[Federal Register: February 4, 2004 (Volume 69, Number 23)]
[Proposed Rules]
[Page 5403-5410]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04fe04-33]
[[Page 5403]]
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DEPARTMENT OF HOMELAND SECURITY
Coast Guard
46 CFR Part 67
[USCG-2003-14472]
RIN 1625-AA63
DEPARTMENT OF TRANSPORTATION
Maritime Administration
46 CFR Part 221
[Docket No. MARAD-2003-15171]
RIN 2133-AB51
Vessel Documentation: Lease Financing for Vessels Engaged in the
Coastwise Trade; Second Rulemaking
AGENCIES: Coast Guard, DHS, and Maritime Administration, DOT.
ACTION: Joint notice of proposed rulemaking.
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SUMMARY: This is a joint notice of proposed rulemaking by the Coast
Guard and the Maritime Administration.
The Coast Guard proposes to amend its regulations on documentation,
under the lease-financing provisions, of vessels engaged in the
coastwise trade. One proposal addresses the issue of whether we should
prohibit or restrict the chartering back (whether by time charter,
voyage charter, space charter, contract of affreightment, or other
contract for the use of a vessel) of a lease-financed vessel to the
parent of the vessel owner or to a subsidiary or affiliate of the
parent. A second proposal would establish a limit on the length of time
that a coastwise endorsement issued before February 4, 2004, would run.
The final subject concerns the question of whether applications for an
endorsement under the lease-financing provisions should be reviewed and
approved by an independent third party with expertise in vessel
chartering. Though these subjects were discussed in many of the
comments received to the previous Coast Guard rulemaking on lease
financing, we feel that we need additional public input specifically
focused on these subjects and on our proposed changes. These proposals
would amend the final rule (USCG-2001-8825) on vessel documentation
under lease financing found elsewhere in this issue of the Federal
Register.
The Maritime Administration (MARAD) proposes to amend its
regulations to require MARAD's approval of all transfers of the use of
a lease-financed vessel engaged in the coastwise trade back to the
vessel's foreign owner, the parent of the owner, a subsidiary or
affiliate of the parent, or an officer, director, or shareholder of one
of them. In 1992, MARAD amended its regulations to grant general
approval for time charters of U.S.-flag vessels to charterers that were
not U.S. Citizens (non-citizens) and to eliminate MARAD's review of
these time charters. The lease-financing provisions potentially allow a
non-citizen to exert additional control over a vessel operated in the
coastwise trade by becoming the owner of the vessel and time chartering
the vessel back to itself or to a related entity through an
intermediate U.S. Citizen bareboat charterer. MARAD's review of charter
arrangements in the limited circumstances where the time charterer is
related to the non-citizen vessel owner will ensure that U.S. Citizens
maintain control over vessels operating in the coastwise trade.
DATES: Comments and related material must reach the Docket Management
Facility on or before May 4, 2004. Comments sent to the Office of
Management and Budget (OMB) on collection of information must reach OMB
on or before May 4, 2004.
ADDRESSES: You may submit comments identified by Coast Guard docket
number USCG-2003-14472 or MARAD Docket No. MARAD-2003-15171 to the
Docket Management Facility at the U.S. Department of Transportation. To
avoid duplication, please use only one of the following methods:
(1) Web site: http://dms.dot.gov.
(2) Mail: Docket Management Facility (USCG-2003-14472 or MARAD
Docket No. MARAD-2003-15171), U.S. Department of Transportation, room
PL-401, 400 Seventh Street SW., Washington, DC 20590-0001.
(3) Fax: 202-493-2251.
(4) Delivery: Room PL-401 on the Plaza level of the Nassif
Building, 400 Seventh Street SW., Washington, DC, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The telephone
number is 202-366-9329.
(5) Federal eRulemaking Portal: http:// www.regulations.gov.
You must also mail comments on collection of information to the
Office of Information and Regulatory Affairs, Office of Management and
Budget, 725 17th Street NW., Washington, DC 20503, ATTN: Desk Officer,
U.S. Coast Guard.
FOR FURTHER INFORMATION CONTACT:
Coast Guard: If you have questions on the Coast Guard's proposed
rule, call Patricia Williams, Deputy Director, National Vessel
Documentation Center, Coast Guard, telephone 304-271-2506.
Maritime Administration: If you have questions on the Maritime
Administration's proposed rule, call John T. Marquez, Jr., Maritime
Administration, telephone 202-366-5320.
Docket Management Facility: If you have questions on viewing or
submitting material to the docket, call Andrea M. Jenkins, Program
Manager, Docket Operations, telephone 202-366-0271.
SUPPLEMENTARY INFORMATION:
Public Participation and Request for Comments
We (the Coast Guard and the Maritime Administration, depending upon
the context) encourage you to participate in this rulemaking by
submitting comments and related material. All comments received will be
posted, without change, to http://dms.dot.gov and will include any
personal information you have provided. The Coast Guard has an
agreement with the Department of Transportation (DOT) to use the Docket
Management Facility. Please see DOT's ``Privacy Act'' paragraph below.
