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HQ 115157





September 27, 2000

VES-5/13-RR:IT:EC 115157 GEV

CATEGORY: CARRIER

William N. Myhre, Esq.
Preston Gates Ellis & Rouvelas Meeds LLP
1735 New York Avenue, NW
Suite 500
Washington, D.C. 20006-5209

RE: M/S PATRIOT (ex-NIEUW AMSTERDAM); At-Sea Documentation; Report of Arrival; Entry; Clearance; Vessel Repair; 19 U.S.C. §§ 1433, 1434, 1466; 46 U.S.C. App. § 91

Dear Mr. Myrhe:

This is in response to your letter dated September 15, 2000, on behalf of your client, American Classic Voyages Co. and its wholly-owned subsidiary, Oceanic Ship Co. (referred to collectively as “AMCV” or the “Company”) concerning its acquisition of the foreign-flag vessel NIEUW AMSTERDAM to be re-documented under the U.S. flag with a coastwise endorsement pursuant to a special legislative grant, as the M/S PATRIOT. You state that the acquisition is scheduled to close, and the vessel is to be re-documented, on or about October 18, 2000 (the “Closing”) while the vessel is at sea en route from Honolulu to Portland, Oregon, where the vessel will enter a shipyard for work to ready it for regular service in Hawaii. You seek to confirm, in advance of the Closing, your understanding of the application of various statutes under the jurisdiction of the U.S. Customs Service with respect to the vessel’s arrival in Portland.

FACTS:

As part of the 1998 Department of Defense Appropriations Act, Congress adopted an amendment by Senator Daniel Inouye (D-HI) to provide authorization for the U.S.-flag Cruise Ship Pilot Project for the purpose of facilitating development of the U.S.-flag cruise industry.

(Section 8109 of Public Law 105-56 as enacted on October 8, 1997; 111 Stat. 1203, 1244; the “Pilot Project Statute” or “Statute). Among other things, the Statute authorized the U.S. documentation with a coastwise endorsement of a foreign-built cruise ship for operation in the coastwise passenger cruise trade, provided certain requirements were met.

Pursuant to the Pilot Project Statute, AMCV entered into a contract last year for the acquisition of the M/S NIEUW AMSTERDAM, a foreign-built, foreign-flag vessel, from HAL Antillen, N.V., a Netherlands Antilles corporation (“HAL”), part of the Holland America Line group of companies (the “Purchase Agreement”). The Purchase Agreement allows for the substitution of the M/S NOORDAM, the sister ship to the M/S NIEUW AMSTERDAM, under certain circumstances (both vessels are hereinafter referred to as the “Vessel”). The Vessel is classed by Lloyd’s Register and since its original construction has operated primarily in the North American cruise market carrying U.S. passengers. By letter ruling dated September 16, 1999, the Director of the National Vessel Documentation Center of the U.S. Coast Guard confirmed that this particular vessel met the requirements of the Pilot Project Statute and would be eligible for a coastwise endorsement if acquired by AMCV.

Under the terms of the Purchase Agreement, the parties intend to transfer title and registry of the Vessel to Oceanic Ship Co. (the wholly-owned subsidiary of AMCV) on or about October 18, 2000. The parties have agreed that this transfer will occur while the Vessel is at sea, en route from Honolulu, Hawaii, to Portland, Oregon. It is anticipated that the Vessel will depart Honolulu on or about October 12, 2000, operating under its current foreign registry, with its current crew complement. The Vessel will take on some perishable food items in Honolulu, but will neither take on nor carry cargo or passengers for hire. HAL plans to remove some artwork and other vessel furnishings which were not conveyed to AMCV under the terms of the Purchase Agreement. These items will be transferred to a bonded warehouse by HAL upon the Vessel’s arrival in Portland. The Customs Service has already determined that for purposes of the Passenger Vessel Services Act (46 U.S.C. App. § 289), the management and technical personnel of AMCV are not passengers when being transported by the Vessel while under foreign registry. (Customs ruling letter 114883, dated November 30, 1999) Prior to departure from Honolulu, AMCV will board approximately 75 crew members consisting of officers, deck and engine crew and limited hotel personnel.

It is presently anticipated that on or about October 18, 2000, the parties will transfer title of the Vessel while the Vessel is underway outside the territorial sea of the United States at approximately 46-08.5 North 124-15.5 West, which is 10.5 nautical miles southwest of Cape Disappointment. Simultaneously with the transfer of title, HAL will cause the Vessel to be removed from Netherlands-Antilles registry, and AMCV will re-document the Vessel under U.S. flag. At that point the Vessel will come under the command of the U.S. Master and the AMCV crew that boarded the Vessel in Honolulu. After the transfer, the Vessel will proceed directly to the Cascade General Shipyard in Portland, Oregon. Upon completion of the shipyard work AMCV will begin operating the Vessel in the regular passenger service.

Further in regard to shipyard work performed on the Vessel, since the date of the Purchase Agreement, the NIEUW AMSTERDAM experienced a fire on board. In connection with this fire, HAL undertook repairs and purchased equipment outside of the United States while the vessel was under foreign registry. No such repairs or equipment purchases will occur between the time of its documentation under the U.S. flag and the time the Vessel arrives in Portland.

ISSUES:

What procedures must be followed by the Vessel upon its departure from Honolulu as a foreign-flag vessel, and its arrival in Portland as a U.S.-flag vessel, with respect to the report of arrival, entry and clearance requirements set forth in 19 U.S.C. §§ 1433, 1434, and 46 U.S.C. App. § 91, respectively.

