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

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H284788 April 12, 2017 VES-3-17-OT:RR:BSTC:CCR H284788 ASZ CATEGORY: Carriers David F. Smith Joshua P. Stein Cozen O’Connor 1200 Nineteenth Street NW Washington, DC 20036 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 Messrs. Smith and Stein: This letter is in response to your correspondence of February 7, 2017, on behalf of THE Alliance Agreement (See Federal Maritime Commission (“FMC”) Agreement No. 012439), a vessel sharing consortium comprised of Kawasaki Kisen Kaisha, Ltd. (“‘K’ Line”), Mitsui O.S.K. Lines, Ltd. (“MOL”), Hapag-Lloyd Aktiengesellschaft and Hapag-Lloyd USA LLC (together, “Hapag-Lloyd”), Nippon Yusen Kaisha (“NYK”), and Yang Ming Marine Transport Corp. (“YM”), in which you seek a determination as to whether the parties to the vessel sharing agreement (“VSA”) 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 Alliance VSA 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 “THE Alliance.” These parties have entered into THE Alliance Agreement, FMC Agreement No. 012439 (“the Agreement”). The Agreement provides for the establishment of combining vessels from their containership fleets into a joint service operating in international trade, including trade between North Asia, South Asia, the Middle East (including the Arabian Gulf and Red Sea Regions), Northern Europe, Mediterranean, Adriatic, and Black Sea, Egypt, Panama, Mexico, Canada, Central America and the Caribbean on the one hand, and ports on the East, Gulf, and West Coasts of the United States on the other hand. The Agreement includes vessels that are flagged under the United States, Malta, the Marshall Islands, Germany, Liberia, Panama, Singapore, Hong Kong, Japan, the Bahamas, and Taiwan. You submitted with your letter a copy of the subject Agreement, as filed with the FMC on November 4, 2016. The Agreement contains terms and operational details of the THE Alliance VSA, 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). With regards to the subject Agreement, the relevant statute, 46 U.S.C. § 55107, provides, in pertinent part: (a) In general. Subject to subsections (b) and (c), and on terms and conditions the Secretary of Homeland Security may prescribe by regulation, section 55102 of this title does not apply to the transportation of-- (1) empty cargo vans, empty lift vans, or empty shipping tanks; * * * (4) empty instruments for international traffic exempted from the customs laws under section 322(a) of the Tariff Act of 1930 (19 U.S.C. 1322(a)); or * * * (b) Conditions. (1) Paragraphs (1)-(4). Paragraphs (1)-(4) of subsection (a) apply only if the items named are owned or leased by the owner or operator of the vessel and transported for its use in handling its cargo in foreign trade. * * * (c) Reciprocity requirement for foreign vessels. This section applies to a vessel of foreign registry only if the Secretary of Homeland Security finds, based on information from the Secretary of State, that the government of the nation of registry extends reciprocal privileges to vessels of the United States. 46 U.S.C. § 55107. (emphasis added.) 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 Malta, the Marshall Islands, Germany, Liberia, Panama, Singapore, Hong Kong, Japan, the Bahamas, and Taiwan, and are published online by the Government Printing Office (“GPO”). With regard to the ownership of the empty containers and the operation of the vessels in question, THE Alliance members assert that they are joint operators by virtue of their 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); HQ H241564 (July 12, 2013); and HQ H260760 (Jan. 16, 2015). 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. THE Alliance VSA, Article 5.2. Under the Agreement the parties are authorized to discuss and agree upon feeder, transshipment or other arrangements. THE Alliance VSA, Article 5.2. Under the terms of the Agreement, the parties will operate up to 180 vessels and space on all vessels will be allocated in agreed slots to each party of THE Alliance. THE Alliance VSA, Article 5.2. Initially, the parties will deploy 151 vessels. THE Alliance VSA, Article 5.1. The 151 will consist of vessels with a capacity of approximately 3,000 Twenty Foot Equivalent Units (TEUs) to vessels with a capacity of approximately 14,500 TEUs. THE Alliance VSA, 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. THE Alliance VSA, Article 5.2. The parties are also authorized to sell space to each other on terms to which they agree upon from time to time. THE Alliance VSA, Article 5.7. 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. THE Alliance VSA, Article 5.10, 5.14. Under Article 10 of the Agreement, the parties agree to settle disputes by arbitration. THE Alliance VSA, Article 10.3. 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