Submitting comments: If you submit a comment, please include your
name and address, identify the docket number for this rulemaking
(either USCG-2003-14472 or MARAD Docket No. MARAD-2003-15171), indicate
the specific section of this document to which each comment applies,
and give the reason for each comment. You may submit your comments and
material by electronic means, mail, fax, or delivery to the Docket
Management Facility at the address under ADDRESSES; but please submit
your comments and material by only one means. If you submit them by
mail or delivery, submit them in an unbound format, no larger than 8\1/
2\ by 11 inches, suitable for copying and electronic filing. If you
submit them by mail and would like to know that they reached the
Facility, please enclose a stamped, self-addressed postcard or
envelope. We will consider all comments and material received during
the comment period. We may change this proposed rule in view of them.
Viewing comments and documents: To view comments, as well as
documents mentioned in this preamble as being available in the docket,
go to http://dms.dot.gov at any time and conduct a simple search using
the docket number. You may also visit the Docket Management Facility in
room PL-401 on the Plaza level of the Nassif Building, 400 Seventh
Street SW., Washington, DC, between 9 a.m. and 5
[[Page 5404]]
p.m., Monday through Friday, except Federal holidays.
Privacy Act: Anyone can search the electronic form of all comments
received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review the
Department of Transportation's Privacy Act Statement in the Federal
Register published on April 11, 2000 (65 FR 19477), or you may visit
http://dms.dot.gov.
Public Meeting
The Coast Guard and MARAD plan to hold a joint public meeting on
this rulemaking at a time and place to be given in a separate notice
published in the Federal Register.
Though the Coast Guard did not believe that a public meeting would
provide sufficient benefit to justify the delay in publishing its final
rule under Coast Guard docket USCG-2001-8825 (which appears elsewhere
in this issue of the Federal Register), we do believe that a public
meeting on the issues raised in this notice will benefit the present
rulemaking. At present, we plan only one public meeting, but you may
submit a request for more than one to the Docket Management Facility at
the address under ADDRESSES explaining why more than one would be
beneficial. If we determine that more than one would aid this
rulemaking, we will publish the dates of the meetings and their
locations in the separate notice in the Federal Register.
Related Rulemakings
Coast Guard. A separate but related Coast Guard final rule entitled
``Vessel Documentation: Lease Financing for Vessels Engaged in the
Coastwise Trade'' (RIN 1625-AA28 (formerly RIN 2115-AG08), USCG-2001-
8825) appears elsewhere in this issue of the Federal Register. The
changes that the Coast Guard is proposing in this notice of proposed
rulemaking, if adopted, would amend that final rule.
Maritime Administration. MARAD published a notice of policy review
with request for comments entitled ``General Approval of Time
Charters'' on August 2, 2002, in the Federal Register (67 FR 50406).
The notice raises the question of whether MARAD's policy of granting
general approval of time charters should be changed. The docket number
for that project is Docket No. MARAD-2002-12842.
Background and Purpose
Coast Guard. In 1996, Congress amended the vessel documentation
laws to allow 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 is 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 (owner), 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.
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, 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 U.S. and be operated and
controlled by U.S. Citizens, which is vital to U.S. military and
economic security.
The Coast Guard issued a final rule (USCG-2001-8825, published
elsewhere in this issue of the Federal Register), which sets out
requirements concerning eligibility, under lease financing, for a
coastwise endorsement to a vessel's Certificate of Documentation and
the procedure to apply for such an endorsement. Several of the comments
to that rulemaking raised important questions which are worthy of
consideration but ones on which we need further assistance from
industry and the public. It is those questions that are the subjects of
the Coast Guard's second rulemaking on lease financing of vessels in
the coastwise trade.
MARAD. Section 9 of the Shipping Act of 1916, 46 App. U.S.C. 808,
requires prior approval of the Secretary of Transportation (MARAD) for,
among other things, the charter to non-citizens of documented vessels
owned by citizens of the United States. Before 1989, MARAD's approval
was required on a case-by-case basis for time charters of U.S.-flag
vessels to non-citizens. However, as a result of substantial changes to
the Ship Mortgage Act (repealed in 46 App. U.S.C. 921) and amendments
to section 9 of the Shipping Act, MARAD began a rulemaking in 1989 to
amend its regulations at 46 CFR part 221, Regulated Transactions
Involving Documented Vessels and other Maritime Interests. The
rulemaking culminated in the publication of a final rule on June 3,
1992, 57 FR 23470, that liberalized the approval process under section
9 for certain transfers to non-citizens.
