5390 Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

46 CFR Part 67 

[USCG–2001–8825] 

RIN 1625–AA28 (Formerly RIN 2115–AG08) 

Vessel Documentation: Lease 

Financing for Vessels Engaged in the 

Coastwise Trade

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

SUMMARY: The Coast Guard amends its 

regulations on the documentation of 

vessels engaged in the coastwise trade. 

These amendments respond to statutory 

changes that eliminate certain barriers 

for U.S.-vessel operators seeking foreign 

financing by lease. These amendments 

specify the information needed to 

determine the eligibility of a vessel 

financed in this manner for a coastwise 

endorsement. To address certain issues 

raised by the comments to this 

rulemaking but not proposed in this 

rulemaking, we are publishing a 

separate notice of proposed rulemaking 

found elsewhere in this issue of the 

Federal Register.

DATES: This final rule is effective on 

February 4, 2004, except for §§ 67.147 

and 67.179, which contain information 

collection requirements that have not 

been approved by the Office of 

Management and Budget (OMB). The 

Coast Guard will publish a document in 

the Federal Register announcing the 

effective date of those sections.

ADDRESSES: Comments and material 

received from the public, as well as 

documents mentioned in this preamble 

as being available in the docket, are part 

of docket USCG–2001–8825 and are 

available for inspection or copying at 

the Docket Management Facility, U.S. 

Department of Transportation, room PL–

401, 400 Seventh Street SW., 

Washington, DC, between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. You may also find this 

docket on the Internet at http://

dms.dot.gov.

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this rule, call 

Patricia Williams, Deputy Director, 

National Vessel Documentation Center, 

Coast Guard, telephone 304–271–2506. 

If you have questions on viewing the 

docket, call Andrea M. Jenkins, Program 

Manager, Docket Operations, telephone 

202–366–0271.

SUPPLEMENTARY INFORMATION: 

Related Rulemaking 

A separate, but related rulemaking 

entitled ‘‘Vessel Documentation: Lease 

Financing for Vessels Engaged in the 

Coastwise Trade; Second Rulemaking’’ 

(USCG–2003–14472, RIN 1625–AA63) 

appears elsewhere in this issue of the 

Federal Register. It concerns the 

question of whether we should prohibit 

or restrict the chartering back, whether 

by time charter, voyage charter, space 

charter, or contract of affreightment, of 

a lease-financed vessel to the vessel’s 

owner, the parent of the owner, or a 

subsidiary or affiliate of the parent. If 

restrictions should be imposed, what 

criteria should be applied in charterback situations? 

Also, the separate rulemaking raises 

the question of whether we should seek 

the assistance of a third party with 

expertise in reviewing charters for 

compliance with the law, such as the 

Maritime Administration (MARAD) or 

an independent third party. (MARAD is 

currently reviewing its policy of general 

approval of time charters (67 FR 50406) 

and has agreed to consider this issue.) 

In addition, the separate rulemaking 

will seek comments regarding the issue 

of providing a time limit for the 

grandfather provisions in § 67.20(b) 

through (e), which allows endorsements 

issued under the lease-financing 

provisions before the date of publication 

of this final rule to continue in effect 

(subject to certain specified exceptions).

Though these subjects were discussed 

in many of the comments received to 

the present rulemaking (USCG–2001–

8825), we feel that we need additional 

public input specifically focused on 

these subjects and on our proposed 

changes in the separate rulemaking. 

Regulatory History 

On May 2, 2001, we published a 

notice of proposed rulemaking (NPRM) 

entitled ‘‘Vessel Documentation: LeaseFinancing for Vessels Engaged in the 

Coastwise Trade’’ in the Federal 

Register (66 FR 21902). On June 29, 

2001, we published a notice extending 

the comment period from July 2, 2001, 

to September 4, 2001 (66 FR 34603). On 

December 14, 2001, we published a 

notice reopening the comment period 

until January 28, 2002, and announcing 

that we were contemplating publishing 

a supplemental notice of proposed 

rulemaking (SNPRM) (66 FR 64784). On 

August 9, 2002, we published an 

SNPRM with a comment period closing 

on October 8, 2002. We received over 

100 letters commenting on the NPRM 

and SNPRM. 

We received numerous requests for 

one or more public meetings. After 

considering these requests and the 

comments received, we decided that 

public meetings would not benefit this 

rulemaking project because of the depth 

and thoroughness of the comments and 

the tremendous help they provided. We 

believed that public meetings would not 

provide new information that would 

assist us in writing the final rule. In 

addition, public meetings would delay 

the issuance of a final rule, which is 

contrary to the expressed desire of many 

of the commenters. However, we do 

plan to hold a public meeting on the 

separate rulemaking discussed in the 

‘‘Related Rulemaking’’ section of this 

preamble. 

At the request of industry 

representatives, several ex parte

meetings were held with senior Coast 

Guard officials. Memoranda of those 

meetings were entered into the docket. 

(See ADDRESSES.) 

Under 5 U.S.C. 553(d)(3), the Coast 

Guard finds that good cause exists for 

making this rule effective in less than 30 

days after publication in the Federal 

Register. Without regulations in place, 

many commenters contended that they 

would be uncertain of the Coast Guard’s 

policy for processing applications 

during that 30-day period. Making these 

regulations effective as soon as possible 

relieves the burden of uncertainty on 

applicants. 

Background and Purpose 

In 1996, Congress amended the vessel 

documentation laws to promote lease 

financing of vessels engaged in the 

coastwise trade (section 1113(d) of Pub. 

L. 104–324, the Coast Guard 

Authorization Act of 1996; 46 U.S.C. 

12106(e)) (‘‘the 1996 Act’’). Lease 

financing has become a very common 

way to finance capital assets in the 

maritime industry. Under lease 

financing, ownership of the vessel is in 

the name of the lessor, with a demise 

charter to the charterer of the vessel. (A 

‘‘demise charter,’’ also known as a 

‘‘bareboat charter,’’ is an agreement in 

which the charterer assumes the 

responsibility for operating, crewing, 

and maintaining the vessel as if the 

charterer owned it.) Many vessel 

operators choose to acquire or build 

vessels through lease financing, instead 

of the traditional mortgage financing, 

because of possible cost benefits. But, 

until the 1996 Act, operators were 

prevented from obtaining this financing 

from companies that are less than 75 

percent U.S. owned because the leasing 

company had to be a U.S. citizen under 

section 2 of the Shipping Act, 1916, (46 

U.S.C. app. 802), which requires at least 

75 percent U.S. ownership. This 

Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 5391

situation severely restricted the sources 

of available capital.

Under section 1113(d) of the 1996 

Act, Congress eliminated this technical 

impediment to vessel financing by 

adding a new paragraph (e) to 46 U.S.C. 

12106. Under 46 U.S.C. 12106(e), 

Congress authorized the Secretary of 

Transportation (since delegated to the 

Commandant of the Coast Guard) to 

issue coastwise endorsements if (1) the 

vessel is eligible for documentation; (2) 

the vessel’s owner, the parent of the 

owner, or subsidiary of the parent of the 

owner is primarily engaged in leasing or 

other financing transactions; (3) the 

vessel is under a demise charter to a 

person certifying that the person is a 

U.S. citizen eligible to engage in 

coastwise trade under section 2 of the 

Shipping Act, 1916; and (4) the demise 

charter is for at least 3 years (or less 

under § 67.20(a)(11)). 

According to the legislative history for 

the 1996 Act (See House Conference 

Report No. 104–854; Pub. L. 104–324; 

1996 U.S. Code Congressional and 

Administrative News, p. 4323.) 

(‘‘Conference Report’’), Congress 

intended to broaden the sources of 

capital for owners of U.S. vessels 

engaged in the coastwise trade by 

creating new lease-financing options. At 

the same time, the Conference Report 

states that Congress did not intend to 

undermine the basic principle of U.S. 

maritime law that vessels operated in 

domestic trades must be built in 

shipyards in the United States and be 

operated and controlled by U.S. 

citizens, which is vital to U.S. military 

and economic security. In that report, 

Congress also directed the Coast Guard 

to establish the necessary regulations to 

administer 46 U.S.C. 12106(e), 

including the filing of demise charters 

for vessels issued a coastwise 

endorsement under that provision. We 

discuss our authority and need to resort 

to legislative history, of which the 

Conference Report is a part, in the 

section entitled ‘‘Interpreting the 

statute’’ under ‘‘General Comments’’ in 

this preamble. 

List of Changes to the SNPRM 

This is a list of the changes that we 

have made to the supplemental notice of 

proposed rulemaking (SNPRM) 

published on August 9, 2002. You may 

find an additional discussion of these 

changes in the ‘‘Discussion of 

Comments’’ section later in this 

preamble. 

This rulemaking project proved to be 

somewhat unusual in the field of 

rulemaking, because most of the 

comments received dealt with 

conceptual approaches to interpreting 

the 1996 Act and the degree and 

direction of statutory implementation 

required, rather than with specific 

regulatory provisions. Therefore, in 

responding to comments in the manner 

we consider most appropriate and fair 

under the circumstances, we have 

incorporated changes in this final rule 

that, though not specifically requested 

by a comment, are in character with the 

original scheme as set forth in the 

NPRM and SNPRM and are a logical 

outgrowth of our proposals. Because of 

the lengthy comment periods, some 71⁄2

months, and the issuance of an SNPRM 

before going to a final rule, we feel that 

we have provided a high degree of 

exposure for the issues at hand and an 

ample opportunity for the parties 

affected to develop evidence in the 

record. 

A list of the changes, in order of their 

appearance in the regulatory text, 

follows: 

1. The word ‘‘affiliate,’’ as used in the 

new definition of the word ‘‘group’’ 

described below, is defined in § 67.3 to 

mean a ‘‘person’’ (defined to include a 

corporation, partnership, etc., as well as 

an individual) that is less than 50 

percent owned or controlled by another 

person. The intent is to include within 

the ‘‘group’’ not only the owner, parent 

of the owner, and ‘‘subsidiaries’’ (which 

are defined in § 67.3 as being at least 50 

percent owned by another) of the 

parent, but also those persons (i.e., 

affiliates) that are less than 50 percent 

owned or controlled by the parent. For 

example, we would include in the 

aggregate revenue test provisions in 

§§ 67.20(a)(2), 67.147(a)(1)(v), 

67.167(c)(10)(iv), and 67.179(a)(1)(v) all 

entities in the ‘‘group,’’ not just the 

owner, parent, and the parent’s 

subsidiaries. 

2. In § 67.3, the word ‘‘group’’ is 

defined. It replaces the phrase ‘‘the 

person that owns a vessel, the parent of 

that person, and all subsidiaries of the 

parent of that person,’’ which was used 

many times throughout the SNPRM. In 

the definition of ‘‘group,’’ we added 

‘‘affiliates’’ of the parent. This definition 

of ‘‘group,’’ as used in the Conference 

Report, contemplates today’s business 

environment, where few corporate 

entities stand alone with no relationship 

to one another. 

