• HQ 114476
• Nov 02, 1998

• Type : Carriers • HTSUS :
•  Related:   106381; 110280; 113176; 112895; 113095; 111035; 111061   

VES-3-07-RR:IT:EC 114476 GEV

William N. Myhre, Esq.
Preston Gates Ellis & Rouvelas Meeds LLP
1735 New York Avenue, NW
Suite 500
Washington, D.C. 20006-5209

RE: Coastwise Trade; Transportation of Cattle; 46 U.S.C. App. § 883

Dear Mr. Myhre:

This is in response to your letter dated September 22, 1998, on behalf of your client, the Hawaii Cattleman’s Council, requesting a ruling regarding the use of a non-coastwise-qualified vessel for a segment of a proposed movement of Hawaiian-bred cattle from that State to the U.S. mainland under three alternative scenarios. Our ruling on this matter is set forth below.

FACTS:

The Hawaii Cattlemen’s Council (the “Council”) is a statewide umbrella organization comprised of county-level Cattlemen’s Associations in Hawaii. Its over 110 member ranchers represent 75 percent of all beef cattle in the State and are stewards of over 25 percent of the State’s total land mass. The present request focuses specifically on the following four tiers of production within the beef cattle industry in the United States and Canada: the producers of breeding stock; commercial cow-calf operations; yearling-stocker operations; and feedlots. Collectively, these four tiers produce at least six distinct products that are marketed within the system, culminating in the sale of slaughter cattle to packing houses. A more detailed description of these four tiers is set forth below.

Seedstock Producers

The Seedstock segment of the industry produces the Breeding Stock employed elsewhere in the chain of production to build herds for the commercial production of beef cattle. Breeding Stock products consist primarily of bulls in the 14-30 month age range, but may also include some

- 2 - steers and heifers for feeding and some slaughter cows and bulls (i.e., animals used to produce the breeding stock that have passed the point at which they can usefully continue to provide that function).

Commercial Cow-Calf Producers

Employing Breeding Stock purchased or otherwise acquired from the Seedstock segment, Commercial Cow-Calf Producers develop and maintain the cow herds that are the foundation of the commercial beef cattle industry. A few Commercial Cow-Calf operations are “intensively” managed operations where cows remain in confinement on a year-round basis, but most are “extensively” managed with cows maintained on forage throughout the entire year either in high mountain valleys, plains, or desert areas. This segment produces primarily Calves (6-10 months old) weighing 300-700 lbs., with some by-products in the form of Slaughter Bulls and Cows (again, animals no longer capable of producing calves in desired numbers or required quality).

Yearling-Stocker Operators

The Yearling-Stocker segment is responsible for adding weight to weaned calves received from Commercial Cow-Calf operations and otherwise controlling the feeding of those calves so as to encourage necessary weight gain and the development of other economically important market characteristics. Such operations usually must have available forage for winter feeding as well as grazable forage of proper types for spring, summer, and fall feeding. This segment produces Feeder Steers and Heifers (“Feeder Cattle”) mostly in the 12-20 month age range and weighing 500-900 lbs. with other traits necessary to receive the full benefit of intensive feeding during the next stage.

Feedlots

Feedlots are confinement feeding operations where cattle are fed primarily tailored finishing rations to produce economically efficient weight gains and to improve the palatability of the beef prior to slaughter. Feedlots produce Slaughter Steers and Heifers (“Slaughter Cattle”) as well as Slaughter Cows and Bulls (received from either Seedstock or Commercial Cow-Calf operations and sent to Feedlots for final fattening prior to slaughter), all of which are marketed to Packing Houses for slaughter and further processing.

The production process outlined above can extend for from one to two years for any given animal, during which time it can be marketed as many as four separate times (from Seedstock to Cow-Calf Producer to Yearling-Stocker Operator to Feedlot to Packing House) as four separate and distinct products under standard industry classification schemes (Breeding Stock, Calves, Feeder Cattle, and Slaughter Cattle). Approximately 77 percent of the beef cattle produced in the United States move through this primary production chain. An additional 19 percent move out of Seedstock or Cow-Calf Operations as Slaughter Cows and Bulls, while the remaining 4 percent are marketed as veal products.

