HQ 0111657 - Coastwise; Fishing Party; Pleasure Vessel; Voyage to Nowhere; Bareboat; Puerto Rico; 46 U.S.C. App. 289; 46 U.S.C. App. 289c. - United States International Trade Commision Rulings

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HQ 111657

August 9, 1991

VES-3-02/4-04 CO:R:IT:C 111657 JBW

CATEGORY: CARRIER

Mr. Jorge Bermdez-Torregrosa
Cuevas, Kuinlam & Bermdez
Banco de Ponce Building, Suite 903
268 Muoz Rivera Avenue
Hato Rey, Puerto Rico 00918-2592

RE: Coastwise; Fishing Party; Pleasure Vessel; Voyage to Nowhere; Bareboat; Puerto Rico; 46 U.S.C. App. 289; 46 U.S.C. App. 289c.

Dear Mr. Bermdez:

This letter is in response to your letter of April 17, 1991, in which you request a ruling on the carriage of fishing parties in a boat operating with a recreational endorsement in the territorial waters of Puerto Rico.

FACTS:

It is proposed that a vessel, operating with a recreational endorsement from the United States Coast Guard, carry passengers in the territorial waters of Puerto Rico for the purpose of sport fishing.

ISSUE:

Whether the carriage of passengers for sport fishing within the territorial waters of Puerto Rico constitutes an engagement in the coastwise trade.

LAW AND ANALYSIS:

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. 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) (1991). The territorial waters of the United States are defined to include 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. Headquarters Ruling Letter 111275, dated November 13, 1990.

In interpreting the coastwise laws as applied to the transportation of passengers, 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 point, is considered coastwise trade subject to the coastwise laws. E.g., Headquarters Ruling Letter 110990, dated May 21, 1990. However, the transportation of passengers to the high seas or foreign waters and back to the precise point of embarkation, often called a "voyage to nowhere," is not considered coastwise trade. Id. An important corollary to this rule is that a "voyage to nowhere" assumes the passengers do not leave the vessel, even temporarily, at another United States point. Id. Furthermore, 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. Headquarters Ruling Letter 111051, dated August 16, 1990.

Based on the foregoing provisions and interpretations, the use of the vessel in question to transport passengers for sport fishing would constitute an engagement in the coastwise trade. This conclusion applies regardless of whether the vessel stays within or goes beyond the territorial waters of Puerto Rico. A vessel engaged in such activity would be required to have a coastwise endorsement. Notwithstanding these restrictions, United States law provides that passengers may be transported between ports in Puerto Rico and other ports in the United States on passenger vessels not qualified to engage in the coastwise trade, subject to the condition that no qualified United States passenger vessels are available for such service, as determined by the Secretary of Transportation. 46 U.S.C. App. 289c.

We note for your information that a vessel with a recreational endorsement may be chartered in a manner that is consistent with the coastwise laws. The Customs Service has 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) (1991), 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 vessel with recreational endorsement 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 if this option is exercised.

HOLDING:

The use of a vessel to transport passengers for sport fishing in the territorial waters of Puerto Rico constitutes an engagement in the coastwise trade.

Sincerely,

B. James Fritz
Chief

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