HQ 0112203 - Coastwise; Guam; Foreign Owner; Voyage to Nowhere; Sport Fishing; 46 U.S.C. 12102; 46 U.S.C. App. 289; 46 U.S.C. App. 877. - United States International Trade Commision Rulings

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HQ 112203

June 9, 1992

VES-3/3-02 CO:R:IT:C 112203 JBW

CATEGORY: CARRIER

Charles J. Walsh, President
Walsh Yachts, Inc.
1900 S.E. 15th Street
Ft. Lauderdale, FL 33316

RE: Coastwise; Guam; Foreign Owner; Voyage to Nowhere; Sport Fishing; 46 U.S.C. 12102; 46 U.S.C. App. 289; 46 U.S.C. App. 877.

Dear Mr. Walsh:

This letter is in response to your inquiry of April 10, 1992, in which you request a ruling on the application of the United States coastwise laws in Guam.

FACTS:

Your client, a Japanese national, operates a sport fishing charter business in Guam. You state that your client possesses a United States Coast Guard license, with a restrictive endorsement: "uninspected/undocumented small passenger carrying vessels, due to non U.S. citizenship." From this statement, we infer that the vessels owned by your client are not eligible for documentation under 46 U.S.C. 12102. You state that your research indicates that Coast Guard documentation is not required for vessels operating outside of the coastwise or fisheries trade. You ask whether the chartering of a vessel not documented by the Coast Guard for sport fishing in Guam constitutes coastwise trade.

ISSUE:

Whether a vessel not documented by the Coast Guard may be chartered to transport passengers for sport fishing in Guam.

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. 1991), 46 U.S.C. App. 289, and 19 C.F.R. 4.80(a) (1991). Generally, the coastwise laws apply to points within the territorial sea of the United States, 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. Headquarters Ruling Letter 111275, dated November 13, 1990.

Pursuant to Section 21 of the Merchant Marine Act of 1920, 46 U.S.C. App. 877, the coastwise laws, including the above- described statutes, are applicable to Guam. Under 46 U.S.C. 12105(b), however, a vessel for which a registry is issued by the United States Coast Guard may be employed in trade with Guam. Under that statute and 46 U.S.C. 12102, a foreign-built, United States-owned vessel may be issued a registry. In interpreting these statues, the Customs Service has ruled that foreign-built, United States-registered vessels may be used to transport merchandise or passengers between points in Guam as well as between United States coastwise points and Guam. Headquarters Ruling Letter 109455, dated August 4, 1988. Similarly, a foreign-built, United States-registered vessel could be used to tow another vessel between points in Guam as well as between United States coastwise points and Guam. In applying these rules to the issues raised in your letter, we conclude that a vessel that cannot be documented in the United States because of foreign ownership may not be used in the coastwise trade in Guam.

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 a vessel 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 Guam. A vessel engaged in such activity in Guam would be required to have a registry or a coastwise endorsement.

We note for your information that a vessel without a coastwise 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 without a coastwise endorsement to be chartered for pleasure purposes. We note, however, the part of this ruling relating to bareboat chartering of the vessel is advisory and suggest that your client submit to the Customs Service a copy of the bareboat charter agreement if this option is exercised.

HOLDING:

A vessel that cannot be documented in the United States because of foreign ownership may not be used in the coastwise trade in Guam. Moreover, 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. The use of a vessel for transporting passengers on a "voyage to nowhere" or the charter of a vessel pursuant to a bona fide bareboat charter would not be considered an engagement in the coastwise trade.

Sincerely,

B. James Fritz
Chief

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