- 3 - The Hawaii cattle industry segments represented by the Council for purposes of this request operate principally in the Commercial Cow-Calf segment of the beef cattle industry as described above. For example, while Hawaii has on average approximately 78,000 beef cows calving in an average year, it has only 2,000 head on feed in Yearling-Stocker or Feedlots. The products of that industry, and the merchandise to be transported under this request, include the following (under the standard industry product definitions outlined above and detailed in the supporting exhibits submitted with this request):

Breeding Stock Calves Yearling/Stockers Feeder Steers/Heifers Slaughter Cows/Bulls Slaughter Steers/Heifers

The specific transportation under consideration involves the lading of any of the above-listed products (collectively “Hawaii cattle”) in Hawaii on a non-coastwise-qualified vessel such as the Danish-registered M/V FELICIA (see Exhibit 2) which proceeds from Hawaii to Vancouver, British Columbia, or any other port in Canada, where the cattle are unladen. From Vancouver or such other port, the Hawaii cattle are transported by land to Abbotsford, British Columbia. Following a brief period in a cattle pen located at Abbotsford to regain their “land legs”, the Hawaii cattle then move under their own power through a temporary cattle chute across the U.S.-Canadian border into receiving trucks located in the United States at Sumas, Washington. This movement across the border is done under the supervision of the U.S. Customs Service and the U.S. Department of Agriculture, each of which agencies has personnel stationed at Sumas for such purposes. (see Exhibit 3) Following entry at Sumas, the Hawaii cattle are subsequently transported by U.S. trucks to processing facilities in the United States.

The following three alternative scenarios are offered as a basis for holding that the transportation of cattle as herein described is not violative of 46 U.S.C. App. § 883.

Scenario 1

Under this scenario the Council contends that the movement of the Hawaii cattle from a coastwise point (Hawaii) to a non-coastwise point (Canada), by a non-coastwise-qualified vessel, and their subsequent movement under their own power across the border for further movement via truck to another coastwise point, is not a “transportation” within the meaning of 46 U.S.C. App. § 883 (and hence not subject to the prohibition contained therein). Any “transportation” within the meaning of that statute is claimed to cease once the Hawaii cattle are unladen from trucks at the cattle pen located in Abbotsford, B.C.

- 4 -  Scenario 2

The Council asserts that under this scenario when the Hawaii cattle are grazed or otherwise fed in Canada for a substantial period of time (greater than one month) as part of a Yearling/Stocker operation, or intensively fed at a Feedlot in that country for such a period, the grazing/feeding is a non-transportation related activity for which purpose they were transported to that foreign point. This grazing/feeding purportedly breaks the continuity of transportation between the original coastwise point of lading in Hawaii and any subsequent coastwise point to which such cattle would be transported following that activity.

Scenario 3

It is the position of the Council that the highly complex chain of production through which the Hawaii cattle proceed in Canada operates to create “new and different products” as recognized by the beef cattle industry. This processing is stated to break the continuity of the transportation between coastwise points. In support of its position as stated in the above three scenarios, the Council has submitted the following exhibits: (1) Overview of the Beef Cattle Industry; (2) Cattle Ship M/V FELICIA; (3) Cattle Transfer Station Abbotsford, B.C./Sumas, WA; (4) Product and Market Specifications for Beef Cattle; (5) Factors Affecting Beef Palatability and Acceptability; (6) Carcass Specifications to Meet Consumer Demand; (7) Beef Cattle Traits and Their Measurement; (8) Conformation and Frame Scores; (9) USDA Yield and Quality Grades for Slaughter and Feeder Cattle; (10) Impact of Cattle Specifications and Standards on Market Value; (11) National Cattlemen’s Beef Association Letter Endorsing Standards; (12) Commercial Cow-Calf Processing Options; (13) Yearling-Stocker Management Decisions; (14) Feedlot Management Decisions; (15) Energy Evaluation of Beef Cattle Feeds; (16) Nutrient Analysis of Beef Cattle Feeds; (17) Management of Feed Nutrient Content for Growth and development; and (18) Impact of Processing on Market Value By Segment/Classification.

ISSUES:

1. Whether, under the facts as presented in Scenario 1, the movement of the Hawaii cattle under their own power from Canada into the United States for further transportation by U.S. land modes to additional coastwise points renders inapplicable the prohibition provided in 46 U.S.C. App. § 883 such that the prior transportation of such cattle from Hawaii to Canada aboard a non-coastwise-qualified vessel is not violative of that statute.

2. Whether, under the facts as presented in Scenario 2, the grazing/feeding of the Hawaii cattle in Canada prior to their movement under their own power into the United States for further transportation by U.S. land modes to additional coastwise points renders inapplicable the prohibition provided in 46 U.S.C. App. § 883 such that the prior transportation of such cattle from Hawaii to Canada aboard a non-coastwise-qualified vessel is not violative of that statute.

