Vessel Documentation: Lease Financing for Vessels Engaged in the Coastwise Trade, 7897-7910 [06-1242]

Agencies

• Coast Guard
• DEPARTMENT OF HOMELAND SECURITY

[Federal Register Volume 71, Number 31 (Wednesday, February 15, 2006)]
[Proposed Rules]
[Pages 7897-7910]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-1242]


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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 67 and 68

[USCG-2005-20258]
RIN 1625-AA95


Vessel Documentation: Lease Financing for Vessels Engaged in the 
Coastwise Trade

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes to amend its regulations for 
documenting lease-financed vessels that have a ``coastwise 
endorsement'' (i.e., vessels used in trade and passenger service within 
the U.S. or between U.S. ports and those used in dredging and towing in 
U.S. waters). The vessels affected by this proposal are owned by 
foreign-owned or controlled U.S. companies, where there is a ``demise 
charter'' to a U.S. citizen (i.e., an agreement for the charterer to 
assume responsibility for operating, crewing, and maintaining the 
vessel as if the charterer owned it).

DATES: Comments and related material must reach the Docket Management 
Facility on or before May 16, 2006. Comments sent to the Office of 
Management and Budget (OMB) on collection of information must reach OMB 
on or before May 16, 2006.

ADDRESSES: You may submit comments identified by Coast Guard docket 
number USCG-2005-20258 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: https://dms.dot.gov.
    (2) Mail: Docket Management Facility, U.S. Department of 
Transportation, 400 Seventh Street SW., Washington, DC 20590-0001.
    (3) Fax: 202-493-2251.
    (4) Hand 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: https://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: If you have questions on this proposed 
rule, call Patricia Williams, Deputy Director, National Vessel 
Documentation Center, Coast Guard, telephone 304-271-2506. If you have 
questions on viewing or submitting material to the docket, call Renee 
V. Wright, Program Manager, Docket Operations, telephone 202-493-0402.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Public Participation and Request for Comments
II. Background and Purpose
III. Discussion of Proposed Rule
    A. Third-party audits.
    B. Waiver of qualified proprietary cargo requirement by the 
Secretary of Transportation.
    C. Reorganization of the requirements for a coastwise 
endorsement under a demise charter.
    D. Derivation table for proposed 46 CFR part 68.
    E. Changes to existing 46 CFR part 67.
    F. Requirements under the 2004 Act (proposed subpart C).
    G. Existing requirements under 46 CFR part 67 (proposed subpart 
D).
IV. Regulatory Analysis
V. List of Subjects
VI. Regulatory Text

I. Public Participation and Request for Comments

    We encourage you to participate in this rulemaking by submitting 
comments and related materials. All comments received will be posted, 
without change, to https://dms.dot.gov and will include any personal 
information you have provided. We have an agreement with the Department 
of Transportation (DOT) to use the Docket Management Facility. Please 
see DOT's ``Privacy Act'' paragraph below.

[[Page 7898]]

    Submitting comments: If you submit a comment, please include your 
name and address, identify the docket number for this rulemaking (USCG-
2005-20258), 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 
hand 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 https://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 p.m., Monday through 
Friday, except Federal holidays.
    Public Meeting: We do not now plan to hold a public meeting. But 
you may submit a request for one to the Docket Management Facility at 
the address under ADDRESSES explaining why one would be beneficial. If 
we determine that one would aid this rulemaking, we will hold one at a 
time and place announced by a later notice in the Federal Register.
    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 
https://dms.dot.gov.

II. Background and Purpose

    The Coast Guard Authorization Act of 1996 (1996 Act) amended the 
vessel documentation laws to promote lease financing of vessels with a 
coastwise endorsement on their certificate of documentation. Public Law 
104-324, section 1113(d), 46 U.S.C. 12106(e). A coastwise endorsement 
is required to engage in trade and passenger service within or between 
U.S. ports and in dredging and towing in U.S. waters. The vessels 
affected by this proposal are owned by foreign-owned or controlled U.S. 
companies that are demise chartered to a coastwise qualified U.S. 
citizen. A coastwise qualified citizen can be either an individual who 
is a U.S. citizen or any other entity that is at least 75 percent U.S. 
owned and controlled.
    Lease financing has become a very common way to finance capital 
assets in the maritime industry. Under lease financing, ownership of 
the vessel is in the name of the owner, with a demise charter to the 
charterer (i.e., the operator) of the vessel. A demise or 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. Because of the potential cost savings, many 
vessel operators choose to acquire or build vessels through lease 
financing, instead of the traditional mortgage financing. But, until 
the 1996 Act, operators were prevented from obtaining lease financing 
from U.S. companies that are less than 75 percent U.S. owned, because 
the leasing company had to be a U.S. citizen under section 2 of the 
Shipping Act, 1916, which requires at least 75 percent U.S. ownership. 
46 U.S.C. app. 802.
    The Coast Guard published a final rule in the Federal Register on 
February 4, 2004, implementing most of the provisions of the 1996 Act. 
69 FR 5390. On the same day, the Coast Guard and the Maritime 
Administration published a joint notice of proposed rulemaking (NPRM) 
entitled ``Vessel Documentation: Lease Financing for Vessels Engaged in 
the Coastwise Trade; Second Rulemaking.'' 69 FR 5403. However, on 
August 9, 2004, the President signed the Coast Guard and Maritime 
Transportation Act of 2004 (2004 Act), which made amendments to 46 
U.S.C. 12106 with regard to certain vessels engaged in the coastwise 
trade. Public Law 108-293. In response to those changes, the Coast 
Guard and Maritime Administration withdrew the joint NPRM. 70 FR 19376 
(Apr. 13, 2005).
    Subsection 608(a) of the 2004 Act adds a new paragraph (f) to 46 
U.S.C. 12106 setting forth an ownership certification requirement. 
Under subsection 608(a), the owner of a lease-financed vessel must now 
certify each year:
     That it (or, if the vessel is owned by a trust or similar 
arrangement, the beneficiary of the trust or similar arrangement) is a 
leasing company, bank, or financial institution;
     That it owns or holds the beneficial interest in the 
vessel solely as a ``passive investment,'' as defined in 608(a);
     That it does not operate any vessel for hire and is not an 
affiliate of any person who operates any vessel for hire; and
     That it is independent from, and not an affiliate of, any 
charterer of the vessel or any person who has the right, directly or 
indirectly, to control or direct the movement or use of the vessel.
    In addition, subsection 608(a) allows a separate certification for 
tank vessels that primarily carry qualified proprietary cargo such as 
oil, petroleum products, petrochemicals, or liquefied natural gas. 
Subsection 608(b) provides requirements for a few particular vessels in 
the Alaska trade and is referenced in the note to proposed Sec.  68.60. 
Subsection 608(c) provides for a permanent grandfather from the 
provisions of subsection 608(a) for most vessels documented under 46 
U.S.C. 12106(e) on or before August 9, 2004, the date of enactment of 
the 2004 Act.

