HQ 0109781 - Application of the coastwise passenger statute to a foreign-flag yacht chartered by a U.S. corporation and used to transport business quests of the corporate charterers - United States International Trade Commision Rulings

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HQ 109781
November 7, 1988

VES-3-02 CO:R:P:C 109781 LLB

CATEGORY: CARRIER

Thomas L. Stadnik, Esq.
Associate International Counsel
American International Group, Inc.
70 Pine Street
New York, New York 10270

RE: Application of the coastwise passenger statute to a foreign-flag yacht chartered by a U.S. corporation and used to transport business quests of the corporate charterers

Dear Mr. Stadnik:

This is in response to your letter of October 3, 1988, in which you seek reconsideration of one element of our ruling letter to you of September 9, 1988, regarding the above- captioned subject. Our ruling letter held that the quests of the corporation would be considered "passengers" within the meaning of the coastwise passenger statute, and their carriage aboard the vessel would be in violation of that law.

FACTS:

During the pendency of a one-year charter agreement, the officers and directors of the corporation (charterer) may from time to time invite clients aboard the motor yacht TEMPTRESS OF CAYMAN for the purpose of promoting good will for the corporation, and in the hope of obtaining future business advantages. These persons would be insurance brokers or others involved in the insurance and financial services industries. No monetary or other tangible consideration would be solicited or accepted in exchange for the proposed transportation aboard the vessel.

Issues regarding the character and validity of the charter agreement, the issuance of a cruising license, and potential dutiability under the Tariff Schedules of the United States were addressed in our previous letter ruling and are not the subject of this request for reconsideration.

ISSUE:

The sole issue presented for resolution is whether the persons transported, as described, are permissible "guests", or prohibited "passengers" under the coastwise passenger statute, title 46, United States Code App., section 289 (46 U.S.C. App. 289).

LAW AND ANALYSIS:

Section 289 provides, in its entirety:

No foreign vessel shall transport passengers between ports or places in the United States, either directly or by way of a foreign port, under a penalty of $200 for each passenger so transported and landed.

The implementing regulations provide at section 4.50(b), Customs Regulations (19 CFR 4.50(b)), that:

A passenger within the meaning of this part is any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership, or business.

The definition of a prohibited "passenger" in this area has apparently remained unsettled for some time, with administrative rulings going both ways. For example, an early ruling issued by the Department of Commerce, Bureau of Navigation (General Letter No. 117, dated May 20, 1916), interpreted the term for purposes of the Steamboat-Inspection Laws, finding that a stockholder in the corporate owner of a vessel is a passenger. Similarly, in directly confronting the question in relation to 19 CFR 4.50(b), Customs stated in a letter of August 29, 1960 (MA 217.1), that:

...newspapermen or cruise agents who merely accompany the vessel for publicity purposes and cruise passage sales promotion are not persons connected with the operation, navigation, ownership, or business of the vessel within the meaning of section 4.50(b) of the Customs Regulations. The activity of the persons involved is only remotely or indirectly connected with the operation of business of the vessel rather than direct and immediate as is contemplated by the regulations.

More recent rulings have reached the opposite result. In a ruling of April 2, 1986 (case number 108278) it was held that the corporate client/guests of a corporate charterer are not

"passengers"; in a ruling of October 22, 1979 (104276), it was stated that:

We have ruled that the entertainment of guests for the purpose of promoting good will or with the thought that those who are entertained will favor the hosts with new or increased business is a use of a vessel for pleasure purposes.
Consequently, such guests would not be considered "passengers", within the meaning of the coastwise laws.

In a ruling dated October 18, 1984 (107028), it was held that the clients, prospective clients, business associates, and employees of the corporate owner of a yacht were not passengers within the meaning of section 289.

Given the fact that the circumstances here involved are strikingly similar to those in which we have found no violation of section 289, we are disposed to find that the persons to be transported aboard the vessel in this case are not passengers.

HOLDING:

The carriage of clients aboard the vessel TEMPTRESS OF CAYMAN by the corporate bareboat charterer thereof, for no monetary consideration, the purpose of which is the solicitation of good will and possible future business considerations, is not a violation of 46 U.S.C. App. 289.

Sincerely,

John E. Elkins

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