OT:RR:BSTC:CCR H337347 AFM
William S. Davis III
Host Agency, LLC
150 W. Main Street
16TH Floor
Norfolk, VA 23510
RE: 46 U.S.C. 55102; 19 C.F.R. 4.80b; Coastwise Transportation; Dunnage.
Dear Mr. Davis:
This is in response to your correspondence of February 12, 2024, in which you requested a ruling regarding whether the proposed transportation of dunnage under the circumstances described below would violate 46 U.S.C. 55102 ("the Jones Act"). Our decision follows.
FACTS:
The following facts are taken from your February 12, 2024, ruling request and subsequent responses to our requests for supplemental information. Pacific Basin Shipping Limited ("Owners") have employed the M/V ST CERGUE (the "Vessel"), a foreign-flagged vessel, to load a cargo of steel slabs in bulk at Paradip, India. The cargo is accompanied by approximately 350 cubic meters of 10-foot long, 4" x 4" wooden boards used as dunnage to secure the steel cargo inside the holds of the Vessel. You state the dunnage is not packaging material affixed to the cargo itself and is the property of the vessel owner. The Vessel is underway to the United States and is scheduled to arrive at the port of Brownsville, Texas on or around March 14, 2024. Host Agency LLC and Owners (jointly, "Inquirers") propose to offload the cargo of steel slabs at the port of Brownsville, Texas, and then transit with the foreign-laden dunnage aboard the vessel to the port of Houston, Texas, where the dunnage will be removed and disposed of as ships waste.
ISSUES:
1. Whether the subject dunnage is merchandise, vessel equipment, and/or instruments of international traffic ("IITs").
2. Whether a violation of the Jones Act would occur if the dunnage were removed from the Vessel at Brownsville, either by spilling or intentionally landing the dunnage on the dock in Brownsville and re-stowed onto the Vessel for transport to Houston.
3. Whether the status of the dunnage changes once the cargo is removed from the Vessel.
LAW AND ANALYSIS:
Issue 1: Whether the dunnage is merchandise, vessel equipment, and/or IITs.
The Inquirers argue that the subject dunnage may be considered either merchandise, vessel equipment, and/or IITs and assert that the dunnage in question should be classified as vessel equipment, specifically stevedoring materials used in the transport of the cargo, due to the way in which vessel equipment was addressed in Customs Bulletin Vol. 53 No. 45, and the original intent of the Tariff Act of 1930 and T.D. 49815(4) (Mar. 13, 1939). Dunnage is defined as "[p]ieces of wood, matting, or similar material used to keep a cargo in position in a ship's hold,"[1] and as "loose wood or other material used in a ship's hold for the protection of cargo."[2] The subject dunnage consists of loose wooden boards used to secure the Vessel's cargo.
Merchandise
The coastwise law applicable to the transportation of merchandise, known as the Jones Act, is found at 46 U.S.C. 55102,[3] and provides in pertinent part:
Except as otherwise provided in this chapter or chapter 121 of this title, a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel-
1) is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and
2) has been issued a certificate of documentation with a coastwise endorsement under chapter 121 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement.
Title 46 United States Code 55101 supplies the geographic reach of the coastwise laws, providing:
a) Except as provided in subsection (b), the coastwise laws apply to the United States, including the island territories and possessions of the United States.
(b) The coastwise laws do not apply to-
(1) American Samoa;
(2) the Northern Mariana Islands, except as provided in section 502(b) of the Covenant To Establish a Commonwealth of the Northern Mariana Islands in Political Union With the United States of America (48 U.S.C. 1801 note); or
(3) the Virgin Islands until the President declares by proclamation that the coastwise laws apply to the Virgin Islands.
The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline.[4] The U.S. Customs and Border Protection (CBP) regulations promulgated under the authority of 46 U.S.C. 55102 provide in pertinent part:
A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws ("coastwise point") is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise.