- 5 - 3. Whether, under the facts as presented in Scenario 3, the Hawaii cattle are processed in Canada into new and different products prior to their movement under their own power into the United States for further transportation by U.S. land modes to additional coastwise points thereby rendering inapplicable the prohibition provided in 46 U.S.C. App. § 883 so that the prior transportation of such cattle from Hawaii to Canada aboard a non-coastwise-qualified vessel is not violative of that statute.

LAW AND ANALYSIS:

The coastwise law pertaining to the transportation of merchandise, § 27 of the Act of June 5, 1920, as amended (41 Stat. 999; 46 U.S.C. App. § 883, 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 trans- ported), between points in the United States...embraced within the coast- wise laws, either directly or via a foreign port, or for any part of the trans- portation, 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 4.80b(a), Customs Regulations, promulgated pursuant to 46 U.S.C. App. § 883, provides, in part, that:

A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws ("coastwise point") is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise. However, merchandise is not transported coastwise if at an intermediate port or place other than a coastwise point (that is, at a foreign port or place, or at a port or place in a territory or possession of the U.S. not subject to the coastwise laws), it is manufactured or processed into a new and different product, and the new and different product thereafter is transported to a coastwise point.

The navigation laws and regulations administered by Customs, including 46 U.S.C. App. § 883 and 19 CFR § 4.80b(a), apply to points in the territorial sea, defined as the belt, three

- 6 - 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.

Scenario 1

The position of the Council under this scenario (i.e., the movement of cattle under their own power from Canada into the United States renders inapplicable the provisions of 46 U.S.C. App. § 883) is not supported by either the relevant statutory language or the Customs ruling letters cited.

With respect to statutory construction, it is our position that the “whole” to which the phrase, “or for any part of the transportation” refers is simply defined by the words preceding it (i.e., “no merchandise shall be transported by water, or by land and water,...between points in the United States...embraced within the coastwise laws, either directly or via a foreign port...”) (Emphasis added) Thus, what is prohibited by virtue of this clause of the statute is any part of the transportation described previously by the statute, including any part of transportation by water between points in the United States embraced within the coastwise laws when, in the words of the statute following this clause, that part of the transportation is “in any vessel other than a [coastwise-qualified] vessel.” It is therefore clear that a lading of merchandise onto a vessel at one coastwise point and an unlading of the merchandise from the vessel at another coastwise point is not always necessary in order for a transportation of merchandise to be subject to 46 U.S.C. App. § 883. (See T.D. 89-13) Consequently, the movement of the Hawaii cattle under their own power in this scenario does not, in and of itself, render the waterborne segment of their transportation outside the scope of this statute.

In regard to the Customs ruling letters cited in support of the position of the Council under this scenario (110280, dated August 24, 1989; and 106381, dated November 29, 1983), we note the following. Customs ruling letter 110280 addressed the use of a foreign-flag vessel to transport yachts from Florida to Vancouver, B.C., Canada, as deck cargo. Subsequent to their unlading from the foreign-flag vessel in Vancouver, the yachts proceeded under their own power to their respective home ports in California and Washington. Customs stated that no violation of 46 U.S.C. App. § 883 occurred under those facts because a yacht so transported “...is not considered to have been ‘transported’ between coastwise points, it is transported only from a coastwise point to a non-coastwise point and proceeds under its own power for the remainder of the movement.” (Emphasis added)

Customs ruling letter 106381 addressed the transportation of passengers and their automobiles aboard foreign-built ferries from Seattle, Washington, to Prince Rupert, B.C., Canada. Notwithstanding Customs long-held and judicially-supported position that automobiles accompanying passengers are considered accompanied baggage and not “merchandise” for purposes of 46 U.S.C. App. § 883 (see Autolog Corp., et al., v. Regan, et al., 731 F.2d 25 (1984)), this ruling provided that even if such vehicles were not considered to be accompanied

- 7 - baggage, no violation of 46 U.S.C. App. § 883 would result from the use of the aforementioned ferries if such vehicles were driven from Prince Rupert to another coastwise point. The rationale of this determination is that the statute prohibits the transportation of merchandise between coastwise points, or any part of such transportation, and any such automobile “...would not be transported between coastwise points because it would be providing the transportation from Prince Rupert itself.”

Upon reviewing the above two ruling letters it is readily apparent that the facts as provided therein are clearly distinguishable from those currently under consideration. Although all three cases involve the movement of merchandise aboard a non-coastwise-qualified vessel from the United States to Canada with the merchandise subsequently moving under its own power to another point in the United States, unlike the proposal of the Council neither ruling 110280 nor 106381 involved any intended, non-self-propelled, further movement of the merchandise to other locations in the United States as part of an overall transportation scheme. These rulings are therefore not controlling in this matter.

