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HQ 115049





May 30, 2000

VES-3-06/07-RR:IT:EC 115049 GEV

CATEGORY: CARRIER

Richard L. Lionberger, Esq.
Royston, Rayzor, Vickery & Williams, L.L..P. 2200 Chase Tower
600 Travis Street
Houston, Texas 77002-2913

RE: Coastwise Trade; Towing; Report of Arrival; Entry; Clearance; Vessel Repair; 46 U.S.C. App. §§ 91, 316(a), 289, 883; 19 U.S.C. §§ 1433, 1434, 1466

Dear Mr. Lionberger:

This is in response to your letter dated May 17, 2000, on behalf of your client, Marine Drilling Companies, Inc., and its subsidiaries (“Marine”), requesting a ruling regarding the use of a non-coastwise-qualified vessel as the functional equivalent of a drydock. Our ruling on this matter is set forth below.

FACTS:

Marine has contracted with the owner of the BLUE MARLIN to transport two of Marine’s offshore drilling vessels, the MARINE 201 and MARINE 202, from Sharjah, U.A.E. and Singapore, respectively, to the United States Gulf Coast, in a single transport. The BLUE MARLIN is scheduled to arrive at Freeport, Texas, on June 26, 2000, with such vessels. Due to uncertainty regarding the location in the Gulf of Mexico where the vessels being transported will be ultimately employed, Marine has not yet determined the port or other location in the Gulf of Mexico where the transported vessels will be unladen.

The BLUE MARLIN is a self-propelled, Panamanian-flagged, state of the art semisubmersible heavy deck carrier which was built in Taiwan. It is owned by Blue Marlin AS, a wholly owned subsidiary of Offshore

Heavy Transport ASA, Vika Atrium, Munkedamsveien 45D, 0250 Oslo, Norway. The BLUE MARLIN is 712 feet in length, 137.8 feet in breadth, has a depth of 43.6 feet, deadweight of 57,021 metric tons and a carrying capacity in excess of 30,000 tons.

The MARINE 15 is a United States-flagged offshore jack-up drilling vessel. It is not one of the two vessels being transported by the BLUE MARLIN to the United States Gulf Coast. The MARINE 15 is currently located on the Outer Continental Shelf at Grand Isle, Block 41 and is expected to be located at Lake Charles, Louisiana (the “Initial Location”) at the time the operation described above commences which will be a location in the United States embraced within the coastwise laws. The MARINE 15 requires repairs that necessitate the vessel being placed on a drydock or otherwise being removed from the water. Since the BLUE MARLIN is available in the general vicinity of the MARINE 15, the most expeditious way of accomplishing the necessary repairs is to utilize the BLUE MARLIN as the functional equivalent of a drydock.

PROPOSED OPERATION

After reporting its arrival to the U.S. Customs Service and making entry, the BLUE MARLIN will unlade its cargo consisting of the MARINE 201 and the MARINE 202 off Freeport, Texas, Galveston, Texas, Lake Charles, Louisiana, or another Gulf Coast location, and will proceed under its own power and without cargo or passengers to a location in United States territorial waters off Texas, Louisiana or Mississippi (the “Lading and Unlading Location”). At the Lading and Unlading Location the BLUE MARLIN will moor by setting anchor. To the extent improved station keeping and positioning may be required, one or more assisting coastwise-qualified tug(s) may be used. The MARINE 15 will be towed by one or more such tug(s) from the Initial Location to the vicinity of the Lading and Unlading Location. The BLUE MARLIN will be submerged to a depth sufficient to allow the MARINE 15 to be floated over the BLUE MARLIN’s deck. Coastwise-qualified tugs, together with the BLUE MARLIN’s onboard winches, will maneuver the MARINE 15 over the decks of the BLUE MARLIN. The BLUE MARLIN will be deballasted such that the MARINE 15 will be removed from the water on board the deck of the BLUE MARLIN. Repairs will be made to the MARINE 15 while it is on the deck of the BLUE MARLIN and while the BLUE MARLIN is maintaining its position at the Lading and Unlading Location. During the time the repairs are being made to the MARINE 15, the BLUE MARLIN will be used exclusively for inspection, maintenance and repair of the MARINE 15.

The repairs will be performed by U.S. subcontractors of Marine and are expected to require five to seven days to perform, but could require a longer period of time. Upon completion of the repairs to the MARINE 15, the BLUE MARLIN will be submerged at substantially the same location as the Lading and Unlading Location, and the tug or tugs qualified for coastwise trade will remove the MARINE 15 from the BLUE MARLIN and tow the MARINE 15 to a point in the United States embraced within the coastwise laws where the MARINE 15 will be jacked up (the “Final Location”). The Final Location will be substantially the same as the Initial Location.