3. The term ‘‘operation or 

management of vessels’’ as used 

throughout §§ 67.20, 67.147, 67.167, and 

67.179 is now defined in § 67.3. It is 

defined to include all activities related 

to the use of vessels to provide services. 

The definition is needed to identify 

those business activities of an entity or 

group that are relevant in determining 

whether a person may qualify as a 

vessel owner under 46 U.S.C. 12106(e). 

A broad definition of this term is 

consistent with Congressional intent 

and preserves the effectiveness of the 

control test and the majority of aggregate 

revenues test. The term does not include 

activities directly associated with 

making financial investments in vessels 

or the receipt of earnings derived from 

those investments. Thus, lease-financing 

activities and other purely financial 

investments are excluded. It also does 

not include businesses that provide 

services to vessels, such as fueling and 

ship chandling. A broad definition of 

the term ‘‘operation or management of 

vessels’’ to include any and all activities 

related to the use of vessels to provide 

services is supported by several 

comments and is a logical outgrowth of 

the discussion of this term in the NPRM 

and the SNPRM. 

4. In § 67.3, we have added two new 

sentences in the definition of the word 

‘‘parent’’ to make it clear that ‘‘parent’’ 

includes all parents in the owner’s 

chain of ownership to the ultimate 

parent. 

5. In § 67.3, the term ‘‘primarily 

engaged in leasing or other financing 

transactions’’ is re-defined to include 

only transactions that have a financing 

component and exclude transactions 

that only include ‘‘leasing.’’ The law 

was enacted to promote ‘‘lease 

financing’’ not ‘‘leasing.’’ The 

Conference Report, at page 130, states 

that the overall purpose of the leasefinancing provisions is to eliminate 

technical impediments to using various 

techniques for financing vessels 

operating in the domestic trade. Thus, 

the clear intent of Congress was to 

create a vehicle for vessel financing, not 

an alternative means of vessel 

ownership. See the discussion of our 

responsibilities under the Jones Act in 

the ‘‘Interpreting the statute’’ section 

under ‘‘General Comments’’ in this 

preamble. 

In 46 U.S.C. chapter 121, Congress 

entrusted the Coast Guard with the 

responsibility of administering the 

vessel-documentation laws consistently 

with the Jones Act, 46 U.S.C. app. 802 

and 808 and 46 U.S.C. 12106. 

Accordingly, it is our responsibility to 

implement the lease-financing 

provisions in such a way as to be 

consistent with the Jones Act, with its 

prior effect on the documentation laws, 

and with the intent of Congress. 

Furthermore, the Conference Report, 

at pages 131 and 132, states that banks, 

leasing companies, or other financial 

institutions qualify as owners. This 

statement evinces Congress’s intent to 

prevent the statute from being used as 

a loophole to avoid coastwise 

5392 Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 

citizenship requirements. The purpose 

is to prevent the use of specially created 

‘‘leasing-company’’ subsidiaries that 

merely take title to existing vessels, with 

no financing involved, for the sole 

purpose of leasing them. Thus, the 

acquisition of a vessel must have some 

element of financing involved. An intragroup, book-to-book transfer without 

any financing involved will not suffice.

6. A definition of the word ‘‘subcharter’’ is added to § 67.3 to indicate 

that sub-charters include all types of 

charters and contracts for the use of the 

vessel subsidiary to a demise charter, 

including but not limited to those 

denominated as ‘‘demise charters,’’

‘‘time charters,’’ ‘‘voyage charters,’’ and 

other subordinate contracts, however 

denominated, for the use of the vessel. 

The purpose for this definition is to 

ensure that all charters and contracts for 

the use of the vessel are filed with the 

Coast Guard so that they may be made 

available for examination by the Coast 

Guard and third parties. This is 

necessary because sub-charters or 

contracts have the potential of giving a 

non-citizen an unacceptable amount of 

control over vessels operating in the 

coastwise trade. For example, simply 

styling a charter as a ‘‘time charter’’ or 

‘‘voyage charter’’ does not ensure that 

the charter will not transfer an 

unacceptable amount of control from 

the demise charterer. 

7. In §§ 67.20(a)(2), 67.147(a)(1)(viii), 

and 67.179(a)(1)(ix), we added the 

words ‘‘the vessel was financed with 

lease financing.’’ These additional 

words help ensure that the acquisition 

of a vessel must have some element of 

financing involved. An intra-group, 

book-to-book transfer without any 

financing involved will not suffice. 

8. Section 67.20(a)(5) is changed by 

adding, after the words ‘‘the person that 

owns the vessel,’’ the words ‘‘the parent 

of the person that owns the vessel’’ and 

‘‘group of which the person that owns 

the vessel is a member.’’ This change 

also excludes, from qualifying for a 

coastwise endorsement under lease 

financing, ownership arrangements 

where the parent of the owner of the 

vessel and the group of which the owner 

is a member are primarily engaged in 

the direct operation or management of 

vessels. 

As the Conference Report at page 131 

notes, ownership must be primarily a 

financial investment in the vessel 

without the ability and intent to control 

the vessel’s operations and that the 

operation of the vessel must not be by 

a person not primarily engaged in the 

direct operation or management of 

vessels. Taken together, these phrases 

suggest that a requirement that the 

owner, the parent of the owner, or the 

group of which the owner is a member 

must not be primarily engaged in the 

direct operation or management of 

vessels is a permissible restriction on 

who can qualify as a lease-financing 

owner. Therefore, for example, a foreign 

group that gets more than 50 percent of 

its revenue from the direct operation or 

management of vessels would be barred 

from setting up a U.S. subsidiary for the 

purpose of being an owner under lease 

financing. 

9. In § 67.20(a)(6), the words ‘‘directly 

or indirectly’’ are added before the word 

‘‘control.’’ The words are added in 

recognition of the fact that vessels may 

also be controlled indirectly through 

devices such as side agreements 

between parties involved in the vessel’s 

ownership and charter. Allowing 

indirect control of the vessels through 

side agreements or similar devices 

would be inconsistent with the purpose 

of the lease-financing provision. That 

provision was not intended to implicitly 

repeal the Jones Act protections 

afforded to a U.S. citizen eligible to 

engage in coastwise trade under section 

2 of the Shipping Act, 1916 (section 2 

citizen) any more than is necessary to 

further the goal of making more capital 

available for the owners of U.S. vessels. 

10. The ‘‘aggregate revenues’’ test in 

§§ 67.20(a)(7), 67.147(a)(1)(v), 

67.167(c)(10)(iv), and 67.179(a)(1)(v) for 

use in determining eligibility for a 

coastwise endorsement is changed from 

applying just to the group of which the 

owner is a member (i.e., the vessel 

owner, the parent of the owner, and all 

subsidiaries of the parent). It now 

applies to each of the following taken 

separately: the owner, the owner’s 

parent, and the owner’s group. This 

permits foreign banks, lease-financing 

companies, or other financial 

institutions to qualify as owners of U.S.-

flag vessels under lease financing even 

if they have vessel owning and 

operating subsidiaries or affiliates, but 

prevents qualification of companies in 

which the primary business of the 

owner, the owner’s parent, or the group 

of which the owner is a member, is 

vessel ownership or operation. 

11. In §§ 67.20(a)(8), 67.147(a)(1)(vi), 

67.167(c)(10)(v), and 67.179(a)(1)(vi) 

concerning the operation or 

management of commercial, foreign-flag 

vessels, the word ‘‘group,’’ as newly 

defined in § 67.3 with its inclusion of 

‘‘affiliates’’ of the parent, replaces the 

words ‘‘the group that includes the 

person that owns the vessel, the parent 

of that person, and all subsidiaries of 

the parent of that person.’’ This test is 

extended to apply to the vessel owner 

and the owner’s parent, as well as the 

group. Thus, we clarify that the leasefinancing owner must have only a 

financial investment interest in the 

vessel and may not be involved in 

operating vessels. Additionally, because 

of the possibility for a foreign parent 

that is actually involved in the 

operation or management of foreign 

vessels to exercise ‘‘control’’ of the 

vessel’s operations, we have included 

the words ‘‘parent of the owner’’ in this 

part of the test. 

12. The grandfather provision in 

§ 67.20(b) has one change. The date 

before which an endorsement must be 

issued to be eligible for the grandfather 

provision is changed from the effective 

date of this final rule to the date of 

publication of this rule, which is 30 

days sooner. The purpose of the 

grandfather provision is to protect 

existing business arrangements. 

Changing the date by which vessels 

must be documented under this section 

from the effective date of the rule to the 

date of publication prevents the 

establishment of new business 

arrangements during that 30-day period 

that would be prohibited by this rule. 

New paragraph (c) is added to provide 

a grandfather provision for newly 

constructed vessels built in reliance 

upon a letter ruling from the Coast 

Guard before the date of publication of 

this final rule. 

Also, new paragraphs (d) and (e) are 

added to apply to barges that are not 

required to be documented under 46 

U.S.C. 12110(b). These new paragraphs 

are similar to paragraphs (b) and (c) 

discussed above but are needed because 

the existing documentation regulations 

handle undocumented barges somewhat 

differently from other vessels. 

13. In §§ 67.147(a)(1) and 67.179(a)(1) 

concerning the individual required to 

certify the certification submitted with 

an application, the term ‘‘officer’’ was 

used. As suggested by several 

comments, this term alone, which is 

based on the corporate model, does not 

accommodate the many different types 

of business entities that qualify as 

owners and the different titles by which 

individuals authorized to provide the 

certification are known. We expect the 

authorized individual to be on a level at 

least equivalent to an officer in a 

corporation, a partner in a partnership, 

or a member of the board of managers 

in a limited liability company. 

Therefore, these sections have been 

amended to address these differences. 

14. One comment to § 67.147(a)(2) in 

the NPRM, on submitting a copy of the 

charter as part of an application for an 

endorsement, asked that we delete the 

requirement that the charter provide 

that the charterer is deemed to be the 

Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 5393

owner pro hac vice for the term of the 

charter. It suggested that practitioners 

generally understand that a demise 

charter does convey to the charterer the 

full possession, control, and command 

of a vessel and that the provision is 

therefore surplusage.

We made the suggested deletion in 

the SNPRM. However, upon 

reconsideration, we have reinserted that 

provision in the final rule. It is clear 

from the legislative history that 

Congress intended the charterer to be 

the owner pro hac vice for the term of 

the charter. The fact that the words ‘‘pro 

hac vice’’ may not be reflective of 

common charter practice is added 

reason for their inclusion in any charter 

submitted under the lease-financing 

exception. 

15. In §§ 67.147(d)(1) and 

67.179(d)(1), changes are made that 

would lessen the paperwork burden. 