III. Discussion of Proposed Rule

    This NRPM would amend the regulations on the documentation for 
U.S.-built vessels owned by foreign-owned or controlled U.S. companies 
that are lease financed to a U.S. citizen for use in the coastwise 
trade. This proposed rule addresses amendments provided by Congress 
under the 2004 Act concerning information needed to determine the 
eligibility of a vessel owner for a coastwise endorsement under the 
lease-financing law. Specifically, it proposes the following changes:
     Update and provide consistent documentation requirements 
to determine the eligibility of lease-financed vessels for coastwise 
endorsements.
     Permanently grandfather, from the new requirements, all 
lease-financed vessels, except for offshore supply vessels (OSV) 
documented on or before August 9, 2004.
     Require owners of lease-financed OSVs with valid coastwise 
endorsements issued before August 9, 2004, to reapply for a new 
coastwise endorsement by August 9, 2007.
     Require all owners of lease-financed vessels with 
recently-issued coastwise endorsements (i.e., those issued after August 
9, 2004) to certify each year that their ownership and investment 
status has not changed.

[[Page 7899]]

     Require entities that enter into a demise sub-charter 
agreement to file a copy of the sub-charter and amendments to the sub-
charter with the Director of the National Vessel Documentation Center 
(NVDC).
    A. Third-party audits. Our February 4, 2004, NPRM that was 
withdrawn on April 13, 2005, requested comments as to whether we should 
require that endorsement applications to the Coast Guard be audited by 
a third party. 69 FR 5403. We stated that we were considering requiring 
each applicant to provide 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 
would in fact qualify under the lease-financing statute and 
regulations. However, we recognized that this additional requirement 
would add time and cost to the process of preparing the application. We 
expressed particular interest in obtaining comments on this question.
    The responses received were evenly split between those favoring 
third-party audits and those opposing it. However, in light of the new 
self-certification requirement in section 608 of the 2004 Act, which is 
reflected in proposed Sec.  68.65, it would appear that the cost of 
third-party audits would outweigh any benefits. 46 U.S.C. 12106(f). The 
2004 Act prohibits owners from being affiliates of vessel operators, 
which should not require a third-party audit. For this reason, we have 
not included a third-party-audit requirement in our proposed regulatory 
changes. However, before reaching a conclusion on this matter, we again 
seek comments on this question.
    B. Waiver of qualified proprietary cargo requirement by the 
Secretary of Transportation. Section 608(d) of the 2004 Act authorizes 
the Secretary of Transportation to waive or reduce the requirement that 
at least 70 percent of annual cargo consist of qualified proprietary 
cargo under 46 U.S.C. 12106(f)(3)(A)(iii) for vessels owned by entities 
with ship-operating affiliates. This provision will be handled by the 
Secretary of Transportation under subsection 608 and will not be 
implemented by this proposed rule. See the note at the end of proposed 
Sec.  68.65.
    C. Reorganization of the requirements for a coastwise endorsement 
under a demise charter. To improve organization of the existing 
regulations for qualifying and documenting a vessel with a coastwise 
endorsement under a demise charter, we propose that they be 
transferred, without substantive change (except as described in 
paragraph G below), from 46 CFR part 67 to 46 CFR part 68, which deals 
with other exceptions to the normal coastwise rules. In addition, all 
of the subparts and sections in existing part 68 would be re-designated 
to remove the outmoded, hyphenated numbering system. The existing 
regulations for coastwise endorsement under a demise charter would be 
placed in proposed subpart D and the new regulations under the 2004 Act 
would be placed in proposed subpart C. The following derivation table 
sets out the sources of each of the re-designated subparts and 
sections.
    D.  Derivation table for proposed 46 CFR part 68.

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                 Proposed                              Source
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Subpart A.................................  Subpart 68.01.
Sec.   68.1...............................  New.
Sec.   68.3...............................  68.01-1.
Sec.   68.5...............................  68.01-3.
Sec.   68.7...............................  68.01-5.
Sec.   68.9...............................  68.01-7.
Sec.   68.11..............................  68.01-9.
Sec.   68.13..............................  68.01-11.
Sec.   68.15..............................  68.01-13.
Sec.   68.17..............................  68.01-15.
Sec.   68.19..............................  68.01-17.
Appendix A to Subpart A...................  Appendix A to Subpart 68.01.
Appendix B to Subpart A...................  Appendix B to Subpart 68.01.
Subpart B.................................  Subpart 68.05.
Sec.   68.25..............................  68.05-1.
Sec.   68.27..............................  68.05-3.
Sec.   68.29..............................  68.05-5.
Sec.   68.31..............................  68.05-7.
Sec.   68.33..............................  68.05-9.
Sec.   68.35..............................  68.05-11.
Sec.   68.37..............................  68.05-13.
Appendix A to Subpart B...................  Appendix A to Subpart 68.05.
Appendix B to Subpart B...................  Appendix B to Subpart 68.05.
Subpart C.................................  New.
Sec.   68.50..............................  New.
Sec.   68.55..............................  New.
Sec.   68.60..............................  67.20.
Sec.   68.65..............................  New.
Sec.   68.70(a)...........................  New.
Sec.   68.70(b)...........................  67.147(b).
Sec.   68.75(a)(1) to (a)(5)..............  67.179.
Sec.   68.75(a)(6)........................  67.147(a)(1) and (a)(2).
Sec.   68.80..............................  New.
Subpart D.................................  New.
Sec.   68.100.............................  New.
Sec.   68.103.............................  New.
Sec.   68.105.............................  New.
Sec.   68.107.............................  67.147.
Sec.   68.109.............................  67.179.
Sec.   68.111.............................  67.167(c)(10).
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    Part 68 would be renamed ``DOCUMENTATION OF VESSELS: COASTWISE 
ENDORSEMENT; EXCEPTIONS TO OWNERSHIP QUALIFICATION.'' This heading 
better reflects the purpose of part 68, which already contains the 
existing rules for coastwise qualification of vessels documented under 
the Bowaters Amendment and for oil spill response vessels. It would now 
also contain the lease-financing provisions under 46 U.S.C. 12106(e).
    Existing subpart 68.03, which had been reserved for documentation 
of vessels under the Act of August 9, 1954, but which was never used, 
would be removed as unnecessary.
    E. Changes to existing 46 CFR part 67. Because of the above 
described reorganization, the existing lease-financing provisions in 
part 67 would be moved, without substantive change (except as described 
in paragraph G below), to part 68, subpart D. The definitions of 
certain terms in Sec.  67.3 would be relocated to proposed Sec.  
68.103.
    Section 67.20, Coastwise endorsement for a vessel under a demise 
charter, would be transferred to 68.105. References to 67.20 would be 
removed from Sec.  67.35(c), 67.36(c)(2), and 67.39(c)(2) and replaced 
with references to Sec.  68.60 or 68.105.
    Section 67.147, Application procedure: Coastwise endorsement for a 
vessel under a demise charter, would be revised and re-designated as 
proposed 68.60, Eligibility of a vessel for a coastwise endorsement 
under [subpart C].
    In 67.167, Requirements for exchange of Certificate of 
Documentation, paragraph(c)(10) would be revised by removing the list 
of requirements for exchange of a Certificate of Documentation for a 
vessel endorsement under 46 U.S.C. 12106(e). This would be replaced 
with a reference to the requirements now in proposed Sec.  68.80 and 
68.111. Paragraph (c)(11) of 67.167 would be removed.
    Section 67.179, Application Procedure: Coastwise operation of a 
barge under a demise charter, is revised and re-designated as proposed 
68.75, Application procedure for barges to be operated in coastwise 
trade without being documented.
    F. Requirements under the 2004 Act (proposed subpart C). These 
proposed requirements track subsection 608(a) of the 2004 Act, which 
added new paragraph (f) to 46 U.S.C. 12106, setting forth an ownership 
certification requirement. New subpart C, consisting of Sec. Sec.  
68.50 through 68.80, would address vessels with a coastwise endorsement 
issued on or after August 9, 2004. Section 68.50 would provide the 
purpose and applicability of the new subpart. Section 68.55 would 
include the definition of the terms ``affiliate,'' ``cargo,'' ``oil,'' 
``operation or

[[Page 7900]]

management,'' ``passive investment,'' ``qualified proprietary cargo,'' 
``sub-charter,'' and ``United States affiliate.'' These definitions 
would come from the 2004 Act.
    G. Existing requirements under 46 CFR part 67 (proposed subpart D). 
These requirements would be moved from part 67 to the new part 68, 
subpart D, consisting of Sec.  68.100 through 68.111, which would 
address vessels with a coastwise endorsement issued before August 9, 
2004.
    The 2004 Act granted special rights to vessels under a demise 
charter that were eligible for, and received, a document with a 
coastwise endorsement before August 9, 2004; to barges deemed eligible 
to operate in coastwise trade before August 9, 2004, without being 
documented; and to certain replacement vessels. Until August 9, 2007, 
this subpart would also apply to OSVs with a certificate of 
documentation endorsed, as of August 9, 2004, with a coastwise 
endorsement under 46 U.S.C. 12106(e).
    Proposed 68.103 would set forth definitions for terms carried over 
from existing Sec.  67.3.
    Proposed Sec.  68.107(d) and (e) and 68.109(d) and (e) (as 
transferred from existing Sec.  67.147(d) and 67.179(d)) would change 
the provision for notifying the Coast Guard's NVDC of sub-charters. In 
the existing regulations, notice is required only when requested by the 
Director of the NVDC. These provisions would be changed to require 
notice of demise sub-charters even without a request from the Director, 
while notice of other sub-charters remains only upon request by the 
Director. These changes, also found in proposed Sec. Sec.  68.70(d) and 
(e) and 68.75(d) and (e), would assist the Coast Guard in determining 
whether an entity meets the statutory requirements.

IV. Regulatory Analysis

Assessment

    This 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 (OMB) has reviewed it under that 
Order. It requires an assessment of potential costs and benefits under 
section 6(a)(3) of that Order. We expect the economic impact of this 
proposed rule to be minimal. A draft Regulatory Analysis is available 
in the docket where indicated under the ``Public Participation and 
Request for Comments'' section of this preamble. A summary of the 
analysis follows:
    The Coast Guard proposes to amend its regulations on the 
documentation for U.S.-built vessels owned by foreign-owned or 
controlled U.S. companies that are lease financed to a U.S. citizen for 
use in the coastwise trade. This proposed rule mostly addresses 
amendments provided by Congress under the Coast Guard and Maritime 
Transportation Act of 2004 concerning information needed to determine 
the eligibility of a vessel owner for a coastwise endorsement under the 
lease-financing law.
    This proposed rule would update and provide consistent 
documentation requirements to determine the eligibility of lease-
financed vessels for coastwise endorsements as discussed under the 
``Discussion of Proposed Rule'' section of this preamble. The proposed 
rule also implements the Congressionally-mandated permanent 
grandfathering of all lease-financed vessels, except for OSVs 
documented on or before August 9, 2004, from the new requirements. 
However, this proposed rule would make three changes to the existing 
regulations that would cause additional costs to industry. First, it 
would require owners of lease-financed OSVs with valid coastwise 
endorsements issued before August 9, 2004, to reapply for a new 
coastwise endorsement by August 9, 2007. Second, it would require all 
owners of lease-financed vessels with recently issued coastwise 
endorsements (i.e., those issued after August 9, 2004) to certify each 
year that their ownership and investment status has not changed. 
Lastly, it would require entities that enter into a demise sub-charter 
agreement to file a copy of the sub-charter and amendments to the sub-
charter with the Director of the NVDC. These changes are additional 
collection-of-information (paperwork) requirements.
    Based on Coast Guard data, there are currently eight owners of OSVs 
that would be affected by this proposed rule. We also estimate from the 
Coast Guard data and from NVDC information that there would be 25 
current and future owners affected by the annual certification 
requirements of this proposed rule, which includes the eight owners of 
OSVs affected by this proposed rule. We do not have historical data on 
the number of affected entities impacted by the proposed collection-of-
information requirements for demise sub-charter agreements. We assume 
there would be approximately three demise sub-charter agreements over 
the next 10 years based on NVDC projections.
    We estimate that the total first-year cost of this proposed rule to 
industry is $11,059. This first-year cost includes the one-time cost to 
the affected OSV owners to reapply for a new coastwise endorsement, the 
first year cost of annual certification for the affected vessel owners, 
and a portion of the cost to affected vessel charterers associated with 
paperwork submissions of future demise sub-charter agreements. After 
the first year of implementation, the total annual cost of this 
proposed rule to industry is $1,621, which is the first-year cost less 
the one-time cost to the affected OSV owners to reapply for a new 
coastwise endorsement. The estimated 10-year (2005-2014), discounted 
present value of the total cost of this proposed rule to all affected 
owners and charterers is $21,623 based on a 7 percent discount rate and 
$23,684 based on a 3 percent discount rate.
    The benefit of this proposed rule would be that it updates and 
provides consistent documentation requirements. These requirements 
comply with mandates provided by Congress under the 2004 Act concerning 
information and documentation needed to determine the eligibility of a 
vessel owner. These updated documentation requirements would assist the 
Coast Guard in determining the eligibility of lease-financed vessels 
for coastwise endorsements. We need this information to determine 
whether an entity meets the current statutory requirements. The result 
of these proposed documentation requirements would support our efforts 
to accurately issue coastwise endorsements to eligible lease-financed 
vessels.
    We are interested in the potential impacts from this proposed rule. 
If you think that this proposed rule would have a significant economic 
impact on you, your business, or your organization, please submit a 
comment to the Docket Management Facility at the address under 
ADDRESSES. In your comment, explain why, how, and to what degree you 
think this rule would have an economic impact on you.

