HQ 0110984 - Bareboat Charter; Report of Arrival; Entry; Clearance - United States International Trade Commision Rulings

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HQ 110984

July 27, 1990

VES-4-01/03-CO:R:P:C 110984 GV

CATEGORY: CARRIER

John A. Grehan
302 Stewart Road
Midland, Ohio 45148

RE: Bareboat Charter; Report of Arrival; Entry; Clearance

Dear Mr. Grehan:

This is in response to your undated letter posing a series of questions to which you request written rulings. Our findings are set forth below.

FACTS:

You are the owner of a U.S.-flag vessel. In view of the questions you pose we assume that the subject vessel is foreign- built and therefore cannot qualify for a coastwise endorsement. You further state that all stores and contents of the vessel are intended for the personal use of the owner, his guests, or employees. No persons are carried by the vessel other than the owner, his guests, or employees. The specific questions you pose are as follows:

1. I am the owner of a sailing vessel that I wish to place in charter service. I have been led to understand that, in order to be valid, a "bareboat charter" contract may not include any geographical restrictions as to where the charterer may take the boat. The standard contract used by the charter manager I am considering placing my boat with has such a restriction. The restriction is due to insurance requirements. If the boat is removed from the listed geographical area, the insurance no longer covers. In light of this, would a "bareboat charter" using such a contract still be considered a true "bareboat charter"?

2. Would a charter contract without any geographical restrictions, but containing language defining the area of insurance coverage and stating the charterer would be responsible for the vessel and any necessary insurance coverage if the vessel were taken out of the defined area be considered a true "bareboat charter" contract?

3. Would it still be considered a "bareboat charter" if a group of people sharing expenses all signed the charter agreement?

4. Is a documented vessel with both commercial registry and recreation endorsements on its certificate of documentation required to clear Customs outbound to a foreign port if the operation is recreational in nature?

5. Is a documented vessel with both commercial registry and recreation endorsements on its certificate of documentation required to clear Customs outbound to international waters if the operation is recreational in nature?

6. In question number five, if the vessel had no contact with any other vessel while in international waters, is it required to clear Customs inbound?

7. If the owner of a documented vessel with both commercial registry and recreation endorsements on its certificate of documentation uses the vessel to travel to a foreign port with his family, would that be considered recreational in nature?

8. Is the "bareboat charter" of a documented vessel with both commercial registry and recreation endorsements on its certificate of documentation considered to be recreational in nature?

9. Is the vessel in question number eight required to clear Customs if it intends to venture into international waters?

10. Is the vessel in question number eight required to clear Customs inbound if it has no contact with any other vessel while in international waters?

11. Is the vessel in question number eight required to clear Customs outbound to a foreign port?

ISSUE:

Whether the use of a U.S.-owned, U.S.-flag vessel as described above is in compliance with the applicable Customs laws and regulations relating to coastwise trade, report of arrival, entry and clearance.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, section 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 appears to be more applicable to your proposal, 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 section 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, adjacent to the coast of the United States and seaward of the territorial sea baseline.

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 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.

Section 4.60(a), Customs Regulations (19 CFR 4.60(a)) provides, in part, that "Except as otherwise provided for in this section, every vessel bound for a foreign port or ports shall be cleared for a definite port or ports in the order of its itinerary ..." Section 4.60(b), Customs Regulations (19 CFR 4.60(b)) lists those vessels not required to clear including the following: a documented vessel with a pleasure license endorsement (see section 4.60(b)(1)); a vessel exempted from entry under 19 U.S.C. 1441 (see section 4.60(b)(3), which includes, pursuant to 19 U.S.C. 1441(3), licensed yachts or undocumented American pleasure vessels not engaged in trade nor in any way violating the Customs or navigation laws of the United States and not having visited any hovering vessel ...); and a vessel bound for the high seas except a vessel bound to another vessel on the high seas to (1) Transship export merchandise which it has transported from the U.S. to the vessel on the high seas; or (2) Receive import merchandise from the vessel on the high seas and transport the merchandise to the U.S. (see sections

Section 4.2(a), Customs Regulations (19 CFR 4.2(a)) provides for the reports of arrival of vessels as required by 19 U.S.C. 1433. In regard to U.S.-flag vessels, 19 U.S.C. 1433 provides that immediately upon the arrival at any port or place within the United States or the Virgin Islands, the master of any
vessel from a foreign port or place, or any vessel of the United States carrying bonded merchandise, or foreign merchandise for which entry has not been made, shall report arrival at the nearest Customs facility (see 19 U.S.C. 1433(a)(1)(A) and (C).

