HQ 114487 - Coastwise trade; Pipelaying; Outer Continental Shelf; Foreign-flag vessels; 46 U.S.C. App. 292 and 883 - United States International Trade Commision Rulings

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HQ 114487

October 19, 1998

VES-3-16-RR:IT:EC 114487 LLB

CATEGORY: CARRIER

Mr. Richard C. Celotto
Designers and Planners, Inc.
2120 Washington Blvd., Suite 200
Arlington, Virginia 22204

RE: Coastwise trade; Pipelaying; Outer Continental Shelf; Foreign-flag vessels; 46 U.S.C. App. 292 and 883

Dear Mr. Celotto:

Reference is made to your letter of September 23, 1998, in which you request that this office rule upon the proposed use of non-coastwise-qualified vessels in the laying of subsea pipelines. Our ruling follows.

FACTS:

A British-registered company, European Marine Contractors Limited (EMC), owns and operates five vessels which are registered in the Bahama Islands. Two of the vessels are semisubmersible pipelay barges, two are flat-bottomed trench barges, and one is a diving support vessel. It is stated that the company has been operating the vessels in other countries in support of offshore drilling operations but now seeks to operate in United States territorial waters as well as those overlying the Outer Continental Shelf of this country. The company would seek to become involved in providing pipelines connecting offshore drilling units with one another as well as connections involving oil loading facilities and domestic land-based facilities.

It is proposed that the vessels would arrive from foreign locations and moor in offshore locations. Pipe sections would be transported to the EMC vessels by United States-flag vessels, with the EMC vessels only entering American ports when standing by between contract obligations or when embarking or disembarking crewmembers. Actual operations would involve starting at a terminal point, such as at an oil rig, and placing pipeline sections in the water. The sections would be welded together as the vessel deployed them. One of the trenching barges would then follow with a tow sled which would straddle the pipe and dig a trench with water jets. The pipe would then fall into the trench and , depending upon the particular contract specifications, would either be covered or left uncovered. Any necessary diving services would be supplied by the diving support vessel.

ISSUE:

Whether any of the laws enforced by the Customs Service are implicated in the circumstances outlined in the Facts portion of this ruling.

LAW AND ANALYSIS:

Generally, the coastwise laws prohibit the transportation of passengers or merchandise between points in the United States embraced within the coastwise laws in any vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States.

The coastwise laws generally apply to points in the territorial sea, which is 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.

Title 46, United States Code Appendix, section 883, the coastwise merchandise statute 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, documented under the laws of, and owned by citizens of the United States.

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). Customs has specifically ruled that, "Vessel equipment placed aboard a vessel at one United States port may be removed from the vessel at another United States port at a later date without violation of the coastwise laws." (Customs Ruling Letter 102945, November 8, 1978). Decisions as to whether a given article comes within the definition of "vessel equipment" are made on a case by case basis.

Section 4(a) of the Outer Continental Shelf Lands Act of 1953, as amended (43 U.S.C. 1333(a); "OCSLA"), provides in 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 therefrom...to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction within a state."

Title 46, United States Code App., section 292, provides that with one exception not applicable in the present case, vessels may not dredge in the navigable waters of the United States unless they meet the requirements of 46 U.S.C. App. 883.

The Customs Service has previously ruled that the laying of pipe is not considered coastwise trade. When pipe is laid, it is paid out in a continual operation while the vessel proceeds. Customs distinguishes between such an operation and the act of unlading merchandise since there is no single identifiable coastwise point involved in the laying of pipe (C.S.D. 79-321). Since the activity involved is not coastwise trade, foreign-flag vessels may be employed.

With respect to the potential dutiability of the pipe, Customs has had occasion to rule on similar matters. In Headquarters Letter 106454, dated November 16, 1983, the issue of the dutiability of certain flexible pipeline laid on the seabed between two fixed platforms considered to be located within the United States was considered. Customs determined in those circumstances that duty liability is limited to that portion of the pipeline which rises along the structure of a production platform, beginning with its first point of attachment to the structure.

The operations surrounding the trench barges lead us to a different result. In a published precedential case (Customs Service Decision 79-331, December 28, 1978), Customs had occasion to rule upon the use of a towed plow which created a furrow for a pipeline in conjunction with a pipelaying operation. That ruling found that the use of the device was an engagement in dredging when it was used in United States territorial waters. We find no meaningful distinction between the device considered in that case and the sled presently under consideration. Use of the device within the three mile territorial waters of the United States would be prohibited.

We find no such prohibition with respect to the use of the diving support vessel. There would be no transportation of passengers or merchandise between coastwise points provided by the vessel. As such, its use is not restricted by the coastwise laws enforced by Customs.

HOLDING:

Following thorough consideration of the facts and analysis of the law and applicable precedents, we have determined that with the exception of the use of the trenching barges within territorial waters, the matters as stated in the Facts portion of this ruling may be accomplished with the use of foreign-flag vessels.

Sincerely,

Jerry Laderberg

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