Coastwise Trade; Bowaters Act; 46 U.S.C. App. § 883-1

HQ 114836 October 27, 1999 VES-3-17/24-RR:IT:EC 114836 GEV CATEGORY: Carriers Sean T. Connaughton, Esq. Eckert Seamans Cherin & Mellott, LLC 1250 24th Street, N.W. Seventh Floor Washington, D.C. 20037 RE: Coastwise Trade; Bowaters Act; 46 U.S.C. App. § 883-1 Dear Mr. Connaughton: This is in response to your letter dated October 6, 1999, regarding the applicability and scope of the Bowaters Act (46 U.S.C. App. § 883-1). Our ruling on this matter is set forth below. FACTS: The U.S. subsidiary of a foreign-owned cement manufacturer and stone producer is interested in purchasing a cement operation on the Rio Grande River in Harlingen, Texas. The plant is supplied by a barge owned by the current manufacturer and purchase of the barge is incidental to the purchase of the plant. If purchased, the aforementioned U.S. subsidiary will continue to use the barge for coastwise trade between Houston and Harlingen, Texas. In Houston the barge would pick up proprietary cement and transport it to Harlingen for processing. The return leg of the trip would be empty. ISSUE: Whether cement manufacturing and stone producing are considered “manufacturing or mineral industry” as those terms are used in 46 U.S.C. App. § 883-1 thereby rendering applicable the provisions of that statute to the above-described purchase and subsequent operation.  - 2 - LAW AND ANALYSIS: Title 46, United States Code Appendix, § 883 (46 U.S.C. App. § 883), the merchandise coastwise law often called the "Jones Act", provides in part, that no merchandise shall be transported between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States (i.e., a coastwise-qualified vessel). The coastwise laws generally apply to points in the territorial sea, defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ. Title 46, United States Code Appendix, § 883-1 (the "Bowaters Act") created a narrow exception for certain corporations which could not otherwise meet the stringent 75 percent ownership requirement of 46 U.S.C. App. § 802 for vessels to be documented for the coastwise trade. It allows certain corporations to document vessels for coastwise trade, provided that the vessels are only used to carry proprietary cargo owned by either the corporation or its affiliates. To qualify as a "Bowaters corporation" a corporation must be incorporated under U.S. laws and satisfy five requirements: a majority of its officers and directors must be U.S. citizens; at least 90 percent of its employees must be U.S. residents; it must be engaged primarily in a manufacturing or mineral industry in the U.S.; the aggregate book value of the corporation's vessels cannot exceed ten percent of the aggregate book value of the corporation's assets; and it must purchase or produce in the U.S. at least 75 percent of the raw materials used or sold in its operations. (Emphasis added) The Bowaters Act also places several restrictions on Bowaters corporations. These corporations cannot operate vessels which they own as common carriers for the carriage of non-proprietary cargo. The Bowaters Act further provides that no vessel owned by a Bowaters corporation "shall engage in the fisheries or in the transportation of merchandise or passengers for hire between points in the United States...except as a service for a parent or subsidiary corporation." Bowaters corporations are also restricted in their ability to charter out vessels to other parties. In regard to the cement manufacturing and stone producing in question, neither the language of the statute nor its legislative history indicate that these activities are beyond the purview of the Bowaters Act. (See 1958 U.S. Code Congressional and Administrative News, pp. 5190-5198). Accordingly, these activities do constitute “manufacturing or mineral industry” for purposes of 46 U.S.C. App. § 883-1.  - 3 - HOLDING: Cement manufacturing and stone producing are considered “manufacturing or mineral industry” as those terms are used in 46 U.S.C. App. § 883-1 thereby rendering applicable the provisions of that statute to the above-described purchase and subsequent operation. Sincerely, Jerry Laderberg Chief Entry Procedures and Carriers Branch