VES-3-RR:IT:EC 114560 LLB
Mr. Michael M. Cress
Transmarine Navigation Corporation
301 East Ocean Boulevard, Suite 570
Long Beach, California 90802-4828
RE: Coastwise trade; Sixth proviso; Empty cargo containers;
Joint Service Agreement; 46 U.S.C. App. 883
Dear Mr. Cress:
Reference is made to your letter of December 17, 1998,
received via facsimile transmission, which forwards for our
review and consideration a copy of the Joint Service Agreement
filed with the Federal Maritime Commission on behalf of the Med-Pacific Express vessel consortium. You seek our review in
relation to the transportation of empty cargo containers under
the terms of the Sixth Proviso to the Jones Act.
FACTS:
Two foreign-flag shipping lines known as Italia di
Navigazione S.P.A., and d'Amico Societa di Navigazione per
Azioni, have entered into a so-called "Joint Service Agreement",
and for the purposes of operations under that agreement are known
as Med-Pacific Express. The Joint Service Agreement was
memorialized by a filing with the Federal Maritime Commission on
May 28, 1993, which filing contained the details and extent of
the parties' cooperative efforts.
ISSUE:
Whether under the terms of the Joint Service Agreement
entered into by the parties, both partners might at all relevant
times be considered to be vessel operators transporting their
owned or leased empty shipping containers for purposes of
satisfaction of the Sixth Proviso to the Jones Act.
LAW AND ANALYSIS:
Title 46, United States Code Appendix, section 883 (46
U.S.C. App. 883), commonly 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
citizens of the United States. Section 883 was amended by the
Act of September 21, 1965 (Pub. L. 89-194, 79 Stat. 823), which
added the sixth proviso, and by the Act of August 11, 1968 (Pub.
L. 90-474, 82 Stat. 700), which amended that proviso.
The 1965 Act exempted from the provisions of section 883
the coastwise transportation of empty cargo vans, empty lift
vans, and empty shipping tanks in non-coastwise-qualified United
States-flag vessels or foreign-flag vessels, on a reciprocal
basis, when the vans and tanks are owned or leased by the owner
or operator of the transporting vessels and are being transported
for use in the carriage of cargo in foreign trade. The 1968 Act
added equipment for use with cargo vans, lift vans, and empty
shipping tanks, empty barges specifically designed for carriage
aboard a vessel, and certain empty instruments of international
traffic to the articles included within the sixth proviso. These
articles and the articles covered by the 1965 Act were required
by the 1968 Act to be owned or leased by the owner or operator of
the transporting vessel and transported for his use in handling
his cargo in foreign trade.
The 1968 Act also added stevedoring equipment and material
to the articles included within the sixth proviso. To qualify
for exemption from section 883 under the sixth proviso, the
stevedoring equipment and material must be owned or leased by the
owner or operator of the transporting vessel or owned or leased
by the stevedoring company contracting for the lading or unlading
of the vessel and the stevedoring equipment and material must be
transported without charge for use in the handling of cargo in
foreign trade.
The language of the proviso regarding containers which
requires that they be owned or leased by the owner or operator of
the transporting vessel and transported for his use in
transporting his cargo in foreign trade, has collided with
contemporary business practice in the vessel industry. Newly
emergent limited-purpose alliances of vessel owners have blurred
the clear boundaries of the proviso in terms of its application.
Whereas even arms-length dealings used to be too close for
comfort in the industry, an examination of the current landscape
reveals numerous betrothals, if not outright marriages, in the
form of "Vessel Consortia", "Vessel Sharing Agreements", and
"Joint Service Agreements."
The legal effect for Customs purposes of such a Joint
Service Agreement is at the heart of the present matter. Under
the Agreement in question, two vessel operating companies have
entered into a cooperative working agreement which obligates the
dedicated vessels of either of the companies to be made
exclusively available for cargo transportation for the Agreement
members.
The members agree upon when, where, and which vessels will
operate, and which might be laid up. They share the cost of
vessel operation, presumably to include bunkers, tugs, pilots,
berthing expenses, vessel repairs, and insurance. In short, the
members share operational control of the designated vessels.
Additionally, both of the individual members is considered to be
a vessel operating common carrier within the terms of the
Shipping Act of 1984, title 46, United States Code Appendix,
section 1701, et seq., as administered by the Federal Maritime
Commission.
The question presented for resolution is whether, under the
terms and intent of the merchandise transportation statute, the
particular parties operating under the provisions of the
Agreement may be considered to be joint operators of a particular
Agreement vessel while it is engaged in transporting the empty
shipping containers of members to the agreement. If both parties
may be so considered, and if the containers transported are
either owned or leased by those parties and are transported for
their use in moving their cargoes in the foreign trade, the
transportation would be permissible under the Sixth Proviso so
long as the transporting vessel is documented as provided in
section 4.93 of the Customs Regulations (19 CFR 4.93).
Historically, administrative cases involving interpretation
of the Sixth Proviso have involved questions concerning the
character of vessel charter arrangements. It has been our long-standing position that slot or space charter arrangements do not
fulfill minimal statutory ownership or operational requirements,
whereas those requirements are met under the terms of a standard
bareboat or demise charter agreement. The present matter
involves less a question of charter characteristics and more a
consideration of degree of operational control under the terms of
this new generation of agreement. We are left to determine
whether such agreements as presently under consideration contain
sufficient indicia of operational vessel control so as to qualify
the members as vessel operators.
Various factors mitigate in favor of finding the members to
be vessel operators. These include all of the factors previously
discussed concerning the conditions under which the agreement is
formed and the parties are governed, and of great importance is
the fact that the parties utilize dedicated vessels, all of which
would qualify under their own right under the terms of 19 CFR
4.93, the relevant Customs Regulation. Further, there does not
appear to be the possibility that the cargo of a member might be
refused space aboard a vessel due to any prior commitment to
carry the cargoes of other shippers since the vessels are engaged
solely in the carriage of members' cargoes.
We have taken all of these factors into consideration,
together with generally accepted principles that, if possible,
the law should be interpreted in a dynamic and forward-looking
manner which takes into account changes and evolving practices
which were not contemplated at the time of a statutory enactment.
We have determined that in light of all the factors discussed in
this memorandum, the Agreement under examination does convey the
status of vessel operator upon both of the individual signatories
and that, as such, their cargoes may be transported aboard any of
the qualified vessels involved without consequence under the
Sixth Proviso. The cargoes to which this opinion applies are
empty shipping containers which are either owned or leased by an
Agreement member, which containers are being transported for the
purpose of handling that member's cargo in the foreign trade.
HOLDING:
We have determined that the Med-Pacific Express Joint
Service Agreement presently under consideration does, for the
reasons specified in the Law And Analysis portion of this ruling,
convey the necessary operational and control elements required
for qualification to transport empty shipping containers between
coastwise points under the terms of the Sixth Proviso to 46
U.S.C. App. 883.
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers Branch