Small Entities

    Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have 
considered whether this 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. This proposed rule would not have a significant economic impact 
on a substantial number of small entities.
    This proposed rule would affect owners of lease-financed OSVs with 
valid coastwise endorsements issued

[[Page 7901]]

before August 9, 2004, owners of lease-financed vessels with recently-
issued coastwise endorsements, and charterers that enter into a demise 
sub-charter agreement.
    The owners mentioned above are U.S. subsidiaries or branch 
companies that are owned or controlled by larger, foreign, corporate 
affiliates and, therefore, are considered as ``one party with such 
interests aggregated'' under the small business size regulations (13 
CFR 121.103). We determined whether an owner is a small or large entity 
using the North American Industry Classification System (NAICS) codes 
and the small entity revenue or employee size standards provided by the 
U.S. Small Business Administration (SBA).
    Based on our initial determination, the owners in each NAICS code 
category exceed the SBA size standard and are classified as large 
businesses. We used the following NAICS codes and SBA size standards to 
evaluate owner size:
     238910--Site Preparation Contractors, $12 million in 
annual corporate revenue.
     483111--Deep Sea Freight Transportation, 500 annual 
corporate employees.
     532310--General Rental Centers, $6 million in annual 
corporate revenue.
     551111--Bank Holding Companies, $6 million in annual 
corporate revenue.
    There would be costs of this proposed rule for the charterers of 
the lease-financed vessels mentioned above. Charterers would be 
affected by this proposed rule if they enter into a demise sub-charter 
agreement. However, we have determined that the possible charterers 
affected by the additional costs are classified as large businesses. We 
used the following NAICS codes and SBA size standards to evaluate the 
charterer size:
     213112--Support Activities for Oil and Gas Operations, $6 
million in annual corporate revenue.
     483111--Deep Sea Freight Transportation, 500 annual 
corporate employees.
    This initial determination indicates that the owners and charterers 
affected by this proposed rule are classified as large businesses by 
SBA standards. Therefore, at this time, 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 
Docket Management Facility at the address under ADDRESSES. In your 
comment, explain why you think it qualifies and how and to what degree 
this proposed rule would economically affect it.

Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996, we want to assist small entities in understanding 
this proposed rule so that they can better evaluate its effects on them 
and participate in the rulemaking. Public Law 104-121. If the rule 
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), U.S. Coast 
Guard, telephone 304-271-2506. The Coast Guard will not retaliate 
against small entities that question or complain about this rule or any 
policy or action of the Coast Guard.
    Small businesses may send comments on the actions of Federal 
employees who enforce, or otherwise determine compliance with, Federal 
regulations to the Small Business and Agriculture Regulatory 
Enforcement Ombudsman and the Regional Small Business Regulatory 
Fairness Boards. The Ombudsman evaluates these actions annually and 
rates each agency's responsiveness to small business. If you wish to 
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR 
(1-888-734-3247).

Collection of Information

    This proposed rule would call for a collection of information under 
the Paperwork Reduction Act of 1995 and require a revision to an 
existing collection. 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 
collection, 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.
    Under 46 CFR 68.65, 68.70, 68.75, 68.100, 68.107, and 68.109, this 
proposed rule would amend the collection-of-information requirements 
for vessel owners and charterers engaging in the coastwise trade under 
the lease-financing provisions of 46 U.S.C. 12106(e). The Coast Guard 
needs this information to determine whether an entity meets the 
statutory requirements. These provisions will require modifying the 
burden in the collection previously approved by the Office of 
Management and Budget (OMB) under OMB Control Number 1625-0027 
(formerly 2115-0110).
    Title: Vessel Documentation: Lease Financing for Vessels Engaged in 
the Coastwise Trade; Third Rulemaking.
    OMB Control Number: 1625-0027.
    Summary of the Collection of Information: This proposed rule would 
add new collection-of-information requirements in proposed Sec. Sec.  
68.65, 68.70, 68.75, 68.100, 68.107, and 68.109 for vessel owners and 
charterers applying to engage in the coastwise trade under the lease-
financing provisions of 46 U.S.C. 12106(e). These new requirements 
would require a change in previously approved collection under OMB 
Control No. 1625-0027.
    Need for Information: The Coast Guard needs this information to 
determine whether an entity meets the statutory requirements.
    Proposed Use of Information: The Coast Guard would use this 
information to determine whether an entity meets the statutory 
requirements.
    Description of Respondents: The respondents are vessel owners and 
charterers that engage in the coastwise trade under the lease-financing 
provisions of 46 U.S.C. 12106(e). We estimate that this proposed rule 
would involve one-time responses for owners of lease-financed OSVs that 
must reapply for new certificates of documentation, annual responses 
for owners that must submit ownership certifications, and the 
possibility of an additional response every 3 years for entities 
involved in demise sub-charters.
    Number of Respondents: The existing OMB-approved number of 
respondents, as adjusted on February 4, 2004, is 180,035. This proposed 
rule would increase the number of respondents in this OMB-approved 
collection by approximately 25. The total number of respondents would 
be 180,060.
    Frequency of Response: The existing OMB-approved number of 
responses, as adjusted on February 4, 2004, is 245,285. It will vary by 
year due to the grandfathering provisions of the proposed rule. The 
first year of this proposed rule would increase that number by 58. 
After the first year of implementation, the increase would be 25 
annually. We estimate an additional response every 3 years for entities 
involved in demise sub-charters. However, we consider this negligible. 
The total number of responses in the