Part 221 as now written grants general approval of the sale,
mortgage, lease, charter, etc. (but not transfer of registry or
bareboat charter of vessels operating in coastwise trade) of citizen-
owned vessels to a non-citizen, so long as the country is not at war,
there is no Presidential declaration of national emergency invoking
section 37 of the Shipping Act of 1916, and the non-citizen is not
subject to the control of a county with whom trade is prohibited. The
general approval of time charters to non-citizens was predicated on the
fact that a time charterer merely rents cargo space on a vessel and
does not assume substantially all of the benefits and risks incident to
the ownership of the vessel or retain a property interest in the
vessel. The U.S.-Citizen vessel owner or bareboat charterer retains
possession of the vessel and maintains the vessel, employs and pays the
crew, and is responsible for the expenses of running the vessel.
MARAD's regulation granting general approval was based on the
assumption that the vessel would ultimately be operated and controlled
by U.S. Citizens because only a U.S. Citizen could own or bareboat
charter a vessel to be operated in the coastwise trade. The lease-
financing provisions potentially allow a non-citizen to now become the
owner of the vessel and, through an intermediate U.S.-Citizen bareboat
charterer, to time charter the vessel back to itself or a related
entity. This scenario was not contemplated by MARAD when it promulgated
its regulation granting general approval of time charters to non-
citizens. Because a non-citizen can exert greater control over the
vessel by participating as both the vessel owner and time charterer, we
believe that MARAD review of time charters in this limited circumstance
is warranted under section 9(c)(1) of the Shipping Act of 1916, 46
U.S.C. App. 808(c)(1).
On August 2, 2002, MARAD published a request for comments in the
Federal Register, 67 FR 50406, to determine whether our policy of
granting general approval for time charters to non-citizens should be
amended. The commenters overwhelmingly agreed that a return to
[[Page 5405]]
MARAD review of all time charters to non-citizens would not be a useful
change. However, there was significant support for MARAD review of time
charters in the limited circumstances where the time charterer is
related to the non-citizen vessel owner and the vessel is to be
operated in the coastwise trade.
We agree with the commenters that MARAD review of time charters is
necessary where the time charterer is related to the non-citizen vessel
owner in order to ensure that non-citizens are not able to exercise an
excessive level of control over vessels operating in the coastwise
trade. Accordingly, we propose to amend our regulations at 46 CFR
221.13 to require MARAD approval of time charters where the vessel has
been documented pursuant to 46 U.S.C. 12016(e) and is time chartered
back to an entity that is related to the non-citizen vessel owner.
Issues Addressed and Discussion of Proposed Changes--Coast Guard
The Coast Guard's proposed rule addresses the following subjects:
1. To what extent and how should the Coast Guard prohibit or
restrict the chartering back (whether by time charter, voyage charter,
space charter, contract of affreightment, or other contract for the use
of a vessel) of a lease-financed vessel to the owner, the parent, or to
a subsidiary or affiliate of the parent?
The proposed changes on this subject are in proposed Sec.
67.20(a)(6) and (a)(9), either or both of which are proposed for
adoption.
Congress stated that control of the lease-financed vessel holding a
coastwise endorsement must be in the demise charterer. Because control
of the vessel may be affected by a charter-back from the demise
charterer to the owner, the owner's parent, or to a subsidiary or
affiliate of the parent, we believe that the intent of Congress would
be frustrated if charter-back arrangements were not prohibited or at
least restricted. We present two amendments (Sec.Sec. 67.20(a)(6) and
67.20(a)(9)) for restricting charters-back, either or both of which are
proposed for adoption.
Alternative 1 (Sec. 67.20(a)(6)). The first alternative proposal
would amend Sec. 67.20(a)(6), which requires that the vessel owner not
be primarily engaged in the direct operation or management of vessels.
The proposed change would extend this limitation not just to the owner
but also to the overall group of which that owner is a member. As
defined in Sec. 67.3, the word ``group'' includes the owner, the
owner's parent, and all subsidiaries and affiliates of the parent. This
provision would prohibit the demise charterer from sub-chartering back
to a member of the owner's group. We believe that a charter-back
arrangement could be permissible under the statute if the charter-back
arrangement is merely for the purpose of providing the legal framework
under which the vessel will earn revenue for the demise charterer and
if the demise charterer retains all aspects of control of the operation
of the vessel, other than that which is directly involved in generating
revenue. We recognize, however, that proposed Sec. 67.20(a)(6) does not
contain any criteria by which the Coast Guard is to make a
determination as to whether the charter-back arrangement is limited to
providing the legal basis and provisions for earning revenue or whether
the arrangement transfers control over the vessel's operations or
management to the sub-charterer. We hope that your comments to this
NPRM and comments offered during the public meeting will provide us
with an informed basis for making these determinations. If you believe
that there is a more effective way to ensure that control of the vessel
is not returned to the owner's group through a charter-back
arrangement, please tell us.