We do, however, find the opinion of the Supreme Court in The Bermuda, 70 U.S. (3 Wall.) 514 (1865) to be instructive in this case. That case involved a ship carrying munitions to the Confederacy during the Civil War which was captured and seized. Although the coastwise laws were not at issue in that case, the Court nonetheless addressed the critical issue of transportation continuity. The ship originally sailed from Liverpool, England to St. George’s, Bermuda. After a brief stop in Bermuda, it sailed for Nassau, but was captured en route and accused of violating the Union blockade of Confederate ports. Relying on international maritime law, the Supreme Court held that, although the ship had not attempted to reach a Confederate port before its capture, a violation had occurred because the ship’s ultimate intended destination was Charleston, South Carolina, a blockaded port. The Court stated, in part, as follows:

“A transportation from one point to another remains continuous, so long as intent remains unchanged, no matter what stoppages or transshipments intervene.” Id. at 553 (Emphasis added)

The Court further stated that:

“Successive voyages, connected by a common plan and a common object, form a plural unit. They are links of the same chain, each identical in description with every other, and each essential to the continuous whole.” Id. at 555 (Emphasis added)

The Attorney General has applied the above legally-recognized tenets of transportation continuity to the administration of 46 U.S.C. App. § 883. With respect to when such continuity may be broken thereby rendering inapplicable the provisions of that statute, the Attorney General stated, “Clearly whether successive voyages are connected by a common plan is a question of fact to be determined from the circumstances of each individual case.” 32 O.A.G. 350, 352 (1920)

 - 8 -

Turning to the circumstances under consideration in Scenario 1, the rationale of the Supreme Court’s opinion in The Bermuda leads us to conclude that the entirety of the movements of the Hawaii cattle (i.e., from Hawaii to Canada by a non-coastwise-qualified vessel, their subsequent movement under their own power from Canada several yards through a temporary cattle chute to the United States as depicted in Exhibit 3, and further movement via land transportation modes to facilities in the United States), constitutes a common plan intended to provide a continuous transportation of merchandise between coastwise points “...by land and water...” within the meaning of 46 U.S.C. App. § 883. Consequently, the use of a non-coastwise-qualified vessel to provide the waterborne part of such transportation under the circumstances of this scenario constitutes a violation of that statute.

Scenario 2

Under this scenario the Council states that when the Hawaii cattle are transported to Canada and are grazed or otherwise fed in that country as part of a Yearling/Stocker operation or intensively fed at a Feedlot for at least a month, they are engaging in a non-transportation related activity for which purpose they were transported to that point. Such intervening activity at an intermediate foreign point is contended to break the continuity of transportation between the original coastwise point in Hawaii and any subsequent coastwise point to which such cattle would be transported following that activity.

In Customs ruling letter 113176, dated September 2, 1994, cited in support of the above position, it was proposed that a jack-up drilling rig be transported as deck cargo aboard a self-propelled, semi-submersible foreign-flag vessel. The rig would be loaded aboard the foreign vessel while located in the territorial waters of Alaska. The vessel with the rig aboard would then proceed to a location on the Outer continental shelf in the Gulf of Mexico where no structure or development existed (i.e., a non-coastwise point) where the rig would be unladed to engage in exploratory drilling operations between 30 days and six months in duration. The rig would then be moved under wet tow, as a vessel, from the first well site to all subsequent sites by use of a coastwise-qualified towing vessel. Customs held that this use in drilling operations acted to break the continuity of the voyage between Alaska and the first of the subsequent sites at which there was some existing structure. Consequently, neither the initial nor subsequent movements of the drilling rig under consideration would be prohibited by 46 U.S.C. App. § 883.

We disagree that the above-cited ruling supports the position of the Council. Unlike the circumstances of the current scenario involving a transportation of merchandise (Hawaii cattle) between coastwise points via an intermediate foreign point (Canada) for purposes of an intervening activity (grazing/feeding), in Customs ruling letter 113176 the transportation of merchandise (the drilling rig) occurred from a coastwise point (Alaskan waters) directly to a point not embraced within the coastwise laws (the pristine location on the OCS) where the merchandise was to engage not in any intervening activity but rather in the specific activity for which it was constructed (drilling operations). Such use operated to effectively break the continuity of any transportation between coastwise points.  - 9 -

Accordingly, the intervening grazing/feeding of the Hawaii cattle in Canada as described in this scenario does not act to break the continuity of its intended movement between coastwise points.

Scenario 3

It is the position of the Council under this scenario that an animal’s progression through several industry-recognized stages of development in Canada as described by Exhibits 1 and 4-18 constitutes a chain of production sufficient to change it into a “new and different product” at each of these respective stages thereby resulting in the continuity of its coastwise movement being broken. Consequently, the use of a non-coastwise-qualified vessel is stated not to be violative of 46 U.S.C. App. § 883.

