Name
Course Number
Subject
Lecturers
Class Group
Date Submission
: Cwinya-ai, Robert Ongom
: ADMR-688-01
: Vessel Documentation & Financing (Paper)
: Prof. William Porteous (late), Mr. Neal Kling.
: LL.M. Admiralty Law
: Tuesday, April 2nd, 2006.
Topic:
The Requirements to Document a Vessel under the Laws of the United States.
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The Requirements to Document a Vessel under the Laws of the United States1
This essay will address the following Sub-topics:
(a)The requirements related to the vessel itself.
(b)The requirements for the owner of the vessel,
(c) The requirements based on the vessel’s endorsement(s)
(d) The impact of the lease financing statute on vessels with a coastwise endorsement and
(e) The impact of the American Fisheries act of 1998 (Pub.L.105-277. Division C., Title
II (Oct.21 1998), 112 Stat.2681-616) and the related 2001 amendments (Pub.L.107-20,
Title II, sec.2202 (July 24, 2001), 115 Stat.168)) on vessels with a fisheries endorsement.
Before we begin this paper, will start with key definitions that are necessary for the
understanding of this exercise.
Vessel documentation: Introduction.
Vessel documentation is a national form of registration. It is one of the oldest functions of
government dating back to the 11th Act of the First Congress. Documentation provides
conclusive evidence of nationality for international purposes, provides for unhindered
commerce between the states, and admits vessels to certain restricted trades such as
coastwise trade and fisheries. “Coastwise” trade, also sometimes known as coasting trade
means commerce (involving vessels) among different coastal ports or navigable rivers of
1
[1982]56 Tul.L.Rev. 1171. “Financing of United States flag vessels”: see ‘Vessel Documentation Prerequisites and Formalities’ at pg 1182.
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the United States, in contrast to commerce carried on between nations2. Since 1920 vessel
financing has been enhanced through the availability of preferred mortgages on
documented vessels3.
Until July 01, 1982, the vessel documented under United States law is issued any one of
three types of documents: A certificate of registry, a certificate of enrollment, or a license.
Essentially, registry and enrollment identify the vessel as documented under the laws of
the United States4. In general, registry is for the purpose of declaring the nationality of
the vessel engaged in foreign trade; enrollment evidences the national character of a
vessel engaged in the coasting trade5. Registry is required for engagement in the foreign
trade6. A United States flag vessel which proceeds on a foreign voyage under enrollment
instead of registry is liable to seizure and forfeiture7. Generally, a vessel of over twenty
net tons employed in the domestic or “coasting” trade shall be enrolled and licensed, but
a registered vessel may be authorized to engage in the coastwise trade as well8.
Requirements related to the vessel itself
Application form:
under the new Act, an application for the certificate of documentation must contain the
name, home port, and description of the vessel, and must identify the owner9. The
2
Bryan A. Garner (2004) 8th Edn, Black’s Law Dictionary Thompson West. See at 273.
http://www.uscg.mil/hq/g-m/vdoc/faq.htm#01
4
For vessels under twenty tons, a license also serves this purpose.
5
RC Craig, Ltd v. Ships of the Sea, Inc, 401 F.Supp.1051, 1056 (SD Ga. 1975).
6
46 CFR sec. 67.07-11 (1981).
7
46 USC sec.273 (1976).
8
46 CFR sec.67.01-13 (1981).
9
46 USCA sec.65a(c) (West Supp. 1982).
3
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application is to be filed at the home port selected by the owner, or at the port of
documentation nearest the vessel’s location10.
This is said to be a new Act. In its proposed regulations to implement the new Act, the
Coast Guard has consolidated many miscellaneous filing requirements into a single
form11. Using that form, the vessel owner may apply to the Coast Guard for an official
number, and may designate a home port and name for the vessel12. The regulations set out
rules by which various entities may determine their residence for homeport purposes. It
provides that form CG-1258 “serves as a prima facie evidence of the propriety of the
designation” of home port13 and further provides that vessel validity documented before
the effective date of the new regulation need not designate a new home port unless the
vessel ownership changes or the owner changes the home port. The vessel owner should
use the same form to record a whole or partial change in the ownership of the vessel, or
to record a change in the home port or name of the vessel.