[[Page 7902]]

first year of implementation would be 245,343 and 245,310 annually 
thereafter.
    Burden of Response: The burden resulting from this proposed rule 
would arise from changes that require entities that own certain lease-
financed OSVs to reapply for new coastwise endorsements and require 
certain entities to submit annual ownership certifications to the NVDC. 
We estimate that it would take a total of 30 minutes per OSV to 
complete the application for a new coastwise endorsement, since the 
current Coast Guard paperwork-burden time for this application (Form 
CG-1258) is 30 minutes. We estimate that it would take 5 minutes 
processing time to sign and submit the annual ownership certification 
form, since the Coast Guard paperwork-burden time for the Endorsement 
Renewal Certification (Form CG-1280), a similar form, is 5 minutes.
    Estimate of Total Annual Burden: The existing OMB-approved total 
annual burden, as adjusted on February 4, 2004, is 50,512 hours. The 
first year of this proposed rule would increase that number by 
approximately 19 hours. After the first year of implementation, the 
increase would be approximately 2 hours annually. The total number of 
hours in the first year of implementation would be 50,531 and 50,514 
annually thereafter.
    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 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.
    We have analyzed this proposed rule under that Order and have 
determined that it does not have implications for federalism.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
requires Federal agencies to assess the effects of their discretionary 
regulatory actions. In particular, the Act addresses actions that may 
result in the expenditure by a State, local, or tribal government, in 
the aggregate, or by the private sector of $100,000,000 or more in any 
one year. Though this proposed rule would not result in such an 
expenditure, we do discuss the effects of this rule elsewhere in this 
preamble.

Taking of Private Property

    This proposed rule 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

    This proposed rule meets applicable standards in sections 3(a) and 
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden.

Protection of Children

    We have analyzed this proposed rule under Executive Order 13045, 
Protection of Children from Environmental Health Risks and Safety 
Risks. This rule is not an economically significant rule and would not 
create an environmental risk to health or risk to safety that might 
disproportionately affect children.

Indian Tribal Governments

    This proposed rule does not have tribal implications under 
Executive Order 13175, Consultation and Coordination with Indian Tribal 
Governments, because it 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

    We have analyzed this proposed rule under Executive Order 13211, 
Actions Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use. We have determined that it is not a ``significant 
energy action'' under that order. Though it is a ``significant 
regulatory action'' under Executive Order 12866, it is not likely to 
have a significant adverse effect on the supply, distribution, or use 
of energy. The Administrator of the Office of Information and 
Regulatory Affairs has not designated it as a significant energy 
action. Therefore, it does not require a Statement of Energy Effects 
under Executive Order 13211.

Technical Standards

    The National Technology Transfer and Advancement Act (NTTAA) (15 
U.S.C. 272 note) directs agencies to use voluntary consensus standards 
in their regulatory activities unless the agency provides Congress, 
through the Office of Management and Budget, with an explanation of why 
using these standards would be inconsistent with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g., specifications of materials, performance, design, or 
operation; test methods; sampling procedures; and related management 
systems practices) that are developed or adopted by voluntary consensus 
standards bodies. This proposed rule does not use technical standards. 
Therefore, we did not consider the use of voluntary consensus 
standards.

Environment

    We have analyzed this 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 
have made a preliminary determination 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, we believe that this rule should 
be 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 the documentation 
of vessels engaged in the coastwise trade. A preliminary 
``Environmental Analysis Check List'' is available in the docket where 
indicated under the ``Public Participation and Request for Comments'' 
section of this preamble. Comments on this section will be considered 
before we make the

[[Page 7903]]

final decision on whether this rule should be categorically excluded 
from further environmental review.

List of Subjects

46 CFR Part 67

    Reporting and recordkeeping requirements, Vessels.

46 CFR Part 68

    Oil pollution, Reporting and recordkeeping requirements, Vessels.

Regulatory Text

    For the reasons discussed in the preamble, the Coast Guard proposes 
to amend 46 CFR parts 67 and 68 as follows:

PART 67--DOCUMENTATION OF VESSELS

    1. The authority citation for part 67 continues 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, 2110; 46 U.S.C. app. 876; Department of Homeland 
Security Delegation No. 0170.1.


Sec.  67.3  [Amended]

    2. In Sec.  67.3, remove the following terms and their definitions: 
``affiliate,'' ``group,'' ``operation or management of vessels,'' 
``parent,'' ``primarily engaged in leasing or other financing 
transactions,'' ``sub-charter,'' and ``subsidiary.''


Sec.  67.20  [Removed]

    3. Remove Sec.  67.20.


Sec.  67.35  [Amended]

    4. In Sec.  67.35(c), remove the words ``Sec.  67.20'' and add, in 
their place, the words ``Sec. Sec.  68.60 or 68.105 of this chapter''.


Sec.  67.36  [Amended]

    5. In Sec.  67.36(c)(2), remove the words ``Sec.  67.20'' and add, 
in their place, the words ``Sec. Sec.  68.60 or 68.105 of this 
chapter''.


Sec.  67.39  [Amended]

    6. In Sec.  67.39(c)(2), remove the words ``Sec.  67.20'' and add, 
in their place, the words ``Sec. Sec.  68.60 or 68.105 of this 
chapter''.


Sec.  67.147  [Removed]

    7. Remove Sec.  67.147.
    8. In Sec.  67.167, in paragraph (c)(9), following the semicolon, 
add the word ``and''; revise paragraph (c)(10) to read as shown below; 
and remove paragraph (c)(11):


Sec.  67.167  Requirement for exchange of Certificate of Documentation.

* * * * *
    (c) * * *
    (10) For a vessel with a coastwise endorsement under 46 U.S.C. 
12106(e), one of the events in Sec. Sec.  68.80 or 68.111 of this 
chapter occurs.
* * * * *


Sec.  67.179  [Removed]

    9. Remove Sec.  67.179.

PART 68--DOCUMENTATION OF VESSELS: EXCEPTIONS TO COASTWISE 
QUALIFICATION

    10. Revise the authority citation for part 68 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, 2110; 46 U.S.C. app. 876; Department of Homeland 
Security Delegation No. 0170.1.

    11. Revise the heading to part 68 to read as shown above.

Subpart 68.03 [Removed]

    12. Remove subpart 68.03.
    13. In part 68--
    a. Redesignate the subparts and their appendices as shown in the 
following table:

------------------------------------------------------------------------
          Old subpart/appendix                 New subpart/appendix
------------------------------------------------------------------------
Subpart 68.01..........................  Subpart A.
Appendix A to Subpart 68.01 of Part 68.  Appendix A to Subpart A of Part
                                          68.
Appendix B to Subpart 68.01 of Part 68.  Appendix B to Subpart A of Part
                                          68.
Subpart 68.03..........................  [Removed].
Subpart 68.05..........................  Subpart B.
Appendix A to Subpart 68.05 of Part 68.  Appendix A to Subpart B of Part
                                          68.
Appendix B to Subpart 68.05 of Part 68.  Appendix B to Subpart B of Part
                                          68.
------------------------------------------------------------------------

    b. In the redesignated subparts, redesignate the sections as shown 
in the following table:

------------------------------------------------------------------------
                        Old section                          New section
------------------------------------------------------------------------
68.01-1....................................................         68.3
68.01-3....................................................         68.5
68.01-5....................................................         68.7
68.01-7....................................................         68.9
68.01-9....................................................        68.11
68.01-11...................................................        68.13
68.01-13...................................................        68.15
68.01-15...................................................        68.17
68.01-17...................................................        68.19
68.05-1....................................................        68.25
68.05-3....................................................        68.27
68.05-5....................................................        68.29
68.05-7....................................................        68.31
68.05-9....................................................        68.33
68.05-11...................................................        68.35
68.05-13...................................................        68.37
------------------------------------------------------------------------

    c. In the redesignated sections listed in the first column of the 
following table, the reference in the second column is revised to read 
as shown in the third column:

------------------------------------------------------------------------
                                                    Old          New
                  New section                    reference    reference
------------------------------------------------------------------------
68.7..........................................      68.01-3         68.5
68.7..........................................   68.01-9(a)     68.11(a)
68.9..........................................      68.01-1         68.3
68.9..........................................   68.01-9(a)     68.11(a)
68.11.........................................      68.01-5         68.7
68.11.........................................   68.01-3(a)      68.5(a)
68.11.........................................     68.01-11        68.13
68.11.........................................     68.01-13        68.15
68.11.........................................      68.01-7         68.9
68.11.........................................           13        68.15
68.13.........................................     68.01-15        68.17
68.13.........................................     68.01-17        68.19
68.15.........................................     68.01-15        68.17
68.15.........................................      68.01-1         68.3
68.15.........................................  68.01-15(c)     68.17(c)
68.17.........................................      68.01-1         68.3
68.19.........................................      68.01-5         68.7
68.29.........................................      68.05-9        68.33
68.31.........................................      68.05-5        68.29
68.35.........................................     68.05-13        68.37
68.35.........................................   68.05-7(a)     68.31(a)
68.37.........................................  68.05-11(a)     68.35(a)
68.37.........................................      68.05-5        68.29
68.37.........................................      68.05-9        68.33
------------------------------------------------------------------------

    d. The table of contents for part 68 reads as follows:

PART 68--DOCUMENTATION OF VESSELS: EXCEPTIONS TO COASTWISE 
QUALIFICATION

Subpart A--Regulations for Engaging in Limited Coastwise Trade
Sec.
68.1 Purpose of subpart.
68.3 Definitions for the purposes of this subpart.
68.5 Requirements for citizenship under 46 U.S.C. App. 833-1.
68.7 Qualification as an 883-1 corporation.
68.9 Qualification as a parent or subsidiary.
68.11 Cessation of qualifications.

[[Page 7904]]

68.13 Privileges conferred--documentation of vessels.
68.15 Privileges conferred--operation of vessels.
68.17 Restrictions.
68.19 Application by an 883-1 corporation to document a vessel.

Appendix A to Subpart A of Part 68--Oath for the Qualification of 
Corporation as a Citizen of the United States Under the Act of Sept. 2, 
1958 (46 U.S.C. 883-1)

Appendix B to Subpart A of Part 68--Oath of Parent or Subsidiary 
Corporation Act of September 2, 1958 (46 U.S.C. 883-1)

Subpart B--Documentation of Certain Vessels for Oil Spill Cleanup
68.25 Purpose and scope.
68.27 Definitions for purpose of this subpart.
68.29 Citizenship requirements for limited coastwise endorsement.
68.31 Vessel eligibility requirements for limited coastwise 
endorsement.
68.33 Privileges of a limited coastwise endorsement.
68.35 Application to document a vessel under this subpart.
68.37 Cessation of qualifications.

Appendix A to Subpart B of Part 68--Oath for Qualification of a Not-
For-Profit Oil Spill Response Cooperative

Appendix B to Subpart B of Part 68--Oath for Documentation of Vessels 
for Use by a Not-For-Profit Oil Spill Response Cooperative

Subpart C--Vessels with a Coastwise Endorsement Issued on or after 
August 9, 2004, that are Demised Chartered to Coastwise Qualified 
Citizens
68.50 Purpose and applicability.
68.55 Definitions.
68.60 Eligibility of a vessel for a coastwise endorsement under this 
subpart.
68.65 Annual ownership certification.
68.70 Application procedure for vessels other than barges to be 
operated in coastwise trade without being documented.
68.75 Application procedure for barges to be operated in coastwise 
trade without being documented.
68.80 Invalidation of a coastwise endorsement.
Subpart D--Vessels with a Coastwise Endorsement Issued Before August 9, 
2004, and their Replacements that are Demise Chartered to Coastwise 
Qualified Citizens
68.100 Purpose and applicability.
68.103 Definitions.
68.105 Eligibility of a vessel for a coastwise endorsement under 
this subpart.
68.107 Application procedure for vessels other than barges to be 
operated in coastwise trade without being documented.
68.109 Application procedure for barges to be operated in coastwise 
trade without being documented.
68.111 Invalidation of a coastwise endorsement.
    14. In part 68, revise the heading to subpart A to read as follows:

Subpart A--Regulations for Engaging in Limited Coastwise Trade

    15. Add Sec.  68.1 to subpart A to read as follows:


Sec.  68.1  Purpose of subpart.

    This subpart contains citizen ownership requirements and procedures 
to allow documentation of vessels that do not meet the requirements of 
part 67 of this chapter. The requirements are for corporations engaged 
in a manufacturing or mineral industry in the United States.


Sec.  68.7  [Amended]

    16. In Sec.  68.7--
    a. In paragraph (b), after the redesignated number ``Sec.  
68.11(a)'', remove the words ``of this subpart''; and following the 
words ``appendix A'', add the words ``of this subpart''.


Sec.  68.9  [Amended]

    17. In Sec.  68.9--
    a. In paragraph (a), following the words ``appendix B'', add the 
words ``of this subpart'';
    b. In paragraph (b), following the words ``appendix B'', add the 
words ``of this subpart''; and
    c. In paragraph (c), following the redesignated number ``Sec.  
68.11(a)'', remove the words ``of this subpart''; and following the 
words ``appendix B'', add the words ``of this subpart''.


Sec.  68.11  [Amended]

    18. In Sec.  68.11--
    a. In paragraph (a), after the redesignated number ``Sec.  68.7'', 
remove the words ``of this subpart''; and
    b. In paragraph (b), after the redesignated number ``Sec.  68.9'', 
remove the words ``of this subpart''.

Appendix A to Subpart A of Part 68 [Amended]

    19. In appendix A--
    a. In the appendix heading and in the text, remove the words ``(46 
U.S.C. 883-1)'' and add, in their place, the words ``(46 U.S.C. app. 
883-1)''; and
    b. Following the word ``Sec.  67.39(c)'', add the words ``of this 
chapter''.

Appendix B to Subpart A of Part 68 [Amended]

    20. In appendix B, in the appendix heading and in the text, remove 
the words ``(46 U.S.C. 883-1)'' and add, in their place, the words 
``(46 U.S.C. app. 883-1)''.
    21. Add new subpart C, consisting of Sec. Sec.  68.50 through 
68.80, to read as follows:

Subpart C--Vessels With a Coastwise Endorsement Issued on or After 
August 9, 2004, That Are Demise Chartered to Coastwise Qualified 
Citizens

68.50 Purpose and applicability.
68.55 Definitions.
68.60 Eligibility of a vessel for a coastwise endorsement under this 
subpart.
68.65 Annual ownership certification.
68.70 Application procedure for vessels other than barges to be 
operated in coastwise trade without being documented.
68.75 Application procedure for barges to be operated in coastwise 
trade without being documented.
68.80 Invalidation of a coastwise endorsement.

Subpart C--Vessels With a Coastwise Endorsement Issued on or After 
August 9, 2004, That Are Demise Chartered to Coastwise Qualified 
Citizens


Sec.  68.50  Purpose and applicability.

    (a) This subpart contains requirements, in addition to those in 
part 67 of this chapter, for obtaining a coastwise endorsement for a 
U.S.-built vessel--
    (1) That is owned by a person that qualifies as a citizen under 
Sec. Sec.  67.35(a), 67.36(a), 67.37, or 67.39(a) of this chapter; and
    (2) That is demise chartered to a coastwise qualified citizen under 
Sec. Sec.  67.33, 67.35(c), 67.36(c), 67.37, 67.39(c), or 67.41 of this 
chapter.
    (b) This subpart applies to a vessel with a coastwise endorsement 
issued on or after August 9, 2004. It does not apply to a vessel under 
subpart D of this part.


Sec.  68.55  Definitions.

    In addition to the terms defined in Sec.  67.3 of this chapter, as 
used in this subpart--
    Affiliate means, with respect to any person, any other person that 
is--
    (1) Directly or indirectly controlled by, under common control 
with, or controlling that person; or
    (2) Named as being part of the same consolidated group in any 
report or other document submitted to the United States Securities and 
Exchange Commission or the Internal Revenue Service.
    Cargo does not include cargo to which title is held for non-
commercial reasons and primarily for the purpose of evading the 
requirements of Sec.  68.65(a)(2).
    Oil has the meaning given that term in 46 U.S.C. 2101(20).
    Operation or management, for vessels, means all activities related 
to the use of vessels to provide services.

[[Page 7905]]

These activities include, but are not limited to, ship agency; ship 
brokerage; activities performed by a vessel operator or demise 
charterer in exercising direction and control of a vessel, such as 
crewing, victualing, storing, and maintaining the vessel and ensuring 
its safe navigation; and activities associated with controlling the use 
and employment of the vessel under a time charter or other use 
agreement. It does not include activities directly associated with 
making financial investments in vessels or the receipt of earnings 
derived from these investments.
    Passive investment means an investment in which neither the 
investor nor any affiliate of the investor is involved in, or has the 
power to be involved in, the formulation, determination, or direction 
of any activity or function concerning the use, operation, or 
management of the asset that is the subject of the investment.
    Qualified proprietary cargo means--
    (1) Oil, petroleum products, petrochemicals, or liquefied natural 
gas cargo that is beneficially owned by the person who submits to the 
Director, National Vessel Documentation Center, an application or 
annual certification under Sec.  68.65(a)(2), or by an affiliate of 
that person, immediately before, during, or immediately after the cargo 
is carried in coastwise trade on a vessel owned by that person;
    (2) Oil, petroleum products, petrochemicals, or liquefied natural 
gas cargo not beneficially owned by the person who submits to the 
Director, National Vessel Documentation Center, an application or an 
annual certification under Sec.  68.65(a)(2), or by an affiliate of 
that person, but that is carried in coastwise trade by a vessel owned 
by that person and which is part of an arrangement in which vessels 
owned by that person and at least one other person are operated 
collectively as one fleet, to the extent that an equal amount of oil, 
petroleum products, petrochemicals, or liquefied natural gas cargo 
beneficially owned by that person, or an affiliate of that person, is 
carried in coastwise trade on one or more other vessels, not owned by 
that person, or an affiliate of that person, if the other vessel or 
vessels are also part of the same arrangement;
    (3) In the case of a towing vessel associated with a non-self-
propelled tank vessel where the two vessels function as a single self-
propelled vessel, oil, petroleum products, petrochemicals, or liquefied 
natural gas cargo that is beneficially owned by the person who owns 
both the towing vessel and the non-self-propelled tank vessel, or any 
United States affiliate of that person, immediately before, during, or 
immediately after the cargo is carried in coastwise trade on either of 
the two vessels; or
    (4) Any oil, petroleum products, petrochemicals, or liquefied 
natural gas cargo carried on any vessel that is either a self-propelled 
tank vessel having a length of at least 210 meters (about 689 feet) or 
a tank vessel that is a liquefied natural gas carrier that--
    (i) Was delivered by the builder of the vessel to the owner of the 
vessel after December 31, 1999; and
    (ii) Was purchased by a person for the purpose, and with the 
reasonable expectation, of transporting on the vessel liquefied natural 
gas or unrefined petroleum beneficially owned by the owner of the 
vessel, or an affiliate of the owner, from Alaska to the continental 
United States.
    Sub-charter means all types of charters or other contracts for the 
use of a vessel that are subordinate to a charter. The term includes, 
but is not limited to, a demise charter, a time charter, a voyage 
charter, a space charter, and a contract of affreightment.
    United States affiliate means, with respect to any person, an 
affiliate the principal place of business of which is located in the 
United States.


