VES-4-01/03-CO:R:P:C 110984 GV
John A. Grehan
302 Stewart Road
Midland, Ohio 45148
RE: Bareboat Charter; Report of Arrival; Entry; Clearance
Dear Mr. Grehan:
This is in response to your undated letter posing a series
of questions to which you request written rulings. Our findings
are set forth below.
FACTS:
You are the owner of a U.S.-flag vessel. In view of the
questions you pose we assume that the subject vessel is foreign-
built and therefore cannot qualify for a coastwise endorsement.
You further state that all stores and contents of the vessel are
intended for the personal use of the owner, his guests, or
employees. No persons are carried by the vessel other than the
owner, his guests, or employees. The specific questions you pose
are as follows:
1. I am the owner of a sailing vessel that I wish to place
in charter service. I have been led to understand that, in order
to be valid, a "bareboat charter" contract may not include any
geographical restrictions as to where the charterer may take the
boat. The standard contract used by the charter manager I am
considering placing my boat with has such a restriction. The
restriction is due to insurance requirements. If the boat is
removed from the listed geographical area, the insurance no
longer covers. In light of this, would a "bareboat charter"
using such a contract still be considered a true "bareboat
charter"?
2. Would a charter contract without any geographical
restrictions, but containing language defining the area of
insurance coverage and stating the charterer would be responsible
for the vessel and any necessary insurance coverage if the vessel
were taken out of the defined area be considered a true "bareboat
charter" contract?
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3. Would it still be considered a "bareboat charter" if a
group of people sharing expenses all signed the charter
agreement?
4. Is a documented vessel with both commercial registry and
recreation endorsements on its certificate of documentation
required to clear Customs outbound to a foreign port if the
operation is recreational in nature?
5. Is a documented vessel with both commercial registry and
recreation endorsements on its certificate of documentation
required to clear Customs outbound to international waters if the
operation is recreational in nature?
6. In question number five, if the vessel had no contact
with any other vessel while in international waters, is it
required to clear Customs inbound?
7. If the owner of a documented vessel with both commercial
registry and recreation endorsements on its certificate of
documentation uses the vessel to travel to a foreign port with
his family, would that be considered recreational in nature?
8. Is the "bareboat charter" of a documented vessel with
both commercial registry and recreation endorsements on its
certificate of documentation considered to be recreational in
nature?
9. Is the vessel in question number eight required to clear
Customs if it intends to venture into international waters?
10. Is the vessel in question number eight required to
clear Customs inbound if it has no contact with any other vessel
while in international waters?
11. Is the vessel in question number eight required to
clear Customs outbound to a foreign port?
ISSUE:
Whether the use of a U.S.-owned, U.S.-flag vessel as
described above is in compliance with the applicable Customs
laws and regulations relating to coastwise trade, report of
arrival, entry and clearance.
LAW AND ANALYSIS:
Title 46, United States Code Appendix, section 883 (46
U.S.C. App. 883) often called the "Jones Act", provides, in part,
that no merchandise shall 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
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any vessel other 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 (i.e., a coastwise-qualified vessel).
Section 289 of title 46 (46 U.S.C. App. 289), which appears to be
more applicable to your proposal, prohibits the transportation of
passengers between points in the United States embraced within
the coastwise laws, either directly or by way of a foreign port,
in a non-coastwise-qualified vessel (see above). We note that
for purposes of section 289, "passenger" is defined as " ... any
person carried on a vessel who is not connected with the
operation of such vessel, her navigation, ownership or business"
(19 CFR 4.50(b)).
In interpreting the coastwise laws (i.e., 46 U.S.C. App.
289, 883) Customs has ruled that a point in the United States
territorial waters is a point in the United States embraced
within the coastwise laws. The territorial waters of the United
States 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.