Admeasurement
Admeasurement is the measurement of a vessel’s tonnage. The new Act provides that
only vessels of at least five net tons are eligible for documentation14. Title II of the new
Act further provides that before a vessels is documented or recorded under the laws of the
United States, the vessel shall be measured by the Coast Guard. A vessel must be
10
Proposed 46 CFR sec.67.21-1.
Coast Guard form CG-1258.
12
Proposed 46 CFR note 17, sections 67.13-1, 67.13-3, and 67.13-5; 46 USC sections 65c, 65d(a) (West
Supp. 1982).
13
Proposed 46 CFR note 17, 67.13-3(c)
14
Admeasurement is the measurement of the vessels tonnage. See the Tonnage Measurement Simplification
Acts Pub. L. No. 96.594, 94 Stat. 3461 (1980) and proposed regulations at 47 Fed. Reg. and 2131 (1982)
(to be codified in 46 CFR pt. 69) (proposed January 14, 1982).and
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measured if the use or design of its space changes so that the gross or net tonnage is
affected.
The “net tonnage” of a vessel is the capacity of the vessel for carrying freight or other
loads, calculated in tons15. The Coast Guard regulations provide that the tonnage of a
vessel must be determined for initial documentation whenever the gross or net tonnage of
a documented vessel changes, or when the gross or net tonnage of a vessel returning to
documentation has changed since the vessel’s last documentation16.
Gross and net tonnage of a vessel are determined according to the provisions of 46 CFR
part 69. A certificate of Admeasurement, issued by an “authorized official” is “the only
acceptable evidence” of the vessel’s tonnage17.
Remifications for aligible trades
The Act reinforces the requirement that only vessels built in the United States may
engage in the coastwise trade, the Great Lakes trade, or the domestic fisheries18.
Exceptions are provided for vessels captured in wars by American citizens and lawfully
condemned, vessel forfeited for breach of American law, or vessels qualifying for
documentation pursuant to 46 USC section 14 (1976)19. The regulations provide that
unless otherwise qualified to engage in one of the restricted trades, evidence that a vessel
was built in the United States “must be on file for any vessel” for which the restricted
15
Garner (2004) Black’s Law Dictionary , see at 1526.
Tonnage Measurement Simplifications Act, Pub.L.No. 96-594, sections 201-207, 94 Stat. 3453 (1980) of
the Vessel Documentation Act ( amending 46 USC sections 71-77 (1976)). also see :proposed 46 CFR, note
17, section 67.11-1.
17
Proposed 46 CFR, note 17, section 67.11-3.
18
46 USCA section 67b(d)(West Supp 1982).
19
See, eg., 46 USCA section 65i(a)(2)(West Supp 1982) (Coastwise license). Id. section 65j of the Act,
restricting issuance of the Great Lakes license, and section 65k, restricting issuance of the fisheries license,
contain identical provisions.
16
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trade or coast wise license is issued20. Evidence of the facts of building should be
presented by a person having personal knowledge of the facts of construction.
The vessels is considered built in the United States if:
All major components of its hull and superstructure are fabricated in the United States;
The vessel is assembled entirely in the United States; and
At least fifty percent (50%) of the cost of all machinery, including propulsion, and
components which are not an integral part of the hull or superstructure relates to items
procured in the United States.
If the vessel does not meet all of the above criteria, it is considered foreign built21.
If the required evidence of the facts of building is unavailable, an applicant may apply for
a waiver setting forth “other competent and persuasive evidence of such facts”.
Origin of components
The regulations contain a special requirement that “at least 50% of the cost of all
machinery (including propulsion) and components which are not an integral part of the
hull or superstructure relates to items procured in the United States. In addition, all major
components of the vessel’s hull and superstructure must be fabricated in the United
States. On its face, however, the regulation requires that 50% of the cost of machinery
and components not an integrated part of the hull and superstructure “relate to items
procured in the United States.
