11

Cabotage Restrictions in the U.S.Cabotage Restrictions in the U.S.OverviewOverview

Working definition of cabotage:Working definition of cabotage:•• The carriage by nonThe carriage by non--U.S. operators, including CanadianU.S. operators, including Canadian

carriers, of local trafficcarriers, of local traffic–– i.e.i.e. passengers originating atpassengers originating atone U.S. point and terminating at another U.S. pointone U.S. point and terminating at another U.S. point––for compensation or hire (Source: 49 USCfor compensation or hire (Source: 49 USC §§ 41703 and41703 and§§294.81 of DOT294.81 of DOT’’s Economic Regulations)s Economic Regulations)

What doesWhat does NOTNOT constitute prohibited cabotage:constitute prohibited cabotage:•• Flight operated by a Canadian entity on a private, nonFlight operated by a Canadian entity on a private, non--

revenue basis (i.e. with no remuneration) between tworevenue basis (i.e. with no remuneration) between twoU.S. pointsU.S. points

•• Stopovers at one or more U.S. points, provided that noStopovers at one or more U.S. points, provided that nolocal traffic of any kind is carried between U.S. pointslocal traffic of any kind is carried between U.S. points((i.e.i.e. the Canadian operator carries no one on the flightsthe Canadian operator carries no one on the flightsinvolving stopovers in the U.S. that it has not carried, orinvolving stopovers in the U.S. that it has not carried, orwill not carrywill not carry intointo oror out ofout of the U.S.)the U.S.)

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Cabotage Restrictions in the U.S.Cabotage Restrictions in the U.S.Overview (contOverview (cont’’d)d)

Factors in Analyzing the U.S. ProhibitionFactors in Analyzing the U.S. ProhibitionAgainst CabotageAgainst Cabotage

•• The flight in question must beThe flight in question must be ““commercialcommercial””i.e.i.e. operated for compensation or hireoperated for compensation or hire

•• The focus is on the movements of eachThe focus is on the movements of eachpassengerpassenger separatelyseparately—— if 5 passengers on aif 5 passengers on atransborder charter flight with U.S. stopoverstransborder charter flight with U.S. stopoversoriginate and terminate in Canada and 2originate and terminate in Canada and 2additional passengers first board the flight at aadditional passengers first board the flight at aU.S. stopover point and are dropped off atU.S. stopover point and are dropped off atanother U.S. point, there are two cabotageanother U.S. point, there are two cabotageviolationsviolations

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Cabotage Restrictions in the U.S.Cabotage Restrictions in the U.S.Overview (contOverview (cont’’d)d)

•• To dispel popular misconceptions, theTo dispel popular misconceptions, thefollowing factors are irrelevant tofollowing factors are irrelevant tocabotage analysis under U.S. lawcabotage analysis under U.S. law

Reason for the passengerReason for the passenger’’s trip (business ors trip (business orleisure)leisure)

Citizenship of the passengerCitizenship of the passenger

Source of paymentSource of payment——i.e. from the cabotagei.e. from the cabotagepassenger or another party (such as apassenger or another party (such as acorporate charterer)corporate charterer)

Whether the flight was arranged or paid forWhether the flight was arranged or paid foroutside of the U.S.outside of the U.S.

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Cabotage Restrictions in the U.S.Cabotage Restrictions in the U.S.Overview (contOverview (cont’’d)d)

Consequences of violating the U.S.Consequences of violating the U.S.cabotage prohibitioncabotage prohibition•• Usual DOT findings of violationUsual DOT findings of violation

Unauthorized air transportationUnauthorized air transportation

Unfair and deceptive practice and unfair method ofUnfair and deceptive practice and unfair method ofcompetitioncompetition

•• PenaltiesPenalties Consent Order to Cease and DesistConsent Order to Cease and Desist

Civil PenaltyCivil Penalty•• Up to $27,500 for each violation (except small businessUp to $27,500 for each violation (except small business

concerns)concerns)

•• Up to $2,500 for each violation by a small businessUp to $2,500 for each violation by a small businessconcernconcern

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*Aircraft is operated for compensation or hire by a Canadian air taxi*Aircraft operates over the routing A to B to C to D*Passengers 1 and 2 originate at Point A and terminate at Point C; passengers 3and 4 originate at Point A and terminate at Point D

*Conclusion: Passengers 1, 2, 3 and 4 transported between U.S. Points B and Care not considered local passengers; hence no cabotage despite commercial natureof operation

*Exception: If a break in the journey (as opposed to a stopover) at Point B or C,two cabotage violations occur

66C

Passenger 1

Passenger 2

77

Passenger 1

Passenger 2

*Same as Example 2 except that flight is operated commercially –i.e. for remuneration or hire

*Conclusion: Transportation of passenger 2 between Point B andC – i.e. carriage of local traffic between 2 U.S. points on acommercial basis is – is cabotage

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Cabotage Restrictions in the U.S.Cabotage Restrictions in the U.S.Overview (contOverview (cont’’d)d)

Role of U.S. Customs and BorderRole of U.S. Customs and BorderProtection (CBP)Protection (CBP)•• CBP rules require Customs officers toCBP rules require Customs officers to

report suspected cabotage operations toreport suspected cabotage operations toCBP Headquarters; CBP authority toCBP Headquarters; CBP authority toenforce the statutory cabotageenforce the statutory cabotageprohibition is doubtfulprohibition is doubtful

•• DOT views its authority to enforce theDOT views its authority to enforce thestatutory prohibitions asstatutory prohibitions as exclusiveexclusive