HQ 113412 - Coastwise trade; Offshore drilling; Towing; Vessels; Outer continental shelf; Duty; 46 U.S.C. App. 289; 46 U.S.C. App. 883; 46 U.S.C. App. 316 (a) - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1996 HQ Rulings > HQ 113366 - HQ 225206 > HQ 113412

Previous Ruling Next Ruling
HQ 113412

June 22, 1995

VES-3-R:IT:C 113412 LLB

CATEGORY: CARRIER

Mr. William K. Sheehy
Gilmartin, Poster and Shafto
One William Street
New York, New York 10004

RE: Coastwise trade; Offshore drilling; Towing; Vessels; Outer continental shelf; Duty; 46 U.S.C. App. 289; 46 U.S.C. App. 883; 46 U.S.C. App. 316 (a)

Dear Mr. Sheehy:

Reference is made to your letter of February 24, 1995, supplemented by your facsimile transmission of April 18, 1995, in which you request that Customs rule upon the proposed use by your client of a mobile offshore drilling unit. You raise questions with possible coastwise trade, towing, and Customs duty implications. You have requested that your request be accorded confidential treatment in order that your client's competitive position might be protected. Accordingly, we will insulate all identifying information from release.

FACTS:

It is proposed that a mobile offshore drilling unit (MODU) be converted into a floating production system (FPS) for use in operations on the Outer continental shelf (OCS). The MODU vessel would at all times relevant to this matter maintain its documentation as a foreign-flag vessel. The semi-submersible MODU vessel would be modified by the addition of:

- sponsons to columns and/or pontoons to increase deck load capacity;

- mooring system to enable the rig to remain on location during a 100 year hurricane;

- production and export riser attachments and processing equipoment.

The modified rig (the FPS) would operate by pumping a combination of crude oil, gas, and water from the well site on the seabed through flexible piping (risers) and into pontoons on the vessel. The mixture would then be moved up the columns to production manifolds where it will undergo heating and separation processes. Resulting will be export-quality crude oil, gas, and water which is sufficiently cleansed to permit it to be discharged back into the Gulf of Mexico. The crude oil would be metered and sent ashore via pipeline, and the gas would be compressed and treated aboard the vessel. Some of the gas would be used aboard the vessel and the remainder would be sent ashore via pipeline.

Prior to the arrival of the vessel at the operating site, there will have been drilled one to four wells. These wells will be capped temporarily in anticipation of the arrival of the FPS. Upon arrival, the vessel will be anchored to the site by a mooring system consisting of twelve anchors, three to be affixed at each corner of the FPS. It is anticipated that the anchor system will be in place prior to arrival of the FPS. Once anchored, the FPS would then be connected to the flexible production risers already connected to the well sites, and would commence operations. The FPS will remain afloat at all times. When necessary, the vessel may be moved by disconnecting the flexible production and export risers, and then slackening and disconnecting the twelve mooring lines before commencing towing operations.

Under Chapter 89 of the Harmonized Tariff Schedule of the United States Annotated (HTSUSA), vessels other than yachts and pleasure craft are exempt from duty assessment. A vessel, as defined for Customs purposes, is that which is capable of transportation of persons or merchandise on water. The claim is made that the MODU which is converted to FPS status retains the status of a vessel for purposes of duty consideration.

ISSUES:

1. Whether a point on the Outer continental shelf of the United States at which there exists one or more pre-drilled temporarily capped production wells, a pre-installed mooring system consisting of twelve 26-ton drag embedment anchors connected to wire ropes as well as anchor chains and buoys, and pipelines connected to shore through which will be sent crude oil and gas, is a point considered to be governed by the laws of the United States as provided under the terms of the Outer Continental Shelf Lands Act of 1953, as amended, 43 U.S.C. 1333 (a) (OSCLA).

2. Whether the transportation of crew members and necessary vessel equipment aboard the FPS vessel in question while under tow from a point in the United States to the intended operating site on the Outer continental shelf might be proscribed under 46 U.S.C. App 289 or 883, respectively.

3. Whether the towing of the FPS from a point in the United States to the intended operating site on the Outer contineltal shelf is governed by the terms of 46 U.S.C. App 316 (a).

4. Whether the FPS at all times relevant to this matter retains its status as a commercial vessel so as to render it free of the assessment of duty under Chapter 89 of the HTSUSA.

LAW AND ANALYSIS:

Under Section 4(a) of the Outer Continental Shelf Lands Act of 1953, as amended (43 U.S.C. 1333(a) (OCSLA)), 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 therefrom to the same extent as if the Outer Continental Shelf were an area of exclusive Federal jurisdiction located within a State. The provisions for dutiability of merchandise, as well as the coastwise and other navigation laws, apply to production platforms. C.S.D. 83-52.

As

The coastwise law pertaining to the transportation of merchandise, 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 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 recoveredfrom any consignor, seller, owner, importer,consignee, agent, or other person or persons so transporting 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...

While merchandise includes all manner of articles and substances, the definition does not include the legitimate and necessary equipment of a vessel. The information provided in this case indicates that the FPS while under tow

The Act of June 19, 1886, as amended (24 Stat. 81; 46 U.S.C. App. § 289, sometimes called the coastwise passenger law), provides that:

No foreign vessel shall transport passengers between ports or places in the United States either directly or by way of a foreign port, under a penalty of $200 for each passenger so transported and landed.

For your general information, we have consistently interpreted this prohibition to apply to all vessels except United States-built, owned, and properly documented vessels (see 46 U.S.C. §§ 12106, 12110, 46 U.S.C. App. § 883, and 19 C.F.R. § 4.80).

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 the internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ. These laws have also been interpreted to apply to transportation between points within a single harbor. Merchandise, as used in section 883, includes any article, including even materials of no value (see the amendment to section 883 by the Act of June 7, 1988, Pub. L. 100-329; 102 Stat. 588).

Previous Ruling Next Ruling