19 C.F.R. 4.80b(a).
The Jones Act specifically prohibits the coastwise transportation of "merchandise" between coastwise points by non-coastwise qualified vessels. Pursuant to 19 U.S.C. 1401(c), the word "merchandise" is defined as "goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31." Also, the Jones Act provides at 46 U.S.C. 55102(a): "[m]erchandise includes (1) merchandise owned by the United States Government, a State, or a subdivision of a State; and (2) valueless material." It is noteworthy that, for Jones Act purposes, merchandise also specifically encompasses "valueless material."[5] As such, any cargo, regardless of its value or ownership, would be considered merchandise for the purposes of 46 U.S.C. 55102.
Notably, the Jones Act prohibits a non-coastwise-qualified vessel from performing "any part" of the transportation of merchandise between two U.S. points to which the coastwise laws apply, meaning a violation would occur even if the merchandise is transferred to a coastwise-qualified vessel before reaching its destination. Additionally, a Jones Act violation occurs even if the merchandise is carried to a non-coastwise point by a non-coastwise-qualified vessel, prior to being carried to its coastwise destination by a coastwise-qualified vessel.[6]
Vessel Equipment
Not included within the general meaning of merchandise for Jones Act purposes, however, is the equipment of a vessel. Such materials have been defined as articles, "...necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board."[7] Accordingly, CBP has consistently held that "vessel equipment" or "equipment of the vessel" is not included within the general meaning of merchandise.[8]
CBP clarified its consideration of vessel equipment in 2019, indicating that vessel equipment includes "all articles or physical resources serving to equip the vessel, including the implements used in the vessel's operation or activity."[9] CBP elaborated that items considered "necessary and appropriate for the operation of the vessel" are those items that are "integral to the function of the vessel and are carried by the vessel."[10] Whether such articles constitute vessel equipment is a fact-specific, case-by-case determination.[11] Additionally CBP has held that "[v]essel equipment placed aboard a vessel at one United States port may be removed from the vessel at another United States port at a later date without violation of the coastwise laws."[12]
Wooden boards used as dunnage to secure the steel cargo inside the holds of the Vessel do not constitute articles which are "...necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board,"[13] such as to qualify as vessel equipment because "necessary and appropriate for the operation of the vessel" is defined as "items that are integral to the function of the vessel and are carried by the vessel,"[14] whereas the function of the subject dunnage is for the securing of the cargo on board the Vessel rather than for the operation of the Vessel. As to the Inquirers' assertion that the dunnage in question should be classified as vessel equipment pursuant to Customs Bulletin Vol. 53 No. 45, arguing that "CBP's stated intent of the bulletin was to narrow the definition of vessel equipment much closer to the original intent of the Tariff Act of 1930 and TD 49815(4) dated March 13th, 1939," the Inquirers do not demonstrate how wooden boards used as dunnage are "integral to the function of the vessel" as provided in the same Customs Bulletin.[15] Therefore, it is our position that the subject dunnage does not meet the standard laid out in Customs Bulletin Vol. 53 No. 45 to qualify as vessel equipment.
IITs
Alternatively, the Inquirers argue that the subject dunnage should be considered as instruments of international traffic ("IITs"). Title 19 Code of Federal Regulations 10.41a provides for duty-free treatment of items designated as "instruments of international traffic," such as lift vans, cargo vans, shipping tanks, skids, pallets, and similar and associated repair components.[16] Subheading 9803.00.50 of the Harmonized Tariff Schedule of the United States ("HTSUS") further provides for the duty-free treatment of:
Substantial containers and holders, if products of the United States (including shooks and staves of United States production when returned as boxes or barrels containing merchandise), or if of foreign production and previously imported and duty (if any) thereon paid, or if of a class specified by the Secretary of the Treasury[17] as instruments of international traffic, repair components for containers of foreign production which are instruments of international traffic, and accessories and equipment for such containers, whether the accessories and equipment are imported with a container to be reexported separately or with another container, or imported separately to be reexported with a container.
(footnote and emphasis added).
Subchapter 98 of the HTSUS only applies to:
(a) Substantial containers or holders which are subject to tariff treatment as imported articles and are:
(i) Imported empty and not within the purview of a provision which specifically exempts them from duty; or
(ii) Imported containing or holding articles, and which are not of a kind normally sold therewith or are entered separately therefrom; and
(b) Certain repair components, accessories and equipment.
See U.S. Note 1, et seq., Chapter 98, HTSUS.
