HQ 113362 - Coastwise Trade; Bareboat Charter; 46 U.S.C. App. ?? 289, 883 - United States International Trade Commision Rulings

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HQ 113362

March 20, 1995

VES-4-03-CO:R:IT:C 113362 GEV

CATEGORY: CARRIER

Robert E. Tutland
2701 60th S.E.
Mercer Island, Washington 98040

RE: Coastwise Trade; Bareboat Charter; 46 U.S.C. App. ?? 289, 883

Dear Mr. Tutland:

This is in response to your letter dated March 1, 1995, requesting a ruling regarding the operation of your boat pursuant to a bareboat charter. Our ruling on this matter is set forth below.

FACTS:

The CATHERINE MARIE is a Taiwanese-built vessel that had all its electronics, engines, generators, and interior finish completed in Seattle, Washington. The U.S. citizen owner proposes to bareboat charter the vessel. The charterers would be taking friends and/or family for daily or weekly cruises. Pursuant to the terms of the charter agreement, a copy of which was enclosed for Customs review, the charterers would receive no consideration from those persons on the aforementioned cruises, nor carry or transport cargo or passengers for hire. The vessel could not be used for any commercial purpose. It would be chartered for pleasure only.

A typical example of the proposed charters is as follows. An individual charters the CATHERINE MARIE to take his family and out-of-town friends on a day cruise of Lake Washington and Lake Union. He may or may not hire a captain and/or crew, depending on his skippering abilities or desires. He and his party depart from a public or private dock and return to the same dock at the completion of their cruise. No consideration is received from members of his party, no cargo is carried or transported, and no passengers are transported for hire.

ISSUE:

Whether the operation of the CATHERINE MARIE, a non-coastwise-qualified vessel, pursuant to the terms of the bareboat charter agreement under consideration, is an engagement in the coastwise trade in violation of 46 U.S.C. App. ? 289.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, ? 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 is more applicable to this particular case, 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 ? 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, 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 coastline differ.

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.

Upon reviewing the terms of the charter agreement in question, we are of the opinion that it is in fact a bareboat charter. Accordingly, the operation of the CATHERINE MARIE pursuant to the provisions of the aforementioned agreement would not constitute a violation of the coastwise laws.

HOLDING:

The operation of the CATHERINE MARIE, a non-coastwise-qualified vessel, pursuant to the terms of the bareboat charter under consideration, is not an engagement in the coastwise trade in violation of 46 U.S.C. App. ? 289.

Sincerely,

Arthur P. Schifflin

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