HQ 0111424 - Coastwise; Pleasure Vessel; United States Built; Foreign Registry; Bareboat; Cruising License; Importation; 46 U.S.C. App. 289. - United States International Trade Commision Rulings

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HQ 111424

March 20, 1991

VES-12-02 CO:R:IT:C 111424 JBW

CATEGORY: CARRIER

Mr. Lang B. Ryder
Senior Sales Representative
Yegen Marine
1310 S.E. 17th Street
Ft. Lauderdale, Florida 33316

RE: Coastwise; Pleasure Vessel; United States Built; Foreign Registry; Bareboat; Cruising License; Importation; 46 U.S.C. App. 289.

Dear Mr. Ryder:

This letter is in response to your request, dated November 28, 1990, for a ruling on the application of the coastwise laws to the use of a bareboat-chartered, foreign-registered pleasure vessel.

FACTS:

In your letter, you state that your client wishes to purchase a United States-built pleasure yacht for use in the United States. You state that you have been unable to obtain financing from a United States lender, but have received a commitment from a British bank. As a condition for the loan, the bank requires British registry to perfect its lien. The bank will not accept United States Coast Guard documentation and a First Preferred Ship's Mortgage.

ISSUES:

(1) Whether the coastwise laws prohibit the bareboat chartering of a foreign-registered pleasure vessel.

(2) Under what conditions may a foreign-registered vessel be used in the United States.

LAW AND ANALYSIS:

I. BAREBOAT CHARTER OF A FOREIGN-REGISTERED PLEASURE VESSEL.

The coastwise passenger law provides that:

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.

46 U.S.C. App. 289 (Supp. III 1985). The Customs Service has consistently interpreted this proscription to apply to any vessel except a United States built, owned, and properly documented vessel. See 46 U.S.C.A. 12106 & 12110 (West Supp. 1990), 46 U.S.C. App. 289, and 19 C.F.R. 4.80(a) (1990).

In interpreting the coastwise laws as applied to the transportation of passengers, we have 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 point, is considered coastwise trade subject to the coastwise laws. C.S.D. 88-16, 22 Cust. B. & Dec. 362, 364 (1988). The coastwise laws generally apply to points in the territorial sea, 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, in cases where the baseline and the coastline differ. However, the transportation of passengers to the high seas or foreign waters and back to the point of embarkation is not considered coastwise trade, often called a "voyage to nowhere," provided that the passengers do not go ashore, even temporarily, at another United States point. Id. The carriage of fishing parties for hire, even if the vessel proceeds beyond territorial waters and returns to the point of the passengers' embarkation, is considered coastwise trade subject to the coastwise laws. Id.

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 purposes of the coastwise laws, 19 C.F.R. 4.50(b) (1989), the charterer is not proscribed by the coastwise laws from using the vessel during the charter for pleasure purposes only. Headquarters Ruling Letter 109638, dated July 22, 1988. 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. Id. 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). Id.

The United States Supreme Court stated:

To create a demise [or bareboat charter] the owner of the vessel must completely and exclusively relinquish "possession, command, and navigation" thereof to the demisee.... It is therefore tantamount to, though just short of, an outright transfer of ownership. However, anything short of such a transfer is a time or voyage charter party or not a charter party at all.

Guzman v. Pichirilo, 369 U.S. 698, 699-670 (1962); see also, Leary v. United States, 81 U.S. 607, 611 (1871), 2B Benedict on Admiralty 52 (6th ed. 1990).

In our review of charter arrangements to determine whether they are bareboat charters for Customs purposes, we have held, in addition to the above-described principles, that:

The nature of a particular charter arrangement is a question of fact to be determined from the circumstances of each case. Under a bareboat charter or demise charter the owner relinquishes complete management 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 the 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.

Headquarters Ruling Letter 109638 (emphasis added). In that regard, it is well established that a vessel may be demised complete with captain if he is subjected to the orders of the demisee during the period of the demise. Guzman, 369 U.S. at 701. Furthermore, the Customs Service has held that the mere fact that the crew is furnished to the charterer would not render the agreement a time charter provided the charterer had full authority to hire, discharge, or replace the crew. See Headquarters Ruling Letter 108278, dated April 2, 1988.

