HQ H011299 - Coastwise Trade; Vessel Sharing Agreement; 46 U.S.C. § 55107 (Formerly Sixth Proviso to 46 U.S.C. App. 883); Empty Cargo Containers; 19 CFR § 4.93 - United States International Trade Commision Rulings

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HQ H011299

October 4, 2007

VES-3-17-OT:RR:BSTC:CCI H011299 GG

CATEGORY: CARRIER

Mr. Walter H. Lion
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016

RE: Coastwise Trade; Vessel Sharing Agreement; 46 U.S.C. § 55107 (Formerly Sixth Proviso to 46 U.S.C. App. 883); Empty Cargo Containers; 19 CFR § 4.93

Dear Mr. Lion:

This is in response to your correspondence of May 14, 2007, on behalf of your client, Compania Sud Americana de Vapores S.A. (“CSAV”), seeking a determination that the parties to a vessel sharing agreement (“VSA”) qualify as joint vessel operators for purposes of the transportation of empty containers in the U.S. coastwise trade pursuant to 46 U.S.C. § 55107. Our ruling is set forth below.

FACTS

CSAV, a Chilean corporation, and Compania Chilena de Navegacion Interoceanica S.A. (“CCNI”), also a Chilean corporation, have entered into a VSA, under the “GULF, CENTRAL AMERICA AND CARIBBEAN” VSA. The VSA “provides for the sharing of vessel capacity in the trade including direct service and transshipment cargoes, between ports on the Gulf Coast of the United States, Florida, and Puerto Rico, and inland and coastal points in the United States served via such ports, on the one hand, and ports in the Dominican Republic, Mexico, Guatemala, Jamaica, Haiti, Costa Rica, Honduras, El Salvador, Nicaragua, Belize, Panama, Trinidad & Tobago, Aruba, Curacao, the Caribbean Coast of Colombia and Venezuela and inland and coastal points in the aforementioned countries served via such ports on the other hand (hereinafter referred to as the ‘Trade’)).”

You submitted with your letter a copy of the VSA, as filed with the Federal Maritime Commission (“FMC”) on April 19, 2007 and currently in force, which contains operational details of the service.

ISSUE

Whether under the terms of the VSA entered into by the parties as described above, the parties might at all relevant times be considered to be vessel operators for transporting their owned or leased empty shipping containers for purposes of satisfaction of 46 U.S.C. § 55107.

LAW AND ANALYSIS

Title 46 United States Code, § 55102 (46 U.S.C. § 55102, the merchandise coastwise law commonly referred to as the “Jones Act” (formerly 46 U.S.C. App. 883) recodified by Pub. L. 109-304, enacted on October 6, 2006)), 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). A coastwise-qualified vessel is one that is U.S.-built, owned and documented. Pursuant to Title 19, United States Code, section 1401(c) (19 U.S.C. § 1401(c)) the word “merchandise” means goods, wares and chattels of every description and includes merchandise the importation of which is prohibited.

Pursuant to 46 U.S.C. § 55107 (formerly the Sixth Proviso to former 46 U.S.C. App. 883, recodified at 46 U.S.C. 551107, pursuant to Pub. L. 109-304 (October 6, 2006)), the prohibition contained within 46 U.S.C. § 55102 does not apply to the coastwise transportation of empty cargo vans, empty lift vans, or empty shipping tanks, and equipment for use with same. Further, the prohibition does not apply to empty barges specifically designed for carriage aboard a vessel and equipment (except propulsion equipment) for use with those barges, and certain empty instruments of international traffic. See also 19 CFR § 4.93(a)(1). To qualify for the exemption from § 55102, the aforementioned articles must be owned or leased by the owner or operator of the vessel, and transported for its use in handling its cargo in foreign trade. In addition, the prohibition does not apply to stevedoring equipment and material which is owned or leased by the owner or operator of the vessel or by the stevedoring company having contract for the loading or unloading of the vessel, and the stevedoring equipment and material are transported without charge for use in the handling of cargo in foreign trade. These exemptions apply to vessels of foreign nations that are found to extend reciprocal privileges to the vessels of the United States. Section 4.93(b)(2), CBP Regulations (19 C.F.R. § 4.93(b)(2)) lists the nations that are entitled to privileges provided by 46 U.S.C. § 55107. In the instant case, Chile is on that list.

The key issue in our analysis of cases under § 55107 frequently involves the degree of operational control of the vessel. 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 shore-side chassis and made them available for any of the members’ containers.

Under the subject VSA, two vessel operating companies have entered into an agreement which sets forth when, where and which vessels the parties will operate, including the authority of the parties to jointly deploy a certain number of vessels, and to agree on various other operational matters such as scheduling. The parties may jointly establish sailing schedules, port rotations, limits on sailings and ports, and the operating characteristics of the vessels in the service.

Further, the VSA provides for the sharing of vessel space on vessels provided by either party on the same terms. In addition, the VSA provides for joint negotiation of terminal, port and stevedore agreements, and authority to share shoreside equipment. Furthermore, the VSA provides for, among other matters, joint administration and implementation of matters involving cargo claims, insurance, force majeure, joint working procedures, oversized and dangerous cargoes.

Upon examining the provisions of the VSA presented in this case, particularly Articles 5(a), 5(c), 5(f) and 5(h) cited in your letter, we find that the basic facets of joint operational control are present in the agreement. Accordingly, we believe that the provisions establish that the parties intend to exercise joint administration and operational control in implementing the VSA, and thus, convey the status of vessel operator upon the individual parties.

As such, one party to the VSA may transport aboard any vessel listed in the VSA empty shipping containers, owned or leased by another party to the VSA, for the purpose of handling the latter’s cargo in the foreign trade without consequence under 46 U.S.C. § 55107.

HOLDING

The VSA under examination, as described above, would convey the status of vessel operator on each of the individual signatories and, as such, their empty containers may be transported coastwise aboard any of the vessels involved without violation of 46 U.S.C. § 55102.

Sincerely,

Glen E. Vereb

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