HQ 115535 - Outer Continental Shelf; Pipe-laying; Umbilical/Methanol Line- Laying; Dutiability; 43 U.S.C. § 1333(a) - United States International Trade Commision Rulings

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HQ 115535

November 20, 2001

VES-3-15-RR:IT:EC 115535 GEV

CATEGORY: CARRIER

Fred B. Baldwin, LLC
1321 State St.
New Orleans, LA 70118

RE: Outer Continental Shelf; Pipe-laying; Umbilical/Methanol Line- Laying; Dutiability; 43 U.S.C. § 1333(a)

Dear Mr. Baldwin:

This is in response to your letter dated September 25, 2001, submitted in conjunction with your letter of September 10, 2001, with attachments, on behalf of your client, [ ], the former of which requests a ruling concerning the dutiability of certain articles purchased outside the United States and brought to an offshore worksite. Our ruling is set forth below.

FACTS:

[ ], a Delaware corporation, is a subsidiary of [ ], a Texas corporation. [ ] is a wholly-owned subsidiary of [ ], an Italian energy service company. [ is currently under contract to [ (hereinafter referred to as the “Customer”) to install approximately 290,000 ft. of methanol line and 355,000 ft. of umbilical line across the Gulf of Mexico from a platform in [ (hereinafter the “Platform”) to a termination point in [ ] on the Outer Continental Shelf (“OCS”). The project is called the [ ] (hereinafter referred to as the “Project”). The procurement of the umbilical line and installation of both the umbilical and methanol lines have been subcontracted to a foreign affiliate of [

The [ ] (hereinafter referred to as the “Vessel”) is the foreign-flag vessel to be used to lay the methanol line and umbilical line. It is equipped with a 600-ton crane, reel pipe-laying systems, has a transit speed of 11 knots, and is fully operational in the pipe-laying/line-laying installation mode on a dynamic positioning system (no anchors).

Flexible tubular goods or “umbilicals” consisting of a main umbilical line and infield umbilical lines and materials (herein “Main Umbilical Line” and “Infield Umbilical Line” and collectively sometimes referred to as the “Umbilical Line” or “Umbilical Lines”) will provide electric and hydraulic controls to the subsea wells. The Umbilical Line will also be payed out by the Vessel on the seabed of the OCS from the base of the Platform to the termination (herein “Termination”) base of each of the subsea well heads in the three subsea developed fields in the Project, respectively identified in Attachment 1 as [

The Umbilical Lines contain the electrical/fiber optic systems, each protected with a high-density polyethylene sheath and the hydraulic systems composed of superduplex tubes. The hydraulic system provides for hydraulic supply and chemical injection and the electrical/ fiber optic system contains the required signal power conductors for controlling the subsea trees.

The Umbilical Line will be wound onto a foreign-sourced carousel and foreign-sourced reels (herein “Umbilical Line Reels”) before the Vessel arrives in the U.S. The carousel and Umbilical Line Reels will be mounted on the Vessel and will be used in the laying of the Umbilical Lines. As such, the carousel and Umbilical Line Reels constitute part of the Vessel’s equipment necessary for the accomplishment of the mission of the Vessel.

The Umbilical Line Materials shall mean the materials assembled into and constituting part of the Umbilical Lines to be payed out by the Vessel on the seabed of the OCS and shall include the Uraduct (protective outer casing for the Umbilical Line), Hang Off Clamp (used to hang off the umbilical from the Platform), Abandonment/Recovery Head (equipment to be used during contingency operations), Pipeline Mattresses, Electro Hydraulic Distribution Units (EHDUs), Mud Mats, Hydraulic Bridges and Flying Leads, Infield Subsea Umbilical Terminations (ISUTs), Main Subsea Umbilical Terminations (MSUTs) and Stab and Hinge-Overs (SHOs) (hereinafter referred to collectively as “Umbilical Line Materials”).

Umbilical Line “Storage Reels” and “Spare” Umbilical Line shall mean the reels and umbilical line to be delivered to the Customer at a U.S. Gulf Coast Port for future use in the United States. The following articles will be foreign-sourced:

Umbilical Lines

Main Umbilical Line
Infield Umbilical Line
Spare Umbilical Line

Umbilical Line Materials

Uraduct
Hang Off Clamp
Abandonment/Recover Head

Main Umbilical Line Carousel

Infield Umbilical Line Reels

Umbilical Line Storage Reels

The following articles will be purchased in the United States, sent to Norway and incorporated into the Umbilical Line before the Umbilical Line is wound onto the foreign-sourced reels:

Infield Subsea Umbilical Terminations
Main Subsea Umbilical Termination
Stab and Hinge-Overs

The length of the Umbilical Line in the J-tube from the topsides Hang-off on the Platform of the J-tube exit point at the bottom of the platform jacket is approximately 120 meters. The Vessel will deploy a Remotely Operated Vehicle (ROV) at the exit point of the J-tube at the base of the Platform. A messenger wire is lowered down the J-tube from the topsides. The ROV collects the messenger wire, returns the wire to the Vessel and the wire is attached to the main pull-in wire. The pull-in wire is attached to the Hang-Off head on the Umbilical Line and the Platform winch pulls the pull-in wire. The Umbilical Line is paid out from the carousel on the Vessel through the Coiled Product Overboarding System Tower.

