VES-4-03-CO:R:IT:C 113362 GEV
Robert E. Tutland
2701 60th S.E.
Mercer Island, Washington 98040
RE: Coastwise Trade; Bareboat Charter; 46 U.S.C. App. 289, 883
Dear Mr. Tutland:
This is in response to your letter dated March 1, 1995, requesting a ruling regarding the
operation of your boat pursuant to a bareboat charter. Our ruling on this matter is set forth
below.
FACTS:
The CATHERINE MARIE is a Taiwanese-built vessel that had all its electronics, engines,
generators, and interior finish completed in Seattle, Washington. The U.S. citizen owner
proposes to bareboat charter the vessel. The charterers would be taking friends and/or family for
daily or weekly cruises. Pursuant to the terms of the charter agreement, a copy of which was
enclosed for Customs review, the charterers would receive no consideration from those persons
on the aforementioned cruises, nor carry or transport cargo or passengers for hire. The vessel
could not be used for any commercial purpose. It would be chartered for pleasure only.
A typical example of the proposed charters is as follows. An individual charters the
CATHERINE MARIE to take his family and out-of-town friends on a day cruise of Lake
Washington and Lake Union. He may or may not hire a captain and/or crew, depending on his
skippering abilities or desires. He and his party depart from a public or private dock and return to
the same dock at the completion of their cruise. No consideration is received from members of
his party, no cargo is carried or transported, and no passengers are transported for hire.
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ISSUE:
Whether the operation of the CATHERINE MARIE, a non-coastwise-qualified vessel,
pursuant to the terms of the bareboat charter agreement under consideration, is an engagement in
the coastwise trade in violation of 46 U.S.C. App. 289.
LAW AND ANALYSIS:
Title 46, United States Code Appendix, 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 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 is more
applicable to this particular case, 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 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, 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
coastline differ.
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
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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
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.
Upon reviewing the terms of the charter agreement in question, we are of the opinion that
it is in fact a bareboat charter. Accordingly, the operation of the CATHERINE MARIE pursuant
to the provisions of the aforementioned agreement would not constitute a violation of the
coastwise laws.
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HOLDING:
The operation of the CATHERINE MARIE, a non-coastwise-qualified vessel, pursuant to
the terms of the bareboat charter under consideration, is not an engagement in the coastwise trade
in violation of 46 U.S.C. App. 289.
Sincerely,
Arthur P. Schifflin
Chief
Carrier Rulings Branch