In its administration of 46 U.S.C. App. 289, the Customs
Service has ruled that the carriage of passengers entirely within
territorial waters, even though the passengers disembark at their
point of embarkation and the vessel touches no other coastwise
point, is considered coastwise trade subject to the coastwise
laws. However, the transportation of passengers to the high seas
(i.e., beyond the 3 mile territorial sea) and back to the point
of embarkation, assuming the passengers do not go ashore, even
temporarily, at another United States point, often called a
"voyage to nowhere", is not considered coastwise trade. It
should be noted that the carriage of fishing parties for hire,
even if the vessel proceeds beyond territorial waters and returns
to the point of the passenger's embarkation, is considered
coastwise trade.
The Customs Service has consistently held that when a vessel
is chartered under a bona fide bareboat charter, the bareboat
charterer is treated as the owner of the vessel for the period of
the charter, and, because the owners are not considered
"passengers" for the purposes of the coastwise laws, the
charterer is not proscribed by the coastwise laws from using the
vessel during the charter for pleasure purposes only. A vessel
chartered under a charter arrangement other than a bareboat
charter (e.g., a time or voyage charter) and used in coastwise
transportation (see discussion above on the carriage of
passengers entirely in territorial waters or to the high seas or
foreign waters) would be subject to penalties under the coastwise
laws. A vessel chartered under a bareboat charter would also be
subject to penalties if the bareboat charterer used it in the
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coastwise trade (e.g., to transport passengers (other than bona
fide guests) between coastwise points or entirely within
territorial waters).
In our review of charter arrangements to determine whether
or not they are bareboat charters we have generally held that:
The nature of a particular charter arrangement is a
question of fact to be determined from the circum-
stances of each case. Under a bareboat charter or
demise charter the owner relinquishes complete man-
agement and control of the vessel to the charterer.
On the other hand, if the owner retains a degree of
management and control, however slight, the charter
is a time or voyage charter, and the vessel is deemed
to be engaged in trade. The crux of the matter is
whether complete management and control have been
wholly surrendered by the owner to the charterer so
that for the period of the charter the charterer is
in effect the owner. Although a charter agreement on
its face may appear to be a bareboat or demise
charter, the manner in which its covenants are
carried out and the intention of the respective
parties to relinquish or to assume complete
management and control are also factors to be
considered.
Section 4.60(a), Customs Regulations (19 CFR 4.60(a))
provides, in part, that "Except as otherwise provided for in this
section, every vessel bound for a foreign port or ports shall be
cleared for a definite port or ports in the order of its
itinerary ..." Section 4.60(b), Customs Regulations (19 CFR
4.60(b)) lists those vessels not required to clear including the
following: a documented vessel with a pleasure license
endorsement (see section 4.60(b)(1)); a vessel exempted from
entry under 19 U.S.C. 1441 (see section 4.60(b)(3), which
includes, pursuant to 19 U.S.C. 1441(3), licensed yachts or
undocumented American pleasure vessels not engaged in trade nor
in any way violating the Customs or navigation laws of the United
States and not having visited any hovering vessel ...); and a
vessel bound for the high seas except a vessel bound to another
vessel on the high seas to (1) Transship export merchandise which
it has transported from the U.S. to the vessel on the high seas;
or (2) Receive import merchandise from the vessel on the high
seas and transport the merchandise to the U.S. (see sections
4.60(e)(1) and (2)).
Section 4.2(a), Customs Regulations (19 CFR 4.2(a))
provides for the reports of arrival of vessels as required by 19
U.S.C. 1433. In regard to U.S.-flag vessels, 19 U.S.C. 1433
provides that immediately upon the arrival at any port or place
within the United States or the Virgin Islands, the master of any
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vessel from a foreign port or place, or any vessel of the United
States carrying bonded merchandise, or foreign merchandise for
which entry has not been made, shall report arrival at the
nearest Customs facility (see 19 U.S.C. 1433(a)(1)(A) and (C).
Section 4.3(a), Customs Regulations (19 CFR 4.3(a))
provides, in part, that except as specified in 19 U.S.C. 1441
(see applicable exceptions noted above), every American vessel
arriving in the United States from a foreign port or place shall
make entry at the nearest customhouse within 48 hours after
arrival. Section 4.3(c), Customs Regulations (19 CFR 4.3(c))
states that for purposes of the vessel entry requirements, a
"foreign port or place" shall include a vessel on the high seas
when the vessel arriving in the U.S. is returning from the vessel
on the high seas after having (1) Transported export merchandise
out of the U.S. to the vessel on the high seas and there
transshipped the merchandise to that vessel; or (2) Transported
import merchandise to the U.S. from the vessel on the high seas
after having there received the merchandise from that vessel.
