HQ 114298 - Vessel entry and clearance; Vessel supplies and equipment; Satellite launch from vessel; Foreign-flag vessels; American home port operations; Temporary unlading; Passengers; Entry for consumption; 19 U.S.C. 1433, 1434; 46 U.S.C. App. 91, 289, 883 - United States International Trade Commision Rulings

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HQ 114298

July 7, 1998

VES-3-RR:IT:EC 114298 LLB

CATEGORY: CARRIER

Mr. Kenneth G. Weigel
Kirkland and Ellis
655 Fifteenth Street, N.W.
Washington, D.C. 20005

RE: Vessel entry and clearance; Vessel supplies and equipment; Satellite launch from vessel; Foreign-flag vessels; American home port operations; Temporary unlading; Passengers; Entry for consumption; 19 U.S.C. 1433, 1434; 46 U.S.C. App. 91, 289, 883

Dear Mr. Weigel:

Reference is made to your letter of March 17, 1998, which you supplemented with a letter dated May 15, 1998, and another of June 15, 1998. You request a ruling on numerous issues concerning an up-coming long-term project which will seek to launch commercial satellites from the deck of a vessel which will be located outside of the territorial waters of the United States at the times of launch. You have requested that certain information contained in your submissions, which you have identified by enclosure within brackets, be accorded confidential treatment under section 177.2(b)(7), Customs Regulations (19 CFR 177.2(b)(7)). Our ruling follows.

FACTS:

A foreign corporation, Sea Launch Company, LDC, a consortium of aerospace companies which is headquartered in the Cayman Islands, proposes to utilize two foreign-documented vessels to support and effectuate the launch of a series of rockets bearing commercial satellite payloads. The launches would take place over an extended period of time, and would take place in the Pacific Ocean, most probably in waters identified as being within the 200 mile exclusive economic zone of a foreign nation.

One of the two vessels would be dedicated as the launch platform (LP) and is in fact a converted oil platform. The second vessel would act in the role of a support, assembly and command ship (CS) and would transport persons and equipment necessary for launch activities. Both vessels are self-propelled.

Prior to launch activities ensuing, a home port facility for the two vessels would be established in the United States at Long Beach, California. Initially (for the first two launches), the two vessels themselves would be used to bring rocket stages, fuel, parts, and necessary equipment and paraphernalia from their foreign ports of origin to the home port site. For subsequent launch programs, the necessary elements would be brought into the United States and landed at the home port by other vessels. Actual assembly operations would take place aboard the CS, with only minimal materials being landed in the home port during initial stages of the project. For later launches, necessary elements would be landed, and then placed aboard the two vessels as needed. At certain times, equipment may be placed aboard the vessels and then removed. The encapsulation of satellites within fairings would take place on shore in the home port, and the payloads would then be placed aboard the CS for integration with their rockets.

Once assembly operations are completed in the home port, the CS would move around the common finger-pier where each of the two vessels would occupy its own side-by-side berth separated by the pier, and would proceed to the side of the pier occupied by the LP vessel. Here, the CS would be joined to the LP by a gangplank, with the two vessels being in a stern-to-stern configuration. This maneuver would be performed for the purpose of transferring the assembled rocket from the CS assembly vessel to the LP for transportation and launch purposes. The vessels would thereafter proceed to the launch site located beyond the territorial waters of the United States.

At the launch site, the vessels would again be connected by gangplank in order that crewmembers, supplies, and equipment might be moved between the two. Prior to launch, all personnel and equipment would be returned to the CS which would move several miles distant from the LP for safety reasons. Actual launch would be commanded from the CS by remote control.

While at sea and at the launch site, it might be necessary from time to time to order and receive additional parts. In addition, persons referred to as VIPs may join the CS by helicopter or vessel in order to observe launches, or may observe from vessels upon which they would travel to the launch site. Those persons would not return to the home port aboard either the CS or the LP vessel, and any parts separately transported would be incorporated in launch vehicles. Any waste or debris generated as a result of crewmembers living aboard the vessels or resulting from assembly and launch activities would be brought back to the home port for disposal.

ISSUE:

May the personnel, merchandise, and vessels involved in the proposed program as outlined in the Facts portion of this ruling be utilized in the described fashion without consequence under United States law.

LAW AND ANALYSIS:

Entry of Vessels for Consumption

The initial concern expressed in the request for a ruling is whether the two vessels, the CS and the LP as described above, might themselves be subject to duty under the Harmonized Tariff Schedule of the United States. The special status accorded vessels, their tackle, apparel, equipment, and appurtenances has long been recognized, with vessels being considered sui generis and totally distinct from merchandise. (See The Conqueror, 166 U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937 (1896); United States v. William Herman Wepner, 32 CCPA 30, C.A.D. 282 (1944)). The requirements for the entry of merchandise are provided in section 1484 of title 19, United States Code. Those requirements have no applicability to commercial vessels, of which the vessels under consideration are examples. Accordingly, there would be no Customs duty requirements when such vessels are brought to the United States.

