HQ 0110808 - Applicability of coastwise laws to the transportation and installation of a platform floating topsides (superstructure), and the dutiability of subject superstructure. - United States International Trade Commision Rulings

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HQ 110808

August 29, 1990

VES 3-15 CO:R:P:C 100808 BEW

CATEGORY: CARRIER

Mr. Wes Downey
Operations Coordinator
MICOPERI U.S.A. CORPORATION
525 North Belt East, Suite 600
Houston, Texas 77060

RE: Applicability of coastwise laws to the transportation and installation of a platform floating topsides (superstructure), and the dutiability of subject superstructure.

Dear Mr. Downey:

This is in reference to your request for a ruling on the dutiability of a superstructure being imported as a hull and deck to be mated at an approximate location of Longitude 89 West, Latitude 29 North, which location appears to be in the territorial waters of the United States.

FACTS:

You state that the installation proposal would consist of towing a platform floating topside (superstructure) from European fabrication yard to the Gulf of Mexico. You state that the superstructure comprising of the mated hull and deck would subsequently be towed to approximate location Longitude 92 West, Latitude 26 North, which is a location on the Outer Continental Shelf (OCS). You state that these operations are very complex and weather sensitive. Therefore, it is likely that at some stage of the operation, the superstructure or components would be required to standby in a U.S. harbor either seeking shelter or due to project delay.

Your inquiry concerns the application of Customs duties to the hull and deck. You ask whether the hull and deck are considered to be an importation. Your letter requests the rate of duty if the hull and deck are imported.

Lastly, you ask whether entrance into the United States harbor for standby have different consequences versus not doing so.

ISSUE:

Whether a superstructure consisting of a hull and deck which will be mated after its arrival into the U.S. and subsequently installed on the outer Continental Shelf is a "vessel".

Whether a superstructure consisting of a hull and deck which will be mated after its arrival into the U.S. and subsequently installed on the outer Continental Shelf is subject to Customs duty.

LAW AND ANALYSIS:

Section 27 of the Act of June 5, 1920, as amended (41 Stat. 999; 46 U.S.C. App. 883, often called the Jones Act), provides, in pertinent part, that:

No merchandise shall be transported by water, or by land and water, on penalty of forfeiture of the merchandise (or a monetary amount up to the value thereof as determined by the Secretary of the Treasury, or the actual cost of the transportation, whichever is greater, 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 transported), 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 ....

For purposes of the coastwise laws, a point in United States territorial waters is considered a point embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, adjacent to the coast of the United States and seaward of the territorial sea baseline.

Section 4(a) of the Outer Continental Shelf Lands Act of 1953, as amended (67 Stat. 462; 43 U.S.C. 1333(a)) (OCSLA), provides, in pertinent part, that the laws of the United States are extended to:

... the subsoil and seabed of the outer Continental Shelf and to all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources there- from ... to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction located within a State."

Under this provision, Customs has ruled that the coastwise laws and other Customs and navigation laws are extended to mobile oil drilling rigs during the period they are secured to or submerged onto the seabed of the United States OCS. The same principles have been applied to drilling platforms, artificial islands, and similar structures attached to the seabed of the OCS for the purpose of resource exploration operations, including warehouse vessels anchored over the OCS when used to supply drilling rigs on the OCS.

The question of whether an article is a "vessel" has usually come before Customs in the context of the question of dutiability of the article. Under Chapter 89, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), vessels other than yachts and pleasure vessels (see Heading 8903, HTSUSA), floating docks (see Subheading 8905.20.00, HTSUSA), and vessels and other floating structures for breaking up (scrapping) (see Heading 8908, HTSUSA), are not subject to Customs duties. This has long been so (see General headnote 5(g), Tariff Schedules of the United States (TSUS) (19 U.S.C. 1202), and sub- part D, part 6, schedule 6, TSUS). Of course, the determination of whether an article is a vessel also affects other issues, including, for example, the applicability of vessel entry and clearance requirements (see 19 CFR Part 4), Coast Guard administered safety and inspection requirements, and seamen's compensation for personal injury or death under 46 U.S.C. App. 688.

Section 401(a), Tariff Act of 1930, as amended (19 U.S.C. 1401(a)), defines the term "vessel" to include "... every description of water craft or other contrivance used, or capable of being used, as a means of transportation in water" (see also, 1 U.S.C. 3).

The Courts have provided considerable guidance with regard to the determination of whether an article is a vessel for purposes of dutiability. In The Conqueror, 166 U.S. 110 (1897), the Supreme Court, stating that "[v]essels certainly have not been treated as dutiable articles, but rather as the vehicles of such articles, and ... are never charged duties when entering our ports ..." (166 U.S. at 115), held that vessels are not articles subject to Customs duties.

The Court of Customs Appeals, in Thayer v. United States, 2 Ct. Cust. App. 526, T.D. 32252 (1912), held that racing shells are not vessels for purposes of dutiability. In so holding, the Court stated:

... we think it is obvious that Congress could not have meant by section 3 [i.e., section 3, Revised Statutes (1 U.S.C. 3), defining "vessel" in the same manner, substantively, as does 19 U.S.C. 1401(a)] that every artificial thing that floats on water and [is] of sufficient buoyancy to be used as a means of transporting anything, however small, is a vessel in the eyes of the law, but must have meant that to be a vessel it must be capable of some substantial use for a means of transportation on water. A temporary, fugitive, impractical, although possible, use of transportation of articles or things of trifling weight in smooth water only and for short distances we do not think could possibly answer the call of the statute. [T.D. 32252, at page 248.]

The same Court, in Hitner Sons Co. v. United States, 13 Ct. Cust. App. 216, T.D. 41175 (1922), held that the hull of a vessel towed into the United States for scrap or junk was not a vessel for purposes of dutiability. The Court stated:

[f]rom these authorities [previous court cases considering what are vessels] some general conclusions may be deduced. In order to come within the definition of a "vessel" as fixed by section 3, Revised Statutes, the service upon which the thing in question can engage must be a maritime service. It must have some relation to commerce or navigation, or at least some connection with a vessel employed in trade. It must be engaged in, or in some sense related to commerce and navigation. The fact that the structure has the shape of a vessel, or has been once used as one, or could by proper appliances be again used as such, can not affect the question. The test is the actual status of the structure as being fairly engaged in or suitable for, commerce or navigation and as a means of transportation on water. [T.D. 41175, at 334.]

The Customs Court, in Tregoning Boat Co. v. United States, 15 Cust. Ct. 197, C.D. 971 (1945), held that a wooden boat hull for a lifeboat was a vessel for purposes of dutiability. The Court stated that:

[u]nder the definition of "vessel" contained in 1 U.S.C. section 3, as construed by the courts, present and continuous use as a means of transportation on waters is not required, capability of practical and substantial use is sufficient. [15 Cust. Ct. at 199.]

More recently, in United States v. Seagull Marine, 67 CCPA 89, C.A.D. 1251, 627 F.2d 1083 (1980), the Court of Customs and Patent Appeals reversed a decision by the Customs Court (83 Cust. Ct. 10, C.D. 4814, 475 F. Supp. 158 (1979)), in holding that inflatable rubber life rafts are not vessels, for purposes of dutiability, and are subject to duty. The Court recognized that the definition of the term "vessel" is quite broad. The Court went on to state that:

... judicial precedent has limited the definition of vessel for tariff purposes and has established that not every watercraft meeting the bare terms of the definition is entitled to entry into the United States duty free. In particular, the scope of the term "vessel" has been narrowed to limit duty-free treatment to watercraft that are instrumentalities of commerce as opposed to articles of commerce. See The Conqueror ..., United States v. Bethlehem Steel Co. ..., Hitner Sons Co. v. United States ..., and Thayer v. United States .... [67 CCPA at 93.]

See also United States v. Moran Towing and Transportation Co., 235 F. Supp. 569 (D.C. Md. 1964); reversed, 374 F.2d 656 (4th Cir. 1967); vacated and remanded, 389 U.S. 575 (1968); vacated and remanded to Dist. Ct., 409 F.2d 961 (4th Cir. 1969); 302 F. Supp. 600 (D.C. Md. 1969), and particularly the first Court of Appeals decision in Moran, in which the Court stated that something properly may be considered a vessel under some acts of Congress but not a vessel "within the meaning of the traditional exemption from the customs acts" (374 F.2d at 664).

Section 203 of the OCSLA Amendments of 1978 (92 Stat. 629, 635) (1978 Amendments), amended section 4(a) of the OCSLA by substituting "... and all installations and other devices permanently or temporarily attached to the seabed ..." for "... and fixed structures ...." The purpose of this change was stated in the legislative history to be to make it clear "... that Federal law is to be applicable to all activities on all devices in contact with the seabed for exploration, develop- ment, and production." Thus, Federal law was intended "... to be applicable to activities on drilling ships, semisubmersible drilling rigs, and other watercraft, when they are connected to the seabed by drillstring, pipes, or other appurtenances, on the OCS for exploration, development, or production purposes." (reproduced at 1978 U.S.C.C.A.N. 1450, 1534.)

In discussing this amendment, among others, the House and Senate conferees stated their understanding that the Customs Service had interpreted existing section 1333(a)(1) of the act to mean that foreign-built drilling and production platforms are not subject to duty when brought to the waters of the outer Continental Shelf and attached to the seabed because such platforms are not considered imported until placed on the shelf. The conferees rejected this interpretation as contrary to the intent of Congress in enacting the Outer Continental Shelf Lands Act in 1953. The conferees stated that one of the purposes of the amendment to section 1333(a)(1) was to make it clear that Customs duties are to apply to foreign-built drilling and production platforms brought in to the waters of the Outer Continental Shelf for placement so as to be used to develop and produce its minerals. (See S. Rept. No 95-1091, 95th Cong., 2d sess., 80-81 (1978)).

Customs has generally held that mobile drilling rigs, registered as vessels and capable of transporting merchandise or passengers on water, are "vessels" for dutiability purposes (see, e.g., rulings dated December 12, 1983 (File No. 106450), and May 15, 1984 (File No. 106587)). Drilling rigs and production platforms which are attached to the seabed of the OCS for the requisite purposes (see 43 U.S.C. 1333(a)) and which are not practically capable of being moved to another site on the OCS have been held not to be "vessels" (see C.S.D. 79-1 and 110228 PH).

On the basis of the preceding authority and legislative history the Customs Service is of the opinion that foreign-built drilling and production platforms which are not vessels, if permanently or temporarily attached to the seabed of the Outer Continental Shelf, would be considered imported into the Customs territory of the United States and subject to the laws and Customs Regulations resulting from such importation (see C.S.D.

Based on the foregoing, we conclude that the floating hull and deck under consideration is not a vessel for purposes of dutiability, and is subject to duty under the HTSUSA.

Classification of goods in the tariff schedule shall be governed by the General Rules of Interpretation of the HTSUSA. Under General Rule 2 an incomplete or unfinished article has to have the essential character of the complete or finished article. Under subheading 8905.20.0000 floating or submersible drilling or productions platforms are not subject to duty. In order to be classified under this subheading such platforms are generally designed for the discovery or exploitation of off-shore deposits of oil or natural gas. Apart from the equipment required for drilling or production, such as derricks, cranes, pumps, cementing units, silos, etc, these platforms have living quarters for the personnel. Enclosed is a copy of the explanatory notes relating to three (3) main groups of platforms. The floating hull and deck under consideration does not have the essential character of the complete or finished floating platforms stated above. Accordingly, the subject hull and deck are classifiable as other floating structures in subheading 8907.90.0090 HTSUSA and are dutiable at a rate of 3.8 percent (see enclosed copy of HTSUSA).

Accordingly, we find that the subject hull and deck are not "vessels" and as such are dutiable upon their attachment, whether temporary or permanent, to the seabed of the outer Continental Shelf.

HOLDING:

1. All installations and other devices permanently or temporarily attached to the seabed of the OCS, and which are not practically capable of being moved to another site on the OCS are not vessels. Such installations and other devices are considered imported into the Customs territory upon attachment to the seabed.

2. A floating superstructure consisting of a hull and deck which will be mated after its arrival into the U.S. and subsequently installed on the outer Continental Shelf is not a vessel and as such is subject to Customs duty upon importation into the United States.

Sincerely,

B. James Fritz

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