HQ 114343 - Coastwise Trade; Passengers; America's Cup; 46 U.S.C. App. ? 289 - United States International Trade Commision Rulings

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HQ 114343

June 18, 1998

VES-3-06-RR:IT:EC 114343 GEV

CATEGORY: CARRIER

George H. Clyde, Jr.
America True
Post Office Box 19075
San Francisco, California 94104

RE: Coastwise Trade; Passengers; America's Cup; 46 U.S.C. App. ? 289

Dear Mr. Clyde:

This is in response to your letter dated April 24, 1998, requesting a ruling as to whether the use of a foreign-built sailing vessel for certain activities described herein would violate 46 U.S.C. App. ? 289. Our ruling is set forth below.

FACTS:

America True is a non-profit U.S. corporation whose mission is to win the America's Cup in 2000 and to promote the sport of sailing. It is proposing to use a foreign-built sailing vessel in connection with the transportation of individuals on short trips in the territorial waters of the United States (primarily San Francisco Bay) for various purposes including the following:

1. Members of the press will be invited to accompany the vessel for publicity purposes, to learn about America True's efforts and to help promote their cause. The members of the press would include writers, photographers and film and video camera operators.

2. Potential commercial sponsors and charitable contributors will be entertained in the hopes of attracting sponsorship contracts and charitable contributions. In this connection, potential sponsors and contributors would be sought to provide or contribute money or in-kind goods and services to or for the benefit of America True.

3. Where commercial sponsorship agreements are obtained, America True may entertain employees from the sponsoring companies, their clients, their business associates and their other guests in fulfilling its sponsorship agreements with those companies.

4. Where charitable contributions are obtained, America True may express its gratitude to those contributing and their guests by entertaining them on board.

5. On occasion, America True may offer trips on the vessel as prizes or premiums in connection with its fund-raising activities and in connection with the fund-raising activities of other non-profit organizations (e.g., an auction to raise funds for a public television station or school).

6. America True may use the vessel for crew try-outs and training in connection with its America's Cup campaign.

7. The vessel may be used as part of America True's youth-sailing program, which gives free sailing trips and instruction to disadvantaged youth as a part of its public benefit, non-profit mission.

8. America True may also entertain its own staff and volunteers and their guests to improve morale and to educate them about sailing and its efforts to win the America's Cup to promote the sport of sailing.

In each of the above scenarios, the vessel would leave a dock in San Francisco Bay or another U.S. port, remain within the territorial three-mile limit of the United States, and return to the same or another dock. In no case would any money be required of an individual guest as a consideration of the passage, although there would be some consideration paid indirectly to America True in connection with Item 3, above, and to America True or to another charitable organization in connection with Item 5, above. It is also stated that the foreign-built sailing vessel under consideration would be owned by or made available to America True on a bareboat charter basis.

ISSUE:

Whether the uses of a foreign-built sailing vessel in U.S. territorial waters as described in the above scenarios violate 46 U.S.C. App. ? 289.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, ? 289 (46 U.S.C. App. in the United States embraced within the coastwise laws, either directly or by way of a foreign port, in a non-coastwise-qualified vessel (i.e., a vessel not U.S.-built, owned and properly documented). 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, including 46 U.S.C. App. 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. (Treasury Decision 22275) 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. (29 O.A.G. 318 (1912))

With respect to chartering, 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). Headquarters Ruling 106049, dated April 26, 1983.

With respect to the validity of bareboat charter agreements, 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 or not 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 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 111424, dated March 20, 1991, citing Headquarters Ruling Letter 109638, dated July 22, 1988).

With respect to the eight scenarios presented for our consideration, we note at the outset that none would constitute a valid voyage-to-nowhere in view of the fact that the foreign-built vessel in question would at all times remain within the three-mile U.S. territorial sea. Consequently, whether these proposed uses would give rise to a violation of 46 U.S.C. App. transported would be considered "passengers" within the meaning of 19 CFR ? 4.50(b).