Coastwise Merchandise Transportation Statute

Inquiry is next made as to whether any of the proposed activities might be proscribed by the provisions of the so-called Jones Act. 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 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 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...

Customs has 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.

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 (Act of June 7, 1988, Pub. L. 100-329; 102 Stat. 588).

In this case, we are informed that the CS will move from one mooring site to another in order to transfer assembled launch vehicles with payloads to the LP vessel. The merchandise transferred will, in all cases, include some items which were loaded on to the CS while it is in the home port. An example of this is found in the receipt in the home port by the CS of encapsulated satellites. Having received any "merchandise" in such a manner, as well as any other which may be received in port, the vessel could not transship it to a second vessel within the territorial waters of the United States, even if a transfer takes place within the same harbor in which the merchandise was received.

The argument is made by the requestor that the articles in question are vessel equipment rather than merchandise. For Customs to adopt this position, it would be necessary to determine that the articles sought to be identified as equipment functionally remain the equipment of the CS vessel, or indeed of both vessels, following placement on the LP vessel. The coastwise transportation statute makes it clear that the definition of merchandise is all inclusive for purposes of section 883 issues, even to the point of including materials of no value whatsoever. In addition, by separate statute administered by Customs (19 U.S.C. 1401), merchandise is defined to include wares and chattels of every description. Therefore, the proscriptions set forth in section 883 would be invoked by the transshipment of merchandise in such circumstances as are outlined above. The result would be different, however, if the articles transferred were found to constitute and to remain identified as vessel equipment of the CS vessel rather than as merchandise.

We find the circumstances flowing from the facts in this case to be unique in our experience. Here we are presented with two specialty vessels, neither of which could fulfill its project mission without the other. There have been occasions when we have been asked to rule upon the legality of proposed projects involving the use of two vessels which would work in tandem. In such cases, one vessel could not realize its purpose in completing the project without the presence of a second vessel of the type proposed to be used. In the present circumstance, however, the specific vessels under consideration have been configured especially for the proposed project, and with the physical arrangement and limitations of the home port facilities taken fully into account. There is no other vessel of the same type that can be substituted for either ship. They are, in a sense, halves of the same whole.

In this case, complete rockets will be placed aboard the LP vessel by the CS vessel. The rockets will have been assembled from separate stages and joined to payloads by specialists aboard the CS vessel. The LP vessel, which is designed as a high seas launch pad, will transport the rockets from the home port to the launch site, and will provide the stable platform from which the rockets will be fired. While the rockets will actually lift off from the LP, all command and control functions related to launch are the exclusive province of the CS vessel, and will be accomplished by remote control.

We find in this case that the two vessels are co-dependent and inexorably tied for purposes of realizing the aims of the mission. For this reason, we find that the articles which will be transshipped from one vessel to the other within the confines of the home port are considered to be equipment of both vessels, equipment which will not contribute to the successful operation of either vessel without active utilization by both vessels.

Coastwise Passenger Transportation Statute

The requestor next seeks confirmation that none of the personnel to be transported on either vessel would be considered to be passengers under the laws enforced by Customs. 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.

We are not made aware in the facts as presented, of anyone connected with the vessels who might be considered a passenger. Further, none of the proposed uses of the vessels, with the exception of the proposed movements within the harbor of the home port by the CS for transshipment purposes, appear to involve two United States points. If activities involve the loading of personnel and crew at the home port, sailing to the launch area, and returning to home port again, there is a single United States point involved and no coastwise implications are suggested. As concerns the matter of VIPs visiting the CS at the launch site as previously outlined, there are no coastwise issues involved since the site is at a foreign location.

Vessel Report of Arrival, Entry and Clearance Requirements

The next issue posed for our consideration concerns requirements for vessel report of arrival, entry, and clearance. The pertinent portion of the report of arrival statute, 19 U.S.C. 1433, as amended, presently provides as follows:

Immediately upon the arrival at any port or place within the United States or the Virgin Islands of -
(A) any vessel from a foreign port or place;

(B) any foreign vessel from a domestic port;

(C) any vessel of the United States carrying bonded merchandise or foreign merchandise for which entry has not been made; or
(D) any vessel which has visited a hovering vessel or received merchandise while outside the territorial sea; the master of the vessel shall report arrival at the nearest customs facility or other such place as the Secretary may prescribe by regulations.

The pertinent portion of the vessel entry statute, 19 U.S.C. 1434, as amended, presently provides as follows:

Within 24 hours...after the arrival at any port or place in the United States of -
(1) any vessel from a foreign port or place; foreign vessel from a domestic port;
(3) any vessel of the United States having on board bonded merchandise or foreign merchandise for which entry has not been made; or
(4) any vessel which has visited a hovering vessel or delivered or received merchandise while outside the territorial sea; the master of the vessel shall, unless otherwise provided by law, make formal entry at the nearest customs facility or other such place as the Secretary may prescribe by regulation.