Sec.  68.60  Eligibility of a vessel for a coastwise endorsement under 
this subpart.

    (a) To be eligible for a coastwise endorsement under 46 U.S.C. 
12106(e) and to operate in coastwise trade under 46 U.S.C. 12106(e) and 
12110(b), a vessel must meet the following:
    (1) The vessel is eligible for documentation under 46 U.S.C. 12102.
    (2) The vessel is eligible for a coastwise endorsement under Sec.  
67.19(c) of this chapter and has not lost coastwise eligibility under 
Sec.  67.19(d) of this chapter.
    (3) The person that owns the vessel (or, if the vessel is owned by 
a trust or similar arrangement, the beneficiary of the trust or similar 
arrangement) makes the certification in Sec.  68.65.
    (4) The person that owns the vessel has transferred to a qualified 
U.S. citizen under 46 U.S.C. app. 802 full possession, control, and 
command of the vessel through a demise charter in which the demise 
charterer is considered the owner pro hac vice during the term of the 
charter.
    (5) The charterer must certify to the Director, National Vessel 
Documentation Center, that the charterer is a citizen of the United 
States for engaging in the coastwise trade under 46 U.S.C. app. 802.
    (6) The demise charter is for a period of at least 3 years, unless 
a shorter period is authorized by the Director, National Vessel 
Documentation Center, under circumstances such as--
    (i) When the vessel's remaining life would not support a charter of 
3 years; or
    (ii) To preserve the use or possession of the vessel.
    (b) To apply for a coastwise endorsement for a vessel under a 
demise charter, see Sec.  68.70 and, for a barge, see Sec.  68.75.


    Note to Sec.  68.60: Section 608(b) of Public Law 108-293 
provides special requirements for certain vessels in the Alaska 
trade.

Sec.  68.65  Annual ownership certification.

    (a) At the time of initial application for documentation and at the 
time for annual renewal of the endorsement as required by Sec.  67.163 
of this chapter, the person that owns a vessel with a coastwise 
endorsement under Sec.  68.60 must certify in writing to the Director, 
National Vessel Documentation Center--
    (1) That the person who owns a vessel with a coastwise endorsement 
under Sec.  68.60--
    (i) Is a leasing company, bank, or financial institution;
    (ii) Owns, or holds the beneficial interest in, the vessel solely 
as a passive investment;
    (iii) Does not operate any vessel for hire and is not an affiliate 
of any person who operates any vessel for hire; and
    (iv) Is independent from, and not an affiliate of, any charterer of 
the vessel or any other person who has the right, directly or 
indirectly, to control or direct the movement or use of the vessel.
    (2) For vessels under paragraph (b) of this section, that--
    (i) The aggregate book value of the vessels owned by that person 
and United States affiliates of that person does not exceed 10 percent 
of the aggregate book value of all assets owned by that person and its 
United States affiliates;
    (ii) Not more than 10 percent of the aggregate revenues of that 
person and its United States affiliates is derived from the ownership, 
operation, or management of vessels;
    (iii) At least 70 percent of the aggregate tonnage of all cargo 
carried by all vessels owned by that person and its United States 
affiliates and documented under 46 U.S.C. 12106 is qualified 
proprietary cargo;
    (iv) Any cargo other than qualified proprietary cargo carried by 
all vessels owned by that person and its United States affiliates and 
documented under 46 U.S.C. 12106 consists of oil, petroleum products, 
petrochemicals, or liquefied natural gas;

[[Page 7906]]

    (v) No vessel owned by that person or any of its United States 
affiliates and documented under 46 U.S.C. 12106 carries molten sulphur; 
and
    (vi) That person owned one or more vessels documented under Sec.  
68.10 as of August 9, 2004.
    (b) Paragraph (a)(2) of this section applies only to--
    (1) A tank vessel having a tonnage of not less than 6,000 gross 
tons, as measured under 46 U.S.C. 14502 (or an alternative tonnage 
measured under 46 U.S.C. 14302 as prescribed under 46 U.S.C. 14104); or
    (2) A towing vessel associated with a non-self-propelled tank 
vessel that meets the requirements of paragraph (b)(1) of this section, 
where the two vessels function as a single self-propelled vessel.


    Note to Sec.  68.65: The Secretary of Transportation may waive 
or reduce the qualified proprietary cargo requirement of Sec.  
68.65(a)(2)(iii) for a vessel if the person that owns the vessel 
(or, if the vessel is owned by a trust or similar arrangement, the 
beneficiary of the trust or similar arrangement) notifies the 
Secretary that circumstances beyond the direct control of the person 
that owns the vessel or its affiliates prevent, or reasonably 
threaten to prevent, the person that owns the vessel from satisfying 
this requirement, and the Secretary does not, with good cause, 
determine otherwise. The waiver or reduction applies during the 
period of time that the circumstances exist.

Sec.  68.70  Application procedure for vessels other than barges to be 
operated in coastwise trade without being documented.

    (a) The person