HQ 0109303 - Applicability of the coastwise laws to ballast movement of a vessel and related issues (see also Customs Service Decision (C.S.D. 87-16) - United States International Trade Commision Rulings

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HQ 109303

March 21, 1988

VES-3/VES-5-29/VES-11-05 CO:R:P:C 109303 PH

CATEGORY: CARRIER

Paul G. Kirchner, Esq.
Kurrus & Kirchner
1055 Thomas Jefferson Street, NW.
Washington, D.C. 20007

RE: Applicability of the coastwise laws to ballast movement of a vessel and related issues (see also Customs Service Decision (C.S.D. 87-16)

Dear Mr. Kirchner:

This in response to your letter of January 13, 1988, in which you request a ruling on certain aspects of a ruling dated May 22, 1987 (File: VES-11-05/VES-5-29/VES-3 CO:R:CD:C 108700 PH), which was published as C.S.D. 87-16. Under procedures which we established, we also received a letter dated February 4, 1988, from Russell W. MacKechnie, Jr., Esq., of Donohue and Donohue commenting on your letter, a letter dated February 19, 1988, from you commenting on Mr. MacKechnie's February 4 submission, and a letter dated March 4, 1988, from Mr. MacKechnie commenting on your February 19 submission. We received several other letters from both you and Mr. MacKechnie commenting on the procedural handling of this case.

With regard to your comments on the procedures we developed for handling this matter (see your letters of January 28, February 19, and February 26, 1988), we note that this is an administrative, not a judicial matter. The procedures we developed were intended to bring forth all factual and legal aspects of this case, as expeditiously as possible, in view of the apparent adversarial nature of the case. We have tried to treat both you and Mr. MacKechnie as professionally and fairly as possible.

We are providing Mr. MacKechnie with a copy of this ruling. Although we see no need to modify C.S.D. 87-16 with regard to the questions you raise, we do plan to review the aspects of the C.S.D. concerning the applicability of tonnage tax to the vessels under consideration. When we do so, we may consider clarifying certain aspects of the C.S.D. relating to issues you raise.

For your information, the reason that this ruling is in a different format from that of the ruling published as C.S.D. 87- 16 is that the ruling format has been changed.

FACTS:

The facts, as described in C.S.D. 87-16, are as follows:

The inquirer represents the operator [Exxon] of a number of coastwise-qualified vessels which are used to transport Alaska North Slope oil from Valdez, Alaska, to United States Gulf and East Coast ports. The vessels are documented with registry and coastwise license endorsements. In Valdez, the vessels load the oil and obtain clearance to the Panamanian port of Puerto Armuelles on the Pacific Ocean. There the vessels discharge the oil and obtain Panamanian clearance to Long Beach, California. At Long Beach, or occasionally at the port of San Francisco, California, the vessels make formal entry and pay tonnage duties. The vessels are replenished with bunkers and stores and change crews. They then proceed to Valdez for the next load of oil.

The oil is transferred by an 80 mile pipeline from Puerto Armuelles to the port of Chiriqui Grande, Panama, on the Caribbean Sea. There, vessels of the company represented by the inquirer load the oil and transport it to United States Gulf or East Coast ports. These vessels arrive in Chiriqui Grande in ballast from United States ports and make entry with Panamanian officials. They discharge dirty ballast at a terminal in Panama for treatment before loading the oil which came through the pipeline. After loading, the vessels obtain Panamanian clearance to a United States Gulf or East Coast port. Upon arrival at the latter port, the vessels make entry with United States Customs and pay tonnage duties.

The company represented by the inquirer plans to surrender to the United States Coast Guard the Certificates of Documentation for the vessels employed in the above-described transactions and to have the registry endorsements on the Certificates deleted, leaving only the coastwise endorsements ....

In addition to the above facts, the inquirer in C.S.D. 87-16 stated that the Exxon vessels arriving in ballast (at Chiriqui Grande) from United States ports on the Gulf or East Coast
discharge dirty ballast to the terminal where it is subsequently treated and the recovered crude is returned to the shore storage system. In his February 4, 1988, letter Mr. MacKechnie, on behalf of Exxon, states that only one voyage by Exxon Alaska North Slope (ANS) vessels to Chiriqui Grande to load ANS oil in 1987 was not carrying merchandise or passengers (defined by Mr. MacKechnie as being "free of dirty water ballast or residual domestic cargo of any kind"). Mr. MacKechnie states that the remaining such voyages involved the transportation of dirty water ballast for discharge, processing, and reentry into the ANS storage system at Chiriqui Grande or residual ANS cargos, heavy fuel oil cargoes, and Florida crude oil cargoes which were "top- loaded" with ANS crude at Chiriqui Grande for subsequent discharge at Gulf or East Coast ports. Mr. MacKechnie states that residual cargoes on such voyages averaged approximately 100 barrels of product per vessel.

Mr. MacKechnie states, in his February 4 letter, that the same analysis applies to every return voyage made by Exxon's ANS vessels on the Pacific Coast side of the transaction. Dirty water ballast is discharged, processed, and returned to the ANS storage system at Valdez. Mr. MacKechnie states that if "clean" ballast vessels are used in the future on the Puerto Armuelles to Valdez leg of the transportation, those vessels will carry, on average, 100 barrels of residual ANS cargo to be "top-loaded" at Valdez for the return run to Puerto Armuelles.

In his March 4 letter Mr. MacKechnie further describes the Exxon ANS vessels moving to Chiriqui Grande to load ANS oil for transportation to United States Gulf and East Coast ports. He states:

Although Exxon's vessels are equipped with crude oil washing systems, those systems are not used after every discharge of cargo. Exxon's dirty water ballast ANS vessels1 have, on average, 19 cargo tanks, all equipped with crude oil washing systems. On the outbound leg to Chiriqui Grande, two of the tanks contain dirty water ballast; five of the tanks contain residual cargoes after crude oil washing and discharge; the remaining 12 tanks contain residual cargoes after discharge only. These 12 tanks are not crude oil washed. Exxon rotates the 5 tanks to be crude oil washed at each discharge. Thus, while Exxon does not dispute the presence of some "sludge or muck" in the tanks, its average retained on board (ROB) cargo of 100 barrels refers solely to pumpable, liquid, non-sludge cargo which Exxon has not pumped out in its entirety at
discharge. ... It is subsequently unladen at a Gulf Coast or East Coast port, and its transportation aboard Exxon's ANS vessels during the outbound leg to Chiriqui Grande constitutes a part of that cargo's transportation between coastwise points. We emphasize that the 100 barrels of ROB cargo are in addition to the average 300 barrels per vessel of ANS crude recovered from the dirty water ballast discharged at Chiriqui.

Mr. MacKechnie also describes, in his March 4 letter, the process by which the oil is recovered from the dirty ballast in Chiriqui Grande. He states:

Ballast oil and water is discharged into shore ballast tanks equipped with gravity skimmers. The crude oil floats to the surface and is discharged by gravity to separators where a similar gravity/separation process takes place. The essence of the operation is merely allowing the crude to float to the surface of the water, skimming, and returning the crude oil to the shore storage tanks.

It is requested that we rule on the following issues:

ISSUES:

1. Would ballast voyages, (a) between United States Gulf and East Coast ports and Panama, (b) between Panama and United States West Coast ports, and/or (c) between United States West Coast ports and Alaska in connection with the trade described in C.S.D. 87-16 and in the FACTS portion of this ruling be considered coastwise trade?

2. Is the statement in C.S.D. 87-16 that "[t]he vessels used for each part of the transportation are required to be documented for the coastwise trade" based upon any statutory or legal authority or requirements under the jurisdiction of, or required to be administered by, the United States Customs Service and, if not, does this statement represent an official ruling of Customs with respect to this issue?

3. Does the statement in C.S.D. 87-16 that a vessel need not have a registry endorsement on its Certificate of Documentation in order to clear Customs (thus implying that a vessel with only a coastwise endorsement may clear Customs) mean that a vessel on a non-coastwise voyage between a United States port and a foreign port need not have a registry endorsement for any other purposes, including 46 U.S.C. 12110?

4. What is the effect of C.S.D. 87-16 on the laws, regulations, or policies governing pilotage and what is the position of Customs as to the possible relevance of coastwise or non-coastwise trade determinations by Customs for purposes of 46 U.S.C. App. 883 to the application of 46 U.S.C. 8502(a)?

LAW AND ANALYSIS:

ISSUE 1.

There is no statutory or regulatory definition of coastwise trade. Customs enforces various navigation laws, some of which concern vessel movements which are generally considered coastwise in nature. The law concerning the transportation of merchandise between points in the United States embraced within the coastwise laws, often called the Jones Act or the coastwise merchandise law, is section 27 of the Act of June 5, 1920, as amended (41 Stat. 999; 46 U.S.C. App. 883). This law provides, in pertinent part, that:

No merchandise shall be transported by water, or by land and water, on penalty of forfeiture of the mer- chandise (or a monetary amount up to the value thereof as determined by the Secretary of the Treasury to be recovered from any consignor, seller, owner, importer, consignee, agent, or other person or persons so trans- porting or causing said merchandise to be transport- ed), between points in the United States ... embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States ....

In C.S.D. 87-16 we held, with regard to the applicability of section 883 to the transportation considered in that C.S.D., that:

The use of vessels to transport Alaska North Slope oil from Alaska to the Pacific coast of Panama from which the oil is discharged and pumped through a pipeline to the Caribbean coast of Panama where the oil is loaded onto other vessels and transported to United States Gulf or East Coast ports is coastwise trade. The vessels used for each part of the transportation are required to be documented for the coastwise trade.

Merchandise, within section 883, is considered to be material with any apparent value or which will be used commercially or in trade (see C.S.D. 87-15). Vessels not transporting merchandise would not be considered to be engaged in coastwise transportation governed by section 883.

As you noted in your January 13 letter, we have held that "[a] cargo or passenger vessel which proceeds between U.S. ports or places in ballast is not considered in coastwise trade." As Mr. MacKechnie states, we have ruled that oily water, recovered in the cleanup and containment operations following an oil spill, would be considered merchandise within section 883 if it is treated to recover the oil. We have ruled that transportation of such oily water between coastwise points by a non-coastwise- qualified vessel is prohibited by section 883. We have so held regardless of the fact that the cost of treating the oily water may far exceed the value of the oil recovered from the oily water (see ruling letters VES-10-03-R:CD:C 102240 BH, November 4, 1976, and VES-10-03R:CD:C 102240 CWH, March 2, 1977; ruling memorandum VES-3-12-CO:R:CD:C 104918 PH, March 5, 1981; and ruling letter VES-3-12-CO:R:CD:C 105504 PH).

In none of these oil recovery operation cases have we held that oily water ballast, transported from a coastwise point in an oil tanker which has discharged its cargo of oil, is considered merchandise transported between coastwise points within section 883, even if the oily ballast is unloaded at a second coastwise point and there treated to recover the oil. Such a movement would not be coastwise transportation of merchandise within section 883. Even though the oily water ballast would be considered merchandise within section 883, the transporting vessel would have discharged its oil cargo, except for a remainder or residual that was impossible or impractical to remove from the vessel, and would be proceeding in ballast (i.e. without cargo).

The fallaciousness of the position that the vessels under consideration are transporting merchandise between coastwise points, or performing part of such transportation, on their return movement to Chiriqui Grande with oily water ballast is illustrated by examining the consequences of adopting that position. If we did so, a foreign or United States registry documented (i.e., non-coastwise-qualified) vessel which loaded oil at one United States port and transported it to a foreign port where the oil was unloaded and the vessel took on water as ballast before proceeding to another United States port where the vessel discharged its oily water ballast would be subject to the penalties of section 883 for both legs of what is clearly a foreign movement.

Consistent with our treatment of oily water ballast carried in the vessels under consideration on their return movement to Chiriqui Grande, transportation of the residual which was left over, in the normal course of business, after discharge of the ANS oil at United States Gulf and East Coast ports would also not be considered to be transportation of merchandise between coastwise points within section 883. Only if a measurable quantity of the ANS oil loaded in Chiriqui Grande in excess of the residual which remains, in the normal course of business, after discharge of the oil is transported back to Chiriqui Grande before being transported onward to a United States port would the transporting vessel be considered to be transporting merchandise between coastwise points (i.e., Valdez to Puerto Armuelles to Chiriqui Grande to Gulf or East Coast port to Chiriqui Grande to Gulf or East Coast port) within section 883.

With regard to the Pacific Coast voyages, the same analysis would apply except that if a measurable quantity of the ANS oil loaded in Valdez in excess of the residual which remains, in the normal course of business, after discharge of the oil at Puerto Armuelles was returned to the same point in Valdez where it was loaded, such a movement would not be considered to be transportation of merchandise between coastwise points within section 883 (i.e., it would be transportation from Valdez to Valdez via Puerto Armuelles).

ISSUE 2.

The Customs Service is responsible for the enforcement of 46 U.S.C. App. 883 (see section 102, 1946 Reorganization Plan No. 3, set out in a Historical Note following 46 U.S.C. App. 1). That law limits the coastwise transportation of merchandise to vessels "built in and documented under the laws of the United States and owned by persons who are citizens of the United States." We interpret "documented under the laws of the United States" in this provision to mean properly so documented. Since, under 46 U.S.C. 12106(b), only a vessel for which a coastwise license or an appropriately endorsed registry is issued may be employed in the coastwise trade, subject to the laws regulating the coastwise trade, it is our position that vessels which are engaged in the transportation of merchandise between coastwise points within section 883 are required to be documented for the coastwise trade.

In addition, with regard to this issue, the Act of June 19, 1886, chapter 421, section 7, 24 Stat. 81, as amended (46 U.S.C. App. 319), provides that:

Whenever a vessel, entitled to be documented and not so documented, is employed in a trade for which certificates of documentation are issued under the vessel documentation laws, other than a trade covered by registry, the vessel is liable to a civil penalty of $500 for each port at which it arrives without the proper certificate of documentation ....

The Customs Service is partially responsible for the enforcement of this law (see notice published in the Federal Register on May 18, 1967 (32 FR 7408), and Customs Circular VES-1-R:CD:C ENF-4, July 26, 1973). This law also is statutory authority under the jurisdiction of Customs for the holding in C.S.D. 87-16 that "[t]he vessels used for each part of the transportation [considered in that C.S.D.] are required to be documented for the coastwise trade."

ISSUE 3.

In C.S.D. 87-16 we stated that:

... there is no authority for denying clearance to a vessel which is engaged or will engage in the coastwise trade and which is documented with a Certificate of Documentation with a coastwise endorsement only, when that vessel is bound to a foreign port or place ....

Accordingly, we ruled in the C.S.D. that a vessel with only a coastwise endorsement may clear Customs (see Holding 3). On the basis of the same rationale discussed in the C.S.D., a vessel on a non-coastwise voyage between a United States port and a foreign port could clear Customs without a registry endorsement. We take no position with regard to the question of whether such a vessel would be required, for other purposes, to have a registry endorsement. We note that the United States Coast Guard is responsible for the enforcement of 46 U.S.C. 12110, to which you refer in this regard.

ISSUE 4.

With regard to this issue, we stated in C.S.D. 87-16 that the ruling published as that C.S.D. "[was] not intended to have any effect on the laws, regulations, or policies governing pilotage, which are outside the purview of the Customs Service." That continues to be our position. C.S.D. 87-16 was not intended to have any effect on the laws, including 46 U.S.C. 8502(a), regulations, or policies governing pilotage. We take no position on the possible relevance of determinations by Customs for purposes of 46 U.S.C. App. 883 to the application of 46 U.S.C. 8502(a).

HOLDINGS:

1. Ballast voyages, (a) between United States Gulf and East Coast ports and Panama, (b) between Panama and United States West Coast ports, and/or (c) between United States West Coast ports and Alaska, in connection with the trade described in C.S.D. 87- 16 and in the FACTS portion of this ruling would not be considered coastwise transportation within 46 U.S.C. App. 883 when:

(a) Oily water ballast is carried by the vessels even if the oily water ballast is treated after the ballast voyage and the oil recovered from the oily water ballast is transported onward to a coastwise point; or

(b) A residual or remainder of oil which is left over, in the normal course of business, after discharge of the ANS oil is carried by the vessels even if the residual or remainder is transported with other oil to a coastwise point or is removed from the vessel after the ballast voyage and transported onward to a coastwise point.

Voyages in which a measurable quantity of the ANS oil in excess of the residual which remains, in the normal course of business, after discharge of the oil at the United States Gulf or East Coast ports or Puerto Armuelles would be considered to be coastwise transportation of merchandise within section 883 except that, with regard to the Pacific Coast voyages, if that measurable quantity of ANS oil was unloaded at the same point in Valdez where it was loaded, it would not be considered to be such coastwise transportation.

2. The statement in C.S.D. 87-16 that "[t]he vessels used for each part of the transportation are required to be documented for the coastwise trade" is based upon the authority of 46 U.S.C. App. 883 (see also, 46 U.S.C. App. 319) which is under the jurisdiction of the Customs Service. This statement does represent an official ruling of Customs with respect to this issue.

3. A vessel on a non-coastwise voyage between a United States port and a foreign port could clear Customs without a registry endorsement. We take no position with regard to the question of whether such a vessel would be required, for other purposes, to have a registry endorsement.

4. Customs Service Decision 87-16 was not intended to have any effect on the laws, including 46 U.S.C. 8502(a), regulations, or policies governing pilotage and we take no position on the possible relevance of determinations by Customs for purposes of 46 U.S.C. App. 883 to the application of 46 U.S.C. 8502(a).

Sincerely,

Edward T. Rosse

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