Alternative 2 (Sec. 67.20(a)(9)). The second alternative proposal
would amend Sec. 67.20(a)(9), which requires that the demise charterer
be a person considered to be the owner pro hac vice during the term of
the charter. The proposed change would add that a demise charterer is
not considered to be the owner pro hac vice when the vessel is subject
to a sub-charter to a member of the group of which the vessel's owner
is a member, except when the vessel is engaged in carrying cargo owned
by the vessel's owner or by a member of the group of which the vessel's
owner is a member and is not carrying cargo for any other entity. This
proposal would effectively prevent the chartering-back to a member of
the owner's group, unless the vessel is used solely for carrying
proprietary cargo of a member of the group. We derived this proposal
from some of the comments that urged such a restriction in order to
effectuate the intent of Congress that the Jones Act not be undermined.
Though many other comments opposed any restriction on chartering-back,
we believe that Congress intended to adhere as closely as possible to
Jones Act principles, as reflected in the Conference Report. Our
proposal in Sec. 67.20(a)(9) is similar in principle to the Bowaters
amendment (46 U.S.C. app. 883-1), a limited exception to the Jones Act.
Thus, in that regard, our proposal is consistent with what Congress has
authorized in the past as a limited exception to the Jones Act.
2. Establish limitations on the grandfather rights under Sec.
67.20(b) through (e).
The grandfather provisions in Sec. 67.20(b) and (c) of the Coast
Guard's final rule (USCG-2001-8825), published elsewhere in this issue
of the Federal Register, allow vessels (other than barges) with
endorsements issued before the date of publication of that final rule
to continue to operate (with certain specified exceptions) under that
endorsement indefinitely. Paragraphs (d) and (e) of that final rule
allow barges deemed eligible to operate in coastwise trade under 46
U.S.C. 12106(e) and 12110(b) to continue to operate (with certain
specified exceptions) in the coastwise trade indefinitely. In order to
bring these vessels and barges under the regulations within a
reasonable time, yet be responsive to the economic interests of those
who have made investments relying on the Coast Guard's initial
interpretation of the lease-financing statute, we propose four changes.
First, Sec. 67.20(b) would be amended to limit the term of the
grandfather provision to 3 years after the publication date of the
final rule under USCG-2001-8825 (which is the same date as the
publication date of this NPRM) and allow it to be renewed annually
during that time.
Second, Sec. 67.20(c) would be amended to address the following
situation. If the vessel was constructed under a building contract that
was entered into before the date of publication of the final rule under
USCG-2001-8825 (which is the same date as the publication date of this
NPRM) in reliance on a letter ruling from the Coast Guard issued before
that date, the vessel would be eligible for a coastwise endorsement and
may continue to operate under that endorsement for 3 years after the
initial issuance of that endorsement and may renew the document and
endorsement during that 3-year period (if the certificate of
documentation is not subject to the listed exceptions).
Third, Sec. 67.20(d) would be amended to limit the term of the
grandfather provision as it applies to undocumented barges operating
under 46 U.S.C. 12102(e) and 12110(b) to 3 years after the publication
date of the final rule under USCG-2001-8825 (which is the same date as
the publication date of this NPRM).
Lastly, Sec. 67.20(e) would be amended to limit the term of the
grandfather provision as it applies to the operation of undocumented
barges constructed in reliance upon a letter ruling from the
[[Page 5406]]
Coast Guard issued before the publication date of the final rule under
USCG-2001-8825 (which is the same date as the publication date of this
NPRM) to 3 years after initial entry into service.
We chose a 3-year period as a reasonable amount of time to provide
owners with sufficient time to plan and effectuate whatever
restructuring is necessary to comply with the regulations. Also,
Congress specified, in the lease-financing statute, a term of 3 years
(subject to certain exceptions) as the minimum duration of a ``long-
term'' demise charter.
Several comments to the previous rulemaking (USCG-2001-8825) argue
that no vessels should be grandfathered and that, once the final rule
under USCG-2001-8825 is published, all vessels must comply with that
rule. However, we feel that the likely result of such a position would
be that the holders of endorsements received before the final rule was
published in good faith reliance on the policy of the Coast Guard at
that time would have little time to restructure, perhaps at
considerable financial expense, before the document is due for annual
renewal.
Other comments to USCG-2001-8825, mainly from those who received
endorsements between 1996 and 2002, argue that the grandfather
provision as it appears in Sec. 67.20(b) of the final rule is too
restrictive. They would like us to have adopted a rule that would allow
the continued use of the same type of financial transactions or
arrangements under which their endorsements were issued. Thus, an
application for an endorsement in the future could be based on one of
these transactions or arrangements. In their view, a grandfather
provision should not just cover the particular vessel that received the
endorsement. They argue that this amounts to too little effective
relief from the requirements of the final rule.
We believe that to require those vessel owners that relied on our
prior practice and policy to comply with USCG-2001-8825 upon the
effective date would unnecessarily penalize them. At the same time, we
do believe, where USCG-2001-8825 imposes additional or new obligations
or restrictions on the issuance of endorsements under lease financing,
that the prior holders should not be entitled either to unlimited
renewals for the particular vessels or to continued use of the type of
transaction or arrangement previously used. Instead, we are adopting a
reasonable approach, providing business with a reasonable time to
adjust to the new requirements consistent with Congressional language.
3. Require that applications to the Coast Guard for an endorsement
be audited by a third party. The Coast Guard is considering requiring
each applicant to provide, in addition to its own certifications under
Sec.Sec. 67.147 and 67.179, a certification from an independent auditor
with expertise in the business of vessel financing and operations. That
certification would provide additional assurance that the transaction
in fact qualifies under the lease-financing statute and regulations. We
recognize that this additional requirement would add time and cost to
the process of preparing the application. We are particularly
interested in obtaining comment on the following questions:
(a) Should an independent auditor be used?
(b) What are the minimum qualifications of an auditor?
(c) Who should select the auditor, the Coast Guard, another
government agency, or the applicant?
(d) If the applicant selects the auditor, how should the Coast
Guard ensure that the auditor is truly independent? Should the Coast
Guard provide a list of approved auditors from which the applicant may
choose?
(e) What standards does the auditor apply in deciding whether to
examine the details of the proposed transaction beyond the face of the
documents submitted?
(f) Would the added benefit provided by the certification by the
independent auditor justify the extra time and cost of obtaining such a
certification?
(g) Would such an audit be an inherently governmental function that
should not be entrusted to an independent auditor?
(h) Should we increase our investigation and examination of
applications for vessel documentation?
Discussion of Proposed Changes: Maritime Administration
MARAD proposes to amend its existing regulations in 46 CFR part
221, subpart B, on the approval of the sale, lease, charter, delivery,
or any manner of transfer of an interest in or control of a U.S.
documented vessel to a non-U.S. Citizen. Existing Sec. 221.13(a) grants
general approval of these transactions. The proposed change would
require the approval of the Maritime Administrator when a vessel under
46 U.S.C. 12106(e) is involved and when the transfer is back to the
vessel's owner, a member of the owner's group (i.e., the owner, the
parent of the owner, or a subsidiary or affiliate of the parent) or to
an officer, director, or shareholder of the owner or a member of the
owner's group.
The general approval of certain transfers to non-citizens currently
provided for in 46 CFR 221.13 was based on a statutory scheme in which
a non-citizen could not be the owner and time charterer of a vessel.
Prior to 1996, an owner of a vessel documented with a coastwise
endorsement generally had to be a U.S. citizen. After passage of the
Coast Guard Authorization Act of 1996, a vessel owner could be a non-
citizen if the vessel was chartered under a demise charter to a U.S.
citizen. Because 46 CFR 221.13 was not amended, the U.S.-citizen demise
charterer of the vessel could still sub-charter the vessel to a non-
citizen. If a non-citizen is permitted to own a vessel and to time
charter the vessel back to itself or a related entity, it can
potentially exert much greater control over the operation of the
vessel. Accordingly, MARAD review of these transfers is warranted under
46 App. U.S.C. 808(c)(1).
If you believe that there is a more effective way to ensure that
control of the vessel is not returned to the owner's group, please
provide comments. In addition, if you believe that the review or
restriction of charter back arrangements in this limited circumstance
will unduly restrict competition in the coastwise trade, we request
that you provide comments.
Assessment
Coast Guard
Due to substantial public interest, the Coast Guard's proposed rule
is 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. A draft Assessment follows:
The grandfather provisions in Sec. 67.20(b) through (e) would be
revised to incorporate an appropriate time period after which the
provision would no longer apply. The proposed rule would affect a small
number of vessel owners and charterers whose coastwise endorsements
were issued under the lease-financing provision since the passage of
the Act in 1996.
Currently, there are 87 entities that have had their coastwise
endorsements approved under the lease-financing option. We anticipate
that at least two of these entities could be adversely affected by this
proposed rule and could not, through the lease finance mechanism,
charter back a vessel to an
[[Page 5407]]
entity related to the foreign owned entity that is financing the
vessel. Under the proposed regulations, a vessel operator is not
precluded from using lease financing as a mechanism for financing the
vessel. The regulations would potentially restrict the operation of
vessels that are documented under the lease-financing provisions to
ensure that the vessels are properly chartered. The affected vessel
owners are still free to engage in lease financing with an entity that
qualifies as a U.S. citizen or a foreign owned entity that is not
related to the time charterer of the vessel. Nevertheless, the vessel
operator is not prohibited from using lease financing under the
proposed regulations.
Although the proposed rule promulgates limitations to the
grandfather provisions, it would allow companies to have a significant
amount of time for planning and exploring other options. Based on this
amount of time, we estimate the economic impact to be minimal. We
encourage comments on this assessment, particularly those that clearly
illustrate any specific negative economic impact of this proposed
rulemaking.
Maritime Administration
Due to substantial public interest, MARAD's proposed rule is a
``significant regulatory action'' under section 3(f) of Executive Order
12866, Regulatory Planning and Review, and does require an assessment
of potential costs and benefits under section 6(a)(3) of that Order.
The Office of Management and Budget has reviewed it under that Order.
It is ``significant'' under the regulatory policies and procedures of
the Department of Transportation (DOT) (44 FR 11040, February 26,
1979). A draft Assessment follows:
The proposed rule proposes to reinstate MARAD's review of transfers
of control to non-citizens where the vessel has been documented by a
non-citizen under the lease-financing provisions at 46 U.S.C. 12016(e)
and the transfer is back to the non-citizen vessel owner or a related
entity. When MARAD amended its regulations in 1992 to grant general
approval for time charters of U.S.-flag vessels to charterers that were
not U.S. Citizens, there was no opportunity for a non-citizen to be
both the owner and charterer of a vessel engaged in coastwise trade.
However, enactment of the lease-financing provisions inadvertently
created that opportunity. Lease-financing provisions are intended to
provide increased sources of capital for qualified owners engaged in
coastwise trade. These provisions are not intended to allow increased
ownership and control of coastwise vessels by non-U.S. citizens.
MARAD's review of charter arrangements in the limited circumstances
where the time charterer is related to the non-citizen vessel owner
will ensure that U.S. Citizens maintain control over vessels operating
in the coastwise trade.
This proposed rulemaking modifies, but does not negate, financing
opportunities available to some businesses engaged in coastwise trade.
The rule continues to provide flexible financing structures and
increased sources of capital to qualified U.S. entities that are
entitled to engage in domestic trade. The corresponding costs and
benefits of these changes in financing opportunities are not
quantifiable at this time. Non-quantifiable benefits, however, are
apparent. Effective enforcement of the Nation's cabotage laws has
proven critical for several reasons. The cabotage laws help retain
skilled merchant mariners, providing a strong U.S. merchant marine
available to operate U.S. vessels in time of national emergency. In
addition, these laws play a key role in preserving domestic capacity
for shipbuilding and repair. Finally, in these days of heightened
concerns about national security, it is evermore important to maintain
transparency regarding vessel ownership and control.
Since 1996, only 87 entities have applied to document a vessel
using the lease-financing provisions and, of those, only 30 have
engaged in a charter back to the vessel owner or an entity related to
the vessel owner. Accordingly, we expect the requirement for MARAD
review to impact a very limited number of entities seeking to document
a vessel with a coastwise endorsement. Furthermore, we believe that
few, if any, of the 30 foreign-owned entities that own vessels
documented under the lease-financing provisions that charter back to
affiliates qualify as small businesses as defined by the Small Business
Administration (see below).
Small Entities
Coast Guard
Under the Regulatory Flexibility Act (5 U.S.C. 601-612), the Coast
Guard has considered whether its proposed 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.
Currently, there are 87 entities that have had their coastwise
endorsements approved under the lease-financing option. We anticipate
that a minimal number of these entities could be adversely affected by
this rule and would have to resort to using mortgage, rather than
lease, financing.
Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that
this proposed rule would not have a significant economic impact on a
substantial number of small entities. If you think that your business,
organization, or governmental jurisdiction qualifies as a small entity
and that this rule would have a significant economic impact on it,
please submit a comment to the Coast Guard's docket at the Docket
Management Facility. (See ADDRESSES.) In your comment, explain why you
think it qualifies and how and to what degree this rule would
economically affect it.
Maritime Administration
Under the Regulatory Flexibility Act (5 U.S.C. 601-612), MARAD has
considered whether its proposed 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.
Currently, there are 87 entities that have had their coastwise
endorsements approved under the lease-financing option. We anticipate
that a minimal number of these entities would be required to submit
charters and other documents to MARAD for review, but only a subset of
these entities would not be allowed to enter into time charters.
Therefore, MARAD certifies under 5 U.S.C. 605(b) that this proposed
rule would not have a significant economic impact on a substantial
number of small entities. If you think that your business,
organization, or governmental jurisdiction qualifies as a small entity
and that this rule would have a significant economic impact on it,
please submit a comment to the Coast Guard's docket at the Docket
Management Facility. (See ADDRESSES.) In your comment, explain why you
think it qualifies and how and to what degree this rule would
economically affect it.
Assistance for Small Entities
Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Public Law 104-121), the Coast Guard and MARAD
want
[[Page 5408]]
to assist small entities in understanding these proposed rules so that
they can better evaluate their effects on them and can participate in
these rulemakings. If the rules would affect your small business,
organization, or governmental jurisdiction and you have questions
concerning its provisions or options for compliance, please consult
Patricia Williams, Deputy Director, National Vessel Documentation
Center (NVDC), Coast Guard, telephone 304-271-2506 or Rita Thomas,
Small Business Specialist, Maritime Administration, telephone 202-366-
5757.
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 or the Maritime
Administration, call 1-888-REG-FAIR (1-888-734-3247).
