HQ 114476

November 2, 1998

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

CATEGORY: Carriers

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

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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.

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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]{.underline}**

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.

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**[Scenario 2]{.underline}**

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]{.underline}**

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.

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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

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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]{.underline}**

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]{.underline}" refers is simply defined by the words
preceding it (i.e., "no merchandise shall be transported by water, [or
by land and water]{.underline},\...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]{.underline}." (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.]{.underline}, 731 F.2d 25 (1984)), this ruling
provided that even if such vehicles were not considered to be
accompanied

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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]{.underline}."

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]{.underline}, 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]{.underline}, no matter what
stoppages

or transshipments intervene." [Id]{.underline}. at 553 (Emphasis added)

The Court further stated that:

"Successive voyages, connected by a [common plan and a
common]{.underline}

[object]{.underline}, 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]{.underline}. 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)

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Turning to the circumstances under consideration in Scenario 1, the
rationale of the Supreme Court's opinion in [The Bermuda]{.underline}
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]{.underline}**

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.

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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]{.underline}**

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]{.underline}, 458 F.Supp. 849 (1977) (hereinafter
[Blumenthal]{.underline}). 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]{.underline} 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)

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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.

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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