[Federal Register Volume 69, Number 23 (Wednesday, February 4, 2004)]
[Rules and Regulations]
[Pages 5390-5402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2230]



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Part III





Department of Homeland Security





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Coast Guard



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46 CFR Part 67





Department of Transportation





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Maritime Administration



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46 CFR Part 221



Vessel Documentation: Lease Financing for Vessels Engaged in the 
Coastwise Trade; Final Rule and Proposed Rule

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

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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.

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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 
Sec.Sec. 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 charter-back 
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 
Sec. 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: Lease-Financing 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

[[Page 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 Sec. 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 7\1/2\ 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 Sec. 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 Sec. 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 Sec.Sec. 
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 Sec. 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 Sec.Sec. 67.20, 67.147, 67.167, and 67.179 is now defined in 
Sec. 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 Sec. 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 Sec. 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 lease-financing 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

[[Page 5392]]

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 intra-group, book-to-book 
transfer without any financing involved will not suffice.
    6. A definition of the word ``sub-charter'' is added to Sec. 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 Sec.Sec. 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 Sec. 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 Sec.Sec. 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 Sec.Sec. 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 Sec. 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 
lease-financing 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 Sec. 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 Sec.Sec. 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 Sec. 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

[[Page 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 Sec.Sec. 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 sub-charters be similarly filed. However, we added that 
they both need to be filed only when requested to do so by the 
Director.
    16. In Sec.Sec. 67.147(d) and 67.179(d), the word ``demise'' is 
removed and the term ``sub-charter'' (as newly defined in Sec. 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 Sec.Sec. 67.147(d)(2) 
and 67.179(d)(2) with the above changes.
    17. In Sec.Sec. 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 Sec. 
67.20(a)(4) (eligibility for endorsement) is also found in Sec.Sec. 
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 lease-
financing 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 lease-financing 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 lease-financing 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

[[Page 5394]]

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 
lease-financing 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 
lease-financing 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 
lease-financing 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 Sec. 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 Sec. 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

[[Page 5395]]

of the Jones Act than was necessary to effectuate the purposes of the 
lease-financing 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 lease-financing 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, 
counter-productive, 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 self-financing 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 non-citizen 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 non-citizen 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 Sec. 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 (Sec. 67.20(b)). (a) Several comments 
objected to any grandfather provision. They argue that, once the 
rulemaking is final, all lease-financing 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

[[Page 5396]]

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 
Sec. 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 lease-
financing 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 Sec. 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 Sec. 67.3, which is 
defined to include all types of charters. See the new use of the term 
``sub-charter'' as it appears in Sec.Sec. 67.147(d) and 67.179(d) in 
this final rule.
    3. Several comments objected to the definition of ``primarily 
engaged in

[[Page 5397]]

leasing or other financing activities'' in Sec. 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 Sec. 67.3 to include only transactions with 
a financing component and to exclude special-purpose leasing companies. 
There is no basis for limiting lease-financing 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 Sec. 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 Sec. 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 Sec. 67.147(a)(1) stated that the owner should 
not have to submit an affidavit because the lease-financing 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 Sec. 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.

[[Page 5398]]

    3. One commenter stated that proposed Sec. 67.147(a)(1)(ii) and 
(a)(1)(iv) in the NPRM (Sec. 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 Sec. 67.147(a)(1)(iv) on the 
aggregate revenues test and Sec. 67.147(a)(1)(v) on the operation or 
management of foreign-flag vessels both refer to the owner, parent, or 
subsidiary of the parent and that this varies from the Conference 
Report.
    In Sec. 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 (Sec. 2004 x 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 lease-financing 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 Sec.Sec. 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, 
Sec.Sec. 67.147 and 67.179 in this rule will not become effective until

[[Page 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.

0
For the reasons discussed in the preamble, the Coast Guard amends 46 
CFR part 67 as follows:

PART 67--DOCUMENTATION OF VESSELS

0
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.

[[Page 5400]]


0
2. In Sec. 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:


Sec. 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.
* * * * *

0
3. Add Sec. 67.20 to read as follows:


Sec. 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 Sec. 
67.19(c), has not lost coastwise eligibility under Sec. 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 Sec. 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 Sec. 67.167(b)(1) through (b)(3);
    (2) Deletion under Sec. 67.171(a)(1) through (a)(6); or
    (3) Cancellation under Sec. 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 Sec. 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 Sec. 67.167(b)(1) through (b)(3);
    (2) Deletion under Sec. 67.171(a)(1) through (a)(6); or
    (3) Cancellation under Sec. 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;

[[Page 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 Sec. 67.147 and, for a barge, see Sec. 67.179.


Sec. 67.35  [Amended]

0
4. In Sec. 67.35, at the end of paragraph (c), add the words ``or the 
vessel qualifies under Sec. 67.20''.

0
5. In Sec. 67.36, revise paragraphs (c)(1) and (c)(2) to read as 
follows:


Sec. 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 Sec. 67.20.

0
6. In Sec. 67.39, revise paragraphs (c)(1) and (c)(2) to read as 
follows:


Sec. 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 Sec. 67.20.
* * * * *

0
7. Add Sec. 67.147 to read as follows:


Sec. 67.147  Application procedure: Coastwise endorsement for a vessel 
under a demise charter.

    (a) In addition to the items under Sec. 67.141, the person that 
owns the vessel (other than a barge under Sec. 67.179) and that seeks a 
coastwise endorsement under Sec. 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 
Sec. 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 
sub-charter 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.

0
8. In Sec. 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:


Sec. 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--

[[Page 5402]]

    (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.
* * * * *

0
9. Add Sec. 67.179 to subpart M to read as follows:


Sec. 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 
sub-charter 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