The SNPRM would require copies of 

sub-charters to be filed with the 

Director, National Vessel 

Documentation Center. In the final rule, 

we also require that amendments to subcharters be similarly filed. However, we 

added that they both need to be filed 

only when requested to do so by the 

Director. 

16. In §§ 67.147(d) and 67.179(d), the 

word ‘‘demise’’ is removed and the term 

‘‘sub-charter’’ (as newly defined in 

§ 67.3) is added. The word ‘‘demise’’ is 

eliminated because the Coast Guard 

believes that it is necessary to make all 

charter and other contractual 

arrangements for the use of the vessel 

available for examination by the public 

and for review by the Secretary as 

needed. This is necessary to ensure that 

an unacceptable amount of control over 

the vessel’s operation is not transferred 

from the demise charterer in 

contravention of the requirement that 

the demise charterer be the owner pro 

hac vice during the charter period. Also, 

we have aligned §§ 67.147(d)(2) and 

67.179(d)(2) with the above changes. 

17. In §§ 67.147(e) and 67.179(e) 

concerning penalties for false 

certification, the words ‘‘and 18 U.S.C. 

1001’’ are added following ‘‘subject to 

penalty under 46 U.S.C. 12122.’’ We 

added the additional criminal provision 

concerning knowingly false or 

fraudulent statements to emphasize the 

importance of the accuracy of the 

certifications to the integrity of the 

Coast Guard’s implementation of the 

lease-financing law. 

Discussion of the Comments 

In this section, we discuss the 

comments both to the NPRM and 

SNPRM. They are grouped into two 

parts: ‘‘General Comments’’ and 

‘‘Comments to Specific Sections.’’ The 

‘‘General Comments’’ section addresses 

comments, such as comments on 

interpreting the 1996 Act, that are not 

specific to a particular proposed 

provision. The section on ‘‘Comments to 

Specific Sections’’ is organized in 

numerical order by regulatory section. 

Many of the comments to the NPRM 

were rendered moot by changes in the 

SNPRM. We limited discussion of them 

in the preamble to avoid confusing the 

reader.

Certain provisions in the NPRM and 

SNPRM were repeated, almost verbatim, 

in several sections throughout the 

proposed rule. For example, in the 

NPRM, the aggregate revenue provision 

in § 67.20(a)(4) (eligibility for 

endorsement) is also found in 

§§ 67.147(a)(1)(iv) (applications for 

vessels), 67.167(c)(1)(iv) (exchange of 

certificates), and 67.179(a)(1)(iv) 

(applications for barges) of the NPRM. 

We found that comments to one section 

were generally applicable to other, 

similar sections. 

Comments submitted to this 

rulemaking, but that now relate to the 

subjects addressed in the separate 

rulemaking referenced in the ‘‘Related 

Rulemaking’’ section of this preamble, 

such as concerns over the potential 

abuse of the chartering element in the 

lease-financing provisions, have also 

been considered under that separate 

rulemaking. 

I. General Comments 

1. Interpreting the statute. (a) 

Virtually all of the commmenters fall, in 

varying degrees, within two broad 

groups. One group argues for a literal 

application of the statute. They urge that 

the statute is not ambiguous. They 

contend that the Coast Guard’s 

proposals in the NPRM and SNPRM are 

based on an erroneous interpretation of 

the statute and amount to legislating 

that goes far beyond permissible 

implementation. According to these 

comments, no resort to the legislative 

history is permissible in implementing 

the statute. They urge that Congress’s 

intention as expressed by the plain 

language of the statute will be frustrated 

unless the Coast Guard’s regulations are 

limited to the literal requirements in the 

statute. These comments argue that the 

statute, by vesting control of the vessel 

in the demise charterer, which must be 

a section-2 citizen under 46 U.S.C. app. 

802, Congress provided sufficient 

protection of the Jones Act principles. 

We disagree. Primarily as a result of 

6 years of experience with the law, we 

believe the result of such a literal 

interpretation could eviscerate the 

principles that Congress enunciated in 

the cabotage restrictions contained in 

the Jones Act and might even effectuate 

an implicit repeal of that statute. The 

Jones Act principles referred to here 

include the cabotage principles 

embodied in 46 U.S.C. app. 883 (the 

Jones Act), 46 U.S.C. app. 802, and 46 

U.S.C. 12106. 

The second broad group of 

commenters recognize that the leasefinancing law opened the Jones Act 

trade to lease-financing companies, but 

argue for a narrow application of the 

statute. According to these comments, 

the lease-financing law was intended to 

be a narrow exception to the Jones Act; 

it was not intended to repeal that Act. 

They argue that the lease-financing law 

should be read very narrowly so as to 

protect those traditionally engaged in 

the Jones Act trade. They rely on 

statements in the Conference Report, as 

well as on the principle that implicit 

repeal of statutes is not favored. 

According to them, the only proper 

interpretation is to apply the leasefinancing law with a view toward 

opening the Jones Act to foreign owners 

only to the extent necessary to ensure 

that those persons who have relied on 

it in structuring their business models 

are not subject to undue foreign 

competition. The term ‘‘foreign 

owners,’’ as used here, means persons 

who qualify to own a U.S. vessel, but 

are not eligible to engage in the 

coastwise trade. 

As stated above, we do not agree that 

the statute should be applied so literally 

that the result would be a wholesale, yet 

implicit, repeal of the Jones Act 

protections for domestic shipping. 

Because of the rich history of the Jones 

Act, the protections it has traditionally 

extended to American citizens, and the 

lack of any indication in either the 

statute or the legislative history in favor 

of an intended repeal of the Jones Act, 

we reject the conclusion of those who 

construe the law so as to accomplish 

such a repeal. Instead, we conclude that 

the lease-financing provisions were 

intended to accomplish a narrow 

relaxation of the restrictions formerly 

applicable to owners who desired to 

engage in lease financing, as opposed to 

mortgage financing, of vessels. 

Furthermore, we believe that, when 

implementing the statute through 

regulations, as Congress directed us to 

do, Congress sought to apply the leasefinancing provisions as consistently as 

possible with the existing provisions of 

the Jones Act. Otherwise, there would 

have been no need for the Conference 

Report to state on page 130 that it was 

the Conferees’ intention not to 

undermine a basic principle of U.S. 

maritime law that vessels operated in 

5394 Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 

domestic trades must be operated and 

controlled by American (i.e., section-2) 

citizens, which is vital to United States 

military and economic security. 

Congress entrusted the Coast Guard 

with the responsibility, under 46 U.S.C. 

chapter 121, to administer the vessel 

documentation laws consistently with 

the Jones Act, 46 U.S.C. app. 802, 808, 

and 883 and 46 U.S.C. 12106. The Coast 

Guard has had this role continuously 

since 1967. We have historically 

implemented the vessel-documentation 

law with due regard to the important 

cabotage principles embodied in the 

Jones Act. We have endeavored in the 

past, as we do now, to carry out the 

cabotage principles that are the essence 

of the Jones Act as expressed by 

Congress in the Act itself and its 

legislative history, as well as in the 

lease-financing amendment and its 

legislative history. 

Thus, we have relied on the 

legislative history of not only the leasefinancing law, but also of the Jones Act 

itself. In that regard, we are aware of the 

Congressional purpose of that Act, as 

explained on the floor of the House at 

the time of discussions on who could be 

a U.S. citizen for purposes of owning 

and operating a vessel in the U.S. 

coastwise trade. That purpose was 

expressed by Congressman Saunders, as 

follows:

The amendment [to section 2 of the 

Shipping Act] intends to make it impossible 

for any arrangement to be effected by which 

such a corporation, partnership or 

association shall be a citizen of the United 

States when the real control of same is in the 

hands of aliens. We have sought to make the 

language so sweeping and comprehensive 

that no lawyer, however ingenious, would be 

able to work out any device under this 

section to keep the letter, while breaking the 

spirit of the law. See 56 Cong. Rec. 8029 

(June 19, 1918).

Congress required the Secretary of 

Transportation to implement the leasefinancing law with regulations. 

Consistent with prior practice since 

1967, that responsibility has been 

delegated to us. We believe that in order 

to carry out Congress’s intent in 

implementing the lease-financing law, 

we must be mindful of all legitimate 

sources from which that intent may be 

gleaned. In fact, for us to ignore the 

Jones Act or its rich history would be 

contrary to our responsibility.

On the other hand, we recognize that 

the principal purpose of the leasefinancing provisions is to increase the 

sources of capital. 

(b) In determining whether the statute 

should be applied literally, it is clear 

that some of the statute’s critical terms 

are not self-defining. For example, the 

term ‘‘primarily engaged in leasing or 

other financing transactions’’ is not 

clear. It is not clear on its face whether 

the clause ‘‘primarily engaged’’ means 

that the entity so engaged derives a 

majority of its revenue from that 

activity; that the entity devotes a 

majority of its resources to that activity; 

or, in the case of multiple entities in a 

group (which is probably typical), that 

one of those entities derives more 

revenue or devotes more resources than 

any of the others, but not necessarily a 

majority of the group’s revenue or 

resources. 

Similarly, it is not clear on the face of 

the statute whether Congress intended 

to authorize special-purpose leasing 

companies engaged in leasing vessels 

only to qualify if they have no financing 

component to the transaction or 

whether it intended financing to be an 

essential component of that activity (as 

we provide in this final rule). Therefore, 

a resort to the legislative history, 

particularly the Conference Report, to 

interpret the ambiguous terms of the 

statute is appropriate to determine the 

intent of Congress as to who may qualify 

for this newly created, lease-financing 

exception to the Jones Act and how the 

Coast Guard should implement the 

statute. 

We note that the Conference Report 

does not answer all the questions that 

must be answered in order to implement 

the statutory language. For example, 

while both the statute and the 

Conference Report are clear that control 

of the vessel receiving a coastwise 

endorsement must be placed in a U.S. 

citizen, the statute and Conference 

Report are silent as to whether the Coast 

Guard is to implement this requirement 

by prohibiting agreements between the 

owner and the demise charterer with 

respect to operating the vessel, other 

than the demise charter itself. This is 

one of the subjects addressed in the 

separate rulemaking (See the ‘‘Related 

Rulemaking’’ section in this preamble.). 

2. Charters. Many comments 

concerned the potential abuse of the 

required transfer of control from the 

owner to the charterer by the use of 

charter deemed ‘‘demise’’ in name only 

and of sub-charters that they believe to 

be inconsistent with the intent of 

Congress. 

(a) A number of comments suggest 

that the proposed rules would have a 

detrimental effect on the integrity of the 

Jones Act, as well as on U.S. military 

and economic security, because the 

proposals could allow significant 

portions of the U.S.-flag coastwise fleet 

to fall under foreign control. 

We agree with the premise of these 

comments. Thus, our final rule makes 

foreign capital available to U.S.-flag 

operators, while at the same time keeps 

coastwise shipping out of the control of 

foreign operators. In the separate NPRM 

(See the ‘‘Related Rulemaking section of 

this preamble.), we are proposing 

various alternatives to deal with the 

time-chartering back of the vessel from 

the demise charterer to, for example, an 

affiliate of the owner. 

(b) Many of the comments we 

received in response to both the NPRM 

and the SNPRM question not only the 

proposed rules, but also the policy 

established by the Coast Guard to 

implement the lease-financing 

provisions of the 1996 Act. In general, 

the comments indicate that we may 

have created an unintended loophole 

that is effectively allowing the foreign 

control of vessels operating in Jones Act 

protected trades. 

See our response in paragraph (a) 

above. 

(c) One comment states that proposed 

§ 67.20(a)(6) in the SNPRM should be 

rewritten so controlling vessel 

operations and revenues by means of a 

time charter back to a member of the 

group that includes a foreign vessel 

operator would disqualify eligibility, 

because, as the comment asserts, such 

an arrangement is a scheme for control 

and not for investment. The comment 

adds that § 67.20(a)(9) should broaden 

the definition of control, so that the 

time-charter-back scheme would be 

recognized for what it is—a control 

scheme. 

See the response in paragraph (a) 

above. 

(d) Eleven comments express support 

for the Jones Act and for broadening 

sources of financing for vessels in the 

domestic trade, while upholding the 

U.S.-ownership requirement of the Jones 

Act. 

See the response in paragraph (a) 

above. 

(e) Ten comments express support for 

preserving the basic principles of the 

Jones Act, because it is the basis of our 

investments and provides many 

economic, security, and environmental 

benefits to our nation. 

See the response in paragraph (a) 

above. 

(f) Two comments express support for 

the Jones Act because they see no need 

for foreign financing in the industry.

Insofar as these comments contend 

that there was no need for foreign 

financing for U.S. vessels, we disagree 

that Congress did not authorize foreign 

financing of U.S. vessels. Indeed, that 

was an expressed purpose of the law as 

stated in the Conference Report. On the 

other hand, we agree that Congress also 

did not intend any more of a relaxation 

Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 5395

of the Jones Act than was necessary to 

effectuate the purposes of the leasefinancing provision. It sought to 

preserve control of the operation and 

management of lease-financed vessels in 

the hands of section 2 citizens by means 

of requiring a long-term demise charter 

to such a citizen. The final rule and the 

separate NPRM (See the ‘‘Related 

Rulemaking’’ section of this preamble.) 

attempt to strike the appropriate balance 

to effectuate that Congressional intent. 

(g) Ten comments state that some 

foreign entities are not abiding by the 

intent of Congress in 46 U.S.C. 12106(e) 

and have used this provision as a 

loophole to avoid coastwise citizenship 

requirements. They ask that this 

loophole be eliminated in the 

regulations. 

We agree with the contention that 

Congress did not intend a wholesale 

repeal of the Jones Act with the leasefinancing amendments. Instead, it 

intended a narrow relaxation of the 

ownership requirements of that law to 

allow a broadening of the capital market 

available to U.S. operators, while 

preserving control of the vessel in the 

hands of a U.S. citizen. The final rule, 

together with the proposals in the 

separate rulemaking (See the ‘‘Related 

Rulemaking’’ section in this preamble.), 

are designed to preserve the Jones-Act 

protections completely, while allowing 

lease-financing owners to own vessels 

in coastwise trade. 

(h) Three comments stated that the 

proposed regulations should focus on 

ensuring that the demise charter meets 

the intent of the coastwise protection 

laws. 

We agree that one of the key inquiries 

is whether control of the vessel is vested 

in the demise charterer unaffected by 

any agreement, including a side 

agreement outside of the demise charter 

itself, an understanding between the 

owner or any entity exercising control 

over the owner and the demise 

charterer, or otherwise, that would vest 

control of the vessel in the owner or a 

member of the owner’s group. We do 

not necessarily agree that the demise 

charterer should be able to time charter 

the vessel to anyone of the charterer’s 

choosing without restriction. If, for 

example, the demise charterer time 

charters the vessel back to the owner or 

a member of the owner’s group, there is 

a potential loss of control of the vessel 

by the demise charterer to an entity that 

we believe Congress did not intend to 

have any control over the vessel. A 

number of comments have termed this 

as the ‘‘time-charter-back’’ issue. We 

have proposed to deal with that issue in 

the separate NPRM (See the ‘‘Related 

Rulemaking’’ section in this preamble.) 

for the reasons stated in the preambles 

to this rule and to the NPRM. 

(i) Nine commenters stated that the 

lease-financing law has protected the 

control of coastwise-eligible vessels by 

U.S. citizens due to the requirement that 

coastwise vessels be demise chartered to 

an entity qualified to engage in the 

coastwise trade. 

We disagree with the comments that 

contend that the law is clear and 

unambiguous on how to preserve 

control by section-2 U.S. citizens over 

vessels lease financed by foreigners. We 

also disagree that the so-called 

additional requirements in our 

regulations are unnecessary, counterproductive, or both in fulfilling the 

Congressional intent by threatening the 

sources of financing. See our reasons 

stated in the ‘‘General Comments’’ and 

‘‘Comments to Specific Sections’’

sections of this preamble in response to 

comments raising similar issues. We 

have not addressed the additional 

requirements of the existing 

documentation law, such as the 

requirement that the vessels be U.S.-

built, because this requirement did not 

originate with the 1996 Act. 

(j) Six comments support using the 

lease-financing provision to justify selffinancing of vessels used in domestic 

commerce primarily to carry proprietary 

cargo. One comment approves of 

transactions similar to those used by 

quasi-Bowater organizations. 

These issues are discussed in the 

preamble to the separate NPRM. (See

the ‘‘Related Rulemaking’’ section of 

this preamble.) 

(k) One comment recommends that 

the term ‘‘coastwise-qualified U.S. 

citizen’’ be used and defined as a citizen 

that must be independent of, and not 

controlled (by contract, fiduciary 

relationship, or otherwise) by, the noncitizen owner or any member of the 

owner’s group. According to the 

comment, this would preclude U.S. 

citizens from agreeing to act as straw 

men for aliens. 

We believe that this issue is already 

adequately covered in 46 CFR part 67, 

subpart C, and that no additional 

definition is needed. 

(l) To ensure that our rule does not 

undermine the Jones Act, one comment 

recommends that we require the noncitizen applicant to be licensed as a 

banking institution in the United States 

under U.S. banking laws and that we 

require the non-citizen applicant to 

prove that it has been a bona fide 

financial institution for not less than 10 

years. 

We can find no legal support for this 

suggestion and, therefore, have not 

adopted it. 

(m) One comment states that, to 

protect U.S. national and economic 

security, the rule should include a 

‘‘catch-all’’ provision that prohibits 

placing effective control of U.S.-flag 

vessels engaged in the coastwise trade 

in the hands of an alien. 

We believe that the concern expressed 

in this comment is adequately 

addressed in existing documentation 

regulations (46 CFR part 67, subpart C), 

as amended by this final rule, and in the 

proposals in the separate NPRM. (See

the ‘‘Related Rulemaking’’ section of 

this preamble.) 

(n) One comment states that proposed 

§ 67.20(a)(6) and (a)(9) in the SNPRM 

should be rewritten to prohibit the 

operator of a foreign vessel from time 

chartering the vessel back to a member 

of the vessel owner’s group; because, as 

the comment asserts, such an 

arrangement would be a scheme for 

control and not for investment. 

This matter is discussed in the 

separate NPRM. (See the ‘‘Related 

Rulemaking’’ section of this preamble.)

3. Perceived ‘‘taking of private 

property’’ issue. Several comments 

contend that the NPRM and SNPRM 

will accomplish a ‘‘taking’’ of private 

property without just compensation in 

violation of the 5th amendment to the 

U.S. Constitution and of international 

law. This is discussed in the ‘‘Taking of 

Private Property’’ section of this 

preamble. 

4. Grandfather provision (§ 67.20(b)).

(a) Several comments objected to any 

grandfather provision. They argue that, 

once the rulemaking is final, all leasefinancing owners should comply with 

the final rules. 

We believe that the likely result of 

such a position would be that the 

holders of endorsements, who received 

them in good faith reliance on the 

policy of the Coast Guard at the time, 

would have to re-structure, at perhaps 

some financial expense and with little 

time to plan for such a restructuring, 

when the document is renewed. 

(b) Comments, principally from those 

who have received coastwise 

endorsements under lease financing 

issued between 1996 and 2002, argue 

that the proposed grandfather provision 

is too restrictive. They urge us to adopt 

a rule that would validate, for future 

use, the particular types of financial 

transaction or arrangement under which 

documents were issued before the final 

rule was published. In other words, any 

new vessel owner that chose to use a 

previously used type of transaction or 

arrangement in the future would be able 

to do so. In their view, a grandfather 

provision that just covers the vessel that 

received the document, as opposed to 

5396 Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 

the vessel owner or to the type of 

transaction or arrangement, is too 

restrictive and amounts to little effective 

relief from the changed requirements of 

this rule. 

On one hand, we believe that to 

require those vessel owners who relied 

on our prior practice and policy to 

comply immediately (or at the first 

renewal of the document) with the new 

rules would unnecessarily penalize 

them. On the other hand, we do not 

believe that the owners of vessels that 

already have a lease-financing 

endorsement or that intend to apply for 

such an endorsement in the future 

should be entitled to unlimited 

renewals based on the prior policies and 

practices of the Coast Guard. The 

purpose of the grandfather provision is 

to provide reasonable relief for 

investments and business arrangements 

made in reliance on the standard in 

effect when they were made. 

Furthermore, allowing owners that 

already have an endorsement to expand 

their businesses in a manner not 

available to others would make those 

owners and vessels attractive vehicles 

for further foreign investment in 

domestic trade, thus contravening the 

basic tenets of the Jones Act. 

In order to properly address the issue 

of limiting the grandfather provisions 

and to obtain guidance from those 

affected by the grandfather provision, 

we have proposed a time limit to the 

grandfather provision in the new, 

separate rulemaking (See the ‘‘Related 

Rulemaking’’ section in this preamble.). 

The grandfather provision in § 67.20(b) 

of the SNPRM remains unchanged at 

this time. 

5. Foreign tax and investment 

regimes. Two comments raised 

questions concerning tax and 

investment regimes in foreign countries 

either favoring or disfavoring foreign 

competition by U.S. interests. 

The lease-financing law does not 

allow the Coast Guard to deny foreign 

entities the right to engage in lease 

financing based on whether and to what 

extent they are granted tax benefits or 

subsidies by foreign countries. If a 

foreign entity complies with the leasefinancing law and these implementing 

regulations, we cannot prevent it from 

engaging in lease financing. As 

explained elsewhere in this preamble, 

the lease-financing law accomplished a 

limited amendment to the Jones Act to 

increase the amount of foreign capital 

available to U.S.-vessel owners and 

operators, while at the same time 

preserving the time-honored principle 

that complete control of a vessel in the 

coastwise trade must be in the hands of 

a U.S. citizen. Thus, the lease-financing 

law allows certain foreign banks, leasing 

companies, and other financial 

institutions to engage in the lease 

financing of vessels and, if these 

regulations are observed, to obtain a 

coastwise endorsement, even if they 

have a vessel-operating subsidiary. The 

law does not condition the entrance into 

the U.S. lease-financing market on 

whether and to what extent foreign 

interests grant tax benefits and subsidies 

to foreign vessel operators. 

6. Foreign energy companies. One 

comment contends that the proposed 

regulations may effectively permit 

foreign-owned energy companies to 

enter the business of owning U.S.-flag 

vessels and allow those vessels, through 

arrangements with charterers, to carry 

their own proprietary cargoes. 

Foreign-owned energy companies are 

not prohibited by the statute from 

engaging in lease-financing transactions, 

if they comply with the requirements of 

the law and the implementing 

regulations. The subject of carriage of 

proprietary or non-proprietary cargoes 

by vessels financed by foreign-owned 

energy companies will be addressed in 

the separate rulemaking (See the 

‘‘Related Rulemaking’’ section in this 

preamble.) under the charter-back issue.

7. Consultation with MARAD. One 

comment requests that we enlist the 

services of the U.S. Maritime 

Administration (MARAD) to review the 

applications and charters, do 

background checks, and have the power 

to require additional supporting data 

from the applicant. 

Although this final rule does not 

address the use of MARAD’s services, 

the Coast Guard has worked closely 

with that agency in the development of 

this final rule. In addition, in the 

separate rulemaking (See the ‘‘Related 

Rulemaking’’ section in this preamble.), 

we will ask for comments specifically 

on the benefits which might be derived 

from such an arrangement and how the 

arrangement should be implemented. 

8. Requests for quick completion of 

this rulemaking. Nineteen comments 

urged that the Coast Guard proceed as 

quickly as possible to a final rule. They 

contend that Coast Guard policy has 

allowed undue foreign entry into Jones 

Act trade and that the continued lack of 

a final rule invites further incursions. 

As discussed in the ‘‘Regulatory 

History’’ section of this preamble, these 

comments factored into our decision to 

postpone holding a public meeting until 

the second rulemaking. (See the 

‘‘Related Rulemaking’’ section in this 

preamble.) 

9. Requests for public meetings.

Numerous comments asked for one or 

more public meetings on the 

rulemaking. 

This is discussed in the ‘‘Regulatory 

History’’ section of this preamble. 

10. Moratorium on processing 

applications for endorsements. Several 

comments suggested that our current 

policy on lease financing is a threat to 

the Jones-Act industry and 

recommended a moratorium on the 

processing of applications for coastwise 

endorsements under the lease-financing 

provisions. 

We do not believe that a moratorium 

is legally supportable. Some 

applications have already been 

approved under the provisions of 46 

U.S.C. 12106(e). There is nothing in 

either the statute or legislative history 

that provides a basis for imposing a 

moratorium on lease-financing 

applications. Even if there were, by 

setting forth the requirements to 

participate in lease financing, 

publication of this final rule would 

eliminate the need for a moratorium. 

11. Favorable comments. We received 

comments favoring this or that proposal, 

especially to the changes in the SNPRM. 

For example, one comment supported 

the SNPRM as written because it strikes 

the proper balance by encouraging 

financing for U.S. coastwise vessel 

assets, while retaining operating control 

over those assets with fully qualified 

coastwise entities, and because it is an 

appropriate exercise of the Coast 

Guard’s regulatory authority. 

II. Comments to Specific Sections 

Section 67.3, Definitions 

1. One comment recommends that we 

define the term ‘‘operation or 

management of vessels’’ to identify 

those business activities of an owner or 

group that are relevant in determining 

whether a person may qualify as a 

vessel owner. 

Based on the suggested wording in 

comment letter number 30 in the docket 

to this rulemaking (See ADDRESSES), we 

have added such a definition in § 67.3. 

2. One comment recommends that we 

define the term ‘‘demise charter’’ in the 

regulation so that it cannot be confused 

with a time charter or a hybrid of the 

two. The comment contends that time 

charters are often mislabeled as demise 

charters. 

This concern of mislabeling is 

remedied, in part, by the addition of a 

definition of the term ‘‘sub-charter’’ in 

§ 67.3, which is defined to include all 

types of charters. See the new use of the 

term ‘‘sub-charter’’ as it appears in 

§§ 67.147(d) and 67.179(d) in this final 

rule. 

3. Several comments objected to the 

definition of ‘‘primarily engaged in 

Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 5397

leasing or other financing activities’’ in 

§ 67.3 of the NPRM being restricted to 

banks or institutions that were engaged 

in banking. They objected to our 

reliance on the language of the 

Conference Report that banks, leasing 

companies, or other financial 

institutions would qualify. Some of the 

comments assert that this phrase is 

vague in that it is unclear whether the 

qualifying entity is limited to one that 

only provides ‘‘banking’’ services. 

We agree and made changes to the 

SNPRM. The final rule further clarifies 

that the financial institution that may 

qualify is not limited to a bank, 

although such an institution would 

qualify. It includes other entities that 

are primarily engaged in financing 

activities, including lease financing. In 

addition to Federal- or State-chartered 

banks, the term would include, but not 

be limited to, vendor financing credit 

companies, industrial commercial 

finance companies, and leasing 

companies, provided that there is an 

element of financing involved in the 

transaction.

Section 67.20, Coastwise Endorsement 

for a Vessel Under a Demise Charter 

1. To ensure that our rule on lease 

financing does not undermine the Jones 

Act, one comment recommends that we 

require the non-citizen applicant to be 

licensed as a banking institution in the 

United States under U.S. banking laws 

and to prove that it has been a bona fide 

financial institution for not less than 10 

years. 

We disagree that the non-citizen 

applicant must be a licensed banking 

institution. Neither the statute nor the 

Conference Report indicates that the 

applicant must be a banking institution. 

Other financial institutions, such as 

insurance companies or pension plans, 

might qualify. However, we believe that 

there must be a vessel-financing 

component in the transaction. 

Therefore, we revised the definition of 

the term ‘‘primarily engaged in leasing 

or other financing transactions’’ in 

§ 67.3 to include only transactions with 

a financing component and to exclude 

special-purpose leasing companies. 

There is no basis for limiting leasefinancing entities only to banks or for 

requiring the financial institution to be 

in business for 10 years. To do so would 

severely limit the funds available for 

lease financing. 

2. One comment to § 67.20(a)(4) of the 

NPRM on the ‘‘majority of the aggregate 

revenues’’ test stated that Congress, in 

the Conference Report, did not intend 

that this test allow up to 49 percent of 

the aggregate revenues to be derived 

from vessel operation or management or 

up to 49 percent of person’s or group’s 

activities to have nothing to do with 

leasing, banking, or similar financing 

transactions, but to have everything to 

do, up to 49 percent, with foreign vessel 

operations and still be allowed under 46 

U.S.C. 12106(e). The comment contends 

that these broad loopholes undermine a 

level playing field and will result in a 

degradation of the U.S. fleet. 

We believe that the Conference Report 

strongly supports the requirement that 

ownership of the vessel be primarily a 

financial investment and not be by a 

person primarily engaged in the direct 

operation of vessels. However, the 

Conference Report did not define the 

words ‘‘primarily engaged’’ and did not 

specify where to draw the line between 

primarily engaged and not primarily 

engaged. These rules implement the 

statute as we believe Congress intended. 

They protect the Jones Act principles 

while allowing foreign owners to qualify 

even if they have a vessel owning and 

operating affiliate. The Conference 

Report indicates that the owner should 

qualify under the law so long as the 

majority of the aggregate revenues of the 

owner, its parent (as defined herein to 

include all parents in the owner’s chain 

of ownership to the ultimate parent) and 

the group are not derived from the 

operation or management of vessels. We 

believe that inclusion of the owner, the 

owner’s parent, and the owner’s group 

in the aggregate revenues test is 

consistent with the law and the 

legislative history. Using the aggregate 

revenue test in this way is one measure, 

although not necessarily the only 

measure, of determining whether the 

owner, the owner’s parent, or the 

owner’s group is primarily engaged in 

vessel operation or management. 

3. One comment on § 67.20(a)(8) of 

the SNPRM on the operation or 

management of commercial foreign-flag 

vessels suggested that routinely 

prepared and published documents or 

reports should serve as satisfactory, 

conclusive proof of the primary 

business of the group. These documents 

for a publicly traded company or group 

might include, without limitation, 

reports filed with the Securities and 

Exchange Commission, routine audit 

reports, or annual reports distributed to 

shareholders. 

We intend to rely primarily on the 

certifications of the applicant because 

the applicant is best able to know 

whether the entire group is primarily 

engaged in the operation and 

management of commercial foreign-flag 

vessels. However, we reserve the right to 

investigate further when circumstances 

warrant. In that regard, we may use all 

available sources of information, 

including publicly available reports 

filed with public bodies such as the 

Securities and Exchange Commission, 

routine audit reports, and reports 

distributed to shareholders. As 

discussed in the separate NPRM (See

the ‘‘Related Rulemaking’’ section of 

this preamble.), we may also require 

that an independent auditor having 

expertise in marine financing and 

operations certify that the applicant’s 

operations conform to the requirements 

of the applicable regulations. 

Section 67.147, Application Procedure: 

Coastwise Endorsement for a Vessel 

Under a Demise Charter 

1. One comment to § 67.147(a)(1) 

stated that the owner should not have to 

submit an affidavit because the leasefinancing law does not require it. 

We believe that the use of 

certifications is a cost-effective way for 

the vessel owner to establish that it is 

qualified for a coastwise endorsement 

under the lease-financing provisions. 

While the Director of the National 

Vessel Documentation Center may 

request that the owner submit 

additional documentation supporting 

the certification, for many owners, the 

certification will be all that is required. 

We believe that it is less burdensome to 

provide a certification rather than to 

submit various documents to show that 

the owner is qualified. Also, the owner 

is the person most qualified to 

determine whether the owner and group 

meet the ‘‘primarily engaged in 

operation or management of vessels’’

test. We may obtain information from 

publicly available sources or rely upon 

the advice of an independent auditor as 

explained in the separate NPRM (See

the ‘‘Related Rulemaking’’ section of 

this preamble). 

To the extent this comment is based 

on the argument that the lease-financing 

law is clear on its face and there is no 

place in the implementing regulations 

for considering the Conference Report in 

interpreting the law, we disagree. See

the discussion in the ‘‘General 

Comments’’ section that articulates our 

reasons for considering the Conference 

Report and other sources of 

Congressional intent in order to 

properly implement the law. 