Here commentators have argued that, it is unclear what constitutes a “major component”
of a hull and superstructure, or when machinery and components will be deemed ‘not an
20
46 CFR, note 17, section 67.19 outlines the manner in which captured vessels, forfeited vessels, wrecked
vessels, and vessels the subject of special legislation may qualify for restricted trades.
21
Id sections 67.09-1, also see Id. section 67.09-3.
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integral part’ of the vessel. This will almost certainly require further administrative
clarification. The drafters seem to have intended that an American-built vessel
incorporate American supplied parts, to the extent of 50% of the cost of ‘non-major’ or
‘non integral’ components. If and when such items can be determined to be ‘non-major’
or ‘non-integral,’ apparently none need to be fabricated in the United States; the
regulations provides only that 50% of the cost of such items related to their ‘procurement’
in the United States. As it now reads, only American suppliers benefit from this
provision; American manufacturers do not, the commentators thought22.
Despite United States build and qualification for United States registry, a vessel may lose
that privilege. If a vessel undergoes rebuilding abroad and measures 500 gross tons or
over, it permanently loses eligibility for coastwise license or Great Lakes license
endorsement23.
Certificates of inspection
Under the new Act and accompanying regulations, the Coast Guard will have little
occasion to inspect a vessel before documentation. Only in the case of admeasurement is
a certificate by an authorized official required, and it is the only acceptable evidence of
the gross and net tonnage of a vessel. when a vessel is newly built, builders’ certificates
must be provided, but they will be executed by persons ‘having personal knowledge of
the facts of build’ and not by the Coast Guard24.
22
Gordon L. Poole et al [1982] 56 Tulane Law Review 1171, see note 97, at pg. 1189.
46 CFR, note 17, sections 67.17-5(c)(3), 67.17-7(c)(3).
24
46 CFR section 67.09-7(a).
23
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The requirements for the owner of the vessel
Citizenship requirements for documentation
Under present vessel documentation laws, a vessel is entitled to a registry for the foreign
trade if it is wholly owned by citizens of the United States or corporations which meet the
organizational requirements for a corporation as to citizenship of its chief officers,
directors and place of incorporation, as described in section 2 of the shipping Act. The
controlling interest test for corporate ownership is not applicable25.
Documentation of vessels in United States domestic trade, through enrollment and
licensing of vessels entitled to the privileges of the “coasting” trades or the “fisheries,” is
affected through the same Coast Guard procedures as registration26.
In addition the Coast Guard has acquired evidence that seventy-five percent (75%) of the
ownership of the stock of the vessel owning corporation is held by United States citizens
pursuant to the Jones Act and section 2 of the Shipping Act27. This evidence must be
submitted on forms prescribed by Maritime Administration (Marad).
Under the new Act, a register may be issued for any vessel eligible for documentation,
that is, any vessel which is owned by an individual United States citizen, a partnership or
association whose members are all citizens or a corporation which meets certain legal
requirements28.
25
46 USC section 11 (1976). see note 20.
46 USC sections 251, 259, 263, (1976).
27
46 CFR sections 67.01-7, 67.03-5, 67.03-9 (1981).
28
See section 16(b)(3); proposed 46 CFR, note 17, section 67.03-9(a). The legal requirements for
corporations do not take into consideration the stock ownership of the corporation.
26
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A coast wise license may be issued only to a vessel which is eligible for documentation,
was built in the United States, and “otherwise qualifies under laws of the United States to
be employed in the coastwise trade29 or the domestic fisheries.
The new Act does not change the basic citizenship requirements of the current law except
in one respect30. The new vessel documentation Act was amended by Act of December
29, 1981. This amendment makes a partnership whose general partners are all United
States citizens, and the controlling interest of which is held by the United States citizens,
eligible to register a vessel owned by the partnership. This amendment took effect at the
same time as the Vessel Documentation Act. The new Act retains the distinction between
foreign trade and coastwise trade with respect to corporate ownership. The new Act
affirms that vessels engaged in the coastwise, Great Lakes trades or the domestic fisheries
must qualify under the laws applicable thereto31.
Section 67.29-11 provides that, no bill of sale, charttel mortgage or preferred ship
mortgage may be recorded unless accompanied by a properly executed citizenship
declaration from the grantee32. This requirement does not apply in the case where the
grantee is the government of the United States or a political subdivision thereof.
Proof of ownership
The new Act provides that a certificate of documentation shall identify the owner of the
documented vessel33.
29
46 USCA section 65i(a)(3)(West Supp.1982).
The new Vessel Documentation Act was amended by Act of December 29, 1981, Pub. L. No. 97-136,
section 10, 95 Stat. 1705,1707.
31
46 USCA sections 65i-k (West Supp. 1982). These requirements are elaborated upon in the new
regulations. Proposed 46 CFR, note 17, section 67.03.
32
Proposed 46 CFR, note 17, section 67.29-11(c). subsection (c) continues the requirement that citizenship
declaration be executed on forms prescribed by the Maritime Administration (Marad).
33
46 USCA section 65a(c)(2) (West Supp. 1982)
30
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The Coast Guard is authorized to issue regulations which ‘prescribe procedures to ensure
the integrity of, and the accuracy of information contained in, certificates of
documentation’34.
The owner of a vessel is required to present title evidence for initial documentation,
redocumentation, redocumentation after deletion and whenever the vessel’s use is being
changed to a more restrictive use or ownership is being changed35.
For registration, there must be established a continuous chain of United States citizens
holding title from the last owner under documentation36. For coastwise, domestic fisheries
and Great Lakes trade the vessel owner must present a complete chain of title showing
continuous ownership of the vessel by United States citizens37. For a new vessel the only
title evidence required is the city thicket of the builder.
When the ownership of a documented vessel changes, the transfer of title must be shown
by a bill of sale in recordable form, as well as by a declaration of citizenship from the
new owner, executed on the appropriate Maritime Administration form38. The forms are
available at all ports of documentation. An applicant for documentation who cannot
produce such title evidence in recordable form may apply for a waiver, but must provide
“other competent and persuasive evidence of title passage” before the waiver will be
granted39. When the legal name of the owner of a documented vessels changes, the
document must be submitted for amendment, and the owner must present competent and
persuasive evidence of the change40.
34
Id. section 65e(d).
Proposed 46 CFR, note 17, section 67.05 and 67.07
36
Id. section 67.05-7(b)(2).
37
Id. Section 67.05-5.
38
Id. Sections 67.29-11(c).
39
Id. section 67.07-3(c), 67.07-17.
40
Id sections 67.05-17, 67.07-15.
35
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When title to a documented vessel passes as the result of a corporate merger or similar
transaction where the assets of one corporation have been transferred to another, passage
of title must be shown by evidence, such as a corporate or shareholder resolution, which
identifies the vessel as among the assets transferred. Any document officially recognizing
a merger must also be presented, where available41.
In general, whenever the regulations otherwise require title passage to be shown by a
recordable bill of sale, a waiver of the requirement may be sought, but will be granted
only on presentation of “other competent and persuasive evidence of the passage of
title”42.
The Requirements based on the vessels endorsement(s).
Marking requirements
Section 108 of the Act43 provides that the Secretary of Transportation, through the Coast
Guard, shall maintain a numbering system for the identification of documented vessels
and shall assign a number to each documented vessel. The owner of the documented
vessel must affix the assigned number to the vessel by permanent method, and maintain
the number in the manner prescribed by the Coast Guard, along with “any other
identification markings” which the Coast Guard may prescribe.
The regulations provided the name must be shown by “durable markings” on the hull. In
addition to name, the owner must designate the hailing port to be marked on the vessel.
The hailing port is either the vessel’s home port or the city and state of the address which
41
Id section 67.07-9(a).
Id section 67.07-17.
43
46 USCA section 65f (West Supp. 1982).
42
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the owner used to determine the home port of the vessel. Where the vessel owner does
not reside in the United States or has no permanent American address, the home port
must be Washington DC44.
