VES-12-02 CO:R:IT:C 111424 JBW
Mr. Lang B. Ryder
Senior Sales Representative
Yegen Marine
1310 S.E. 17th Street
Ft. Lauderdale, Florida 33316
RE: Coastwise; Pleasure Vessel; United States Built; Foreign
Registry; Bareboat; Cruising License; Importation; 46 U.S.C.
App. 289.
Dear Mr. Ryder:
This letter is in response to your request, dated November
28, 1990, for a ruling on the application of the coastwise laws
to the use of a bareboat-chartered, foreign-registered pleasure
vessel.
FACTS:
In your letter, you state that your client wishes to
purchase a United States-built pleasure yacht for use in the
United States. You state that you have been unable to obtain
financing from a United States lender, but have received a
commitment from a British bank. As a condition for the loan, the
bank requires British registry to perfect its lien. The bank
will not accept United States Coast Guard documentation
and a First Preferred Ship's Mortgage.
ISSUES:
(1) Whether the coastwise laws prohibit the bareboat
chartering of a foreign-registered pleasure vessel.
(2) Under what conditions may a foreign-registered vessel
be used in the United States.
LAW AND ANALYSIS:
I. BAREBOAT CHARTER OF A FOREIGN-REGISTERED PLEASURE VESSEL.
The coastwise passenger law provides that:
No foreign vessel shall transport passengers
between ports or places in the United States
either directly or by way of a foreign port,
under a penalty of $200 for each passenger so
transported.
46 U.S.C. App. 289 (Supp. III 1985). The Customs Service has
consistently interpreted this proscription to apply to any vessel
except a United States built, owned, and properly documented
vessel. See 46 U.S.C.A. 12106 & 12110 (West Supp. 1990), 46
U.S.C. App. 289, and 19 C.F.R. 4.80(a) (1990).
In interpreting the coastwise laws as applied to the
transportation of passengers, we have 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 point, is considered coastwise trade
subject to the coastwise laws. C.S.D. 88-16, 22 Cust. B. & Dec.
362, 364 (1988). The coastwise laws generally apply to points in
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 the coastline differ.
However, the transportation of passengers to the high seas or
foreign waters and back to the point of embarkation is not
considered coastwise trade, often called a "voyage to nowhere,"
provided that the passengers do not go ashore, even temporarily,
at another United States point. Id. The carriage of fishing
parties for hire, even if the vessel proceeds beyond territorial
waters and returns to the point of the passengers' embarkation,
is considered coastwise trade subject to the coastwise laws. Id.
The Customs Service 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 purposes of the coastwise laws, 19 C.F.R.
4.50(b) (1989), the charterer is not proscribed by the coastwise
laws from using the vessel during the charter for pleasure
purposes only. Headquarters Ruling Letter 109638, dated July 22,
1988. A vessel chartered under a charter arrangement other than
a bareboat charter (e.g., a time or voyage charter) and used in
coastwise transportation would be subject to penalties under the
coastwise laws. Id. 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). Id.
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
they are bareboat charters for Customs 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 the 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.
Headquarters Ruling Letter 109638 (emphasis added). In that
regard, it is well established that a vessel may be demised
complete with captain if he is subjected to the orders of the
demisee during the period of the demise. Guzman, 369 U.S. at
701. Furthermore, the Customs Service has held that the mere
fact that the crew is furnished to the charterer would not render
the agreement a time charter provided the charterer had full
authority to hire, discharge, or replace the crew. See
Headquarters Ruling Letter 108278, dated April 2, 1988.
A bareboat charter agreement conforming to these guidelines
will permit a non-coastwise qualified vessel to be chartered for
pleasure purposes. We note, however, that this ruling is
advisory and suggest that your client submit a copy of the
bareboat charter agreement when one is available.
II. CUSTOMS REQUIREMENTS GOVERNING USE OF A FOREIGN REGISTERED
PLEASURE VESSEL IN THE UNITED STATES.