2. Ten comments oppose 

§ 67.147(a)(1)(i) in the NPRM, which 

would require the owner to certify that 

it is a bank, leasing company, or other 

financial entity. It should have 

referenced the owner, the parent of the 

owner, or a subsidiary of a parent of the 

owner, as in 46 U.S.C. 12106(e). 

We agree with these comments to the 

NPRM. Section 67.147(a)(1)(i) in the 

SNPRM was revised accordingly. 

5398 Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 

3. One commenter stated that 

proposed § 67.147(a)(1)(ii) and (a)(1)(iv) 

in the NPRM (§ 67.147(a)(1)(iii), (iv), 

and (vi) in the SNPRM) find no support 

in the language of the statute. 

We disagree. To the extent that this 

comment contends that the language of 

the statute is clear and unambiguous in 

setting forth what we may require in 

implementing regulations, see our 

discussion on this subject in the 

‘‘General Comments’’ section of this 

preamble. We believe that one must 

refer to the Conference Report to 

properly implement this statute. The 

provisions addressed by this comment 

come from the Conference Report and 

reflect Congressional intent. 

4. One comment to the NPRM stated 

that § 67.147(a)(1)(iv) on the aggregate 

revenues test and § 67.147(a)(1)(v) on 

the operation or management of foreignflag vessels both refer to the owner, 

parent, or subsidiary of the parent and 

that this varies from the Conference 

Report.

In § 67.147(a)(1)(v) and (a)(1)(vi) of 

the SNPRM, we changed the ‘‘or’’ to 

‘‘and.’’ In the final rule, we apply the 

aggregate revenues test to each of the 

following taken separately: the owner, 

the parent of the owner, and the owner’s 

group. We agree that the aggregate 

revenue test should be applied only to 

the owner, the owner’s parent, and the 

group of which the owner is a part and 

not to each entity within the group of 

which the owner is a part. Similarly, in 

the final rule, we apply the operation 

and management test to the owner, the 

parent, and to the owner’s group as a 

whole, but not to each entity within the 

group. We believe, based on the 

Conference Report statement to this 

effect, that Congress intended that an 

owner could qualify if one of the 

affiliates of the owner’s group was 

engaged in the operation or management 

of vessels, provided that the aggregate 

revenues of the group as a whole, as 

well as the owner and the owner’s 

parent, were not derived from vessel 

operation or management. 

Assessment 

Due to substantial public interest, this 

rule is classified as a ‘‘significant 

regulatory action’’ under section 3(f) of 

Executive Order 12866, Regulatory 

Planning and Review. The Office of 

Management and Budget has reviewed it 

under that Order. It requires an 

assessment of potential costs and 

benefits under section 6(a)(3) of that 

Order. It is ‘‘significant’’ under the 

regulatory policies and procedures of 

the Department of Homeland Security. 

The Assessment in the docket for the 

SNPRM is unchanged for the final rule. 

There are no mandatory costs 

associated with this rulemaking. Vessel 

owners that choose to take advantage of 

the lease-financing option would incur 

costs imposed by this rule that include 

preparing and submitting the required 

documents. Those costs vary from 

applicant to applicant. 

This rule requires vessel and barge 

owners and charterers opting to take 

advantage of the lease-financing 

provisions in 46 U.S.C. 12106(e) to 

submit certain documents to the Coast 

Guard’s National Vessel Documentation 

Center (NDVC). According to our data, 

87 business entities have applied under 

the lease-financing provisions since the 

passage of the 1996 Act. We estimate 

that the number of entities opting to do 

the same in the future will be about 35 

annually. We estimate that it would take 

about 12 hours to prepare the affidavits 

and make the submissions. Using an 

average estimated rate of $167 per hour, 

the total cost per application is $2004. 

The annual cost is expected to be 

$70,140 (§ 2004 × 35). The 10-year 

present value, 2003–2012, is 

approximately $540,000. 

Congress intended to broaden the 

sources of capital for owners of U.S. 

vessels engaged in the coastwise trade 

by creating new lease-financing options. 

This rule removes the technical 

impediments to using various 

techniques for financing vessels 

operating in the domestic trade by 

increasing the sources of capital 

available to vessel owners. 

Small Entities 

Under the Regulatory Flexibility Act 

(5 U.S.C. 601–612), we have considered 

whether this rule would have a 

significant economic impact on a 

substantial number of small entities. 

The term ‘‘small entities’’ comprises 

small businesses, not-for-profit 

organizations that are independently 

owned and operated and are not 

dominant in their fields, and 

governmental jurisdictions with 

populations of less than 50,000. 

This rule will affect vessel owners 

and charterers who choose to take 

advantage of the lease-financing option. 

This option reduces the burden on 

owners by increasing vessel-financing 

options that would be acceptable for 

vessel documentation, enabling vessel 

owners to obtain the cheapest financing 

available. Companies tend to choose 

lease financing only if they expect its 

costs to be offset by increased profits. 

Under this rule, to take advantage of the 

lease-financing option, both the vessel 

owner and vessel charterer must submit 

affidavits and a copy of their charter or 

sub-charter to the NVDC. The estimated 

cost of preparing and submitting this 

material will be minimal. 

Therefore, the Coast Guard certifies 

under 5 U.S.C. 605(b) that this final rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 

Assistance for Small Entities 

Under section 213(a) of the Small 

Business Regulatory Enforcement 

Fairness Act of 1996 (Pub. L. 104–121), 

we offered to assist small entities in 

understanding the rule so that they can 

better evaluate its effects on them and 

participate in the rulemaking. The 

NPRM and SNPRM provided small 

businesses, organizations, and 

governmental jurisdictions with a Coast 

Guard contact to handle questions 

concerning this rule’s provisions. 

Small businesses may send comments 

on the actions of Federal employees 

who enforce, or otherwise determine 

compliance with, Federal regulations to 

the Small Business and Agriculture 

Regulatory Enforcement Ombudsman 

and the Regional Small Business 

Regulatory Fairness Boards. The 

Ombudsman evaluates these actions 

annually and rates each agency’s 

responsiveness to small business. If you 

wish to comment on actions by 

employees of the Coast Guard, call 1–

888–REG–FAIR (1–888–734–3247).

Collection of Information 

This rule calls for a new collection of 

information under the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501–

3520). Sections 67.147 and 67.179 

amend the collection-of-information 

requirements for vessel owners and 

charterers applying to engage in the 

coastwise trade under the leasefinancing provisions of 46 U.S.C. 

12106(e). The Coast Guard needs this 

information to determine whether an 

entity meets the statutory requirements. 

These provisions will require modifying 

the burden in the previously approved 

collection under OMB Control Number 

2115–0110 (now 1625–0027). No 

comments were received relating to the 

collection-of-information requirements 

as presented in the NPRM or SNPRM. 

As required by 44 U.S.C. 3507(d), we 

submitted a copy of this rule to the 

Office of Management and Budget 

(OMB) for its review of the collection of 

information. The section numbers are 

§§ 67.147 and 67.179, and the 

corresponding approval number from 

OMB is OMB Control Number 1625–

0027 (formerly 2115–0110). OMB has 

not yet completed its review of, or 

approved the changes to, this collection. 

Therefore, §§ 67.147 and 67.179 in this 

rule will not become effective until 

Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 5399

approved by OMB. We will publish a 

document in the Federal Register

announcing OMB’s approval and 

effective date of those sections. 

You are not required to respond to a 

collection of information unless it 

displays a currently valid OMB control 

number. 

Federalism 

A rule has implications for federalism 

under Executive Order 13132, 

Federalism, if it has a substantial direct 

effect on State or local governments and 

would either preempt State law or 

impose a substantial direct cost of 

compliance on them. We have analyzed 

this rule under that Order and have 

determined that it does not have 

implications for federalism. 

Unfunded Mandates Reform Act 

The Unfunded Mandates Reform Act 

of 1995 (2 U.S.C. 1531–1538) requires 

Federal agencies to assess the effects of 

their discretionary regulatory actions. In 

particular, the Act addresses actions 

that may result in the expenditure by a 

State, local, or tribal government, in the 

aggregate, or by the private sector of 

$100,000,000 or more in any one year. 

Though this rule will not result in such 

an expenditure, we do discuss the 

effects of this rule elsewhere in this 

preamble. 

Taking of Private Property 

This rule will not effect a taking of 

private property or otherwise have 

taking implications under Executive 

Order 12630, Governmental Actions and 

Interference with Constitutionally 

Protected Property Rights. 

Several commenters contend that the 

proposals in the NPRM and the SNPRM 

would accomplish a taking of private 

property without just compensation in 

violation of the 5th amendment to the 

U.S. Constitution and international law. 

They argue that they have invested 

millions of dollars in lease-financing 

transactions in reliance on the Coast 

Guard’s assurances that their 

transactions would be approved by the 

Coast Guard. Although the comments do 

not set forth the specifics of their claims 

of takings, the comments do appear to 

assert that the Coast Guard created a 

property right in the transactions 

engaged in by the commenters when it 

approved their applications and that the 

proposals in the NPRM and SNPRM, to 

the extent that they differ materially 

from past policies, would diminish the 

value of that property right, thus 

resulting in a compensable taking. 

We disagree that the regulations 

accomplish such a taking. The courts 

have recognized two types of takings in 

the context of regulatory actions by 

Federal agencies. The first is a 

regulatory taking, and the second is a 

categorical taking. The rules with 

respect to each type were recently set 

forth in Maritrans Inc. v. United States

(No. 96–483 C, Dec. 21, 2001; 51 Fed. 

Cl. 277; 2001 U.S. Claims Lexis 263; 53 

ERC (BNA) 1989; 2002 AMC 419). 

Briefly, the court stated, with respect to 

both types of takings, that a mere 

diminution, however serious, is 

insufficient to demonstrate a taking 

(Slip op. at p. 5). According to the U.S. 

Supreme Court, legislation readjusting 

rights and burdens is not unlawful 

solely because it upsets settled 

expectations (Usery v. Turner Elkhorn 

Mining Co., 428 U.S. 1, 15–16 (1976)). 

The commenters have not asserted that 

the vessels they are operating under 

lease-financing coastwise endorsements 

will become valueless as a result of this 

rulemaking. They have asserted that 

they may, in the future, have to 

restructure or divest their investment or 

adjust their expectations as to how 

much longer and under what 

circumstances they can continue to so 

operate them. However, these claims are 

insufficient to establish a compensable 

taking under the Constitution or under 

international law.

The commenters further contend they 

have a compensable claim under the 

Restatement of the Foreign Relations 

Law of the United States, section 712. 

These claims are governed by section 

713(2) of the Restatement. Section 

713(2)(a) allows parties to pursue 

remedies provided by international 

agreement. Here, commenters suggest 

that the Charter of Economic Rights and 

Duties of States applies. Yet, the Charter 

only governs state action nationalizing, 

expropriating, or transferring private 

property. The Charter does not apply 

here because the regulations will not 

accomplish any of these actions. Other 

subsections of section 713 of the 

Restatement are equally inapplicable on 

their face. 