Finally, the vessels official number must be permanently affixed to the interior part of the
hull Forward of amidships. Although not inspection is required, evidence of markings
must be submitted on a Coast Guard form, accompanied by clear photographs of all
markings, including name, official number, and hailing port45.
The owner of a vessel must submit evidence of marking for every initial documentation,
whenever there is a change in the name, home port, or hailing port of a documented
vessel, and whenever an official number is designated (upon application for initial
documentation or upon severance of an existing vessel into two or more vessels)46.
Surrender of marine documents
Once issued, a certificate of documentation is valid for one year, after which time the
owner must apply for renewal. Although the documents need not be surrendered for
renewal, the regulations set forth a number of circumstances under which surrendered is
mandatory. These include change in the ownership, ‘in whole or in part’ of a documented
vessel; change in homeport; tonnage or name of the vessel; or change in the legal name of
any vessel owner47.
A certificate of documentation, issued to a vessel subject to a preferred ship mortgage,
may not be surrendered even when surrender is mandatory without the consent of the
mortgagee. When consent of the mortgagee to surrender of marine documents is required,
44
An original form CG-1322 is in the days of the healing port designated. Id. Section 67.13-7.
Coast Guard form CG-1322; 46 CFR, note 17, section 67.15-7.
46
Id Section 67.15-5.
47
Id. Section 67.23-3(a).
45
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that consent must be evidenced by a properly executed form CG-1593, presented to the
documentation officer when application for surrender is made48. The Act itself requires
the approval of the Secretary of Transportation to the surrender of the marine documents
of a vessel mortgaged to the United States, which approval is contingent on the consent
of each mortgagee to the surrender. When a vessel is subject to a preferred ship mortgage,
consent of the Secretary of Transportation (acting by and through the Maritime
Administration) is also required for surrender49.
The impact of the lease financing statute on vessels with a coastwise endorsement50
In 1996, Congress enacted the lease financing provisions to the vessel documentation
laws. Section 1113(d) : 46 USC 12106(e). The administrative process started on May 2,
2001 (66 Fed. Reg. 21,902) with a notice of proposed rulemaking.
The overall purpose of section 1113(d) of the Conference substitute is to eliminate
technical impediments to using various techniques for financing vessels operating in the
domestic trades. At the same time, the conferees did not intend to undermine a basic
principle of US Maritime Law that vessels operated in domestic trades must be built in a
shipyard in the United States and be operated and controlled by American citizens, which
was vital to the United States military and economic security51.
48
Id. section 67.23-5(a).
46 USC section 961(a) (1976).
50
See: Clayton Cook, “Lease Financing for Vessels Engaged in the Coastwise Trades,”
http://www.sewkis.com/Documents/attachments/648.pdf ;
Also see: “Vessel Documentation : Lease Financing of Vessels Engaged in Coastwise Trade,”
http://www.epa.gov/fedrgstr/EPA-IMPACT/200/August/Day-09/i20244.htm
51
US Code Cong. And Adm. News. 104 Cong.2nd Sess., vol.6 at p. 4325 (1996)
49
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Section 1113(d) : 46 USC 12106(e): The Coast Guard Authorization Act of 1996 (the
“1996 Act”), “subsection 1113(d), Leasing” amended section 12106 of title 46 US Code
by adding a new subsection (e) to permit foreign ownership of U.S. coastwise trade
vessels by entities primarily engaged in leasing or other financial transactions. This socalled “lease financing” provision creates an exemption to the U.S. citizenship ownership
requirement of the Jones Act and allows a foreign entity to own a Jones Act trade vessel
if the vessel is “leased” or demise chartered to a section 2 citizen for at least three years.
A Jones Act vessel is a vessel whose crew members can qualify as semen under the Jones
Act. This can be a craft designed or used for transportation of cargo or people on
navigable waters, or that was being used for navigation at the time of the worker’s
injury52. A Jones Act is a Federal statute that allows a seaman injured during the course of
employment to recover damages for the injuries in a negligence action against the
employer. If a seaman dies from such injuries, the seaman’s personal representative may
maintain an action against the employer53.
