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HQ 112533


May 21, 1993

VES 3-13-CO:R:IT:C 112533 BEW

CATEGORY: CARRIER

Richard Ward
Director
Mariglass Sales PTY LTD
287 Ramsay Road
Haberfield, NSW 2045

RE: Use of a Australian-built sailing catamaran for bareboat charters in the waters of the United States

Dear Mr. Ward:

This is in reference to your letter of November 21, 1992, in which you request a ruling on whether you may use a foreign-built sailing catamaran for the purposes of coastwise trade, to wit, chartering for day sailing, overnight chartering, and/or day charter with a skipper or skipper and crew, within U.S. waters.

FACTS:

You state that the boats are 24 ft., 28 ft., and 33 ft. SEAWIND Australian-built sailing catamarans. You state your company manufactures these vessels for use in both the private leisure and commercial charter market. The charter use is either for bareboat charter, i.e., the hire of the boat for 6 to 10 hours without a skipper or crew) and day charters with a skipper. You also ask the following:

1. Can these Australian-built boats be accepted for charter operations in the USA.

2. If these vessels can be built in Australia, what design & construction standards apply to these vessels for commercial use in USA waters.

3. What import or customs duties are applicable on Australian-built commercial vessels.

ISSUE:

May a foreign-built pleasure sailing catamaran vessel be bareboat chartered in the U.S. without violating the coastwise statutes.
LAW AND ANALYSIS:

You should be aware that foreign-flag or foreign-built vessels are prohibited from engaging in the coastwise trade. Generally, the coastwise laws (e.g., 46 U.S.C. App. 289 and 883, 46 U.S.C. 12106 and 12110) prohibit the transportation of merchandise or passengers between points in the United States embraced within the coastwise laws 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. The penalty for violating this section of the law is $200 for each passenger so transported and landed.

A "passenger" is defined in section 4.50(b) of the Customs Regulations (19 CFR 4.50(b)), as "any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership, or business". The family and legitimate guests of the owner or bareboat charterer of a vessel used for pleasure purposes are not considered passengers.

Customs has consistently ruled that a yacht chartered under a bona fide bareboat charter and used only for pleasure purposes is not considered to be used in the coastwise trade. However, a pleasure vessel chartered under a charter agreement other than a bareboat charter (e.g., a time or voyage charter) and used in the U.S. waters is considered to be used in trade.

In 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 circumstances of each case. Under a bareboat charter or a 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 complete management and control have been wholly surrendered by the owner to the charterer so that for the period of time 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. The Customs Service has also ruled, for purposes of the coastwise law, that a charter agreement which permits the owner to act as master or as a member of the crew, or which permits the owner to accompany the vessel during its charter period, would not be considered a bona fide bareboat charter.

When a vessel is chartered under a charter arrangement other than a bareboat charter (e.g., a time or voyage charter) and is used in coastwise transportation, the owner of the vessel is subject to penalties under the coastwise laws. The charterer of a vessel chartered under a bareboat charter would also be subject to penalties if the vessel is used for other than pleasure purposes or if the actions of the parties negated the terms of the bareboat charter agreement (e.g. if his "guests" paid for or contributed to the expenses of the trip).

The Customs Service has consistently held that when a vessel is chartered under a bona fide bareboat charter, the charterer is treated as the owner of the vessel for the period of the charter and, because owners are not considered "passengers," for purposes of the coastwise laws, the charterer is not prohibited by the coastwise laws from using the vessel during the charter for pleasure purposes only, including the transportation of family and guests.

Accordingly, a bareboat charterer may transport family and guests from one port in the United States to a another port without violating the coastwise laws.

With regard to question 2 relating to the vessel's design and construction standards, documentation and safety requirements are under United States Coast Guard jurisdiction. You should address questions relating to these issues to:

Mr. Thomas Willis
Chief, Vessel Documentation
U.S. Coast Guard (GMVI-6/13)
2100 Second Street., SW (Room 1312)
Washington, D.C. 20593-0001

Question 3 - IMPORT OR CUSTOMS DUTIES RELATING TO FOREIGN-BUILT VESSELS

Under the Harmonized Tariff Schedules of the United States (HTSUS), Heading 8903.00.00, Yachts and other vessels for pleasure or sport, rowboats and canoes, Subheading 8903.91.00, Sailboats with or without auxiliary motor are dutiable at the rate of 1.5 percent ad valorem. A sailboat owned by a resident of the United States or brought into the United States for sale or charter to a resident thereof, would be subject to this duty provision of the HTSUS.

Duty on the vessel is collectable when it is first imported. The determination of whether or not a yacht is dutiable when it has previously been subject to Customs entry and payment of duty is dependent on whether it has been exported from the United States after its first importation. If it has been exported, it is again dutiable as an importation under items 8903.91.00 or 8903.92.00, HTSUS. Exportation, in this context, is defined as occurring when the yacht is severed from the mass of things belonging to this country with the intention of being united with the mass of things belonging to some foreign country (see section 101.1(k), Customs Regulations (19 CFR 101.1(k)). Merely removing a yacht from U.S. territorial waters on a temporary foreign pleasure cruise with the intent to return it to the United States thereafter would not constitute an exportation. In addition, it should be noted that any past or future transfers of ownership of a vessel that take place while it remains within the United States do not affect its duty-paid status provided the circumstances surrounding the transfers of ownership do not indicate that an exportation has occurred within the meaning of section 101.1(k).

Bringing vessels in for sale or for the chartering of the vessel to a U.S. resident would subject the vessel to Customs consumption entry procedures and the duty provisions of subheading 8903.91.00 of the HTSUS.

Title 19, United States Code, section 1433, provides that immediately upon the arrival at any port or place in the United States or Virgin Islands of: (1) any vessel from a foreign port or place; (2) any foreign vessel from a domestic port; or (3) any vessel of the United States carrying bonded merchandise, or foreign merchandise for which entry has not been made, the master of the vessel shall report the arrival at the nearest Customs facility. The report of arrival shall be in accordance with the procedures in section 4.2, Customs Regulations, as amended by T.D.87-150.

The master of any foreign vessel arriving in a United States port, whether from a foreign port or another United States port, is required to make vessel entry under title 19, United States Code, section 1435 (19 U.S.C. 1435), and section 4.3 of the Customs Regulations (19 CFR 4.3). Such vessels are also required to clear when bound for a foreign port, and must have a permit to proceed from one United States port to another.
Title 46, United States Code, Appendix, section 104 (46 U.S.C. App. 104), authorizes the issuance of cruising licenses to pleasure vessels of countries which extend reciprocal privileges to United States pleasure vessels. Australia is such a country. Section 4.94 of the Customs Regulations, concerns the issuance of cruising licenses which exempt foreign yachts from formal entry and clearance procedures. Subsequent to the receipt of the cruising license, yachts may arrive and depart from the United States and cruise in specified waters of the United States without entering and clearing, without filing manifests and obtaining or delivering permits to proceed, and without the payment of entrance and clearance fees, or fees for receiving manifests and granting permits to proceed, duty on tonnage, tonnage tax, or light money. The license is granted subject to the condition that the vessel will not engage in trade or violate the laws of the United States in any respect.

HOLDING:

A foreign-built sailing catamaran, or other pleasure vessel may be bareboat chartered for pleasure use without violating the coastwise statutes provided under the charter agreement the owner relinquishes complete management and control of the vessel to the charterer.

A sailboat brought into the United States for sale or charter to a resident thereof, would be subject to Customs consumption entry procedures and the duty provisions of subheading 8903.91.00 of the HTSUS.

Sincerely,

Acting Chief

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