The concept of a new and different product severing the continuity of a coastwise transportation was addressed in American Maritime Association v. Blumenthal, 458 F.Supp. 849 (1977) (hereinafter Blumenthal). In that case the court addressed the applicability of 46 U.S.C. App. §883 to the transportation of crude oil by a foreign-flag tanker from Valdez, Alaska, to the U.S. Virgin Islands, and the subsequent transfer of products refined from that oil from the Virgin Islands to the continental U.S. The refining process turned the Alaskan crude oil into eleven different products, each different in name, physical and chemical character, and use, both from each other and from the crude oil. Because of the degree of transformation of the original crude oil brought about by these processes, the court determined that the refining had created new and different products from the Alaskan crude, and therefore their transportation by foreign-flag vessels from the Virgin Islands to the U.S. did not violate § 883.

Further in this regard, § 4.80b(a), Customs Regulations (19 CFR § 4.80b(a)), promulgated after the Blumenthal case, provides that merchandise is not transported coastwise if at an intermediate port or place other than a coastwise point it is manufactured or processed into a “new and different product.” Such manufacturing or processing is considered to break the continuity of any coastwise transportation.

Customs has previously had occasion to apply the criteria established by the above-cited judicial and regulatory authority to products distinguished by industry-recognized standards with respect to fuel oil blending operations taking place at a foreign location. In determining whether such operations have resulted in the creation of a new and different product within the meaning of § 4.80b(a), Customs has adopted standards established by the American Society for Testing Materials (ASTM), for such standards represent industry-developed criteria for characterizing fuel oils. (Customs ruling letter 112895, dated February 2, 1994) Customs will generally consider fuel oils of different ASTM grades as different products. Consequently, fuel oil that is laded at a coastwise point, blended at a foreign port or place such that it changes ASTM grade, and is unladed at another coastwise point is considered a “new and different” product for purposes of the coastwise laws. (See also Customs ruling letter 113095, dated December 12, 1994)

- 10 -

With respect to the Hawaii cattle under consideration, Exhibits 1 and 4-18 reflect the fact that the beef cattle industry has adopted certain standards recognizing the following distinct products as being unique in their respective names, physical character, use, value and marketability:

Breeding Stock Calves Yearling/Stockers Feeder Steers/Heifers Slaughter Cows/Bulls Slaughter Steers/Heifers

Accordingly, any animal laded in Hawaii, processed in Canada as described herein to the extent that the beef cattle industry recognizes it as being one of the above-listed products other than that which was laded in Hawaii, is considered a “new and different product” within the meaning of § 4.80b(a), Customs Regulations. Consequently, the use of a non-coastwise-qualified vessel for the waterborne segment of the transportation in question is not violative of 46 U.S.C. App. § 883.

It should be noted that Customs has previously rejected the “new and different product” theory with respect to the proposed transportation of cattle that were merely stated to be “fattened up” in Canada. (See Customs ruling letters 111035, dated July 25, 1990, and 111061, dated July 26, 1990) However, in each of those cases Customs was not presented with the documentary evidence probative of the degree of specificity with respect to distinct products recognized by the beef cattle industry as was done by the Council in the subject ruling request. Consequently, those rulings are distinguishable from, and not controlling in, this particular ruling.

HOLDINGS:

1. Under the facts as presented in Scenario 1, the movement of the Hawaii cattle under their own power from Canada into the United States for further transportation by U.S. land modes to additional coastwise points does not render inapplicable the prohibition provided in 46 U.S.C. App. § 883. The prior transportation of such cattle from Hawaii to Canada aboard a non-coastwise-qualified vessel is therefore violative of that statute.

2. Under the facts as presented in Scenario 2, the feeding/grazing of the Hawaii cattle in Canada prior to their movement under their own power into the United States for further transportation by U.S. land modes to additional coastwise points does not render inapplicable the prohibition provided in 46 U.S.C. App. § 883. The prior transportation of such cattle from Hawaii to Canada aboard a non-coastwise-qualified vessel is violative of that statute.

- 11 -

3. Under the facts as presented in Scenario 3, the processing in Canada of Hawaii cattle into new and different products prior to their movement under their own power into the United States for further transportation by U.S. land modes to additional coastwise points renders inapplicable the prohibition provided in 46 U.S.C. App. § 883. The prior transportation of such cattle from Hawaii to Canada aboard a non-coastwise-qualified vessel is therefore not violative of that statute.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers Branch