United States law requires that the master of any foreign
vessel arriving in a United States port, whether from a foreign
port or another United States port, to make an immediate report
of arrival (19 U.S.C. 1433, 19 C.F.R. 4.2) and to make a vessel
entry (19 U.S.C. 1435, 19 C.F.R. 4.3). Such vessels must clear
when bound for a foreign port (46 U.S.C. App. 91, 19 C.F.R.
4.60) or must have a permit to proceed from one United States
port to another (46 U.S.C. App. 313, 19 C.F.R. 4.87).
Title 46, United States Code Appendix, section 104 (46
U.S.C. App. 104), authorizes the issuance of cruising licenses
to exempt pleasure vessels of foreign registry from these formal
entry and clearance procedures. This section, however, limits
that exemption to pleasure vessels of countries that extend
reciprocal privileges to United States pleasure vessels.
Countries that have satisfied this reciprocity requirement are
listed in section 4.94(b) of the Customs Regulations (19 C.F.R.
4.94(b)). Vessels of British registry may be issued a cruising
license. Your client should also be aware that a cruising
license does not exempt the master or owner of a foreign vessel
from the requirement that a report arrival be made immediately
upon arrival at a port in the United States. 19 U.S.C.A. 1433
(West Supp. 1990).
The regulations restrict the issuance of a cruising license
to a period of one year. 19 C.F.R. 4.94(c). Successive cruising
licenses may be issued to a foreign-documented pleasure vessel
that was built in the United States or on which United States
customs duty has been paid, provided that the vessel is
documented under the laws of one of the countries listed in 19
C.F.R. 4.94(b). Customs Directive 3100-06, dated November 7,
1988.
You state in your letter that the vessel under consideration
was built in the United States; other details regarding current
registration, ownership, and location were not included. The
fact that the vessel was built in the United States suggests
that the Customs Service will permit the issuance of successive
cruising licenses provided that the vessel has not been exported.
The term exportation is defined in the Customs Regulations to
mean "a severance of goods from the mass of things belonging to
this country with the intention of uniting them to the mass of
things belonging to some foreign country. 19 C.F.R. 101.1(k).
The Customs Court stated that the majority of court decisions
considering this issue hold that the intention of the parties at
the time of shipment abroad is the controlling factor in the
determination of whether that shipment is an exportation. F. W.
Meyers & Co. v. United States, 29 Cust. Ct. 202, 203, C.D. 1468
(1952). If the vessel has been exported according to this
definition, then your client will be required to pay duty upon
its importation. Upon supplying details regarding any sale or
extended use of the vessel abroad, the Customs Service will be
able to rule on its dutiability upon reimportation.
HOLDINGS:
(1) The coastwise laws do not prohibit a charterer from
chartering a foreign-registered vessel under a bona fide bareboat
charter provided that the vessel is used for pleasure purposes
only.
(2) United States law requires that the master of any
foreign vessel arriving in a United States port, whether from a
foreign port or another United States port, to make an immediate
report of arrival and to make a vessel entry. Such vessels must
clear when bound for a foreign port or must have a permit to
proceed from one United States port to another. If the vessel
obtains a British registry, the vessel may be issued a cruising
license to avoid Customs entry and clearance requirements upon
each arrival. If the vessel, being built in the United States,
has not been exported, then the owner may be issued successive
cruising licenses.
This ruling does not address issues within the purview of
other governmental agencies, e.g., the United States Coast Guard
for issues relating to vessel documentation, safety, and
inspection requirements. If you wish to contact the Coast Guard
about these matters, you may communicate with your local Coast
Guard office or Coast Guard Headquarters at the following
address:
Thomas Willis
Chief, Vessel Documentation
U.S. Coast Guard (GMVI-6/13)
2100 Second Street, S.W. (Room 1312)
Washington, D.C. 20593-001
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch