VES-10-02/3-12-CO:R:IT:C 112132 MLR
Francis X. Nolan, III
Nourse & Bowles
One Exchange Plaza
At 55 Broadway
New York, NY 10006
RE: Application of the dredging statute (46 U.S.C. app. 292) and
the U.S. coastwise trade laws (46 U.S.C. app. 289 and 883)
to the former Panama Canal Zone.
Dear Mr. Nolan:
This is in reference to your facsimile dated March 10,
1992, concerning the application of title 46, United States Code
Appendix, sections 292 and 883 (46 U.S.C. app. 292 and 883) to
certain operations contemplated by your client.
FACTS:
Your client proposes to engage in dredging operations in the
Panama Canal Zone using a foreign-built dredge.
ISSUE:
I. Whether ports and places in the former Panama Canal Zone are
embraced within the coastwise laws of the United States
(i.e., 46 U.S.C. app. 289 and 883).
II. Whether the use of a foreign-built dredge in the former
Panama Canal Zone constitutes "dredging in the United
States," within the purview of 46 U.S.C. app. 292.
LAW AND ANALYSIS:
I. Title 46, United States Code Appendix, section 883 (46
U.S.C. app. 883, the coastwise merchandise statute, often called
the "Jones Act") provides, in pertinent part, that:
No merchandise shall be transported by water, or by
land and water, on penalty of forfeiture of the
merchandise (or a monetary amount up to the value
thereof as determined by the Secretary of the Treasury,
or the actual cost of the transportation, whichever is
greater, to be recovered from any consignor, seller,
owner, importer, consignee, agent or other person or
persons so transporting or causing said merchandise to
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 other vessel 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 ....
Section 883 specifically provides that, for purposes of its
provisions, "merchandise" includes valueless material (Pub. L.
100-329; 102 Stat. 588). The transportation of valueless
material, whether or not it has commercial value, from a point or
place in the United States or point or place on the high seas
within the Exclusive Economic Zone (EEZ) as defined in the
Presidential Proclamation of March 10, 1983, to another point or
place in the United States or a point or place on the high seas
within that EEZ would be prohibited under the provisions of
section 883.
The passenger coastwise law, 46 U.S.C. app. 289, 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 penalty of $200 for
each passenger so transported and landed.
For purposes of the coastwise laws, a vessel "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) (1991).
Customs has consistently held that ports and places in the
Panama Canal Zone are not embraced within the coastwise laws.
Accordingly, the transportation of merchandise from the
continental United States to the Panama Canal Zone would not be
coastwise trade within the prohibition of the Jones Act (46
U.S.C. app. 883), and nothing in that statute would forbid such
transportation in foreign-built vessels. Of course, if the
merchandise, without having entered into the general stock of
goods in the Canal Zone or being manufactured or processed into
new and different products there, were subsequently transported
to another coastwise point (i.e., merchandise is laden at one
coastwise point and eventually unladen at another coastwise
point), a coastwise transportation for purposes of the Jones Act
would then have been consummated. Customs Rulings 103780, dated
December 27, 1978; 103329, dated April 21, 1978; MS 216.131H,
dated November 27, 1968; and MA 216.132, dated July 15, 1959.
The same rationale applies with regard to 46 U.S.C. app. 289, the
passenger coastwise law. Customs Ruling MA 216.132, dated April
4, 1958.
Although there do not appear to be any Customs decisions on
the applicability of sections 883 and 289 to the Canal Zone
subsequent to the Panama Canal Treaty, its effect was to make the
territory encompassing the "Panama Canal Zone" a part of the
Republic of Panama; therefore, Customs position that ports and
places in the Panama Canal Zone are not embraced within the U.S.
coastwise laws, has not changed.
II. Section 1 of the Act of May 28, 1906 (34 Stat. 204; 46
U.S.C. app. 292, commonly known as the Dredging Act), provides
that, "a foreign-built dredge shall not, under penalty of
forfeiture, engage in dredging in the United States unless
documented as a vessel of the United States." It should be noted
that 46 U.S.C. app. 292, as well as the other navigation laws
administered by the U.S. Customs Service, are applicable only to
those vessels engaged in dredging activities in U.S. territorial
waters (generally defined as the belt, 3 nautical miles wide,
adjacent to the coast of the United States and seaward of the
territorial sea baseline), including the inland navigable waters
of the United States and its territories and possessions, and in
certain dredging activities on the United States Outer
Continental Shelf outside territorial waters. C.S.D. 83-106..
The U.S. Coast Guard determines whether a particular body of
water is deemed to be navigable waters of the United States in
order to ascertain its jurisdiction to enforce the laws it
administers. The navigable waters of the United States are
generally outlined in subpart 2.05-25 of the Coast Guard
Regulations (33 CFR 2.05-25). The U.S. Customs Service, in
ascertaining its own jurisdiction to enforce the navigation laws
it administers, is strongly disposed to follow determinations of
the U.S. Coast Guard in the absence of Federal judicial decisions
or explicit Congressional enactment, although it is not required
to do so.
The historical background of the Act of May 28, 1906, is
relevant in determining whether the Canal Zone is considered to
be a part of the "United States," for purposes of 46 U.S.C. app.
292. The provision was enacted as a result of controversy which
arose over the use of foreign-built dredges to repair damage done
by a hurricane at Galveston, Texas, in 1900. At the time of the
enactment of the provision, foreign-built vessels could not be
documented in the United States, unless captured in war by
citizens of the United States and lawfully condemned as prize or
adjudged to be forfeited for a breach of the laws of the United
States (section 4132, Revised Statutes). Thus, at the time of
enactment, the proviso in section 1 of the Act of May 28, 1906,
"unless documented as a vessel of the United States," was by
itself, practically meaningless. However, section 2 of the Act
of May 28, 1906, provided:
That the Commissioner of Navigation is hereby
authorized to document as vessels of the United States
the foreign-built dredges Holm, Leviathan, Nereus, and
Triton, owned by American citizens and now under
construction abroad for use at Galveston, on which an
American citizen, the contractor at Galveston, has an
option.
Reading both sections together, it is clear that the proviso
in section 1, "unless documented as a vessel of the United
States," refers to the dredges which were authorized and directed
to be documented as vessels of the United States by section 2.
The legislative history of the Act confirms this interpretation
{see Cong. Rec. 7029 (1906)} and, stated above, the Act has
consistently been so interpreted by the agencies responsible for
its administration. Even though a foreign-built dredge may now
be documented as a vessel of the United States (see 46 U.S.C.
12102, 12105), it would be prohibited by 46 U.S.C. app. 292 from
engaging in dredging in the United States.
Thus, in our interpretation of 46 U.S.C. app. 292 we have,
as is proper, considered the statute as a whole and in the
context of the time that it was enacted. Accordingly, the use of
a foreign-built dredge in the United States is prohibited by 46
U.S.C. app. 292 regardless of whether it is documented as a
vessel of the United States. This historical background
indicates that the statute is designed to protect American
shipbuilding industries.
The question remains whether we may impose this protective
measure to the former Canal Zone. By virtue of the Panama Canal
Treaty, the United States may make and enforce all rules
pertaining to the passage of vessels through the Canal and other
rules with respect to navigation and maritime matters. Panama
Canal Treaty, September 7, 1977, United States-Panama, art. III,
para. 2(c), 33 U.S.T. 39, 51, T.I.A.S. 10030. The Annex does
permit the Panama Canal Commission (an executive agency of the
United States Government, established by section 1101 of the
Panama Canal Act of 1979, Pub. L. 96-70, 93 Stat. 456, codified
at 22 U.S.C. 3611), to perform various functions, one being
dredging of the Canal channel, terminal ports and adjacent
waters. Annex, para. 3(s), 33 U.S.T. 39, 112, T.I.A.S. No.
10030. However, the Panama Canal Treaty: Implementation of
Article III, provides that the Republic of Panama shall exercise
all jurisdictional rights over vessels within the land and water
areas of the Ports of Balboa and Cristobal. Art. V, para. 2(a),
33 U.S.T. 141, 151, T.I.A.S. No. 10031. Further, the Panama
Canal Treaty provides that the law of the Republic of Panama
shall apply in the areas made available for the use of the United
States. Art. IX, para. 1, 33 U.S.T. 39, 61, T.I.A.S. No. 10030.
Article XI gives the Republic of Panama plenary jurisdiction
over the former Canal Zone. 33 U.S.T. 39, 71, T.I.A.S. No.
10030.
Reading the Treaty provisions together with the historical
background of the dredging statute (without determining whether
the Canal Zone is or was a "territory" or "possession" of the
United States, or the ramifications of the Treaty), we find that
the Treaty gives the Republic of Panama enough jurisdiction over
the former Canal Zone so that the protective dredging statute may
not be applied to this area.
In support of this conclusion, several courts have stated
that the Canal Zone is to be regarded as a foreign country where
matters of commerce are concerned. United States v. Matthews,
427 F.2d 992 (5th Cir. 1970). Also, in Luckenbach S.S. Co. v.
United States, the Supreme Court held that ports in the Canal
zone (i.e., Balboa and Cristobal) are to be considered as
"foreign ports" within the meaning Rev. St. 4009 (39 USCA 654),
relating to the Post Office Department. 280 U.S. 173 (1930).
Both courts cited title 19, United States Code, section 126 (19
U.S.C. 126), as an example that it was Congress' intent that the
Canal Zone be regarded as a foreign country where matters of
commerce are concerned. (Section 126 provides that all laws
affecting imports of articles, goods, wares, and merchandise and
entry of persons into the United States from foreign countries
shall apply to articles, goods, wares, and merchandise and
persons coming from the Canal Zone, Isthmus of Panama, and
seeking entry into any State or Territory of the United States or
the District of Columbia.)
This letter addresses only those federal requirements that
are administered by the U.S. Customs Service. While we are
unaware of any other federal or state agency requirements that
might pertain to the undertaking you describe, it is possible
that such requirements exist.
HOLDING:
I. Ports and places in the former Panama Canal Zone are not
embraced within the coastwise laws of the United States
(i.e., 46 U.S.C. app. 289 and 883).
II. The use of a foreign-built dredge for dredging in the former
Panama Canal Zone does not constitute "dredging in the
United States," within the purview of 46 U.S.C. app. 292.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch