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HQ 115610





June 12, 2002

VES-3-17 RR:IT:EC 115610 RSD

CATEGORY: CARRIER

Mr. Ole A. Sweedlund
Deputy Managing Director
Hanjin Shipping American Headquarters
80 East Route 4
Suite 490
Paramus, New Jersey 07652-26655

RE: Coastwise trade; Sixth proviso; Empty cargo containers, Joint Service Agreement; 46 U.S.C. App.883

Dear Mr. Sweedlund:

Reference is made to your letter dated February 14, 2002, concerning a proposed vessel sharing agreement. Your letter was sent to us in response to our information letter of January 23, 2002, which was issued in reply to your original letter of October 18, 2001, requesting a ruling. In our October 18, 2001, letter we indicated that the submitted proposed agreement appeared to be basically consistent with the requirement of a joint operation control considered crucial to the approval of vessel sharing agreements. However, we indicated that additional information was necessary for us to be able to issue a ruling. The Master Agreement for slot wrapping and slot charter arrangements was attached to your February 14, 2002, letter. In response to a telephone conversation with a member of my staff, you also submitted a supplemental letter dated April 11, 2002, which commented on the operation of the executive committee outlined in the joint service agreement.

FACTS:

Three foreign-flag shipping lines consisting of Hanjin Shipping Co. LTD. Seoul; Cho Yank Shipping CO., LTD. Seoul; DSR-Senator Lines GMBH, BREMEN have formed a temporary alliance named the Hanjin & Tricon Alliance. This alliance of shipping companies and the United Arab Shipping Co., Kuwait entered into a so-called “joint service agreement”. The objective of the agreement is to improve the quality and frequency of service, and to strengthen the global network that the parties presently offer. Specifically, the agreement focused on cost savings through the rationalizing of the transport services in the different trades. The agreement became effective on March 1, 1997, and was valid for a period of 5 years. The parties could agree to extend the agreement for successive periods of two years.

In reviewing the vessel sharing agreement, we note that much of the control on how the agreement would work in practice was left to an executive committee. For example, Appendix A of the agreement specifies that arrangements regarding fleet deployment and the scheduling of vessels are to be decided by the executive committee. In addition, Appendix B of the agreement provides that the slot/weight allocation is to be decided by the executive agreement. We pointed out in our January 23, 2002, letter, we had no information on how the executive committee would work, how it is chosen and how it will make decisions. You subsequently provided some comments on the executive committee.

ISSUE:

Whether under the terms of the vessel sharing agreement entered into by the parties, the parties might at all relevant times be considered to be vessel operators transporting their owned or leased empty shipping containers for purposes of satisfaction of the Sixth Proviso to the Jones Act.

LAW AND ANALYSIS:

The question presented for resolution is whether under the terms and intent of the merchandise transportation statute, the particular parties operating under the provisions of the proposed VSA may all be considered to be the joint operator of a VSA vessel while they are engaged in transporting shipping containers of members to that agreement. If such parties may be so considered, and if the containers transported are either owned or leased by those parties to the VSA and are transported for their use in moving their cargoes in the foreign trade, the transporting vessels must be documented as provided in section 4.93 of the Customs Regulations (19 CFR 4.93).

As previously mentioned, in our letter of January 23, 2002, we indicated that the proposed agreement was basically consistent with the requirements of joint operation control considered crucial to the approval of a vessel sharing agreement. However, we wanted more information regarding the executive committee. In your letter of April 11, 2002, you explain that the executive committee is a jointly established group with the membership consisting of representatives of all the participants to the agreement. The group meets as necessary to discuss provisions of vessel supply, allocation of space, and other general administrative matters. Voting on any issue is per the rules established by the agreement or as otherwise subsequently agreed to cover a specific matter. With respect to operational control, the executive committee will instruct their respective local operating companies to construct a local operating agreement. The rules approved by the executive committee govern how it operates as a group under the authority granted by the filed agreement with the Federal Maritime Commission. With respect to operational control, although each party retains the physical control of their own vessels, with respect to the actual day-to-day administration of the vessels, scheduling decisions including changes are jointly discussed and the parties will agree to a common understanding on schedule changes.

Each of the parties has what is designated as a person in charge (P.I.C.), who has daily contact with the other parties to ensure that the information exchange and that the specific requirements of the parties is able to be accomplished in a jointly managed manner as if it were their own vessel. The P.I.C. compiles all necessary information for the particular vessel from the other parties to the agreement and then is charged with coordinating the operation of the vessel while it is in his/her area of control. Deviation from the agreed upon rules is not allowed except when an emergency situation develops. The other parties are required to be given immediate notification regarding any deviation as soon as possible so that they can adjust their operation to deal with the advised problem.

As we pointed out in Headquarters Ruling Letter 114560, dated January 14, 1999, Customs will take the above factors into consideration together with generally accepted principles that, if possible, the law should be interpreted in a dynamic and forward-looking manner which takes into account changes and evolving practices which were not contemplated at the time of a statutory enactment. In light of our previous discussion, we find that the parties to the VSA will jointly administer the operation the key aspects of the agreement through an executive committee which consists of members from each of the parties to the agreement. Accordingly, we have determined that the agreement under examination does convey the status of vessel operator upon the individual parties that, as such, their cargoes may be transported aboard any of the qualified vessels involved without consequence under the Sixth Proviso. The cargoes that this decision applies to are empty shipping containers which are either owned or leased by an Agreement member, which containers are being transported for the purpose of handling the member’s cargo in the foreign trade.

HOLDING:

We have determined that the VSA under examination would convey the status of vessel operator on each of the individual signatories and that as such their empty containers may be transported coastwise aboard any of the vessels involved without consequence under the Sixth Proviso to 46 U.S.C App. 883.

Sincerely,

Jeremy Baskin

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