In regard to the first of the scenarios in question, it is Customs position that members of the press (including writers, photographers and film and video operators) who merely accompany a vessel for publicity purposes are other than bona fide guests of the bareboat charterer (America

True) transported only for pleasure purposes. While we recognize that such individuals may derive pleasure from their experience, the purpose of the voyage and use of the vessel is not exclusively for their pleasure. (Customs ruling letter 111796, dated August 8, 1991) Furthermore, Customs has long held that such persons traveling aboard a vessel not for the purpose of reporting matters peculiar to circumstances on board that particular vessel are not sufficiently connected with the operation, navigation, ownership, or business of the vessel within the meaning of 19 CFR ? 4.50(b). (Headquarters ruling letters MA 217.1, dated August 29, 1960; 216.131, dated April 30, 1969 and published as Treasury Decision (T.D.) 69-120(4); 105628, dated July 22, 1982; and 109685, dated November 23, 1988) Accordingly, the use of the vessel as proposed in this first scenario would be violative of 46 U.S.C. App. ? 289.

With respect to the transportation of those individuals as described in the second scenario, (i.e., potential commercial sponsors and charitable contributors who will be entertained in the hopes of attracting sponsorship contracts and charitable contributions), Customs has long held that, "the entertainment of guests for the purpose of promoting good will or with the thought that those who are entertained will favor their hosts with new or increased business is a use of a vessel for pleasure purposes" and the "guests" are not considered passengers. (Customs ruling letters 102756, dated April 7, 1977; 105612, dated May 19, 1982; 107028, dated October 18, 1984; and 109781, dated November 7, 1988) Since the transportation contemplated by the second scenario is similar to that addressed in the aforementioned administrative authority, we believe the same rationale applies. Accordingly, the use of the vessel as proposed in this scenario would not constitute a violation of 46 U.S.C. App. ? 289.

Scenarios 3 and 4 address commercial sponsors and charitable contributors who have in fact entered into commercial sponsorships or financially contributed to the mission of America True. These scenarios contemplate the entertainment on board the subject vessel of employees of the sponsoring companies, their clients, their business associates and their other guests, as well as the aforementioned charitable contributors and their guests. In this regard we note that notwithstanding the requestor's statement that in no case would any money be required of an individual guest as a condition of passage, the above-cited administrative authority precludes the exchange of any monetary consideration prior to any such voyage. Such an exchange calls into question any determination that those parties so transported are bona fide guests of the bareboat charterer. Consequently, scenarios 3 and 4 would constitute violations of 46 U.S.C. App. ? 289.

The rationale set forth with respect to scenarios 3 and 4 is applicable to scenario 5 where trips would be offered on the subject vessel as prizes or premiums in connection with the fund-raising activities of America True and in connection with such activities of other non-profit organizations. Such prizes or premiums also render the individual(s) transported to be other than bona fide guests of the bareboat charterer. Accordingly, scenario 5 would constitute a violation of 46 U.S.C. App. ? 289.

Scenario 6 concerns the proposed use of the vessel for crew try-outs and training in connection with the America's Cup campaign. Customs has held that crew training does not constitute a use of a vessel in the coastwise trade. (Customs ruling letter 113204, dated September 6, 1994) We believe this holding is also applicable in the case of crew try-outs. Consequently, scenario 6 would not constitute a violation of 46 U.S.C. App. ? 289.

Under scenario 7, it is proposed to use the vessel as a part of a youth sailing program providing free sailing trips and instruction to disadvantaged youth. Customs has long-held that a person being trained or receiving instruction in the handling or navigation of a vessel, and whose presence on board the vessel is necessarily required in order to receive such training or instruction, is not a "passenger" within the meaning of the coastwise laws. (Customs ruling letters 109850, dated December 27, 1988, and 109287, dated February 24, 1988) Consequently, scenario 7 is in accord with 46 U.S.C. App. ? 289.

With respect to scenario 8, the transportation of the staff of America True as well as volunteers and their guests for the purpose of improving morale and to educate them about sailing and the America's Cup would constitute the transportation of bona fide guests of a bareboat charterer and would therefore not give rise to a violation of 46 U.S.C. App. ? 289.

HOLDING:

The uses of a foreign-built sailing vessel in U.S. territorial waters as described in the above scenarios is violative of 46 U.S.C. App. ? 289 as discussed in the Law and Analysis portion of this ruling.

Sincerely,

Jerry Laderberg

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