VES-3-02/07-CO:R:IT:C 111013 BEW
Mr. Gary N. Redden
5 Masters Circle
Little Rock, Arkansas 72212
RE: Coastwise Trade; Passengers; non-coastwise-qualified vessel;
46 U.S.C. App. 289; 46 U.S.C. App. 883
Dear Mr. Redden:
This is in response to a letter dated May 1, 1990,
requesting a ruling concerning the application of the Jones Act
to a proposed use of a non-coastwise-qualified vessel in
passenger carrying operations conducted outside of the U.S.
territorial waters.
FACTS:
You state that on each trip the vessel will proceed from the
point of departure (embarkation) into the Gulf of Mexico and
beyond U.S. territorial waters for one or more of the following
purposes:
1. Ocean sailing experience for beginning sailors.
2. Navigation and advance sailing instructions.
3. General recreation and relaxation.
4. Observation of marine life (No fishing activity would be
involved).
Upon completion of the planned activity, the passengers will
disembark at the point of embarkation.
You state that the operations would be conducted at the
following ports:
1. Naples, Florida
2. Marco Island, Florida
3. Destin, Florida
4. (Other ports in southwest Florida may be utilized
occasionally).
You state that in all cases the vessel would be chartered to
a single party consisting of no more than six passengers. A
captain properly certified by the U. S. Coast Guard for the
operations to be conducted would be in command of the vessel on
each trip.
In an addendum to your May 1, letter, you request approval
to operate under the same terms and conditions stated above,
except that you wish to provide temporary stops at two coastwise
ports (Key West and Dry Tortugas).
ISSUE:
Whether, under the stated facts, the use of a non-coastwise-
qualified vessel for the purposes stated in the facts would be in
violation of the coastwise passenger law, 46 U.S.C. App. 289.
LAW AND ANALYSIS:
Generally, 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 in 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.
The coastwise law pertaining to the transportation of
merchandise, 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 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 penalty of $200 for each passenger so
transported and landed.
In interpreting the coastwise laws, Customs has ruled that a
point in United States territorial waters is considered a point
embraced within the coastwise laws. The coastwise laws generally
apply to points in the territorial sea, defined as the belt,
three (3) nautical miles wide, seaward of the territorial sea
baseline, and to points located in internal waters, landward of
the territorial sea baseline, in cases where the baseline and the
coastline differ.
"Merchandise" is defined in section 1401(c) of title 19,
United States Code, to include goods, wares, and chattels of
every description. Section 883 specifically provides that, for
purposes of its provisions, "merchandise" includes valueless
material (Pub.L. 100-329; 102 Stat. 588). The transportation of
valueless material, whether or not it has commercial value, from
a point or place in the United States or point or place on the
high seas within the Exclusive Economic Zone (EEZ) as defined in
the Presidential Proclamation of March 10, 1983, to another point
or place in the United States or a point or place on the high
seas within that EEZ would also be prohibited under the
provisions of section 883.
For purposes of the coastwise laws, a vessel "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." (Section 4.50(b), Customs
Regulations.) Section 4.80a, Customs Regulations (19 CFR 4.80a)
is interpretive of section 289.
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 coastwise laws.
However, the transportation of passengers to the high seas
(i.e., beyond U.S. territorial waters) 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 purposes of the coastwise laws, 19 C.F.R.
4.50(b) (1989), 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 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 coastwise trade (e.g., to
transport merchandise or passengers other than bona fide guests
between coastwise points or entirely within territorial waters).
The United States Supreme Court stated:
To create a demise [or bareboat charter] the
owner of the vessel must completely and
exclusively relinquish "possession, command,
and navigation" thereof to the demisee.... It
is therefore tantamount to, though just
short of, an outright transfer of ownership.
However, anything short of such a transfer is
a time or voyage charter party or not a
charter party at all.
Guzman v. Pichirilo, 369 U.S. 698, 699-670 (1962); see also,
Leary v. United States, 81 U.S. 607, 611 (1871), 2B Benedict on
Admiralty 52 (6th ed. 1990).
In our review of charter arrangements to determine whether
they are bareboat charters for Customs purposes, we have held, in
addition to the above-described principles, that:
The nature of a particular charter
arrangement is a question of fact to be
determined from the circumstances of each
case. Under a bareboat charter or demise
charter the owner relinquishes complete
management 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 the 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.
In that regard, it is well established that a vessel may be
demised complete with captain if he is subjected to the orders of
the demisee during the period of the demise. Guzman, 369 U.S. at
701. Furthermore, the Customs Service has held that the mere
fact that the crew is furnished to the charterer would not render
the agreement a time charter provided the charterer had full
authority to hire, discharge, or replace the crew.
Given the foregoing definition of "passenger", the Customs
Service has held that a person being trained or receiving
instruction in the handling or navigation of a vessel, and whose
presence on board the vessel is necessarily required in order to
receive such training or instruction, is not a "passenger" within
the meaning of the coastwise laws. Accordingly, if the vessel is
chartered and used only for such training it would not be
required to have a license to engage in the coastwise trade (see
Customs Letter Rulings 109850, dated December 27, 1988 and
109287, dated February 24, 1988).
Therefore, the sole use of a non-coastwise-qualified sailing
vessel in connection with a bona fide instructional course in
sailing and navigation does not constitute coastwise trade within
the meaning of 46 U.S.C. App. 289. Legitimate equipment and
stores of the sailing school vessel for its use are not
considered merchandise covered by section 883. However, articles
transported on the vessel between points embraced within the
coastwise laws which are not legitimate stores and equipment of
the vessel are subject to section 883.
Further, all persons being carried in the vessel must be
involved with the operation, navigation, or business of the
vessel. A person who is carried on board a vessel for
recreational purposes and who pays a fee for such carriage would
be considered a "passenger" and his carriage between places in
the United States or entirely within U.S. waters would be in
violation of the coastwise laws.
Finally, a non-coastwise-qualified vessel can be used to
transport passengers on voyages to nowhere in which passengers
are transported from a point in the United States to points
outside United States territorial waters and back to the point
of the passenger's embarkation, assuming the vessel did not
touch any other coastwise point. Although this would not be so
if the voyage was for fishing, the transportation would be
permitted for sightseeing, whale watching, marine observation and
similar activities without violating the statute.
HOLDING:
1. The coastwise laws do not prohibit a charterer from
chartering a non-coastwise-qualified vessel under a bona
fide bareboat charter provided that the vessel is used for
pleasure purposes only.
2. The sole use of a non-coastwise-qualified sailing
vessel in connection with a bona fide instructional course
in sailing and navigation does not constitute coastwise
trade within the meaning of 46 U.S.C. App. 883.
3. A non-coastwise-qualified vessel can be used to
transport passengers on voyages to nowhere in which
passengers are transported from a point in the United States
to points outside United States territorial waters and back
to the point of the passenger's embarkation, assuming the
vessel did not touch any other coastwise point. Although
this would not be so if the voyage was for fishing, the
transportation would be permitted for sightseeing, whale
watching, marine observation and similar activities without
violating the statute.
Should you have any further questions concerning this
matter, please contact Ms. Whiting of my staff.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch