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HQ 116183

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April 5, 2004

VES-3-02:RR:IT:EC 116183 TLS

CATEGORY: CARRIER

Gary M. Haugen, Esq.
Bauer Moynihan & Johnson, LLP
2101 Fourth Avenue, Suite 2400
Seattle, Washington 98121

RE: Coastwise Trade; Passengers; Bareboat Charter Agreement; 46 U.S.C. App. § 289

Dear Mr. Haugen:

This is in response to your letter of March 22, 2004 on behalf of your client, Revelation, Inc. (“Revelation”), seeking approval of a bareboat charter agreement. A copy of the agreement was enclosed with your letter to us. Our ruling on this matter is set forth below.

FACTS:

Revelation is a Nevada corporation that owns the vessel MY REVELATION. The vessel is documented with a recreation endorsement. The vessel is not eligible for a coastwise endorsement, however, because Revelation does not meet the United States citizenship requirements of Section 2 of the Shipping Act of 1916. Revelation plans to lease MY REVELATION to individuals for pleasure trips pursuant to a bareboat charter agreement. It is anticipated that the charter periods would be one or two weeks in duration. No description or specifications of the vessel were provided.

ISSUE:

Whether the charter party agreement of Revelation submitted for our review is a valid bareboat charter agreement for purposes of the coastwise laws administered by U.S. Customs and Border Protection (CBP).

LAW AND ANALYSIS:

Title 46, United States Code Appendix, section 883 (46 U.S.C. App. § 883), commonly referred to as 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 Appendix (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. We note that for purposes of section 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." See 19 CFR 4.50(b).

In interpreting the coastwise laws (sections 289 and 883 as noted above), CBP has consistently 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, three 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, CBP 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. The transportation of passengers to the high seas (i.e., beyond the three-mile territorial waters limit) 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)) 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. Treasury Decision (T.D.) 55193(2).

With respect to chartering, CBP 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 prohibited 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). Customs Ruling HQ 226808 (June 7, 1996), citing Customs Ruling HQ 106049 (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 CBP 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. Customs Ruling HQ 226808, supra, citing Customs Ruling HQ 111424 (March 20, 1991) and Customs Ruling HQ 109638 (July 22, 1988).

Upon reviewing the terms of the charter agreement under consideration, we note that it is divided into ten different provisions under the following headings: 1. Basic Agreement; 2. Hire, Charges, and Interest; 3. Warranties and Representations; 4. Operation and Use; 5. Surveys and Inventories; 6. Repairs, Maintenance and Alterations; 7. Redelivery; 8. Insurance; 9. Liability and Indemnity; and 10. Miscellaneous Provisions. We analyze these provisions in the following discussion.

The first provision, Basic Agreement, states that the vessel will be leased on a bareboat or demise charter basis and that the vessel will include all machinery, equipment, consumables, stores, furnishings, and gear associated with and aboard the vessel at delivery. The provision also states that the charter will commence at the delivery date and time, or actual date and time the charterer accepts and assumes control of the vessel, whichever comes first. Acceptance of these terms by the parties indicates intent to have the charterer assume complete management and control of the vessel during the term of the charter.

The second provision, Hire, Charges, and Interest, states that the charterer shall be responsible for all charges and expenses “of every kind and nature whatsoever relating to the vessel” and its operation during the charter. It also states that the charter shall pay in advance for hire unless otherwise agreed upon by the parties. Acceptance of these terms by the parties indicates intent to have the charterer assume complete management, control, and responsibility for the vessel during the term of the charter.

The fourth provision, Operation and Use, states that the charterer will man, fuel, victual [supply food], navigate, operate, maintain, and supply the vessel and pay all expenses during the term of the charter. It also states that these terms are intended as a demise of the vessel by the owner to the charterer, and the charterer is to become “owner of the vessel pro hac vice [during the charter period],” with the charterer accepting full, complete, and exclusive responsibility of the vessel for the full duration of the charter. (Emphasis in original.) This provision also states that the charterer shall operate the vessel in full compliance with applicable federal, state, and local laws. This provision squarely addresses the nature of bareboat chartering; it clearly passes complete and exclusive control and responsibility for the vessel to the charterer during the term of the charter. The clause requiring the charterer to comply with applicable federal, state, and local laws is not incongruent with the other parts of this provision that give exclusive and complete control to the charterer during the charter period. See HQ 226808, supra.

The remainder of the provisions contained within this agreement are inconsequential to our determination of whether in fact it is a valid bareboat charter agreement.

Thus, we find that the first, second, and fourth provisions of the subject charter agreement indicate an intent by both the owner and the charterer to have the charterer assume exclusive and complete management and control of the vessel during the charter period. Consequently, we find the subject charter agreement is in fact a valid bareboat charter agreement for purposes of the coastwise laws administered by CBP. Accordingly, the operation of the vessel MY REVELATION pursuant to the subject charter agreement would not constitute a violation of coastwise laws.

HOLDING:

The charter agreement of Revelation for MY REVELATION, a non-coastwise-qualified vessel, submitted for our review, is a valid bareboat charter agreement for purposes of
the coastwise laws administered by CBP. Consequently, the proposed use of this vessel would not violate these laws.

Sincerely,

Glen E. Vereb
Chief

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