C. 65i and 65m and, before them, 46 U.S.C. 11) and consistent with 46 U.S.C. App. 883, the coastwise merchandise law, the Customs Service has consistently held that the prohibition in 46 U.S.C. App. 289 applies to all non-coastwise- qualified vessels.

Under a bareboat or demise charter, the owner relinquishes complete control and management to the charterers for the charter period. If the owner retains any degree of management or control, however slight, the charter is a time or voyage charter. The decisive factor is whether complete control and management has been surrendered by the owner to the charterers so that for the charter period the charterers are in effect the owners pro hac vice (i.e., for this turn; for this one particular occasion).

Certain facts are clear in this matter:

1. It is intended that the hovercraft will engage in travel between points embraced within the coastwise laws.

2. The hovercraft in question may not qualify to transport passengers or merchandise in the coastwise trade by virtue of being constructed abroad.

3. If operated under a true bareboat charter, the American vessel operator would be considered the owner for purposes of the coastwise transportation statutes.

In light of these findings, it remains to be determined whether either "merchandise" or "passengers" would be transported between coastwise points.

The term "merchandise," as used in 46 U.S.C. App. 883, is not defined for purposes of that provision. We have used the definition of "merchandise" found in section 401(c), Tariff Act of 1930, as amended (19 U.S.C. 1401(c)) in our administration of section 883. "Merchandise" is defined in section 1401(c) as meaning "goods, wares, and chattels of every description, and [including] merchandise the importation of which is prohibited ..." More specifically, in Headquarters Decision 105061, dated May 7, 1987, we held that construction equipment and materials constituted merchandise and could not be transported in a foreign-built, foreign-flag barge under section 883. Finally, we have held that it is immaterial that cargo transported may be owned by the vessel owner for purposes of section 883. Headquarters Decision 109649, 08-1-88.

Under section 4.50(b), Customs Regulations (19 CFR 4.50(b)), a passenger within the meaning of the coastwise laws is defined as "any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership or business."

As can be seen, there is no requirement that persons transported be charged either directly or indirectly for passage. Persons on commercial (non-pleasure) vessels are considered passengers unless they enjoy some status which ties them intimately to the operation, navigation, ownership, or business of the vessel. This means that it is not sufficient that they might have some direct link to a business which may, as part of its enterprise, find it necessary to operate a vessel. For example, the employees of a construction firm whose owner happens to utilize a vessel in the course of business, would be considered passengers when transported point to point. This is so because, although they have a direct relationship with the company, they have no such connection with the vessel.


A non-coastwise-qualified hoverbarge of less than 5 net tons, either owned and operated by or bareboat chartered and operated by a U.S. citizen, may not be operated in the coastwise transportation of employees of the company operating the vessel. Neither may the employees' work equipment be so transported. Such proposed transportation of passengers and merchandise is prohibited under 46 U.S.C. App. 289 and 883, respectively.


B. James Fritz
Carrier Rulings Branch