VES-3-06-RR:IT:EC 114343 GEV
George H. Clyde, Jr.
America True
Post Office Box 19075
San Francisco, California 94104
RE: Coastwise Trade; Passengers; America's Cup; 46 U.S.C. App.
289
Dear Mr. Clyde:
This is in response to your letter dated April 24, 1998,
requesting a ruling as to whether the use of a foreign-built
sailing vessel for certain activities described herein would
violate 46 U.S.C. App. 289. Our ruling is set forth below.
FACTS:
America True is a non-profit U.S. corporation whose mission
is to win the America's Cup in 2000 and to promote the sport of
sailing. It is proposing to use a foreign-built sailing vessel
in connection with the transportation of individuals on short
trips in the territorial waters of the United States (primarily
San Francisco Bay) for various purposes including the following:
1. Members of the press will be invited to accompany
the vessel for
publicity purposes, to learn about America True's
efforts and to
help promote their cause. The members of the
press would include
writers, photographers and film and video camera
operators.
2. Potential commercial sponsors and charitable
contributors will be
entertained in the hopes of attracting sponsorship
contracts and
charitable contributions. In this connection,
potential sponsors
and contributors would be sought to provide or
contribute money
or in-kind goods and services to or for the
benefit of America True.
- 2 -
3. Where commercial sponsorship agreements are
obtained, America True
may entertain employees from the sponsoring
companies, their clients,
their business associates and their other guests
in fulfilling its sponsorship
agreements with those companies.
4. Where charitable contributions are obtained,
America True may express
its gratitude to those contributing and their
guests by entertaining them
on board.
5. On occasion, America True may offer trips on the
vessel as prizes or
premiums in connection with its fund-raising
activities and in connection
with the fund-raising activities of other non-profit organizations (e.g., an
auction to raise funds for a public television
station or school).
6. America True may use the vessel for crew try-outs
and training in
connection with its America's Cup campaign.
7. The vessel may be used as part of America True's
youth-sailing program,
which gives free sailing trips and instruction to
disadvantaged youth
as a part of its public benefit, non-profit
mission.
8. America True may also entertain its own staff and
volunteers and their
guests to improve morale and to educate them about
sailing and its efforts
to win the America's Cup to promote the sport of
sailing.
In each of the above scenarios, the vessel would leave a
dock in San Francisco Bay or another U.S. port, remain within the
territorial three-mile limit of the United States, and return to
the same or another dock. In no case would any money be required
of an individual guest as a consideration of the passage,
although there would be some consideration paid indirectly to
America True in connection with Item 3, above, and to America
True or to another charitable organization in connection with
Item 5, above. It is also stated that the foreign-built sailing
vessel under consideration would be owned by or made available to
America True on a bareboat charter basis.
ISSUE:
Whether the uses of a foreign-built sailing vessel in U.S.
territorial waters as described in the above scenarios violate 46
U.S.C. App. 289.
- 3 -
LAW AND ANALYSIS:
Title 46, United States Code Appendix, 289 (46 U.S.C. App.
289), 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 (i.e., a vessel not U.S.-built, owned and
properly documented). We note that for purposes of 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" (19 CFR 4.50(b)).
In interpreting the coastwise laws, including 46 U.S.C. App.
289, Customs has 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, 3
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, the Customs
Service 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. (Treasury Decision 22275) However, the transportation of
passengers to the high seas (i.e., beyond the 3 mile territorial
sea) 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))
With respect to chartering, 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 the purposes of
the coastwise laws, the charterer is not proscribed 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).
Headquarters Ruling 106049, dated 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,
- 4 -
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 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 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 111424, dated March 20, 1991, citing
Headquarters Ruling Letter 109638, dated July 22, 1988).
With respect to the eight scenarios presented for our
consideration, we note at the outset that none would constitute a
valid voyage-to-nowhere in view of the fact that the foreign-built vessel in question would at all times remain within the
three-mile U.S. territorial sea. Consequently, whether these
proposed uses would give rise to a violation of 46 U.S.C. App.
289 is predicated upon whether the individuals to be
transported would be considered "passengers" within the meaning
of 19 CFR 4.50(b).