Pursuant to 19 U.S.C. 1322(a), IITs shall be excepted from the application of the Customs laws to the extent that such terms and conditions are prescribed in regulations or instructions. The relevant CBP regulations implementing that statute are found at 19 C.F.R. 10.41a(a)(1) which provides in pertinent part:
Lift vans, cargo vans, shipping tanks, skids, pallets, caul boards, and cores for textile fabrics, arriving (whether loaded or empty) in use or to be used in the shipment of merchandise in international traffic are hereby designated as "instruments of international traffic" [. . .] The Commissioner of Customs [now CBP] is authorized to designate as instruments of international traffic [...] such additional articles or classes of articles as he shall find should be so designated.
19 C.F.R. 10.41a(a)(1) (emphasis added).
Such instruments may be released without entry or the payment of duty, subject to the provisions of this section.
To qualify for entry-free and duty-free treatment as IITs under the aforementioned statutory and regulatory authority, the article must be a substantial container or holder. To qualify as an IIT within the meaning of 19 U.S.C. 1322(a) and 19 C.F.R. 10.41a(a)(1), an article used as a container or holder must be: (1) substantial, (2) suitable for and capable of repeated use, and (3) used in significant numbers in international traffic.[18] Pursuant to 19 C.F.R. 10.41a(a)(3), an IIT "includes the normal accessories and equipment imported with any such instrument which is a 'container' as defined in Article 1 of the Customs Convention on Containers." Title 19 C.F.R. 10.41a implements the language of the IMO United Nations/International Maritime Organization's 1972 Customs Convention on Containers (the "Convention") which illustrates our understanding of what a "container" is. Article 1 of the Convention defines a "container" as:
(c) the term "container" shall mean an article of transport equipment (lift-van, movable tank or other similar structure):
(i) fully or partially enclosed to constitute a compartment intended for containing goods;
(ii) of a permanent character and accordingly strong enough to be suitable for repeated use;
(iii) specially designed to facilitate the carriage of goods, by one or more modes of transport, without intermediate reloading;
(iv) designed for ready handling, particularly when being transferred from one mode of transport to another;
(v) designed to be easy to fill and to empty; and
(vi) having an internal volume of one cubic metre or more;
the term "container" shall include the accessories and equipment of the container, appropriate for the type concerned, provided that such accessories and equipment are carried with the container. The term "container" shall not include vehicles, accessories or spare parts of vehicles, or packaging. Demountable bodies, are to be treated as containers;[19]
In H055197 (June 16, 2009), CBP ruled that wood shipping pallets described within the ruling were not "containers" within the meaning of the Convention because not all of the above elements were met.
Although it appears that elements (ii) -(iv) have been met, we cannot conclude that elements (i), (v), and (vi) have been met. With regard to element (i), based on the photos and dimensions of the rack you submitted with the March 30, 2009, letter, the rack is not fully or partially enclosed. With regard to element (vi), a pallet cannot have an internal volume, e.g. three dimensions, of one cubic metre or more, e.g. cubic capacity, when a pallet has no sides. Last, with regard to element (v), filling and emptying, much like element (i) which requires full or partial enclosure and element (iv), which requires cubic capacity, implies that the container have volume, which as we have stated, we do not believe the pallets are capable of.[20]
See also H022962 (Apr. 3, 2008), ruling that steel racks under the facts provided were not "containers" within the meaning of the Convention because elements (i), (v), and (vi) above were not met. In contrast, we have ruled that intermodal cargo containers and enclosed freight trailers qualified as "containers" and that 19 C.F.R. 10.41a(a)(3) was applicable such that they would qualify as IITs.[21]
The Inquirers assert that "for decades CBP has treated dunnage as stevedoring equipment, instruments in traffic." However, no sources are provided for this assertion, and we do not find it to be accurate as a blanket application to all dunnage. There are certain criteria that must be met for an item to be considered an IIT, and the subject dunnage does not meet those criteria. Preliminarily, the subject dunnage is not a "container or holder" because, as with the wooden pallets at issue in H055197 (June 16, 2009), the dunnage is not "fully or partially enclosed to constitute a compartment intended for containing goods" as required in Article 1(c)(i) of the Convention. The subject dunnage consists of loose boards arranged around the cargo rather than an enclosure for containing the cargo.
