Coastwise Trade; 46 U.S.C. § 55102; Vessel Sharing Agreement; 46 U.S.C. § 55107; Empty Cargo Containers; 19 C.F.R. § 4.93; Joint Vessel Operator

HQ H255033 September 2, 2014 VES-3-17-OT:RR:BSTC:CCR H255033 DAC CATEGORY: Carriers Mr. Paul M. Keane Cichanowicz, Callan, Keane, Vengrow & Textor, LLP 61 Broadway, Suite 3000 New York, NY 10006-2802 RE: Coastwise Trade; 46 U.S.C. § 55102; Vessel Sharing Agreement; 46 U.S.C. § 55107; Empty Cargo Containers; 19 C.F.R. § 4.93; Joint Vessel Operator Dear Mr. Keane: This letter is in response to your correspondence of June 24, 2014, on behalf of the CHE Vessel Sharing Agreement, FMC Agreement No. 012256 (“the Agreement”) composed of Evergreen Line Joint Service Agreement, FMC No. 011982 (“ELJSA”) (a joint service agreement consisting of Evergreen Marine Corp. (Taiwan) Ltd., Evergreen Marine (UK) Ltd., Italia Marittima S.P.A., Evergreen Marine (Hong Kong) Ltd. And Evergreen Marine (Singapore) Pte Ltd.), COSCO Container Lines Company, Limited (“COSCON”) and Hanjin Shipping Co., Ltd., (“HJS”), in which you seek a determination as to whether the parties to the agreement described below qualify as joint vessel operators within the meaning of 46 U.S.C. § 55107 and consequently, may transport each others’ empty containers in United States coastwise trade. Our ruling on your request follows. FACTS The CHE Vessel Sharing Agreement members, named above, which operate as ocean common carriers in the foreign commerce of the United States, are to act as parties to an agreement and are collectively referred to as the “CHE Vessel Sharing Agreement Alliance,” (also referred to herein as “the Alliance”). These parties have entered into and amended the CHE Vessel Sharing Agreement, FMC Agreement No. 012256 (hereinafter also “the Agreement”). The Agreement provides for the establishment of combining vessels from their containership fleets into a joint service operating in worldwide trade, including trade between China, to include Hong Kong and Taiwan, Japan, Korea, Singapore, Spain, Sri Lanka and the Atlantic Coast of the United States. The Agreement includes vessels that are flagged under China, Hong Kong, Italy, Marshall Islands, and Panama, all of which are listed in 19 C.F.R. § 4.93(b)(1) as nations extending reciprocal privileges to United States flagged vessels. You submitted with your letter a copy of the subject Agreement, as filed with the FMC on March 14, 2014. The Agreement contains terms and operational details of the CHE Vessel Sharing Agreement Alliance, which are further discussed below. ISSUE Whether under the terms of the agreement entered into by the parties, as described above, the parties may be considered joint vessel operators transporting their owned or leased empty containers pursuant to 46 U.S.C. § 55107? LAW AND ANALYSIS The Jones Act, codified at 46 U.S.C. § 55102, states that “a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port” unless the vessel was built in and documented under the laws of the United States and owned by persons who are citizens of the United States. See also, 19 C.F.R. §§ 4.80, 4.80b. Such a vessel, after it has obtained a coastwise endorsement from the U.S. Coast Guard, is said to be “coastwise qualified.” The coastwise laws generally apply to points in the territorial sea, which is 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. 33 U.S.C. § 1362(8). Pursuant to 46 U.S.C. § 55107, 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 the same. Further, the prohibition does not apply to certain empty instruments of international traffic. See also 19 C.F.R. § 4.93. To qualify for the exemption from 46 U.S.C. § 55102 under 46 U.S.C. § 55107, the aforementioned articles must be owned or leased by the owner or operator of the vessel, and transported for use in handling cargo in foreign trade. In addition, vessels of foreign nations seeking the exemption must extend reciprocal privileges to the vessels of the United States. See 46 U.S.C. § 55107(c). Pursuant to 19 C.F.R. § 4.93(b)(1) of the Customs and Border Protection (“CBP”) regulations promulgated under the authority of 46 U.S.C.§ 55107, nations subject to this ruling request that are entitled to the privileges provided by 46 U.S.C. § 55107 include China, Hong Kong, Italy, Marshall Islands, and Panama and are published on line by the Government Printing Office (“GPO”). With regard to the ownership of the empty containers and the operation of the vessels in question, the CHE Vessel Sharing Agreement Alliance members assert that they are joint operators by virtue of their vessel sharing agreement (“VSA”). Typically, the key issue in cases involving VSAs is whether the parties operating under the provisions of the subject Agreement may be considered to be joint operators of a particular VSA vessel while it is engaged in transporting empty shipping containers. If the parties may be so considered, and if the containers transported are either owned or leased by those parties and transported for use in moving cargo in the foreign trade, the transportation would be permissible under 46 U.S.C. § 55107 so long as the transporting vessel is documented as provided in 19 C.F.R. § 4.93. See HQ 115402 (Aug. 10, 2001); HQ 115734 (Sept. 23, 2002); HQ H063595 (June 9, 2009); HQ H241562 (July 19, 2013); HQ H241563 (July 17, 2013); and HQ H241564, (July 12, 2013). To determine whether the parties constitute joint vessel operators, it is necessary to review and examine the degree to which parties exercise operational control of the vessels. See HQ H011299 (Oct. 4, 2007); HQ 116713 (Aug. 31, 2006); and HQ 116276 (Aug. 26, 2004). In reviewing prior VSAs, we note that the factors considered in determining the degree to which the parties shared the operational control of the designated vessels hinges upon the conditions set forth in the agreement, particularly how such conditions govern the parties. For example, the VSA members may jointly agree upon when, where and which vessels they would operate. They may also agree to cooperate in such matters as insurance, leases, sailing schedules, port calls, rate policies and the terms of service contracts, among other terms. Additionally, in other cases, the parties pooled shoreside chassis and made them available for any of the parties’ containers. See HQ 115863 (Jan. 9, 2003); HQ 116382 (Jan. 25, 2005); HQ H028460 (July 1, 2008); and HQ H063595 (June 9, 2009). Upon examining the Agreement submitted in this case, we find that the parties pledge to make shared decisions and share responsibilities in several significant areas. Under the Agreement the parties are authorized to discuss and agree upon vessel number, capacity, type, and other characteristics of vessels, as well as the sailing schedule, terminal and port facilities, transshipment, barge and feeder services. CHE Vessel Sharing Agreement, Article 5.1, 5.4, 5.5. Under the terms of the Agreement, the parties will operate up to thirty (30) vessels and space on all vessels will be allocated in agreed slots to each party of the CHE Vessel Sharing Agreement Alliance. CHE Vessel Sharing Agreement, Article 5.1, 5.3. Initially, the parties will deploy twenty-one (21) vessels. CHE Vessel Sharing Agreement, Article 5.1. The twenty-one vessels will consist of ten vessels with a capacity of approximately 4,250 Twenty Foot Equivalent Units (TEUs), and eleven vessels with a capacity of approximately 8,500 TEUs. CHE Vessel Sharing Agreement, Article 5.1. Pursuant to Article 5 of the Agreement, space on each of the vessels deployed in the Service shall be allocated between the parties in such proportions as the parties may agree from time to time. CHE Vessel Sharing Agreement, Article 5.1, 5.2, 5.3. The parties are also authorized to sell space to each other on terms to which they agree upon from time to time. CHE Vessel Sharing Agreement, Article 5.1, 5.4 Further, the parties are authorized to discuss and agree on the ports and terminals to be used by the vessels, and such Agreement provides authorization to discuss terminal operations chosen at each port of call; and to discuss and agree upon operational matters and liabilities including claims, insurance, liabilities and indemnities under the Agreement. CHE Vessel Sharing Agreement, Article 5.5, 5.6. Under Article 14 of the Agreement, the parties agree to settle disputes by arbitration. CHE Vessel Sharing Agreement, Article 14. All of the provisions in the Agreement taken together, indicate that there are numerous shared responsibilities and that the parties will jointly function together in the operation of the subject vessels and the carrying of cargo. Accordingly, we believe that the subject provisions establish that the parties intend to exercise joint administration and operational control in implementing the VSA, and thus, all of the parties constitute joint vessel operators. As such, a party to the Agreement may transport aboard any vessel listed in the Agreement empty shipping containers, owned or leased by another party or parties to the Agreement, for the purpose of handling the latter’s cargo in the foreign trade without violating 46 U.S.C. § 55107. HOLDING Under the terms of the VSA entered into by the parties, as described above and detailed in the Agreement, all of the subject parties are considered joint vessel operators within the meaning of 46 U.S.C. § 55107 and as such may transport each others’ owned or leased empty containers aboard any of the subject VSA vessels without violating 46 U.S.C. § 55102. Sincerely, Lisa L. Burley Chief/ Supervisory Attorney-Advisor Cargo Security, Carriers and Restricted Merchandise Branch Office of International Trade, Regulations & Rulings U.S. Customs and Border Protection