HQ 115356 - Coastwise Trade; Vessel Equipment; 46 U.S.C. App. § 883 - United States International Trade Commision Rulings

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HQ 115356

May 22, 2001

VES-3-RR:IT:EC 115356 GEV

CATEGORY: CARRIER

Paul D. Coleman, Esq.
Hoppel, Mayer & Coleman
1000 Connecticut Avenue, N.W.
Washington, D.C. 20036

RE: Coastwise Trade; Vessel Equipment; 46 U.S.C. App. § 883

Dear Mr. Coleman:

This is in response to your letter dated April 30, 2001, on behalf of your client, PG&E Dispersed Generating Company, LLC (“PG&EDG”), requesting a ruling regarding the applicability of the Jones Act. Our ruling on this matter is set forth below.

FACTS:

PG&EDG, is the owner of the power barge RIO DA LUZ (“Power Barge”), a foreign-flag vessel which was built in Amsterdam in 1976. In the second half of 1997 it was retrofitted with U.S.-manufactured electricity generating units and associated equipment (“Generating Equipment”) at the now-defunct Hamm Marine shipyard in Pascagoula, Mississippi. During this retrofitting, the generating equipment was welded to the Power Barge. The owner of the vessel at that time, a joint venture of Epic Energy Amazon Company and UNC Metcalf Servicing, Inc. d/b/a UNC Industrial Power (together “Epic/Metcalf”), then had it dry towed to Manaus, Brazil, by a foreign-flag tug where it was employed to generate electricity for the period from the first quarter of 1998 through February, 2000. Epic/Metcalf then had it dry-towed as “cargo” to Freeport, Texas, in March, 2000 by a foreign-flag tug and barge. The Power Barge remained unutilized in Freeport until purchased by PG&EDG on June 23, 2000.

Working with the California Independent System Operator (“CAISO”), an entity responsible for certain electric reliability needs in the State of California, PG&EDG ultimately determined that there was a need for the Power Barge in San Francisco because of a statewide power shortage. Based on a CAISO Board resolution to negotiate a contract with PG&EDG to locate the Power Barge in the San Francisco area, PG&EDG had it wet towed by the Crowley Marine Services Inc. U.S.-flag tug GLADIATOR the short distance from Freeport to Houston, Texas, on July 2, 2000. There the Power Barge was placed on the U.S.-flag barge 411 for dry towage by the GLADIATOR to San Francisco.

In working with certain agencies that regulate electric generation, a number of issues arose, including political sensitivities and environmental concerns with water-based Generating Equipment. Given these types of issues, it does not appear to be possible to use the Generating Equipment of the Power Barge unless removed from the Power Barge and used as a land-based source of electricity. In view of the issues that have arisen, the Power Barge has been towed to Portland, Oregon, and has remained in Portland in layberth for the last eight months. In contrast to water-based Generating Equipment, measures are feasible for a land-based source of electricity, such as certain pollution control systems, that are not available when configured as the Power Barge. Thus, PG&EDG would like to unladen the Generating Equipment at Portland, Oregon, for use in California, to help with the statewide power shortage. The removal of the Generating Equipment which, as noted above, was welded to the Power Barge, will cost in excess of $1,000,000.

ISSUE:

Whether, under the scenario described above, the Generating Equipment which was laden on the Power Barge in Pascagoula, MS, may be unladen in Portland, Oregon, without violating 46 U.S.C. App. § 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).

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)

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) In this regard, Customs has held that vessel equipment is not considered “merchandise” for purposes of 46 U.S.C. App. § 883 when transported in the vessel on which it is used. (See Customs ruling letters 109236, dated February 24, 1988, 108223, dated March 13, 1986, and 106910, dated July 9, 1984)

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.

With respect to the Generating Equipment under consideration, we note that it was integral to the operation of the subject vessel as an electricity producing Power Barge. Furthermore, it was transported on the vessel (Power Barge) on which it was used. As such, it is considered to be vessel equipment rather than merchandise for purposes of 46 U.S.C. App. § 883. Consequently, in accordance with the above-cited legal authority, the unlading of the Generating Equipment in Portland will not constitute a violation of the Jones Act.

We note, however, that notwithstanding our position as stated above, the Generating Equipment, once unladen, will be treated as imported merchandise since it will then be used as a land-based source of electricity to assist in alleviating the statewide power shortage in California. Consequently, immediately subsequent to its unlading from the Power Barge, the Generating Equipment will cease to be considered as vessel equipment and will be considered to be merchandise for which a formal consumption entry must be filed pursuant to § 141.4, Customs Regulations (19 CFR § 141.4).

HOLDING:

Under the scenario described above, the Generating Equipment which was laden on the Power Barge in Pascagoula, MS, may be unladen in Portland, Oregon, without violating 46 U.S.C. App. § 883.

Sincerely,

Larry L. Burton

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