As to whether the subject dunnage is substantial, CBP has previously ruled that heavy-gauge paper qualified as an IIT and was therefore considered substantial.[22] However, even if the subject dunnage consisting of wooden boards were considered substantial, this dunnage is not suitable for and capable of repeated use because it will be disposed of, rather than reused. Although we note you state that it can be reused, you also state that it is most often disposed of and will be disposed of in this case. Finally, as to the criteria of use in significant numbers in international traffic, you describe this dunnage as "simply wood boards placed first on the tank top inside the hold, as well as in between the layers of the steel slabs to block and brace the cargo from shifting." This is not a system that is quantifiable as being used in significant numbers in international traffic. Therefore, the subject dunnage does not qualify as IITs. Additionally, the subject dunnage would not qualify as accessories to IITs because the boards are not used to secure merchandise to a container.[23]
Accordingly, the subject dunnage would be considered merchandise. The Inquirers argue that "packing materials are clearly not merchandise under USCBP and the WCO's GRI's / harmonized tariff" (referring to the World Customs Organization's "General Rules for the Interpretation of the Harmonized System").[24] However, the Inquirers assert that the dunnage is not packaging material affixed to the cargo itself and is the property of the vessel owner. This statement is in accord with the prevailing characterization of dunnage in maritime law, "...dunnage, that is, assorted lumber which every ship has in its hold and which is used, inter alia, to separate cargo or make a floor to support it. Dunnage used on a ship is the property of a shipowner."[25] Accordingly, the Inquirers' argument that the subject dunnage should be considered packing materials is inapposite.
The Inquirers do not provide examples in which CBP has determined that packing materials are not merchandise in support of their argument. Pursuant to 19 U.S.C. 1401(c), the word "merchandise" is defined as "goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31." The subject dunnage would, accordingly, be encompassed within the definition of merchandise as a good, ware, or chattel. Therefore, regardless of whether the subject dunnage is considered packing materials, it would be considered merchandise along with the cargo of steel slabs for purposes of the Jones Act. Therefore, the subject dunnage would be considered merchandise subject to the coastwise laws.
Issue 2: Whether a violation of the Jones Act would occur if the dunnage were removed from the Vessel in Brownsville, either by spilling or intentionally landing the dunnage on the dock in Brownsville and re-stowed onto the Vessel for transport to Houston.
We have established that the subject dunnage is merchandise subject to the coastwise laws. It has been CBP's longstanding position that the temporary unlading of foreign-origin cargo from a non-coastwise-qualified vessel at an intermediate coastwise point which is then reladen onto the vessel and transported to a second coastwise point constitutes a violation of 46 U.S.C. 55102.[26] In HQ 113478, inbound foreign merchandise was reladed aboard a non-coastwise-qualified vessel for shipment to South America. When the original shipper requested to divert the cargo back to a U.S. port on the East Coast, we determined that the proposed transportation would violate the Jones Act.[27] Similarly, in HQ H006047 we determined that transportation of inward foreign cargo, destined for Newport News, Virginia, and Savannah, Georgia, but unladed from the vessel at Newark, New Jersey, would be transported in violation of 46 U.S.C. 55102 if reladed and then transported on to Newport News and Savannah.[28] Therefore, if the subject dunnage were to be removed from the Vessel for any reason at Brownsville and reladen onto the Vessel for transport to Houston, this would constitute lading merchandise at a coastwise point (Brownsville) and unlading at another coastwise point (Houston).[29] As the Vessel is non-coastwise-qualified, this would result in a violation of the coastwise merchandise law, 46 U.S.C. 55102.
Issue 3: Whether the status of the dunnage changes once the cargo is removed from the Vessel.
As we have established the dunnage would be considered merchandise, its status would not undergo a change once the steel slab cargo is removed from the Vessel because its status as merchandise is not dependent upon the presence of the cargo on the Vessel.
HOLDING:
Under the facts presented above, the subject dunnage would be considered merchandise for the purposes of the coastwise laws, including 46 U.S.C. 55102. Provided that the inward foreign-origin dunnage is not removed from the Vessel at the port of Brownsville, Texas, unlading of the subject dunnage at Houston, Texas would not violate the Jones Act. Conversely, if the dunnage is unladen from the Vessel at the port of Brownsville, Texas, and then reladen aboard and unladen at the port of Houston, Texas, a violation of the coastwise merchandise law, 46 U.S.C. 55102, would occur. The status of the dunnage as such would not change once the steel cargo is removed from the Vessel.
