Page 52: of Maritime Reporter Magazine (December 1996)

MARINE FINANCIAL ANNUAL (Continued from page 53) 883-1 (e.g., 90 percent U.S. employees, 75 percent U.S.-origin raw materials) and any restric- tions on the use of owned vessels in coastwise common or contract car- riage (provided demise chartered to a qualified coastwise operator).

In either case, key issues for the financing institution and for the vessel owner will include ensuring that the demise charterer qualifies under section 2 of the 1916 Act and that the charter itself includes no impermissible control over the ves- sel or its operations.

Cross Border Financing

Section 12102 of title 46, U.S.

Code (Vessels Eligible for

Documentation), now permits U.S. documentation under a registry endorsement only for a vessel owned by a trust having a non-U. S. citizen beneficiary, provided: all rn^ "SEALING SOLUTIONS TRUSTED WORLDWIDE"

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Circle 221 on Reader Service Card

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Circle 225 on Reader Service Card trustees are U.S. citizens; the trust restricts control by any non-citi- zen; and the vessel is demise char- tered to a U.S. citizen qualified to engage in foreign trades under sec- tion 2 of the Shipping Act.

Whereas under prior law and

Coast Guard interpretation 'all members' of a trust, including ben- eficiaries, had been required to be

U.S. citizens for a vessel to be eli- gible for documentation, this change conforms to the long-stand- ing practice of the U.S. aviation industry respecting such owner- ship trusts.

Notably, however, a vessel owned in this manner qualifies for the new Maritime Security Program (the recently enacted successor to the soon to expire operating differ- ential subsidy program) only under specified circumstances keyed pri- marily to existing vessels and oper- ators eligible for that program.

Such a limitation appears to reduce the utility of this financing mechanism, particularly for the liner side of the U.S. fleet.

Prior Approval For Foreign

Transfers

The Secretary of Transportation may now provide investors in ves- sels not yet documented under

U.S. law advance approval for the foreign sale and transfer a vessel prior to its documentation under

U.S. law. This change is intended to assure such investors that their asset could not be forced to remain under U.S. flag under different economic circumstances than those that existed when the vessel was so documented. Because the provi- sion granting such authority sim- ply specifies the timing of the approval required under section 9(c) of the 1916 Act, such approval may be subject to such conditions as the Secretary may require as under prior law.

Although the subsection making this change is included under the heading of 'Cross-Border

Financing' and is discussed in leg- islative history solely in those terms (e.g., to allow foreign trans- fer upon default of the charter), as enacted it applies to any transfer into U.S. registry, irrespective of whether linked to an ownership trust.

Lifting Restrictions On

Mortgagees

By repealing in its entirety the provision of U.S. law specifying who may serve as a mortgagee for 54 Maritime Reporter/Engineering News