VES-3-02/VES-3-19-RR:IT:EC 114314 GG
Captain Don W. Harper
P.O. Box 10441
St. Petersburg, FL 33733
RE: Coastwise Trade; Passengers; Seamanship Instruction; Bareboat
Charter
Dear Captain Harper:
This is in response to your letter, dated March 31, 1998,
requesting answers to several issues you raise with respect to
vessels and the U.S. coastwise laws. Our reply follows.
FACTS:
Situation #1: A foreign built vessel is purchased by a U.S.
citizen or corporation, converted from a fishing vessel or
freighter into an uninspected passenger vessel, and is then U.S.
documented. It is used in the intercoastal waterway and along
the U.S. coast as a floating, cruising classroom to teach
recreational boating safety, seamanship, and navigation to paying
students. Students attend classes several hours a day, take
tests, stand trainee watches, and receive a certificate of
completion at the end of the cruise if they have passed the
course. You ask whether these activities violate the U.S.
coastwise laws. Would our opinion change if a couple goes on the
cruise but only one of them takes the course? You also ask
whether classroom lecture is required each day of the cruise, and
if subjects unrelated to boating and seamanship may be offered in
place of those described above.
Situation #2: The same vessel is chartered to one or more
individuals or a business for an agreed- upon period of time.
The vessel is taken to various ports in the intercoastal waterway
and along the coast, and occasionally to the Bahamas, for the
recreation of the persons chartering the vessel and their
families and other non-paying guests. The vessel owner provides
and pays for the crew, and covers the costs of marine insurance
and dockage and vessel upkeep when the vessel is not out on
charter. The person chartering the vessel is responsible for
actual boat operating expenses during the time of the charter,
and is able to choose the itinerary with the consent of the
owner-provided captain.
ISSUE:
Whether the uses of the vessel described above are
considered uses in the coastwise trade within the purview of 46
U.S.C. App. 289.
LAW AND ANALYSIS:
Title 46, United States Code Appendix, Section 289 (the
passenger coastwise law), prohibits the transportation of
passengers between points embraced within the coastwise laws,
either directly or by way of a foreign port, in any vessel other
than a vessel built in, documented under the laws of, and owned
by citizens of the United States. Pursuant to section 4.50(b),
Customs Regulations, (19 CFR 4.50(b)), the word "passenger" for
purposes of this provision is defined as "... any person carried
on a vessel who is not connected with the operation of such
vessel, her navigation, ownership, or business."
In interpreting the coastwise laws, Customs has consistently
held 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 the 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. (Treasury Decision 55193(2).)
A person transported on a vessel as a student in courses
such as oceanography or sailing and seamanship, when the presence
of that person is required on board the vessel as a part of his
or her course or training, is not a passenger for purposes of the
coastwise laws. Although we do not require that a set amount of
time be devoted to study, clearly there must be enough so that it
is readily apparent that the educational component is the primary
purpose of the cruise. Accordingly, the use of the vessel for
instruction in recreational boating safety, seamanship, and
navigation to paying students, as outlined in Situation #1, is
not a use within the meaning of the coastwise laws. However,
courses offered exclusively in areas unrelated to seamanship,
such as art, photography, or business, would be activities that
would render students passengers under the coastwise laws.
Finally, the presence on board of a person, such as an
accompanying spouse,
who elects not to participate in the training course and who is
not a member of the crew, would also be a violation of the U.S.
coastwise laws.
The allowance of the charter arrangement described in
Situation #2 is dependent on whether the arrangement qualifies as
a bareboat, or as a time or voyage charter. Under a bareboat or
demise charter, the owner relinquishes complete management and
control of the vessel to the charterer. 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 coastwise 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. 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 owners are not considered
"passengers" for 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 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 (i.e., to transport passengers other than bona fide guests)
between coastwise points or entirely within territorial waters.
With one exception, the proposed arrangement with regard to
vessel operating expenses would support a designation as a
bareboat, rather than as a time charter. According to the facts,
the actual owner will pay for vessel expenses while the vessel is
not out on charter, whereas the charterers will cover actual
operating expenses throughout the duration of the charter. This
indicates an appropriate transfer of management and control.
However, what is problematic in this particular case is the owner
assigning a captain and crew members to the charterer.
Generally, we have held that a charter arrangement in which the
captain and crew are selected by the owner or his agent and not
by the charterer, by its very nature results in an implication
that the owner may not have relinquished complete management and
control to the charterers. (Headquarters ruling letter 226808,
dated June 7, 1996, and 108414, dated July 24, 1986.)
Consequently, this would negate a determination that the proposed
charter operation is in fact a bareboat one. The actual
selection process must be accomplished by the charterer, not the
owner.
A vessel being chartered out as a bona fide bareboat charter
would require a recreational endorsement to operate in that
manner. You should contact the Coast Guard to obtain a
determination as to documentation requirements for vessels used
as a sailing school.
HOLDING:
The use of a vessel for purposes of instruction in
navigation and seamanship is not considered a use in the
coastwise trade within the purview of 46 U.S.C. App. 289.
Courses
offered for purposes other than navigation or seamanship would
constitute such a use. The
transportation of a passenger who accompanies a student but who
does not take the course him/herself would be a violation of the
passenger coastwise laws.
Chartering a vessel under a bareboat charter arrangement,
where control is relinquished to the charterer, is not a use
within the meaning of the passenger coastwise laws. The
provision of a
captain and crew by the vessel owner would, however, signify a
retention of control by the owner, thus negating a designation as
a bona fide bareboat charter.
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch