HQ 115218 - Coastwise Trade; Outer Continental Shelf Lands Act; 43 U.S.C. § 1333(a); 46 U.S.C. App. §§ 289, 883 - United States International Trade Commision Rulings

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HQ 115218

November 30, 2000

VES-3-15-RR:IT:EC 115218 GEV

CATEGORY: CARRIER

Kevin T. Dossett, Esq.
Preis, Kraft & Roy
520 Post Oak Boulevard
Suite 800
Houston, Texas 77027

RE: Coastwise Trade; Outer Continental Shelf Lands Act; 43 U.S.C. § 1333(a); 46 U.S.C. App. §§ 289, 883

Dear Mr. Dossett:

This is in response to your letter of October 23, 2000, requesting a ruling as to whether the use of a foreign-flagged vessel in the transportation and installation of certain equipment at a location in the Gulf of Mexico violates the coastwise laws. Our ruling on this matter is set forth below.

FACTS:

Your client, a large subsea engineering concern, has been awarded a contract to install a pipeline tie-in spool piece between a previously-laid flowline and a subsea manifold in the United States Gulf of Mexico, outside territorial waters but within the Exclusive Economic Zone (“EEZ”) in the waters over the Outer Continental Shelf (“OCS”). The piece in question is a “U”-shaped deepwater flowline tie-in spool piece with a horizontal run of 75’ and two vertical runs of 25’. It is an essential component of the previously-laid flowline, as without it the flowline cannot be made operative.

Your client intends to use a Panamanian-flagged vessel for this installation operation. The vessel is a multi-purpose vessel, capable of subsea construction, maintenance and inspection, heavy lift, and flexible flowline, umbilical and coiled tube lay operations, among others.

The vessel in question is capable of being fitted with a modular carousel system for pipelaying operations and has been utilized as a pipelaying vessel on previous occasions; however, during the pipeline tie-in spool piece attachment operation this equipment will not be aboard. The vessel is dynamically positioned (DP) but also capable of 4- or 8-point mooring. During the operations in questions, she will be operating under dynamic positioning and will not be moored to the sea floor.

The attachment of the pipeline tie-in spool piece will entail a separate mobilization from the pipelaying phase of the project. In addition, while your client proposes to utilize the above-described non-coastwise-qualified vessel in the follow-on pipeline tie-in spool piece attachment operation, that vessel was not involved in the original pipelaying phase of the operation.

The pipeline tie-in spool piece attachment operation would entail the vessel departing a United States port and proceeding to one or more points in waters over the OCS within the United States’ EEZ, and thereafter returning to a United States port. In addition to its crew, other personnel necessary for the performance of the proposed operations, and the pipeline tie-in spool piece, the vessel will carry consumables and materials and equipment necessary for the completion of those operations.

The attachment of the pipeline tie-in spool piece to the previously-laid flowline and subsea manifold is a diverless operation. The pipeline tie-in spool piece is attached to a “spreader bar,” which is in turn attached to the vessel’s crane. The pipeline tie-in spool piece is then lowered into the sea and descends to the seabed. Guidance and orientation of the pipeline tie-in spool piece are controlled by remotely operated vehicles (ROVs), which are part of the vessel’s equipment. Once the connections of the pipeline tie-in spool piece to the flowline and the subsea manifold are secured, the ROVs release the spreader bar, which is then retrieved by the vessel’s crane. The ROVs then return to the vessel and the operations are complete.

ISSUE:

Whether the use of a foreign-flagged vessel in the transportation and installation operation described above constitutes a violation of 46 U.S.C. App. §§ 289 and/or 883.

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 one that is coastwise-qualified (i.e., U.S.-built, owned and documented).

Pursuant to title 19, United States Code, § 1401(c) (19 U.S.C. § 1401(c)), the word “merchandise” is defined as “goods, wares and chattels of every description, and includes merchandise the importation of which is prohibited.” ). 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)

Section 4.80b(a), Customs Regulations (19 CFR § 4.80b(a)), promulgated pursuant to the aforementioned statute, provides, in pertinent part, as follows:

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,”
(Emphasis added)

Title 46, United States Code Appendix, § 289 (46 U.S.C. App. § 289, the passenger coastwise law) as interpreted by the Customs Service, prohibits the transportation of passenger 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 (i.e., any vessel that is not built in and documented under the laws of the United States, and owned by persons who are citizens of the United States). 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, business.” (19 CFR § 4.50(b)) Section 4.80a, Customs Regulations (19 CFR § 4.80a) is interpretive of 46 U.S.C. App. § 289.

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.

Section 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 appurtenances, 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 Customs and navigation laws, including the coastwise laws, the laws on entrance and clearance of vessels, and the provisions for dutiability of merchandise, are extended to mobile oil drilling rigs during the period they are secured to or submerged onto the seabed of the OCS (Treasury Decision (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, including warehouse vessels
anchored over the OCS when used to supply drilling rigs on the OCS. (see Customs Service Decisions (C.S.D.s) 81-214 and 83-52, and Customs Ruling Letter 107579, dated May 9, 1985)

In regard to the scenario presented for our consideration, we note that it involves both the transportation of a pipeline tie-in spool piece by a foreign-flag vessel to the installation site on the OCS where the installation will be done by the vessel’s crew, including technicians and personnel carried on board in connection with the operation. Customs has previously held that the use of a foreign-flag vessel to transport pipeline connectors and tools from a port in the United States to an OCS job site and install it thereby connecting a pipeline to a drilling platform or subsea wellhead would not violate the coastwise laws if the work was done from the vessel but would violate the coastwise laws if the vessel merely transported the connectors and tools to the drilling platform or subsea wellhead and the connection operation was not performed on or from that vessel. (see Customs ruling letter 108442, dated August 13, 1986; see also Treasury Decision (T.D.) 78-387)

Customs position that no violation of the coastwise laws would occur in scenarios such as those discussed in the above-referenced rulings is predicated on the understanding that all equipment, consumables and tools/materials carried on board the vessel are not “merchandise” for purposes of 46 U.S.C. App. § 883, provided such articles are to be utilized in furtherance of the vessel’s mission. (Customs ruling letter 113838, dated February 25, 1997) The same rationale renders crewmembers of such vessels, including divers and technicians, as well as any other personnel carried on board in connection with the services performed on or from such vessels, to be other than “passengers” within the meaning of 19 CFR § 4.50(b). Id.

Accordingly, since the use of the Panamanian-flag vessel under consideration would be in accordance with the aforementioned Customs rulings, it would not be violative of 46 U.S.C. App. §§ 289 and/or 883.

HOLDING:

As discussed in the Law and Analysis portion of this ruling, the use of a foreign-flagged vessel for the transportation and installation operation described above does not constitute a violation of 46 U.S.C. App. §§ 289 and/or 883.

Sincerely,

Larry L. Burton

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