The repairs will be performed using Marine’s U.S. subcontractors, which will have personnel on board the BLUE MARLIN during the repairs. Marine will also have its personnel, including members of the crew of the MARINE 15, on board the BLUE MARLIN during the repairs. The crew of the BLUE MARLIN will not be used to make the repairs to the MARINE 15. A total of approximately thirty of Marine’s subcontractor’s personnel and Marine’s personnel (the “Personnel”) will work and live on board the BLUE MARLIN during the repairs. The Personnel on board at completion of the repairs may be different than the Personnel who were on board at the commencement of the repairs due to the need for different or additional people, experience or expertise, during the course of the repairs as well as normal turnover of personnel. The Personnel on board the BLUE MARLIN will embark and disembark from the same port in the United States and in the vicinity of the Lading and Unlading Location.

During the course of the repairs to the MARINE 15, merchandise and passengers will be transported to the BLUE MARLIN from a United States port using coastwise-qualified vessels and/or aircraft. The Personnel will embark and disembark at the same United States port. Merchandise may be shipped from and returned to more than one port in the United States.

The material, equipment and services required to make the repairs to the MARINE 15 will be purchased and contracted for in the United States.

ALTERNATIVE SCENARIOS

Instead of performing the repairs to the MARINE 15 at the Lading and Unlading Location, after the MARINE 15 is laden and with the MARINE 15 and the Personnel on board, the

BLUE MARLIN proceeds under its own power to another location in the United States embraced within the coastwise laws where the repairs are performed. Upon completion of the repairs, the BLUE MARLIN, with the MARINE 15 and the Personnel on board, proceeds under its own power to substantially the same location as the Lading and Unlading Location, where the BLUE MARLIN would be moored and submerged. A tug or tugs qualified for coastwise trade remove the MARINE 15 from the BLUE MARLIN and tow the MARINE 15 to the Final Location. The Personnel would embark and disembark at the same port in the United States.

Instead of mooring at the Lading and Unlading Location, the BLUE MARLIN is submerged and the MARINE 15 is laden and/or unladen without the BLUE MARLIN being moored or attached to the sea bottom. Both lading and unlading would be performed at substantially the same location.

Since the repairs are expected to be performed during the hurricane season, it may not be prudent in view of weather conditions or other similar circumstances for the BLUE MARLIN to maintain its position at the Lading and Unlading Location at all times during the repairs. Due to such circumstances, the BLUE MARLIN may proceed under its own power to a different location until the weather or other circumstances abate, when the BLUE MARLIN would return to substantially the same location as the Lading and Unlading Location where it would maintain its position to complete the repairs and unlade the MARINE 15 as described in the proposed operation above.

Instead of the Final Location being the same as the Initial Location, the Final Location is a location different from the Initial Location, but embraced within the coastwise laws of the United States.

OTHER SCENARIOS

In addition to the applicability of the coastwise laws to the scenarios proposed above, you also inquire as to the applicability of the U.S. Customs Service report of arrival, entry and clearance statutes to those vessels and/or aircraft transporting merchandise and/or passengers to and from the BLUE MARLIN during the course of the repairs to the MARINE 15. Furthermore, you also inquire as to the
applicability of the vessel repair statute to the repairs to the MARINE 15 while on board the BLUE MARLIN.

ISSUES:

Whether the proposed operation and alternative scenarios as described above are violative of 46 U.S.C. App. §§ 289, 883 and 316(a).

2. Whether vessels and/or aircraft transporting merchandise and/or passengers to and from the BLUE MARLIN during the course of the repairs to the MARINE 15 will be required to report their arrival, make formal entry, and/or obtain clearance pursuant to 19 U.S.C. § 1433, 1434, and 46 U.S.C. App. § 91, respectively.

Whether repairs to the MARINE 15 performed by U.S. labor on board the foreign-flag vessel BLUE MARLIN while in U.S. territorial waters are subject to the assessment of duty pursuant to 19 U.S.C. § 1466.

LAW AND ANALYSIS:

The coastwise law pertaining to the transportation of merchandise, § 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 transpor- tation, 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...

Section 4.80b(a), Customs Regulations (19 CFR § 4.80b(a)), promulgated pursuant to 46 U.S.C. App. § 883, provides, in part, that:

A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws (“coastwise point”) is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise. (Emphasis added)

In regard to the term "merchandise" as used in the above-cited regulatory and statutory authority, Customs has long-held that a vessel carried aboard another vessel is merchandise. (Customs rulings 102750, dated April 13, 1977; 104086, dated July 23, 1979; 111323, dated October 18, 1990; 107060, dated November 21, 1984, published as Customs Service Decision (C.S.D.) 85-9; and 112612, dated March 23, 1993). In addition, Customs has also held the equipment of a vessel to be considered as other than merchandise for purposes of that authority. To that end, vessel equipment has 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." (T.D. 49815(4), dated March 13, 1939)

The Act of June 19, 1886, as amended (24 Stat. 81; 46 U.S.C. App. § 289, 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.

Customs has consistently interpreted the above 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; 19 CFR § 4.80). Furthermore, for purposes of the above statute a “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.” (See 19 CFR § 4.50(b))

Title 46, United States Code Appendix, § 316(a) (46 U.S.C. App. § 316(a), the coastwise towing law) prohibits the use of any vessel not having in force a certificate of documentation endorsed for the coastwise trade (46 U.S.C. § 12106) to tow any vessel other than a vessel in distress, from any point or place embraced within the
coastwise laws of the United States to another such port or place, either directly or by way of a foreign port or place, or for any part of such towing.

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.

Furthermore, § 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 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.

The statute was substantively amended by the Act of September 18, 1978 (Pub. L. 95-372, Title II, § 203, 92 Stat. 635), to add, among other things, the language concerning temporary attachment to the seabed. The legislative history associated with this amendment is telling, wherein it is stated that:

...It is thus clear that Federal law is to be applicable to all activities or all devices in contact with the seabed for exploration, development, and production. The committee intends that Federal law is, therefore, to be applicable to activities on drilling rigs, and other watercraft, when they are connected to the seabed by drillstring, pipes, or other appurte- nances, on the OCS for exploration, development, or production purposes. [House Report 95-590 on the OCSLA Amendment of 1978, page 128, reproduced at 1978 U.S.C.C.A.N. 1450, 1534.]

Under the foregoing provision, we have 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 OCS (T.D. 54281(1)). We have applied the same
principles to drilling platforms, artificial islands, and similar structures, as well as devices attached to the seabed of the OCS for the purpose of resource exploration operations. (Customs Service Decisions (C.S.D.s) 81-214 and 83-52)

In regard to the applicability of the coastwise laws to the proposed operation, including the four alternative scenarios, our position is as follows. With respect to 46 U.S.C. App. § 883, the MARINE 15 (considered to be merchandise for purposes of 46 U.S.C. App. § 883 once placed aboard the BLUE MARLIN), will not be transported between coastwise points as contemplated by that statute in view of the fact that it will be laden and unladen at the same location (i.e., the Lading and Unlading Location). Accordingly, no violation of 46 U.S.C. App. § 883 would result therefrom. Furthermore, no such violation would arise with respect to the transportation of merchandise (used in the subject repairs) from a United States port to the BLUE MARLIN in view of the fact that such transportation will be done by coastwise-qualified vessels.

As for the applicability of 46 U.S.C. App. § 289, the “Personnel” working and living on board the BLUE MARLIN during the repairs in question would be “passengers” within the meaning of 19 CFR § 4.50(b) not only while on board the BLUE MARLIN, but also while on board those vessels that are used to transport them from their United States port of embarkation to the BLUE MARLIN. Consequently, the latter must be coastwise-qualified which you state is the case. It should be noted, however, that if during the course of Personnel turnover as you describe, a passenger embarks and disembarks the BLUE MARLIN at different coastwise points (e.g., when the BLUE MARLIN proceeds to a location other than the Lading and Unlading Location as described in Alternative Scenarios 1 and 3), a violation would occur as to the transportation aboard the BLUE MARLIN notwithstanding the use of the aforementioned coastwise-qualified vessels.

With respect to the use of the tug(s) as described in the your letter, you state that they would be coastwise-qualified. Accordingly, their use would be in compliance with 46 U.S.C. App. § 316(a).

The statutory requirements pertaining to vessel report of arrival, entry, and clearance, are set forth in 19 U.S.C. §§ 1433(a), 1434, and 46 U.S.C. App. § 91, respectively. Such requirements are applicable to aircraft pursuant to 19 U.S.C. §§ 1433(c) (report of arrival) and 1644a(b)(1)(E) (entry and clearance). Given your statement that
during the course of repairs to the MARINE 15, merchandise and passengers will be transported from a United States port to the BLUE MARLIN (maintaining its position in U.S. territorial waters at the Lading and Unlading Location) using coastwise-qualified vessels and/or U.S. aircraft, none of the aforementioned requirements would be applicable except in the event such vessels and/or aircraft are carrying bonded merchandise or foreign merchandise for which entry has not been made.

In regard to the applicability of the vessel repair statute (19 U.S.C. § 1466), to the repairs performed on board the BLUE MARLIN, we note that the statutory language provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States” (Emphasis added)

Accordingly, it is our position that pursuant to the express language of 19 U.S.C. § 1466, the provisions therein regarding the assessment of duty are inapplicable to repairs performed by U.S. labor within U.S. territorial waters notwithstanding the fact that such repairs would be performed aboard a foreign-flagged vessel.

HOLDINGS:

The proposed operation and alternative scenarios as described above are not violative of 46 U.S.C. App. §§ 289, 883 and 316(a).

2. The vessels and/or aircraft transporting merchandise and/or passengers to and from the BLUE MARLIN during the course of the repairs to the MARINE 15 will not be required to report their arrival, make formal entry, and/or obtain clearance pursuant to 19 U.S.C. § 1433, 1434, and 46 U.S.C. App. § 91, respectively, provided they are not carrying bonded merchandise or foreign merchandise for which entry has not been made.

3. Repairs to the MARINE 15 performed by U.S. labor on board the foreign-flag vessel BLUE MARLIN while in U.S. territorial waters are not subject to the assessment of duty pursuant to 19 U.S.C. § 1466.

Sincerely,

Acting Chief

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