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HQ 113015


March 10, 1994

VES-3-CO:R:IT:C 113015 GEV

CATEGORY: CARRIER

Glenn H. Peterson
Manager, Contracts and Insurance
Greenhill Petroleum Corporation
11490 Westheimer, Suite 200
Houston, Texas 77077

RE: Coastwise Trade; Bowaters Act; 46 U.S.C. App. 289, 883 and 883-1

Dear Mr. Peterson:

This is in response to your letter dated January 31, 1994 requesting a ruling as to whether the vessel operations of your company constitute coastwise trade. Our ruling on this matter is set forth below.

FACTS:

Greenhill Petroleum Corporation ("Greenhill"), a corporation issued a Certificate of Compliance from the U.S. Coast Guard pursuant to 46 U.S.C. App. 883-1 to operate vessels in the coastwise trade permitted by that statute, owns U.S.-built vessels which are used to provide support services for its oil and gas exploration and production activities. These vessels, which are used only on inland waterways and bays, are needed to inspect and maintain oil wells on a daily basis. The vessels are used as follows: (1) to transport Greenhill's employees between points within their own oil fields; (2) to transport Greenhill's employees, and occasionally third party contractors not charged for the transportation, between shore points and their own oil fields; (3) as a quarters barge to house and feed Greenhill's employees, and third parties who are not charged for these accommodations, all of whom are working in Greenhill's oil fields; and (4) to transport Greenhill's equipment, supplies and materials between shore bases and their own oil fields and between points within those oil fields.

ISSUE:

Whether a U.S.-built vessel operated under a Certificate of Compliance issued pursuant to 46 U.S.C. App. 883-1 may transport its owner's employees, equipment, supplies, materials, and third party contractors not charged for such transportation, as described above, on inland waterways and bays.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, 883 (46 U.S.C. App. 883), the merchandise coastwise law often called the "Jones Act", provides in part, that no merchandise shall 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 vessel other 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 (i.e., a coastwise-qualified vessel). Section 289 of title 46 (46 U.S.C. App. 289, the passenger coastwise law) as interpreted by the Customs Service, prohibits the transportation of passengers between points in the United States embraced within the coastwise laws, either directly or by way of a foreign port, in a non-coastwise-qualified vessel (see above). For purposes of 289, "passenger" is defined as "... any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership, or business." (19 CFR 4.50(b)) The connection must be direct and immediate, not a remote or hypothetical connection or a connection related only to future voyages.

The coastwise laws generally apply to points in the territorial sea, defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ.

In its administration of 46 U.S.C. App. 289, the Customs Service has ruled that the carriage of passengers entirely within territorial waters, even though the passengers disembark at their point of embarkation and the vessel touches no other coastwise point, is considered coastwise trade subject to coastwise laws. However, the transportation of passengers to the high seas (i.e., beyond U.S. territorial waters) and back to the point of embarkation, assuming the passengers do not go ashore, even temporarily, at another United States point, often called a "voyage to nowhere", is not considered coastwise trade. (29 O.A.G. 318 (1912))

Title 46, United States Code Appendix, 883-1 (the "Bowaters Act") created a narrow exception for certain corporations which could not otherwise meet the stringent 75 percent ownership requirement of 46 U.S.C. App. 802 for vessels- 3 -
to be documented for the coastwise trade. It allows certain corporations to document vessels for coastwise trade, provided that the vessels are only used to carry proprietary cargo owned by either the corporation or its affiliates. To qualify as a "Bowaters corporation" a corporation must be incorporated under U.S. laws and satisfy five requirements: a majority of its officers and directors must be U.S. citizens; at least 90 percent of its employees must be U.S. residents; it must be engaged primarily in a manufacturing or mineral industry in the U.S.; the aggregate book value of the corporation's vessels cannot exceed ten percent of the aggregate book value of the corporation's assets; and it must purchase or produce in the U.S. at least 75 percent of the raw materials used or sold in its operations.

The Bowaters Act also places several restrictions on Bowaters corporations. These corporations cannot operate vessels which they own as common carriers for the carriage of non-proprietary cargo. The Bowaters Act further provides that no vessel owned by a Bowaters corporation "shall engage in the fisheries or in the transportation of merchandise or passengers for hire between points in the United States...except as a service for a parent or subsidiary corporation." Bowaters corporations are also restricted in their ability to charter out vessels to other parties.

In regard to the Greenhill operations in question, it is apparent that the use of their vessels in transporting their own employees, equipment, supplies, materials and third party contractors not charged a fee for such transportation as described above is in compliance with the provisions of the Bowaters Act. Accordingly, these activities do not constitute a violation of 46 U.S.C. App. 883-1.

HOLDING:

A U.S.-built vessel operated under a Certificate of Compliance issued pursuant to 46 U.S.C. App. 883-1 may transport its owner's employees, equipment, supplies, materials, and third party contractors not charged for such transportation, as described above, on inland waterways and bays.

Sincerely,

Arthur P. Schifflin

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