Section 4.3(a), Customs Regulations (19 CFR 4.3(a)) provides, in part, that except as specified in 19 U.S.C. 1441 (see applicable exceptions noted above), every American vessel arriving in the United States from a foreign port or place shall make entry at the nearest customhouse within 48 hours after arrival. Section 4.3(c), Customs Regulations (19 CFR 4.3(c)) states that for purposes of the vessel entry requirements, a "foreign port or place" shall include a vessel on the high seas when the vessel arriving in the U.S. is returning from the vessel on the high seas after having (1) Transported export merchandise out of the U.S. to the vessel on the high seas and there transshipped the merchandise to that vessel; or (2) Transported import merchandise to the U.S. from the vessel on the high seas after having there received the merchandise from that vessel.

Accordingly, the following responses correspond to the questions you pose in your letter:

1. Whether a charter agreement includes geographical restrictions as to where the charterer may take the boat is not in and of itself determinative as to whether the agreement is considered a "bareboat charter". In view of the fact that you did not submit a copy of the charter agreement we are unable to make such a determination. We have ruled that even when a charter is described as a bareboat one, the actual circumstances of the charter agreement control in the determination of whether it is a bareboat charter for purposes of the coastwise laws. Upon receipt of a copy of the charter agreement, which would include the geographical restrictions to which you refer, we will be able to issue a definitive ruling as to whether it is a valid bareboat charter.

2. We reiterate that without reviewing the entire charter agreement, we are unable to determine whether a charter agreement without geographical restrictions, but containing language defining the area of insurance coverage and stating the charterer would be responsible for the vessel and any necessary insurance coverage if the vessel were taken out of the defined area would be considered a valid "bareboat charter" contract.

3. If, after reviewing the charter agreement, we are of the opinion that it does constitute a valid bareboat one, the fact that a group of people sharing expenses all signed the charter agreement (i.e., they would be the "bareboat charterers") is irrelevant.

4. A documented vessel with both registry and recreation endorsements on its certificate of documentation would not have to clear Customs outbound to a foreign port pursuant to sections 4.60(b)(1) and (3), Customs Regulations, provided it is used solely for recreational purposes and not to transport merchandise or passengers in trade.

5. A documented vessel with both registry and recreation endorsements on its certificate of documentation would not have to clear Customs outbound to international waters pursuant to sections 4.60(e)(1) and (2), Customs Regulations, provided it is used solely for recreational purposes and not to transport merchandise or passengers in trade.

6. We assume that by the term "clear customs inbound" you mean report arrival and make entry. In question number five, if the vessel had no contact with any other vessel while in international waters, pursuant to sections 4.2(a) and 4.3(a) and (c)(1) and (2), Customs Regulations, the vessel would not be required to do either.

7. If the owner of a documented vessel with both commercial registry and recreation endorsements on its certificate of documentation uses the vessel to travel to a foreign port with his family (the members of which are not considered "passengers" for purposes of section 4.50(b), Customs Regulations), said use would be considered recreational in nature for purposes of the applicable Customs laws.

8. A bona fide "bareboat charter" of a documented vessel with both commercial registry and recreation endorsements on its certificate of documentation entitles the charterer to use the vessel for pleasure purposes only (i.e., for recreational use) without violating the coastwise laws. The validity of a bareboat charter agreement allows a certain use of the vessel, the actions of the chartering party determine whether said use is in compliance with the terms of the charter agreement. The use of the vessel for other than recreational purposes (i.e., the transportation of passengers and/or merchandise between coastwise points) invalidates the bareboat charter agreement and subjects the vessel to penalties under the coastwise laws for any violation thereof.

9. In regard to whether the vessel in question number eight is required to clear Customs if it intends to venture into international waters, see our response to question number five above.

10. In regard to whether the vessel in question number eight is required to clear Customs inbound (i.e., report arrival
and make entry) if it has no contact with any other vessel while in international waters, see our response to question number six above.

11. In regard to whether the vessel in question number eight is required to clear Customs outbound to a foreign port, see our response to question number four, above.

HOLDING:

The use of a U.S.-owned, U.S.-flag vessel as described above is in compliance with the applicable Customs laws and regulations relating to coastwise trade, report of arrival, entry and clearance as set forth above.

Sincerely,

B. James Fritz

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