The adoption of this “lease financing” provision was to usher in a period where U.S.
citizen domestic trade operators would have enhanced access to foreign financing sources
through vessel leasing transactions.
During the period that followed the passage of the Merchant Marine Act of 1970 (the
“1970 Act”) and coincided with the need for tonnage of the Alaska oil trades, lease
financing played an important role in facilitating the construction of U.S. flag vessels for
transactions in the U.S. domestic and foreign trades. In short, vessel lease financing was
helpful in the 1970s, why not now ?.
52
53
Id. Garner (2004) at 1594.
Id. Garner (2004) at 856; also see: 46 USCA app. sec. 688.
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Making use of a series of U.S. tax regimes designed to encourage capital investment, and
with credit support provided by long-term “financing” time-charter, many of the first
generation of Alaska trade crude oil carriers were financed on this basis. This was true for
the domestic trade product tankers of this period as well.
Cook wrote that, in their most basic form, these transactions involved the ownership of
the vessel by a section 2 citizen financial institution, with the vessel demised (or
“bareboat chartered”) to the section 2 citizen vessel operator, and then time-chartered to
the creditworthy end-user for a period not in excess of 80% of the vessel’s useful life.
The roster of lease financing transactions accomplished during this period included
Alaska crude carriers and coastwise product tankers time-chartered to non-citizen
petroleum majors such as British petroleum and shell. Maritime Administration
(“MARAD”) approvals of these charters were required under section 9 of the Shipping
Act, 1916 (the “1916 Act”)54. These approvals were sought and obtained.
While an owner-lessor will pass a portion of the tax benefit on to the vessel operator, it
will only be a portion. In situations where long term mortgage debt financing might be
matched to vessel useful life, Rev.Proc.75-21 limits the initial lease term to no more than
80% of useful life. As a result, the leased vessel debt must be retired over the first 80% of
the vessels useful life, says Cook. If the vessel end-user wishes to continue with the
vessel’s use at the end of this, the operator will be required to recharter the vessel at a fair
market rate, with any increase to be passed on to the vessel end-user in the form of
increased time-charter hire55.
54
46 App. USC 808.
Where the section 2 operate chose bank financing with 10 to 12 year term loans, the non-citizen vessel
user often found itself paying vessel time-charter hire sufficient to allow the operator to pay for the vessel
over less than one half the vessel’s life. Then, if the charter was renewed and the renewal period timecharter hire was not reduced, the non-citizen vessel user might find that it was “paying for the same vessel
twice”.
55
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Cook further observes that, the federal income tax incentives of the 1970s are longer with
us, and tax driven leasing no longer plays a significant role in vessel financing56. But, the
problem of lease terms which cannot match useful lives, and other difficulties associated
with leasing, remain. Thus, it is easy to understand why a non-citizen vessel user might
wish to own and control (rather than lease) the vessels which it needs for use in the U.S.
domestic trades. Was such non-citizen ownership and control one of the principal
objectives of the sponsors of section 1113(d)?.
The sponsors of 1113(d) appeared to have eschewed any examination of the merits of the
proposal in Congressional hearings. MARAD opposed the enactment. It requested that
subsection 1113(d) be deleted, “because it would allow foreign entities into trades
formerly restricted to section 2 citizens.” MARAD also offered amendments that were
intended to “prevent unfair competition against vessels owned and operated by section 2
citizens.” But MARAD was not successful in either effort.
Were the 1113(d) sponsors seeking to “make U.S. flag vessels ownership and mortgage
financing available to non-citizens” as well as “making non-citizen sourced lease
financing available to section 2 citizens”?. If so, one can appreciate the difficulty which
confronts the Coast Guard as it tries to craft language which will satisfy these sponsors,
and not undermine a basic principle of US maritime law that vessels operated in
domestic trades must be operated and controlled by American citizens.
The Coast Guard authorization Act of 1996
56
The current 30% first year depreciation, and 200% double declining balance depreciation, may provide a
basis for some renewed domestic leasing activity by U.S. citizen lessors.
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Section 1113(d) of the Coast Guard Authorization Act of 1996 removed the U.S.
citizenship requirement for vessel owners, so long as the non-citizen owner was
“primarily engaged in leasing or other financing transactions,” and the vessel was
demised to a U.S. citizen for a period of at least three years. This change in law is
codified as 46 USC 12106(e)57.
The stated purpose of the legislation was “to provide independent U.S. citizen operators
with needed vessel financing capital through access to non-citizen, passive investment in
vessel leasing transactions”. The extent to which the section has found use in this fashion
is uncertain, says Cook. However, the section has found significant application in
transactions where two non-citizen entities, belonging to the same non-citizen corporate
group, are at once the owner and time-charterer-user of the vessel in the U.S. domestic
trades, Cook wrote.
The non-citizen parties involved in these “owner-user” of “charter-back” transactions
judge them to be clearly within the mandate of 12106(e). Several such parties have
announced their intent to challenge any Coast Guard “narrowing” of this interpretation of
the statute with litigation. Most U.S. citizen owners and operators have viewed these
charter-back transactions as going beyond the section’s intended use. They have
expressed concern at the impact that such transactions will have on the U.S. domestic
trade opportunities that are reserved for U.S. citizens under the terms of section 27 of the
57
Provisions generally allows a U.S. build vessel to obtain a coastwise endorsement if:
(1) the person that owns the vessel, a parent entity of that person, or a subsidiary of a parent entity of
that person, is primarily engaged in leasing or other financing transactions;
(2) The vessel is under at least a three year demise charter (the Secretary may prescribe a shorter
period) to a U.S. citizen qualified for coastwise purposes pursuant to section 2 of the shipping
Act, 1916; and
(3) The vessel is otherwise eligible for documentation.
For purposes of the first proviso of section 27 of the Merchant Marine Act, 1920, section 2 of the Shipping
Act 1916, and section 12102(a) of title 46, a vessel meeting these criteria is deemed to be owned
exclusively by citizens of the United States.
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Merchant Marine Act 1920. Several sections 2 parties have stated that unless the Coast
Guard restricts the application of 12106(e) in accordance with their views, they will
initiate litigation.
The Coast Guard regulations which will govern the application of section 12106(e) are
now the subject of formal rulemaking proceedings in U.S. Coast Guard Docket 2001882558.
As of this writing Docket no. 8825 has attracted a total of approximately 190 entries.
There has been no narrowing of the disagreement between the non-citizen charter-back
participants and the section 2 owners and operators over the legality of charter-back
transactions.
My observation
The passage of the Coast Guard Authorization Act of 1996 was to usher in a period
where U.S. citizen domestic trade operators would have enhanced access to foreign
financing sources through vessel leasing transactions. But instead, it resulted in the
creation of non-citizen competitors for these US operators, and fueled a bitter dispute at
the U.S. Coast Guard over the extent to which these non- citizen owner-users should be
allowed. This 1996 optimism appears to have been misplaced.
Cook suggests that, the current dispute, and its vessel financing uncertainties, might best
be resolved through the use of a Maritime Administration time charter review and
approval process under section 9 of the Shipping Act, 1916.
58
U.S. Coast Guard , Notice of Proposed rulemaking on Vessel Documentation : Lease Financing of vessels
engage in coastwise trade (Docket no. USCG 2001 8825).
18
Electronic copy available at: https://ssrn.com/abstract=1306759
The impact of the American Fisheries Act of 199859 and the related amendments60 on
vessels with a fisheries endorsement.
Section 2203 amended Federal Law with respect to fishing vessel mortgages
Section 2203 amended the American fisheries Act to expand the class of lenders eligible
to hold preferred fishing vessel mortgages. It requires mortgage trustees to be:
Eligible to be preferred mortgagee; a U.S. corporation with corporate trust powers; a
trustee must be subject to Federal or state supervision; and the mortgage trustees must
capitalize at least $3 million. It requires the Secretary in the case of the trust beneficiary
which is not the commercial lender, lenders indicate, or eligible to be the preferred
mortgagee, to determine that the trust of entombment will not result in nine cities and
vessel control.