In regard to the first of the scenarios in question, it is
Customs position that members of the press (including writers,
photographers and film and video operators) who merely accompany
a vessel for publicity purposes are other than bona fide guests
of the bareboat charterer (America
- 5 -
True) transported only for pleasure purposes. While we recognize
that such individuals may derive pleasure from their experience,
the purpose of the voyage and use of the vessel is not
exclusively for their pleasure. (Customs ruling letter 111796,
dated August 8, 1991) Furthermore, Customs has long held that
such persons traveling aboard a vessel not for the purpose of
reporting matters peculiar to circumstances on board that
particular vessel are not sufficiently connected with the
operation, navigation, ownership, or business of the vessel
within the meaning of 19 CFR 4.50(b). (Headquarters ruling
letters MA 217.1, dated August 29, 1960; 216.131, dated April 30,
1969 and published as Treasury Decision (T.D.) 69-120(4); 105628,
dated July 22, 1982; and 109685, dated November 23, 1988)
Accordingly, the use of the vessel as proposed in this first
scenario would be violative of 46 U.S.C. App. 289.
With respect to the transportation of those individuals as
described in the second scenario, (i.e., potential commercial
sponsors and charitable contributors who will be entertained in
the hopes of attracting sponsorship contracts and charitable
contributions), Customs has long held that, "the entertainment of
guests for the purpose of promoting good will or with the thought
that those who are entertained will favor their hosts with new or
increased business is a use of a vessel for pleasure purposes"
and the "guests" are not considered passengers. (Customs ruling
letters 102756, dated April 7, 1977; 105612, dated May 19, 1982;
107028, dated October 18, 1984; and 109781, dated November 7,
1988) Since the transportation contemplated by the second
scenario is similar to that addressed in the aforementioned
administrative authority, we believe the same rationale applies.
Accordingly, the use of the vessel as proposed in this scenario
would not constitute a violation of 46 U.S.C. App. 289.
Scenarios 3 and 4 address commercial sponsors and charitable
contributors who have in fact entered into commercial
sponsorships or financially contributed to the mission of America
True. These scenarios contemplate the entertainment on board the
subject vessel of employees of the sponsoring companies, their
clients, their business associates and their other guests, as
well as the aforementioned charitable contributors and their
guests. In this regard we note that notwithstanding the
requestor's statement that in no case would any money be required
of an individual guest as a condition of passage, the above-cited
administrative authority precludes the exchange of any monetary
consideration prior to any such voyage. Such an exchange calls
into question any determination that those parties so transported
are bona fide guests of the bareboat charterer. Consequently,
scenarios 3 and 4 would constitute violations of 46 U.S.C. App.
289.
The rationale set forth with respect to scenarios 3 and 4 is
applicable to scenario 5 where trips would be offered on the
subject vessel as prizes or premiums in connection with the fund-raising activities of America True and in connection with such
activities of other non-profit organizations. Such prizes or
premiums also render the individual(s) transported to be other
than bona fide guests of the bareboat charterer. Accordingly,
scenario 5 would constitute a violation of 46 U.S.C. App. 289.
- 6 -
Scenario 6 concerns the proposed use of the vessel for crew
try-outs and training in connection with the America's Cup
campaign. Customs has held that crew training does not
constitute a use of a vessel in the coastwise trade. (Customs
ruling letter 113204, dated September 6, 1994) We believe this
holding is also applicable in the case of crew try-outs.
Consequently, scenario 6 would not constitute a violation of 46
U.S.C. App. 289.
Under scenario 7, it is proposed to use the vessel as a part
of a youth sailing program providing free sailing trips and
instruction to disadvantaged youth. Customs has long-held that a
person being trained or receiving instruction in the handling or
navigation of a vessel, and whose presence on board the vessel is
necessarily required in order to receive such training or
instruction, is not a "passenger" within the meaning of the
coastwise laws. (Customs ruling letters 109850, dated December
27, 1988, and 109287, dated February 24, 1988) Consequently,
scenario 7 is in accord with 46 U.S.C. App. 289.
With respect to scenario 8, the transportation of the staff
of America True as well as volunteers and their guests for the
purpose of improving morale and to educate them about sailing and
the America's Cup would constitute the transportation of bona
fide guests of a bareboat charterer and would therefore not give
rise to a violation of 46 U.S.C. App. 289.
HOLDING:
The uses of a foreign-built sailing vessel in U.S.
territorial waters as described in the above scenarios is
violative of 46 U.S.C. App. 289 as discussed in the Law and
Analysis portion of this ruling.
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch