HQ 115733 - Coastwise Trade; Sixth Proviso, Empty Cargo Containers; Vessel Sharing Agreement; 46 U.S.C. § App. 883 - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 2002 HQ Rulings > HQ 115630 - HQ 228011 > HQ 115733

Previous Ruling Next Ruling
HQ 115733

September 30, 2002

VES-3-17 RR:IT:EC 115733 RSD

CATEGORY: CARRIER

Captain Anil Dhawan
VP Operations
American Transportation Group
99 Wood Avenue South
Iselin, New Jersey 08830

RE: Coastwise Trade; Sixth Proviso, Empty Cargo Containers; Vessel Sharing Agreement; 46 U.S.C. § App. 883

Dear Captain Dhawan:

Reference is made to your letter dated June 27, 2002, concerning a vessel-sharing agreement (VSA). You are writing on behalf Montemar Maritima S.A., as its agent. Enclosed with your letter was a copy of the VSA between five vessel operating common carriers that was filed with the Federal Maritime Commission. You request that our office review the submitted VSA for the purpose of determining whether the U.S. coastwise movement of the empty containers on non-coastwise qualified vessels pursuant to the Sixth Proviso of the Jones Act, 46 U.S.C. App. § 883, would be permissible.

FACTS:

Five foreign-flag shipping lines consisting of CMA-CGM of Marseilles, France, Hanjin Shipping Co., Ltd., of Seoul, Korea; Montemar Martime, S.A. of Montvideo, Uruguay; Senator Lines of Bremen, Germany; and Zim Israel Navigation Company Ltd. of Haifa, Israel have entered into the VSA known as the Independent Carriers Alliance. The purpose of this VSA is to authorize joint meetings, discussions, and the exchange of information in order to reach understandings, agreements and cooperation among and/or between the parties. The VSA covers the trade, direct or via transshipment, between ports on the Atlantic, Pacific and Gulf Coasts of the United States and the U.S. inland and coastal points serving such ports (including ports and points on the islands of Puerto Rico and the U.S. Virgin Islands) and, ports on the Caribbean coast of Colombia, ports in Venezuela, Guyana, Suriname, French Guiana, Brazil Uruguay, ports on the Atlantic Coast of Argentina, and ports in all islands of the Caribbean Sea, and inland and coastal points served via such ports (including, without limitation, inland and coastal points in Paraguay).

The VSA indicates that the parties are authorized to consult and agree upon the deployment and utilization of vessels in the trade on items such as schedules, service frequency, ports to be served, port rotation, type and size of vessels to be utilized, and the addition or withdrawal of capacity from the trade.

The VSA also provides that the parties are authorized to charter and sub-charter vessels on such terms and conditions as they may from time to time agree. The parties are authorized to consult and agree upon any and all aspects of feeder operations in connection with their services in the trade, consisting of the deployment and utilization of feeder vessels, including any limitation on the use of feeder vessels by either of them, sailing schedules, service frequency, ports to be serviced, port rotation, the number, type and capacity of feeder vessels to be operated jointly or by each party, joint contracts for capacity on feeder vessels, and the terms and conditions under which the Parties shall share the capacity of feeder vessels.

In connection with their services in the trade, the parties are authorized to consult and agree upon the use of terminal or other facilities and are authorized to jointly negotiate and enter into leases for such facilities. The parties are further authorized to jointly contract for stevedoring services, tugs, terminal, warehousing, storage, ship supplies and other related ocean and shoreside services and supplies.

The parties are also authorized to discuss and agree upon the terms and conditions for the exchange, interchange, purchase, lease or sublease, and may otherwise cooperate in connection with containers, chassis, and other equipment. The VSA also includes a provision authorizing the parties to operate joint maintenance and repair facilities or establish joint equipment pools or container depots. Moreover, the VSA provides that the parties are to discuss and agree upon administrative matters and related issues including, but not limited to, the sharing of charges, costs, and expenses pertaining to the operations, performance procedures and penalties, procedures for allocating space, forecasting, terminal operations, stowage planning, schedule adjustments, record-keeping, and responsibility for loss, damage or injury. The parties may also reach agreements on the terms and conditions for force majeure relief, insurance, indemnification, consequence for delays and treatment of hazardous and dangerous cargoes.

The VSA is to be administered and implemented by meetings, decisions, memoranda, writings and other communications among and/or between the parties, including the meetings and operations of any committees or such other bodies as the parties may establish hereunder for purposes of administering this agreement. The parties are authorized to establish a joint operations center to monitor and/or direct operations of vessels, equipment and facilities hereunder.

ISSUE:

Whether under the terms of the VSA entered into by the parties, the parties might at all relevant times be considered to be vessel operators transporting their owned or leased empty shipping containers for purposes of satisfaction of the Sixth Proviso to the Jones Act.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, section 883 (46 U.S.C. App. 883), commonly 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 citizens of the United States. Section 883 was amended by the Act of September 21, 1965 (Pub. L. 89-194, 79 State. 823), which added the Sixth Proviso, and by the Act of August 11, 1968 (Pub. L. 90-474, 82 State. 700), which amended that proviso.

The 1965 Act exempted from the provisions of section 883 the coastwise transportation of empty cargo vans, empty lift vans, and empty shipping tanks in non-coastwise-qualified United States-flag vessels or foreign-flag vessels, on a reciprocal basis, when the vans and tanks are owned or leased by the owner or operator of the transporting vessels and are being transported for use in the carriage of cargo in foreign trade. The 1968 Act added equipment for use with cargo vans, lift vans, and empty shipping tanks, empty barges specifically designed for carriage aboard a vessel, and certain empty instruments of international traffic to the articles included within the Sixth Proviso. These articles and the articles covered by the 1965 Act were required by the 1968 Act to be owned or leased by the owner or operator of the transporting vessel and transported for his use in handling his cargo in foreign trade.

The 1968 Act also added stevedoring equipment and material to the articles included within the Sixth Proviso. To qualify for exemption from section 883 under the Sixth Proviso, the stevedoring equipment and material must be owned or leased by the owner or operator of the transporting vessel or owned or leased by the stevedoring company contracting for the lading or unlading of the vessel and the stevedoring equipment and material must be transported without charge for use in the handling of cargo in foreign trade.

The language of the proviso regarding containers which requires that they be owned or leased by the owner or operator of the transporting vessel and transported for his use in transporting his cargo in foreign trade, has collided with contemporary business practice in the vessel industry. Newly emergent limited-purpose alliances of vessel owners have blurred the clear boundaries of the proviso in terms of its application. Whereas even arms-length dealings used to be too close for comfort in the industry, an examination of the current landscape reveals numerous betrothals, if not outright marriages, in the form of “Vessel Consortia”, “Vessel Sharing Agreements”, and “Joint Service Agreements.”

The legal effect for Customs purposes of such a Joint Service Agreement is at the heart of the present matter. Under the Agreement in question, five vessel operating companies have entered into a cooperative working agreement which obligates the dedicated vessels of either of the companies to be made exclusively available for cargo transportation for the Agreement members.

The question presented for resolution is whether under the terms and intent of the merchandise transportation statute, the particular parties operating under the provisions of the proposed VSA may all be considered to be the joint operator of a VSA vessel while they are engaged in transporting shipping containers of members to that agreement. If such parties may be so considered, and if the containers transported are either owned or leased by those parties to the VSA and are transported for their use in moving their cargoes in the foreign trade, the transporting vessels must be documented as provided in section 4.93 of the Customs Regulations (19 CFR 4.93).

Historically, administrative cases involving interpretation of the Sixth Proviso have involved questions concerning the character of vessel charter arrangements. It has been our long-standing position that slot or space charter arrangements do not fulfill minimal statutory ownership or operational requirements, whereas those requirements are met under the terms of a standard bareboat or demise charter agreement. The present matter involves less a question of charter characteristics and more a consideration of degree of operational control under the terms of this new generation of agreement. We are left to determine whether such agreements as presently under consideration contain sufficient indicia of operational vessel control so as to qualify the members as vessel operators.

In reviewing prior VSAs, we note that there are several factors under which the agreements are formed and the parties are governed which indicate that the members shared the operational control of the designated vessels. For example, the VSA members would jointly agree upon when, where and which vessels they would operate. They would also agree to cooperate in such matters as insurance, leases, sailing schedules, port calls, rate policies and the terms of service contracts, among other things. In addition, in other cases, the parties also pooled shoreside chassis and made them available for any of the members’ containers.

In Headquarters Ruling Letter 114560, dated January 14, 1999, we pointed out that Customs will take the above factors into consideration together with generally accepted principles that if possible, the law should be interpreted in a dynamic and forward-looking manner which takes into account changes and evolving practices which were not contemplated at the time of a statutory enactment.

Upon examining the VSA presented in this case, we find that the basic facets of joint operation control are present in the agreement. As noted above under the VSA, the parties will cooperate and make joint decisions in a number of significant areas in operating vessels for the purposes of carrying cargo. Specifically, we note that under section 5.1 of the VSA the parties are authorized to consult and agree upon the deployment and utilization of vessels regarding limitation, sailing schedules, service frequency, ports to be served, port rotation type, and size of vessels to be utilized, and the addition or withdrawal of capacity from the trade. Section 5.2(a) further specifies that the parties are authorized to charter and sub-charter vessels on such terms and conditions as they may time to time agree. Under the section 5.3, the parties are authorized to consult and agree upon any and all aspects of feeder operations in connection with the deployment of feeder vessels. The parties are authorized to agree upon the use of terminal or other facilities and to jointly negotiate and enter into leases, subleases or assignments of such facilities. In addition, the parties are to jointly contract for stevedoring services, tugs, terminal, warehousing storage, ship supplies and other related ocean, and shoreside services and supplies. The agreement also provides for sharing of charges, costs and expenses pertaining to procedures for allocating space, forecasting terminal operations, stowage planning, schedule adjustments, record-keeping, responsibility for loss, damage or injury, the establishment and operation of individual or joint tonnage centers, the interchange of information and data, including EDP communications and systems. In addition, the parties will agree on terms and conditions for force majeure relief, insurance, indemnification consequence for delays and treatment of hazardous and dangerous cargoes.

These provisions in the VSA indicate that there are shared responsibilities and that the parties will jointly function together in the operation of vessels and the carrying of cargo and as such the submitted VSA is more than a slot chartering agreement. Section 6.1 of the VSA, indicates that it will be administered and implemented through meetings, decisions, memoranda, and communications between the parties to enable them to effectuate the purpose of the agreement. We believe that this shows that there is joint administration among the parties in implementing the VSA.

Accordingly, we have determined that the agreement under examination does convey the status of vessel operator upon the individual parties and that, as such, their cargoes may be transported aboard any of the qualified vessels involved without consequence under the Sixth Proviso. The cargoes that this decision applies to are empty shipping containers that are either owned or leased by an Agreement member, which containers are being transported for the purpose of handling the member’s cargo in the foreign trade.

HOLDING:

We have determined that the VSA under examination would convey the status of vessel operator on each of the individual signatories and that as such their empty containers may be transported coastwise aboard any of the vessels involved without consequence under the Sixth Proviso to 46 U.S.C App. 883.

Sincerely,

Previous Ruling Next Ruling