What is the applicability of the vessel repair statute, found at 19 U.S.C. § 1466, to the Vessel under the circumstances described above.

LAW AND ANALYSIS:

The laws governing the requirements of the U.S. Customs Service with respect to report of arrival, entry, and clearance of vessels are found at 19 U.S.C. §§ 1433, 1434 and 46 U.S.C. App. § 91, respectively. The applicable Customs Regulations promulgated pursuant thereto are set forth in 19 CFR §§ 4.2, 4.3, et seq., and 4.60, et seq., respectively. As applied to the facts under consideration, the requisite vessel procedures are as follows.

At the time of the Vessel’s departure from Honolulu for Portland on or about October 12, 2000, the Vessel will be under foreign registry. Foreign-flag vessels are required to obtain a clearance from U.S. Customs before departing for another U.S. port. (see 46 U.S.C. App. § 91(b)(2) and the applicable requirements set forth in 19 CFR § 4.61) Consequently, the Vessel must obtain a clearance from Customs in Honolulu prior to departing for Portland.

At the time of the Vessel’s arrival in Portland from Honolulu on or about October 18, 2000, the Vessel will be under U.S. documentation with a coastwise endorsement and will be carrying bonded merchandise (the HAL furnishings). Any vessel of the United States carrying bonded merchandise is required to report its arrival at any port or place in the United States and make a vessel entry pursuant to 19 U.S.C. §§ 1433(a)(1)(C) and § 1434(a)(3), respectively. Consequently, the Vessel will be required to report its arrival at Portland and make entry pursuant to the aforementioned statutory provisions and the applicable procedures set forth in 19 CFR §§ 4.2 and 4.3, et seq.

With respect to the applicability of the vessel repair statute to the Vessel’s foreign repairs and equipment purchases prior to its U.S. documentation, we note that title 19, United States Code, § 1466(a) (19 U.S.C. § 1466(a)), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade,...” (Emphasis added)

In interpreting 19 U.S.C. § 1466(a), it is the position of the Customs Service that a vessel that is not documented under the U.S. flag at the time foreign repair work is performed shall be assessed vessel repair duties at the time of its first arrival in the U.S. if it is clear that the vessel intended to engage in the U.S. foreign or coastwise trade at the time the foreign repair work was performed. (Emphasis added; see Customs Bulletin and Decisions, vol. 32, no. 11, dated March 18, 1998, at pp. 7-10)

Consequently, in order for the foreign repairs and equipment purchases in question to fall within the purview of 19 U.S.C. § 1466(a), it must be clear from the available evidence that the Vessel was intended to engage in the coastwise trade for which it will be documented. In this regard we note that not only was the authority providing for the Vessel to be documented with a coastwise endorsement generic, it was non-specific as to vessel. The Pilot Project Statute authorized any foreign vessel meeting certain size and other requirements to be able to be documented under the U.S. flag. (see Pilot Project Statute, § 8109 of Public Law 105-56) At the time the foreign shipyard work in question was performed it was not only unclear as to whether the NIEUW AMSTERDAM would in fact be purchased and operated under the legislative authority or the Purchase Agreement, but also that at that time, and even now, it is possible that the sister ship, NOORDAM, could be substituted for the NIEUW AMSTERDAM provided certain conditions set forth in the Purchase Agreement are met.

Accordingly, upon reviewing the available evidence we have determined that it is not clear that the Vessel was intended to engage in the coastwise trade at the time the foreign repair expenses in question were incurred. Consequently, the provisions of 19 U.S.C. § 1466(a) do not apply in this case. However, upon making formal entry with Customs in Portland, the Vessel’s master will be required to file a declaration on Customs Form (CF) 226 that there have been no foreign purchases of equipment, parts, and/or materials, or foreign repairs (i.e., a negative declaration).

Parenthetically, we reiterate that Customs has already determined that AMVC personnel who will board the Vessel in Honolulu, while it is under foreign flag, for the voyage to Portland will be doing so for the purpose of learning the operation of the vessel and facilitating the efficient transition between buyer and seller are not considered to be passengers for purposes of the coastwise laws. (Customs ruling letter114883, dated November 30, 1999) Similarly, not only will the HAL crew who will necessarily remain on board the Vessel after the Closing and for the short period of time before the Vessel arrives in Portland not be considered passengers, by that point in time, the Vessel will be coastwise-qualified thereby legitimizing any coastwise transportation of passengers.

HOLDINGS:

The procedures that must be followed by the Vessel upon its departure from Honolulu as a foreign-flag vessel, and its arrival in Portland as a U.S.-flag vessel, with respect to the report of arrival, entry and clearance requirements set forth in 19 U.S.C. §§ 1433, 1434, and 46 U.S.C. App. § 91, respectively, are as follows. Prior to departing from Honolulu the Vessel must obtain a clearance from the U.S. Customs Service (46 U.S.C. App. § 91(b)(2)). Upon arriving in Portland carrying bonded merchandise it must report its arrival (19 U.S.C. § 1433(a)(1)(C)) and make entry (19 U.S.C.

Upon reviewing the available evidence, it is not clear that the Vessel was intended to engage in the U.S. foreign or coastwise trade at the time the foreign repair work in question was performed. Consequently, the duties assessed pursuant to 19 U.S.C. § 1466(a) would not apply in this case. However, upon making formal entry with Customs in Portland, the Vessel’s master will file a declaration on Customs Form (CF) 226 that there have been no foreign purchases of equipment, parts, and/or materials, or foreign repairs (i.e., a negative declaration).

Sincerely,

Larry L. Burton

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