HQ 115734 - Coastwise Trade; Sixth Proviso, Empty Cargo Containers; Vessel Sharing Agreement; 46 U.S.C. App. 883 - United States International Trade Commision Rulings

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HQ 115734

September 23, 2002

VES-3-17 RR:IT:EC 115734 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 25, 2002, concerning a vessel-sharing agreement (VSA). You indicate that you are writing as an agent for Compania Sudamericana de Vapores (CSAV) of Chile. Enclosed with your letter was a copy of the VSA between four vessel operating common carriers that was filed with the Federal Maritime Commission. You request that our office review the VSA for purposes of determining whether the U.S. coastwise movement of 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:

Four foreign-flag shipping lines, consisting of Maersk Sealand Group, PONL Group, Compaina Sud Americana de Vapores, S.A., and Hamburg-Sud Group have formed an alliance called East Coast of South America Alliance. The purpose of this agreement was to provide for a vessel sharing arrangement among the parties to enable them to improve service to customers within the trade. Under the VSA the parties agree to provide service and to use their vessels in a manner set forth in appendices to the VSA. However, these appendices were not attached to the VSA submitted. The VSA does provide that the parties shall seek to agree upon the provision of sufficient capacity to meet the need of the trade and the parties are authorized to make adjustments.

The agreement indicates that the parties shall provide slots to one another in amounts and at costs as initially set out in the appendices to the agreement. The agreement also indicates how costs of slots will be determined.

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 Stat. 823), which added the Sixth Proviso, and by the Act of August 11, 1968 (Pub. L. 90-474, 82 Stat. 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, four 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 first note that the VSA makes references to appendices, and a Federal Maritime Commission Agreement, but these additional documents did not accompany the VSA that was submitted. Therefore, we can only consider what is contained in the VSA submitted. In this instance, we believe that the VSA appears to be a slot allocation agreement. We note that most of the VSA relates to the procedures for slot allocation aboard the covered vessels. In particular, Section 6 in the VSA deals with the provision of slot allocation between the carrier lines and the cost initially specified in appendices to the VSA. Sections 7 and 8 of the VSA concern the cost of slots and the allocation of used and unused slots. An inspection of the VSA further indicates that there are very few areas of shared responsibilities that would show that the parties exercise joint operational control over the covered vessels. As noted previously, it has been our long-standing position that slot or space charter arrangements do not fulfill minimal statutory ownership or operational requirements to qualify for an exemption under the Sixth Proviso. Accordingly, without any further documentation such as the appendices that would substantiate that the parties to the VSA would be able to exercise joint operational control, we must conclude that the VSA that you submitted does not convey the status of joint vessel operational agreement on the parties. Therefore the parties may not move empty shipping containers which are either owned or leased by a VSA member, being transported for the purpose of handling the member’s cargo in foreign trade.

HOLDING:

We have determined that the VSA under examination would not convey the status of vessel operator on each of the individual signatories and that as such the empty containers in question may not be transported coastwise aboard any of the vessels involved without consequence under the Sixth Proviso to 46 U.S.C App. 883.

Sincerely,

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