Accordingly, the following responses correspond to the
questions you pose in your letter:
1. Whether a charter agreement includes geographical
restrictions as to where the charterer may take the boat is not
in and of itself determinative as to whether the agreement is
considered a "bareboat charter". In view of the fact that you
did not submit a copy of the charter agreement we are unable to
make such a determination. We have ruled that even when a
charter is described as a bareboat one, the actual circumstances
of the charter agreement control in the determination of whether
it is a bareboat charter for purposes of the coastwise laws.
Upon receipt of a copy of the charter agreement, which would
include the geographical restrictions to which you refer, we will
be able to issue a definitive ruling as to whether it is a valid
bareboat charter.
2. We reiterate that without reviewing the entire charter
agreement, we are unable to determine whether a charter
agreement without geographical restrictions, but containing
language defining the area of insurance coverage and stating the
charterer would be responsible for the vessel and any necessary
insurance coverage if the vessel were taken out of the defined
area would be considered a valid "bareboat charter" contract.
3. If, after reviewing the charter agreement, we are of the
opinion that it does constitute a valid bareboat one, the fact
that a group of people sharing expenses all signed the charter
agreement (i.e., they would be the "bareboat charterers") is
irrelevant.
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4. A documented vessel with both registry and recreation
endorsements on its certificate of documentation would not have
to clear Customs outbound to a foreign port pursuant to sections
4.60(b)(1) and (3), Customs Regulations, provided it is used
solely for recreational purposes and not to transport merchandise
or passengers in trade.
5. A documented vessel with both registry and recreation
endorsements on its certificate of documentation would not have
to clear Customs outbound to international waters pursuant to
sections 4.60(e)(1) and (2), Customs Regulations, provided it is
used solely for recreational purposes and not to transport
merchandise or passengers in trade.
6. We assume that by the term "clear customs inbound" you
mean report arrival and make entry. In question number five, if
the vessel had no contact with any other vessel while in
international waters, pursuant to sections 4.2(a) and 4.3(a) and
(c)(1) and (2), Customs Regulations, the vessel would not be
required to do either.
7. If the owner of a documented vessel with both commercial
registry and recreation endorsements on its certificate of
documentation uses the vessel to travel to a foreign port with
his family (the members of which are not considered "passengers"
for purposes of section 4.50(b), Customs Regulations), said use
would be considered recreational in nature for purposes of the
applicable Customs laws.
8. A bona fide "bareboat charter" of a documented vessel
with both commercial registry and recreation endorsements on its
certificate of documentation entitles the charterer to use the
vessel for pleasure purposes only (i.e., for recreational use)
without violating the coastwise laws. The validity of a bareboat
charter agreement allows a certain use of the vessel, the actions
of the chartering party determine whether said use is in
compliance with the terms of the charter agreement. The use of
the vessel for other than recreational purposes (i.e., the
transportation of passengers and/or merchandise between coastwise
points) invalidates the bareboat charter agreement and subjects
the vessel to penalties under the coastwise laws for any
violation thereof.
9. In regard to whether the vessel in question number eight
is required to clear Customs if it intends to venture into
international waters, see our response to question number five
above.
10. In regard to whether the vessel in question number
eight is required to clear Customs inbound (i.e., report arrival
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and make entry) if it has no contact with any other vessel while
in international waters, see our response to question number six
above.
11. In regard to whether the vessel in question number
eight is required to clear Customs outbound to a foreign port,
see our response to question number four, above.
HOLDING:
The use of a U.S.-owned, U.S.-flag vessel as described above
is in compliance with the applicable Customs laws and regulations
relating to coastwise trade, report of arrival, entry and
clearance as set forth above.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch