[Federal Register Volume 69, Number 23 (Wednesday, February 4, 2004)]
[Proposed Rules]
[Pages 5403-5410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2231]



  Federal Register / Vol. 69, No. 23 / Wednesday, February 4, 2004 / 
Proposed Rules  

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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

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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

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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

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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