Please note that 19 C.F.R. 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based." If the facts at hand vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. 177.2(b)(1), (2), and (4), and 177.9(b)(1) and (4).
Sincerely,
W. Richmond Beevers
Chief, Cargo Security, Carriers and Restricted Merchandise Branch
Office of Trade, Regulations and Rulings
U.S. Customs and Border Protection
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[1] Noble Drilling (US) Inc. v. Fountain, 238 S.W.3d 432, 436 at fn. 3 (July 12, 2007) (citing to THE NEW OXFORD AMERICAN DICTIONARY 529 (2001)).
[2] de Kerchove, International Maritime Dictionary, 2nd ed. (1961).
[3] Formerly 46 U.S.C. App. 883. See Pub. L. 109-304 (Oct. 6, 2006).
[4] See 33 C.F.R. 2.22(a)(2) (2014).
[5] See 46 U.S.C. 55102(a)(2).
[6] See, e.g., HQ 113151 (Jun. 29, 1994); HQ 112038 (Mar. 3, 1992).
[7] Treasury Decision 49815(4), March 13, 1939 (also providing examples of articles that "have been held to constitute equipment: rope, sail, table linens, bedding, china, table silverware, cutlery, bolts and nuts").
[8] See, e.g., HQ H058647 (May 18, 2009).
[9] Customs Bulletin & Decisions Vol. 53, No. 45, at 88 (Dec. 18, 2019).
[10] Id. at 88.
[11] Id. at 88-89.
[12] HQ 113137 (Jun. 27, 1994) (citing to Customs Ruling Letter 102945, Nov. 8, 1978).
[13] Treasury Decision 49815(4), March 13, 1939.
[14] Customs Bulletin & Decisions Vol. 53, No. 45, at 88 (Dec. 18, 2019).
[15] Customs Bulletin & Decisions Vol. 53, No. 45, at 88 (Dec. 18, 2019).
[16] 19 C.F.R. 141.4(b)(3).
[17] Customs revenue functions have been delegated to the Secretary of Homeland Security by the Secretary of Treasury, with exceptions herein not applicable, under the authority of the Homeland Security Act of 2002, Pub. L. 107-296. See Treas. Dep't Order 100-16 (May 15, 2003).
[18] See HQ H291037 (Jan. 9, 2018); HQ H016491 (Oct. 1, 2007); HQ 114150 (Dec. 12, 1997); HQ 107545 (May 7, 1985).
[19] World Customs Organization, Customs Convention on Containers, 1972, Article 1, (Dec. 2, 1972), https://www.wcoomd.org/-/media/wco/public/global/pdf/about-us/legal-instruments/conventions-and-agreements/containers/pf_txt_containers_contract.pdf?la=en.
[20] H055197 (June 16, 2009).
[21] See HQ H030677 (July 17, 2008).
[22] See H112474 (Feb. 22, 1993).
[23] See, e.g. HQ H319586 (Aug. 26, 2021) (holding that steel container racks did not qualify as IITs but qualified as accessories of IITs); HQ H312157 (Nov. 19, 2020) (holding that steel racks are not IITs and did not qualify as accessories of IITs because they were not imported with the steel container for which they would be used).
[24] World Customs Organization, "General Rules for the Interpretation of the Harmonized System," https://www.wcoomd.org/-/media/wco/public/global/pdf/topics/nomenclature/instruments-and-tools/hs-interpretation-general-rules/0001_2012e_gir.pdf?la=en (last accessed Mar. 11, 2024).
[25] See e.g. Mascuilli v. American Export Isbrandtsen Lines, Inc., 1974 AMC 2456, 2457 (E.D. Pa. Aug. 23, 1974).
[26] See HQ H045777 (Dec. 4, 2008).
[27] See HQ 113478 (June 26, 1995).
[28] HQ H006047 (Feb. 2, 2007).
[29] See supra 19 C.F.R. 4.80b(a).
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