Collection of Information
Coast Guard
This proposed rule would call for no new collection of information
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
Maritime Administration
This proposed rule would call for a collection of information under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). As defined
in 5 CFR 1320.3(c), ``collection of information'' comprises reporting,
recordkeeping, monitoring, posting, labeling, and other, similar
actions. The title and description of the information collections, a
description of those who must collect the information, and an estimate
of the total annual burden follow. The estimate covers the time for
reviewing instructions, searching existing sources of data, gathering
and maintaining the data needed, and completing and reviewing the
collection.
The information collection requirements of the rule are addressed
in the previously approved OMB collection titled ``Request for Transfer
of Ownership, Registry, and Flag, or Charter, Lease, or Mortgage of
U.S. Citizen Owned Documented Vessels'' (OMB 2133-0006).
Title: Request for Transfer of Ownership, Registry, and Flag, or
Charter, Lease, or Mortgage of U.S. Citizen Owned Documented Vessels
Summary of the Collection of Information: Persons operating
documented vessels under a demise charter and using lease financing
would be required to provide the information related to the identity of
the vessel owner, bareboat charterer and time charterer as well as
copies of the time charter.
Need for Information: The required information is needed in order
for MARAD to make the required approvals under section 9 of the
Shipping Act, 1916, 46 App. U.S.C. 802(c), regarding transfers of any
interest or control of a documented vessel to persons that are not
Citizens of the United States.
Proposed Use of Information: The information related to the
identity of the vessel owner, bareboat charterer and time charterer as
well as copies of the time charter would be used to ensure that there
is not an impermissible transfer of control to non-citizens of U.S.-
flag coastwise qualified vessels.
Description of the Respondents: Persons operating documented
vessels under a demise charter and using lease financing.
Number of Respondents: We estimate that less than five new
respondents/responses will be added annually to the already approved
collection. For purposes of this rulemaking the estimate of five
responses is used.
Frequency of Response: Whenever a vessel that is documented
pursuant to 46 U.S.C. 12106(e) for operation in the coastwise trade is
chartered back to the vessel owner or an entity related to the vessel
owner. We estimate the additional response to be less than five per
year.
Burden of Response: The burden per response as previously approved
in OMB 2133-0006 is estimated to be approximately two hours.
Estimate of Total Annual Burden: $213.60 annually.
As required by the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)), we have submitted a copy of this proposed rule to the Office
of Management and Budget (OMB) for its review of the collection of
information.
We ask for public comment on the proposed collection of information
to help us determine how useful the information is; whether it can help
us perform our functions better; whether it is readily available
elsewhere; how accurate our estimate of the burden of collection is;
how valid our methods for determining burden are; how we can improve
the quality, usefulness, and clarity of the information; and how we can
minimize the burden of collection.
If you submit comments on the collection of information, submit
them both to OMB and to the Docket Management Facility where indicated
under ADDRESSES, by the date under DATES.
You need not respond to a collection of information unless it
displays a currently valid control number from OMB. Before the
requirements for this collection of information become effective, we
will publish notice in the Federal Register of OMB's decision to
approve, modify, or disapprove the collection.
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. The Coast Guard and the Maritime
Administration have analyzed these proposed rules under that Order and
have determined that they do 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 these proposed rules would not result in such
expenditures, both agencies do discuss the effects of their rules
elsewhere in this preamble.
Taking of Private Property
These proposed rules would 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.
Civil Justice Reform
These proposed rules meet 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
Both agencies have analyzed these proposed rules under Executive
Order 13045, Protection of Children from Environmental Health Risks and
Safety Risks. These rules are not economically significant rules and
would not create
[[Page 5409]]
an environmental risk to health or risk to safety that may
disproportionately affect children.
Indian Tribal Governments
These proposed rules do not have tribal implications under
Executive Order 13175, Consultation and Coordination with Indian Tribal
Governments, because they would 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
The Coast Guard and the Maritime Administration have analyzed these
proposed rules under Executive Order 13211, Actions Concerning
Regulations That Significantly Affect Energy Supply, Distribution, or
Use. We have determined that they are not ``significant energy
actions'' under that order, although the Coast Guard's proposed rule is
considered a ``significant regulatory action'' under Executive Order
12866. We expect that these rulemakings will not have any 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 these rulemakings as significant energy
actions. Therefore, they do not require a Statement of Energy Effects
under Executive Order 13211.
We request your comments to assist us in identifying any likely
significant adverse effects that these proposed rules may have on the
supply, distribution, or use of energy. Submit your comments to the
Docket Management Facility at the address under ADDRESSES.
Environment
Coast Guard
The Coast Guard analyzed its proposed rule under Commandant
Instruction M16475.lD, which guides the Coast Guard in complying with
the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-
4370f), and has concluded that there are no factors in this case that
would limit the use of a categorical exclusion under section 2.B.2 of
the Instruction. Therefore, this rule is categorically excluded, under
figure 2-1, paragraph (34)(d), of the Instruction, from further
environmental documentation. This proposed rulemaking is administrative
in nature and concerns requirements for application for a coastwise
endorsement under 46 U.S.C. 12106(e). A draft ``Environmental Analysis
Check List'' and a draft ``Categorical Exclusion Determination'' are
available in the docket where indicated under ADDRESSES. Comments on
this section will be considered before we make the final decision on
whether this rule should be categorically excluded from further
environmental review.
Maritime Administration
MARAD has analyzed this proposed rule for purposes of compliance
with the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et
seq.) and has concluded that under the categorical exclusions provision
in section 4.05 of Maritime Administrative Order 600-1, ``Procedures
for Considering Environmental Impacts,'' (50 FR 11606, March 22, 1985),
the preparation of an Environmental Assessment and an Environmental
Impact Statement, or a Finding of No Significant Impact for this
rulemaking is not required. This rulemaking involves administrative and
procedural regulations that clearly have no environmental impact.
List of Subjects
46 CFR Part 67
Reporting and recordkeeping requirements, Vessels.
46 CFR Part 221
Maritime carriers, Reporting and recordkeeping requirements,
Vessels.
Coast Guard
46 CFR Chapter I
For the reasons discussed in the preamble, the Coast Guard proposes
to amend 46 CFR part 67 as follows:
PART 67--DOCUMENTATION OF VESSELS
1. The authority citation for part 67 is revised to read as
follows:
Authority: 14 U.S.C. 664; 31 U.S.C. 9701; 42 U.S.C. 9118; 46
U.S.C. 2103, 2107, 2110, 12106, 12120, 12122; 46 U.S.C. app. 876;
Department of Homeland Security Delegation No. 0170.1.
2. In Sec. 67.20, revise paragraphs (a)(6), (a)(9), (b), (c), (d),
and (e) to read as follows:
Sec. 67.20 Coastwise endorsement for a vessel under a demise charter.
(a) * * *
(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 or by a member of the group of which
the owner is a member.
* * * * *
(9) 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 a 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. For purposes of this section, a demise
charterer is not considered to be the owner pro hac vice when the
vessel is subject to a sub-charter to a member of the group of which
the vessel's owner is a member, except when the vessel is engaged in
carrying cargo owned by the vessel's owner or by a member of the group
of which the vessel's owner is a member.
* * * * *
(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 for 3 years after that date and may renew the
document and endorsement during that period 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 for 3 years after the initial issuance
of that endorsement and may renew the document and endorsement during
that period 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 the coastwise trade before February 4, 2004, may continue
to operate in that trade for 3 years 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;
[[Page 5410]]
(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.
(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 the coastwise trade under 46 U.S.C.
12106(e) and 12110(b). The barge may continue to operate in the
coastwise trade for 3 years after its initial entry into service
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.
* * * * *
Dated: January 29, 2004.
Thomas H. Collins,
Admiral, Coast Guard Commandant.
Maritime Administration
46 CFR Chapter II
For the reasons discussed in the preamble, the Maritime
Administration proposes to amend 46 CFR part 221 as follows:
PART 221-REGULATED TRANSACTIONS INVOLVING DOCUMENTED VESSELS AND
OTHER MARITIME INTERESTS
1. The authority citation for part 221 continues to read as
follows:
Authority: 46 App. U.S.C. 802, 803, 808, 835, 839, 841a,
1114(b), 1195, 46 U.S.C. chs.301 and 313; 49 U.S.C. 336; 49 CFR
1.66.
Sec. 221.11 [Amended]
2. In Sec. 221.11(a) introductory text, after the words ``United
States Code,'' add the words ``as limited by Sec. 221.13(c),''.
3. In Sec. 221.13, in paragraph (a)(1)(iii), remove the period and
add, in its place, ``; and''; and add new paragraphs (a)(1)(iv) and (c)
to read as follows:
Sec. 221.13 General approval.
(a) * * *
(1) * * *
(iv) As limited by paragraph (c) of this section for vessels
documented with a coastwise endorsement pursuant to 46 U.S.C. 12106(e).
* * * * *
(c) Lease financing. A Person operating, under a demise charter, a
Vessel that is documented pursuant to 46 U.S.C. 12016(e) must obtain
the approval of the Maritime Administrator required by 46 App. U.S.C.
808(c)(1) for the sale, lease, Charter, delivery, or any other manner
of Transfer back to the vessel owner, a member of the owner's group (as
the word ``group'' is defined in 46 CFR 67.3), or an officer, director,
or shareholder of the owner or a member of the owner's group. As
defined in 46 CFR 67.3, the word ``group'' includes the owner, the
owner's parent, and all subsidiaries and affiliates of the parent; and
the word ``affiliate'' means a Person that is less than 50 percent
owned or controlled by another Person.
By Order of the Maritime Administrator.
Dated: January 22, 2004.
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 04-2231 Filed 1-30-04; 11:34 am]
BILLING CODE 4910-15-P