Civil Justice Reform 

This rule meets applicable standards 

in sections 3(a) and 3(b)(2) of Executive 

Order 12988, Civil Justice Reform, to 

minimize litigation, eliminate 

ambiguity, and reduce burden. 

Protection of Children 

We have analyzed this rule under 

Executive Order 13045, Protection of 

Children from Environmental Health 

Risks and Safety Risks. This rule is not 

an economically significant rule and 

does not create an environmental risk to 

health or risk to safety that may 

disproportionately affect children. 

Indian Tribal Governments 

This rule does not have tribal 

implications under Executive Order 

13175, Consultation and Coordination 

with Indian Tribal Governments, 

because it does not have a substantial 

direct effect on one or more Indian 

tribes, on the relationship between the 

Federal Government and Indian tribes, 

or on the distribution of power and 

responsibilities between the Federal 

Government and Indian tribes. 

Energy Effects 

We have analyzed this rule under 

Executive Order 13211, Actions 

Concerning Regulations That 

Significantly Affect Energy Supply, 

Distribution, or Use. We have 

determined that it is not a ‘‘significant 

energy action’’ under that order, 

although it is considered a ‘‘significant 

regulatory action’’ under Executive 

Order 12866. We expect that this 

rulemaking will not have a significant 

adverse effect on the supply, 

distribution, or use of energy, including 

a shortfall in supply, price increases, 

and increased use of foreign supplies. 

The Administrator of the Office of 

Information and Regulatory Affairs has 

not designated this rulemaking as a 

significant energy action. Therefore, it 

does not require a Statement of Energy 

Effects under Executive Order 13211. 

Environment 

We have considered the 

environmental impact of this rule and 

concluded that, under figure 2–1, 

paragraph (34)(d), of Commandant 

Instruction M16475.lD, this rule is 

categorically excluded from further 

environmental documentation. This 

rulemaking is administrative in nature 

and identifies the information necessary 

to apply for a coastwise endorsement 

under 46 U.S.C. 12106(e). A 

‘‘Categorical Exclusion Determination’’

is available in the docket where 

indicated under ADDRESSES.

List of Subjects in 46 CFR Part 67 

Reporting and recordkeeping 

requirements, Vessels.

■ For the reasons discussed in the 

preamble, the Coast Guard amends 46 

CFR part 67 as follows:

PART 67—DOCUMENTATION OF 

VESSELS

■ 1. The authority citation for part 67 is 

revised to read as follows:

Authority: 14 U.S.C. 664; 31 U.S.C. 9701; 

42 U.S.C. 9118; 46 U.S.C. 2103, 2107, 2110, 

12106, 12120, 12122; 46 U.S.C. app. 876; 

Department of Homeland Security Delegation 

No. 0170.1.

5400 Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 

■ 2. In § 67.3, revise the definition for the 

term ‘‘person’’; and add, in alphabetical 

order, definitions for the terms 

‘‘affiliate,’’ ‘‘group,’’ ‘‘operation or 

management of vessels,’’ ‘‘parent,’’

‘‘primarily engaged in leasing or other 

financing transactions,’’ ‘‘sub-charter,’’

and ‘‘subsidiary’’ to read as follows:

§ 67.3 Definitions.

* * * * *

Affiliate means a person that is less 

than 50 percent owned or controlled by 

another person.

* * * * *

Group means the person that owns a 

vessel, the parent of that person, and all 

subsidiaries and affiliates of the parent 

of that person.

* * * * *

Operation or management of vessels

means all activities related to the use of 

vessels to provide services. These 

activities include ship agency; ship 

brokerage; activities performed by a 

vessel operator or demise charterer in 

exercising direction and control of a 

vessel, such as crewing, victualing, 

storing, and maintaining the vessel and 

ensuring its safe navigation; and 

activities associated with controlling the 

use and employment of the vessel under 

a time charter or other use agreement. It 

does not include activities directly 

associated with making financial 

investments in vessels or the receipt of 

earnings derived from these 

investments.

Parent means any person that directly 

or indirectly owns or controls at least 50 

percent of another person. If an owner’s 

parent is directly or indirectly 

controlled at least 50 percent by another 

person, that person is also a parent of 

the owner. Therefore, an owner may 

have multiple parents. 

Person means an individual; 

corporation; partnership; limited 

liability partnership; limited liability 

company; association; joint venture; 

trust arrangement; and the government 

of the United States, a State, or a 

political subdivision of the United 

States or a State; and includes a trustee, 

beneficiary, receiver, or similar 

representative of any of them. 

Primarily engaged in leasing or other 

financing transactions means lease 

financing, in which more than 50 

percent of the aggregate revenue of a 

person is derived from banking, 

investing, lease financing, or other 

similar transactions.

* * * * *

Sub-charter means all types of 

charters or other contracts for the use of 

a vessel that are subordinate to a 

charter. The term includes, but is not 

limited to, a demise charter, a time 

charter, a voyage charter, a space 

charter, and a contract of affreightment. 

Subsidiary means a person at least 50 

percent of which is directly or indirectly 

owned or controlled by another person.

* * * * *

■ 3. Add § 67.20 to read as follows:

§ 67.20 Coastwise endorsement for a 

vessel under a demise charter. 

(a) Except as under paragraphs (b) 

through (e) of this section, to be eligible 

for a coastwise endorsement under 46 

U.S.C. 12106(e) and to operate in 

coastwise trade under 46 U.S.C. 

12106(e) and 12110(b), a vessel under a 

demise charter must meet the following: 

(1) The vessel is eligible for 

documentation under 46 U.S.C. 12102. 

(2) The vessel is eligible for a 

coastwise endorsement under § 67.19(c), 

has not lost coastwise eligibility under 

§ 67.19(d), and was financed with lease 

financing. 

(3) The person that owns the vessel, 

the parent of that person, or a subsidiary 

of the parent of that person is primarily 

engaged in leasing or other financing 

transactions. 

(4) The person that owns the vessel is 

organized under the laws of the United 

States or of a State. 

(5) None of the following is primarily 

engaged in the direct operation or 

management of vessels: 

(i) The person that owns the vessel. 

(ii) The parent of the person that owns 

the vessel. 

(iii) The group of which the person 

that owns the vessel is a member. 

(6) The ownership of the vessel is 

primarily a financial investment 

without the ability and intent to directly 

or indirectly control the vessel’s 

operations by a person not primarily 

engaged in the direct operation or 

management of vessels. 

(7) The majority of the aggregate 

revenues of each of the following is not 

derived from the operation or 

management of vessels: 

(i) The person that owns the vessel. 

(ii) The parent of the person that owns 

the vessel. 

(iii) The group of which the person 

that owns the vessel is a member. 

(8) None of the following is primarily 

engaged in the operation or management 

of commercial, foreign-flag vessels used 

for the carriage of cargo for parties 

unrelated to the vessel’s owner or 

charterer: 

(i) The person that owns the vessel. 

(ii) The parent of the person that owns 

the vessel. 

(iii) The group of which the person 

that owns the vessel is a member. 

(9) The person that owns the vessel 

has transferred to a qualified U.S. 

citizen under 46 U.S.C. app. 802 full 

possession, control, and command of 

the U.S.-built vessel through a demise 

charter in which the demise charterer is 

considered the owner pro hac vice

during the term of the charter. 

(10) The charterer must certify to the 

Director, National Vessel 

Documentation Center, that the 

charterer is a citizen of the United States 

for engaging in the coastwise trade 

under 46 U.S.C. app. 802. 

(11) The demise charter is for a period 

of at least 3 years, unless a shorter 

period is authorized by the Director, 

National Vessel Documentation Center, 

under circumstances such as—

(i) When the vessel’s remaining life 

would not support a charter of 3 years; 

or 

(ii) To preserve the use or possession 

of the vessel. 

(b) A vessel under a demise charter 

that was eligible for, and received, a 

document with a coastwise 

endorsement under § 67.19 and 46 

U.S.C. 12106(e) before February 4, 2004, 

may continue to operate under that 

endorsement on and after that date and 

may renew the document and 

endorsement if the certificate of 

documentation is not subject to—

(1) Exchange under § 67.167(b)(1) 

through (b)(3); 

(2) Deletion under § 67.171(a)(1) 

through (a)(6); or 

(3) Cancellation under § 67.173. 

(c) A vessel under a demise charter 

that was constructed under a building 

contract that was entered into before 

February 4, 2004, in reliance on a letter 

ruling from the Coast Guard issued 

before February 4, 2004, is eligible for 

documentation with a coastwise 

endorsement under § 67.19 and 46 

U.S.C. 12106(e). The vessel may 

continue to operate under that 

endorsement and may renew the 

document and endorsement if the 

certificate of documentation is not 

subject to—

(1) Exchange under § 67.167(b)(1) 

through (b)(3); 

(2) Deletion under § 67.171(a)(1) 

through (a)(6); or 

(3) Cancellation under § 67.173. 

(d) A barge deemed eligible under 46 

U.S.C. 12106(e) and 12110(b) to operate 

in coastwise trade before February 4, 

2004, may continue to operate in that 

trade after that date unless—

(1) The ownership of the barge 

changes in whole or in part;

(2) The general partners of a 

partnership owning the barge change by 

addition, deletion, or substitution; 

(3) The State of incorporation of any 

corporate owner of the barge changes; 

(4) The barge is placed under foreign 

flag; 

Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 5401

(5) Any owner of the barge ceases to 

be a citizen within the meaning of 

subpart C of this part; or 

(6) The barge ceases to be capable of 

transportation by water. 

(e) A barge under a demise charter 

that was constructed under a building 

contract that was entered into before 

February 4, 2004, in reliance on a letter 

ruling from the Coast Guard issued 

before February 4, 2004, is eligible to 

operate in coastwise trade under 46 

U.S.C. 12106(e) and 12110(b). The barge 

may continue to operate in coastwise 

trade unless—

(1) The ownership of the barge 

changes in whole or in part; 

(2) The general partners of a 

partnership owning the barge change by 

addition, deletion, or substitution; 

(3) The State of incorporation of any 

corporate owner of the barge changes; 

(4) The barge is placed under foreign 

flag; 

(5) Any owner of the barge ceases to 

be a citizen within the meaning of 

subpart C of this part; or 

(6) The barge ceases to be capable of 

transportation by water. 

(f) To apply for a coastwise 

endorsement for a vessel under a demise 

charter, see § 67.147 and, for a barge, see 

§ 67.179.

§ 67.35 [Amended]

■ 4. In § 67.35, at the end of paragraph 

(c), add the words ‘‘or the vessel qualifies 

under § 67.20’’.

■ 5. In § 67.36, revise paragraphs (c)(1) 

and (c)(2) to read as follows:

§ 67.36 Trust.