The pertinent portion of the vessel clearance statute, 46 U.S.C. App. 91, as amended, presently provides as follows:

(b) When required; other [than American] vessels
Except as otherwise provided by law, any vessel that is not a vessel of the United States shall obtain clearance from the
Customs Service before proceeding from a port or place in the United States-
(1) for a foreign port or place;
(2) for another port or place in the United States; or
(3) outside the territorial sea to visit a hovering vessel or to receive or deliver merchandise while outside the territorial sea.

The central issue with regard to possible vessel report of arrival, entry, and clearance in this case concerns whether there has been a receipt and/or delivery of merchandise while outside of the territorial sea of the United States (beyond three miles). Not included within the general meaning of merchandise is the equipment of a vessel which will be used by that vessel. Such materials have been defined as articles, "...necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board." (Treasury Decision 49815(4), March 13, 1939).

As previously discussed, the vessels under consideration will be working in tandem in order to successfully launch missiles. The vessels are individually documented, operated, and crewed and are considered by Customs to be separate vessels, but the issue remains whether there has been any receipt or delivery of "merchandise" while on the high seas. As detailed previously with regard to the issue of coastwise merchandise transportation, we have determined that the articles under consideration are interchangeable equipment of both vessels and not merchandise. In the present case, this means that neither vessel must report its arrival under section 1433 upon return to the United States, and neither vessel must comply with entry and clearance requirements under sections 1434 and 91, respectively.

Temporary Removal of Articles from the Vessels in the Home Port

As stated in the Facts portion of this ruling, there will be occasion to temporarily land and then relade certain equipment on to the two vessels. We understand that the articles herein being considered are related to the assembly and launching of the rockets. The requestor seeks permission to accomplish such unlading and lading operations without the need to make an entry for consumption. Alternative treatments are suggested in this regard, the first being under the provisions of 19 CFR 4.39, which is promulgated pursuant to section 446, Tariff Act of 1930, as amended (19 U.S.C. 1446).

Title 19, United States Code, section 1446 is not operative in the circumstances under consideration since it merely permits the retention of equipment aboard vessels without duty consequences, and treats any such equipment which is landed as imported merchandise. The statute does permit transshipment to another vessel owned by the same entity, but only where there is an engagement in foreign trade, and only in the case in which the vessel transferring the equipment is doing so because it is being delayed in port for some reason. In this case, nothing is being taken to a foreign port, and the two vessels would be traveling together without any delay.

The second alternative offered involves temporary placement of the articles in a bonded warehouse or foreign trade zone. It is urged that placement aboard the vessels after initial landing would be sufficient to meet exportation requirements for these types of entries. Our response in this case is dependant upon the ultimate disposition of the articles reladen. Mere placement aboard the vessels with subsequent return to the home port or retention aboard would not constitute an exportation as defined in the Customs Regulations (19 CFR 101.1), that being a severance from the things of this country and a joining with the things of some foreign country. Withdrawal from a warehouse for exportation is covered in 19 CFR 144.37, but that provision is merely procedural and accomplishment of "exportation" is still governed by the language of section 101.1 of the Customs Regulations.

On the other hand, Customs has ruled that the launching into space of articles which had been withdrawn from a foreign trade zone would be tantamount to an exportation for satisfaction of necessary conditions, and the same result appertains in the case of required exportation in terms of withdrawal from a bonded warehouse. Therefore, if the particular articles in question are actually part of a launch vehicle or payload, their having been launched would constitute an exportation following withdrawal from foreign trade zone or warehouse status.

We also note that the Harmonized Tariff Schedule of the United States does include provisions for communications satellites as well as for spacecraft launch vehicles and other types of satellites which may be entered for consumption. These are provided for in items 8802.60.30 and 8802.60.90 of the tariff, respectively. Communications satellites carry a free rate of duty, and the remainder of the named items carry a duty rate of 0.7 per cent ad valorem.

In summary, the only articles which if entered under a bond or in foreign trade zone status will be considered to have been properly exported from the United States are those which are actually part of the launch vehicle. Articles other than those which are to be launched must, if landed in the United States, be entered for consumption with appropriate duty paid. If satellites or launch vehicles are entered for consumption rather than in a bonded status, the applicable item numbers and duty rates are as previously detailed.

HOLDING:

Following thorough consideration of the facts as well as analysis of the law and applicable regulations, we have determined that the project which is the subject of this ruling will, for purposes of the laws enforced by Customs, be governed by the findings set forth in the Law and Analysis portion of this ruling. We wish to emphasize that the findings set forth in this ruling are limited to the specific facts of this case, and that these findings should not be relied upon by any other persons. Further determinations in this regard will be made on a case by case basis only.

Sincerely,

Jerry Laderberg

Chief

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