LEASE FINANCING FOR VESSELSENGAGED IN THE COASTWISE TRADES

age of the Coast Guard Authorization Act of 1996 was to usher in a period where U.S. citizen domestic trade operators would have enhanced access to foreign financing sources through vessel leasing transactions. Instead, it resulted in the creation of non-citizen competitors for these U.S. operators, and fueled a bitter dispute at the U.S. Coast Guard over the extent to which these non-citizen owner-users should be allowed. Was this 1996 optimism misplaced? The author examines the origins this difficult situation and reviews its current state of play. He then suggests that the current dispute, and its vessel financing uncertainties, might best be resolved through the use of a Maritime Administration time charter review and approval process under section 9 of the Shipping Act, 1916.

The overall purpose of section 1113(d) of the Conference substitute is to eliminate technical impediments to using various techniques for financing vessels operating in the domestic trades. At the same time, the Conferees do not intend to undermine a basic principle of U.S. maritime law that vessels operated in domestic trades must be built in a shipyard in the United States and be operated and controlled by American citizens, which is vital to United States military and economic security.

U. S. Code Cong. and Adm. News, 104 Cong. 2nd Sess., vol. 6 at p. 4325 (1996)

1. Section 1113(d): 46 U.S.C. 12106(e).

The Coast Guard Authorization Act of 1996 (the “96 Act”), “subsection 1113(d), Leasing” amended section 12106 of title 46 U.S. Code by adding a new subsection (e) to permit foreign ownership of U.S. coastwise trade vessels by entities primarily engaged in leasing or other financial transactions. This so-called “Lease financing” provision creates an exemption to the U.S. citizenship ownership requirement of the Jones Act and allows a foreign entity to own a Jones Act trade vessel if the vessel is “leased” or demise chartered to a section 2 citizen for at least three years.

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