* * * * *

(c) * * * 

(1) It meets the requirements of 

paragraph (a) of this section and at least 

75 percent of the equity interest in the 

trust is owned by citizens; or 

(2) It meets the requirements of 

§ 67.20.

■ 6. In § 67.39, revise paragraphs (c)(1) 

and (c)(2) to read as follows:

§ 67.39 Corporation.

* * * * *

(c) * * * 

(1) It meets the requirements of 

paragraph (a) of this section and at least 

75 percent of the stock interest in the 

corporation is owned by citizens; or 

(2) It meets the requirements of 

§ 67.20.

* * * * *

■ 7. Add § 67.147 to read as follows:

§ 67.147 Application procedure: Coastwise 

endorsement for a vessel under a demise 

charter. 

(a) In addition to the items under 

§ 67.141, the person that owns the 

vessel (other than a barge under 

§ 67.179) and that seeks a coastwise 

endorsement under § 67.20 must submit 

the following to the National Vessel 

Documentation Center: 

(1) A certification in the form of an 

affidavit and, if requested by the 

Director, National Vessel 

Documentation Center, supporting 

documentation establishing the 

following facts with respect to the 

transaction from an individual who is 

authorized to provide certification on 

behalf of the person that owns the vessel 

and who is an officer in a corporation, 

a partner in a partnership, a member of 

the board of managers in a limited 

liability company, or their equivalent. 

The certificate must certify the 

following: 

(i) That the person that owns the 

vessel, the parent of that person, or a 

subsidiary of a parent of that person is 

primarily engaged in leasing or other 

financing transactions. 

(ii) That the person that owns the 

vessel is organized under the laws of the 

United States or a State. 

(iii) That none of the following is 

primarily engaged in the direct 

operation or management of vessels: 

(A) The person that owns the vessel. 

(B) The parent of the person that owns 

the vessel. 

(C) The group of which the person 

that owns the vessel is a member. 

(iv) That ownership of the vessel is 

primarily a financial investment 

without the ability and intent to directly 

or indirectly control the vessel’s 

operations by a person not primarily 

engaged in the direct operation or 

management of vessels. 

(v) That the majority of the aggregate 

revenues of each of the following is not 

derived from the operation or 

management of vessels: 

(A) The person that owns the vessel. 

(B) The parent of the person that owns 

the vessel. 

(C) The group of which the person 

that owns the vessel is a member. 

(vi) That none of the following is 

primarily engaged in the operation or 

management of commercial, foreign-flag 

vessels used for the carriage of cargo for 

parties unrelated to the vessel’s owner 

or charterer:

(A) The person that owns the vessel. 

(B) The parent of the person that owns 

the vessel. 

(C) The group of which the person 

that owns the vessel is a member. 

(vii) That the person that owns the 

vessel has transferred to a qualified 

United States citizen under 46 U.S.C. 

app. 802 full possession, control, and 

command of the U.S.-built vessel 

through a demise charter in which the 

demise charterer is considered the 

owner pro hac vice during the term of 

the charter. 

(viii) That the vessel is financed with 

lease financing. 

(2) A copy of the charter, which must 

provide that the charterer is deemed to 

be the owner pro hac vice for the term 

of the charter. 

(b) The charterer must submit the 

following to the National Vessel 

Documentation Center: 

(1) A certificate certifying that the 

charterer is a citizen of the United States 

for the purpose of engaging in the 

coastwise trade under 46 U.S.C. app. 

802. 

(2) Detailed citizenship information in 

the format of form CG–1258, 

Application for Documentation, section 

G, citizenship. The citizenship 

information may be attached to the form 

CG–1258 that is submitted under 

§ 67.141 and must be signed by, or on 

behalf of, the charterer. 

(c) Whenever a charter under 

paragraph (a) of this section is amended, 

the vessel owner must file a copy of the 

amendment with the Director, National 

Vessel Documentation Center, within 10 

days after the effective date of the 

amendment. 

(d) Whenever the charterer of a vessel 

under paragraph (a) of this section 

enters into a sub-charter with another 

person for the use of the vessel—

(1) The charterer must file a copy of 

the sub-charter and amendments to the 

sub-charter with the Director, National 

Vessel Documentation Center, within 10 

days after the effective date of the subcharter if requested to do so by the 

Director; and 

(2) If the sub-charter is a demise 

charter, the sub-charterer must provide 

detailed citizenship information in the 

format of form CG–1258, Application for 

Documentation, section G, citizenship. 

(e) A person that submits a false 

certification under this section is subject 

to penalty under 46 U.S.C. 12122 and 18 

U.S.C. 1001.

■ 8. In § 67.167, in paragraph (c)(8), 

remove the last ‘‘or’’; in paragraph (c)(9), 

remove the period and add, in its place, 

a semicolon; and add paragraphs (c)(10) 

and (c)(11) to read as follows:

§ 67.167 Requirement for exchange of 

Certificate of Documentation.

* * * * *

(c) * * * 

(10) For a vessel with a coastwise 

endorsement under 46 U.S.C. 12106(e), 

except for a vessel with a coastwise 

endorsement under 46 U.S.C. 12106(e) 

that was in effect before February 4, 

2004—

5402 Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / Rules and Regulations 

(i) The demise charter expires or is 

transferred to another charterer; 

(ii) The citizenship of the charterer or 

sub-charterer changes to the extent that 

they are no longer qualified for a 

coastwise endorsement; 

(iii) Neither the person that owns the 

vessel, nor the parent of that person, nor 

any subsidiary of the parent of that 

person is primarily engaged in leasing 

or other financing transactions; 

(iv) The majority of the aggregate 

revenues of at least one of the following 

is derived from the operation or 

management of vessels: 

(A) The person that owns the vessel. 

(B) The parent of the person that owns 

the vessel. 

(C) The group of which the person 

that owns the vessel is a member; or 

(v) At least one of the following is 

primarily engaged in the operation or 

management of commercial, foreign-flag 

vessels used for the carriage of cargo for 

parties unrelated to the vessel’s owner 

or charterer: 

(A) The person that owns the vessel. 

(B) The parent of the person that owns 

the vessel. 

(C) The group of which the person 

that owns the vessel is a member; or 

(11) For a vessel with a coastwise 

endorsement under 46 U.S.C. 12106(e) 

that was in effect before February 4, 

2004—

(i) The demise charter expires or is 

transferred to another charterer; 

(ii) The citizenship of the charterer or 

sub-charterer changes to the extent that 

they are no longer qualified for a 

coastwise endorsement; or 

(iii) Neither the person that owns the 

vessel, nor the parent of that person, nor 

a subsidiary of the parent of that person 

is primarily engaged in leasing or other 

financing transactions.

* * * * *

■ 9. Add § 67.179 to subpart M to read 

as follows:

§ 67.179 Application procedure: Coastwise 

operation of a barge under a demise 

charter. 

(a) The person that owns a barge 

qualified to engage in coastwise trade 

under the lease-financing provisions of 

46 U.S.C. 12106(e) must submit the 

following to the National Vessel 

Documentation Center: 

(1) A certification, in the form of an 

affidavit and, if requested by the 

Director, National Vessel 

Documentation Center, supporting 

documentation establishing the 

following facts with respect to the 

transaction from an individual who is 

authorized to provide certification on 

behalf of the person that owns the barge 

and who is an officer in a corporation, 

a partner in a partnership, a member of 

the board of managers in a limited 

liability company, or their equivalent. 

The certificate must certify the 

following: 

(i) That the person that owns the 

barge, the parent of that person, or a 

subsidiary of the parent of that person 

is primarily engaged in leasing or other 

financing transactions. 

(ii) That the person that owns the 

barge is organized under the laws of the 

United States or a State.

(iii) That none of the following is 

primarily engaged in the direct 

operation or management of vessels: 

(A) The person that owns the barge. 

(B) The parent of the person that owns 

the barge. 

(C) The group of which the person 

that owns the barge is a member. 

(iv) That ownership of the barge is 

primarily a financial investment 

without the ability and intent to directly 

or indirectly control the barge’s 

operations by a person not primarily 

engaged in the direct operation or 

management of the barge. 

(v) That the majority of the aggregate 

revenues of each of the following is not 

derived from the operation or 

management of vessels: 

(A) The person that owns the barge. 

(B) The parent of the person that owns 

the barge. 

(C) The group of which the person 

that owns the barge is a member. 

(vi) That none of the following is 

primarily engaged in the operation or 

management of commercial, foreign-flag 

vessels used for the carriage of cargo for 

parties unrelated to the vessel’s owner 

or charterer: 

(A) The person that owns the barge. 

(B) The parent of the person that owns 

the barge. 

(C) The group of which the person 

that owns the barge is a member. 

(vii) That the person that owns the 

barge has transferred to a qualified 

United States citizen under 46 U.S.C. 

app. 802 full possession, control, and 

command of the U.S.-built barge 

through a demise charter in which the 

demise charterer is considered the 

owner pro hac vice for the term of the 

charter. 

(viii) That the barge is qualified to 

engage in the coastwise trade and that 

it is owned by a person eligible to own 

vessels documented under 46 U.S.C. 

12102(e). 

(ix) That the barge is financed with 

lease financing. 

(2) A copy of the charter, which must 

provide that the charterer is deemed to 

be the owner pro hac vice for the term 

of the charter. 

(b) The charterer must submit the 

following to the National Vessel 

Documentation Center: 

(1) A certificate certifying that the 

charterer is a citizen of the United States 

for engaging in the coastwise trade 

under 46 U.S.C. app. 802. 

(2) Detailed citizenship information in 

the format of form CG–1258, 

Application for Documentation, section 

G, citizenship. The citizenship 

information must be signed by, or on 

behalf of, the charterer. 

(c) Whenever a charter under 

paragraph (a) of this section is amended, 

the barge owner must file a copy of the 

amendment with the Director, National 

Vessel Documentation Center, within 10 

days after the effective date of the 

amendment. 

(d) Whenever the charterer of a barge 

under paragraph (a) of this section 

enters into a sub-charter with another 

person for the use of the barge—

(1) The charterer must file a copy of 

the sub-charter and amendments to the 

sub-charter with the Director, National 

Vessel Documentation Center, within 10 

days after the effective date of the subcharter if requested to do so by the 

Director; and 

(2) If the sub-charter is a demise 

charter, the sub-charterer must provide 

detailed citizenship information in the 

format of form CG–1258, Application for 

Documentation, section G, citizenship. 

(e) A person that submits a false 

certification under this section is subject 

to penalty under 46 U.S.C. 12122 and 18 

U.S.C. 1001.

Dated: January 29, 2004. 

Thomas H. Collins, 

Admiral, Coast Guard, Commandant.

[FR Doc. 04–2230 Filed 1–30–04; 11:34 am] 

BILLING CODE 4910–15–P