A bareboat charter agreement conforming to these guidelines will permit a non-coastwise qualified vessel to be chartered for pleasure purposes. We note, however, that this ruling is advisory and suggest that your client submit a copy of the bareboat charter agreement when one is available.

II. CUSTOMS REQUIREMENTS GOVERNING USE OF A FOREIGN REGISTERED PLEASURE VESSEL IN THE UNITED STATES.

United States law requires that the master of any foreign vessel arriving in a United States port, whether from a foreign port or another United States port, to make an immediate report of arrival (19 U.S.C. 1433, 19 C.F.R. 4.2) and to make a vessel entry (19 U.S.C. 1435, 19 C.F.R. 4.3). Such vessels must clear when bound for a foreign port (46 U.S.C. App. 91, 19 C.F.R. 4.60) or must have a permit to proceed from one United States port to another (46 U.S.C. App. 313, 19 C.F.R. 4.87).

Title 46, United States Code Appendix, section 104 (46 U.S.C. App. 104), authorizes the issuance of cruising licenses to exempt pleasure vessels of foreign registry from these formal entry and clearance procedures. This section, however, limits that exemption to pleasure vessels of countries that extend reciprocal privileges to United States pleasure vessels. Countries that have satisfied this reciprocity requirement are listed in section 4.94(b) of the Customs Regulations (19 C.F.R. 4.94(b)). Vessels of British registry may be issued a cruising license. Your client should also be aware that a cruising license does not exempt the master or owner of a foreign vessel from the requirement that a report arrival be made immediately upon arrival at a port in the United States. 19 U.S.C.A. 1433 (West Supp. 1990).

The regulations restrict the issuance of a cruising license to a period of one year. 19 C.F.R. 4.94(c). Successive cruising licenses may be issued to a foreign-documented pleasure vessel that was built in the United States or on which United States customs duty has been paid, provided that the vessel is documented under the laws of one of the countries listed in 19 C.F.R. 4.94(b). Customs Directive 3100-06, dated November 7, 1988.

You state in your letter that the vessel under consideration was built in the United States; other details regarding current registration, ownership, and location were not included. The fact that the vessel was built in the United States suggests that the Customs Service will permit the issuance of successive cruising licenses provided that the vessel has not been exported. The term exportation is defined in the Customs Regulations to mean "a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country. 19 C.F.R. 101.1(k). The Customs Court stated that the majority of court decisions considering this issue hold that the intention of the parties at the time of shipment abroad is the controlling factor in the determination of whether that shipment is an exportation. F. W. Meyers & Co. v. United States, 29 Cust. Ct. 202, 203, C.D. 1468 (1952). If the vessel has been exported according to this definition, then your client will be required to pay duty upon its importation. Upon supplying details regarding any sale or extended use of the vessel abroad, the Customs Service will be able to rule on its dutiability upon reimportation.

HOLDINGS:

(1) The coastwise laws do not prohibit a charterer from chartering a foreign-registered vessel under a bona fide bareboat charter provided that the vessel is used for pleasure purposes only.

(2) United States law requires that the master of any foreign vessel arriving in a United States port, whether from a foreign port or another United States port, to make an immediate report of arrival and to make a vessel entry. Such vessels must clear when bound for a foreign port or must have a permit to proceed from one United States port to another. If the vessel obtains a British registry, the vessel may be issued a cruising license to avoid Customs entry and clearance requirements upon each arrival. If the vessel, being built in the United States, has not been exported, then the owner may be issued successive cruising licenses.

This ruling does not address issues within the purview of other governmental agencies, e.g., the United States Coast Guard for issues relating to vessel documentation, safety, and inspection requirements. If you wish to contact the Coast Guard about these matters, you may communicate with your local Coast Guard office or Coast Guard Headquarters at the following address:

Thomas Willis
Chief, Vessel Documentation
U.S. Coast Guard (GMVI-6/13)
2100 Second Street, S.W. (Room 1312)
Washington, D.C. 20593-001

Sincerely,

B. James Fritz
Chief

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