This provision was made effective as of April 2003. It prohibited the Secretary of
Transportation from considering the citizenship status of the lender with respect to a
vessel owner, until after such date.
The impact of this amendment was to secure U.S. citizen players of their security in the
business of fisheries.
Conclusion
Until July 01, 1982, a vessel documented under United States law is issued only one of
three types of documents: a certificate of registry, a certificate of enrollment, or a license.
Essentially, registry and enrollment identify the vessel as documented under the laws of
the United States.
59
60
Pub. L. 105-277. Division C., TitleII (Oct 21, 1998), 112 Stat. 2681-616.
Pub. L. 107-20, Title II, section 2202 (July 24, 2001), 115 Stat. 168.
19
Electronic copy available at: https://ssrn.com/abstract=1306759
Under present vessel documentation laws, a vessel is entitled to a registry for the foreign
trade if it is wholly owned by citizens of the United States or corporations which meet the
organizational requirements for a corporation as to citizenship of its chief officers,
directors and place of incorporation, as described in section 2 of the shipping Act.
Under the new Vessel Documentation Act, effective July, 1982 five new categories of
documents were created while enrollment was abolished. A single certificate of
documentation may cover any or all of the five categories of use (pleasure, registry,
coastwise, domestic fisheries and Great Lakes) for which the vessel is qualified.
Under the new Act, a register may be issued for any vessel eligible for documentation,
that is, any vessel which is owned by an individual United States citizen, a partnership or
association whose members are all citizens, or a corporation which meets certain legal
requirements.
The new Act provides that the certificate of documentation shall identify the owner of the
documented vessel.
Under the new Act, an application for a certificate of documentation must also contain
the name, home port, and description of the vessel, and must also identify the owner. It is
to be filed at the home port selected by the owner.
Only vessels of at least five net tons are eligible for documentation. Before the vessel is
documented or recorded under the laws of the United States, the vessel shall be measured
by the Coast Guard.
Only vessels built in the United States may engage in the coastwise trade the Great Lakes
trade, or the domestic fisheries. The regulations also contain a special requirement that at
least 50% of the cost of all machinery, including propulsion, and integral parts of the hull
20
Electronic copy available at: https://ssrn.com/abstract=1306759
or superstructure must be procured in the United States. The Coast Guard will inspect the
vessel before documentation.
Section 108 of the Act provides that, the Secretary of Transportation, through the Coast
Guard shall maintain a numbering system for the identification of all documented vessels
and shall assign a number to each documented vessel.
Once issued the certificate of documentation is valid for one year, after which time the
owner must apply for renewal.
The effect of section 1113(d): 46 U.S.C 12106(e).
The stated purpose of the legislation, according to Clinton Cook in his article, was to
provide independent U.S. citizen operators with needed vessel financing capital through
access to non-citizen, passive investment in vessel leasing transactions.” The extent to
which the section has found used in this fashion is still uncertain. The non-citizen parties
involved in these “own-user” or “charter-back” transactions judge them to be clearly
within the mandate of 12106(e). Several such parties have announced their intent to
challenge any Coast Guard “narrowing” of this interpretation of the statute with
litigation. Most U.S. citizen owners and operators have expressed concern at the impact
that such transactions would have on the U.S. domestic trade opportunities that are
supposed to be reserved for U.S. citizens under the terms of section 27 of the Merchant
Marine Act of 1920. This bitterness by the citizen operators is expressed at the Coast
Guard.
Robert Ongom Cwinya-ai61
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Robert Ongom Cwinya-ai BA(LAW)(Uniswa), LL.B. (Natal), LL.M. Admiralty & Maritime Law
(Tulane).
21
Electronic copy available at: https://ssrn.com/abstract=1306759
22
Electronic copy available at: https://ssrn.com/abstract=1306759