The Umbilical Line reaches the seabed, moves to the J-tube bellmouth and enters the J-tube. The Platform winch pulls the Umbilical Line up the J-tube until the Hang-Off head on the Umbilical Line reaches the topsides temporary deck level and is attached to the Platform.

The Vessel moves away from the Platform and continues paying out the Umbilical Line and Umbilical Line Materials on the seabed of the OCS until the Umbilical Lines reach the Termination bases. The sequence is to lay the Main Umbilical Line and Umbilical Line Materials first, a U.S.-sourced Methanol Line and Methanol Line Materials and then the Infield Umbilical Line and Umbilical Line Materials. The Main Umbilical Line will be payed out from the Vessel all the way to the end. Then the Infield Umbilical Lines will be connected to the Main Umbilical Line on one end and will be payed out on the seabed of the OCS until the Umbilical Lines reach the Termination base at each of the subsea well heads. The Flying Leads on the end of the Infield Umbilical Lines will connect the Infield Umbilical Lines to the subsea well heads at the Termination base.

The mission of the self-propelled, multi-service pipelay derrick Vessel will be to perform the laying of the Umbilical and Methanol Lines on the ocean floor at the Offshore Worksite. No materials, equipment or personnel other than such as are necessary to the mission of the Vessel, shall be loaded onto the Vessel or unloaded from the Vessel while it is in U.S. waters.

The Vessel will call on the same U.S. Gulf Coast port each time the carousel, reels, Umbilical Lines or Umbilical Line Materials or reels, Methanol Lines or Methanol Line Materials are unloaded or loaded onboard the Vessel. The Vessel will not unload any carousel, reels, lines or materials whatsoever at another U.S. Gulf Coast Port or any offshore platform.

It is proposed that all of the foreign-sourced articles in question, including the carousel, Umbilical Line Reels, Umbilical Line and Umbilical Materials to be offloaded at the U.S. Gulf Coast Port for temporary storage in a bonded area, will be entered into the United States under a Temporary Importation Bond (TIB). The proposed operating plan calls for the foreign-sourced Umbilical Lines and Umbilical Line Materials to be carried onboard the foreign-owned, foreign-flagged Vessel to the Offshore Worksite and to be payed out on the seabed of the OCS. It is proposed that the only offloading and loading activity involving foreign-sourced Umbilical Line Reels,

Umbilical Lines or Umbilical Materials will take place at the U.S. Gulf Coast Port as follows:

The Vessel will arrive at the U.S. Gulf Coast Port carrying the foreign-sourced carousel, Umbilical Line Reels, Umbilical Line (including Umbilical Materials sourced in the U.S., sent to [ ] to be assembled into the Umbilical Line) and foreign-sourced Umbilical Materials (also to be assembled into the Umbilical Line)

Some of the foreign-sourced Umbilical Line Reels containing the Umbilical Line and some of the Umbilical Materials sourced outside the U.S. will be offloaded, entered under a TIB and placed in temporary storage in a bonded area at a U.S. Gulf Coast Port. The remaining foreign-sourced carousel, Umbilical Line Reels, Umbilical Line and Umbilical Materials will remain onboard the Vessel and go directly to the Offshore Worksite;

(Phase One) the foreign-sourced carousel, Umbilical Line Reels, Umbilical Line and Umbilical Line Materials will be carried to the Offshore Worksite and the Vessel will lay the Umbilical Line and Umbilical Line Materials on the seabed of the OCS;

The empty foreign-sourced carousel and Umbilical Line Reels will be carried from the Offshore Worksite to the U.S. Gulf Coast Port, offloaded, entered under a TIB and temporarily stored in a bonded area;

(Phase Three) the remaining foreign-sourced Umbilical Line Reels and Umbilical Line Materials (offloaded at the U.S. Gulf Coast Port for temporary storage in a bonded area) will be loaded onboard the Vessel and, along with the remaining Umbilical Line Materials (foreign-sourced Umbilical Line Materials left onboard the Vessel), will be carried from the U.S. Gulf Coast Port to the Offshore Worksite and the Vessel will lay the Umbilical Line and Umbilical Line Materials on the seabed of the OCS; and

The empty foreign-sourced Umbilical Line Reels will be carried from the Offshore Worksite to the U.S. Gulf Coast Port and the remaining empty carousel and Umbilical Line Reels (offloaded at the U.S. Gulf Coast Port) will be loaded
back onto the Vessel which will depart for a direct voyage to a foreign port.

It is noted that the foreign-sourced Umbilical Line Storage Reels containing the Spare Umbilical Line will be offloaded at the U.S. Gulf Coast Port to be delivered to the Customer.

As an alternative to the above transportation plan, some of the Umbilical Line Reels (three more or less) containing Umbilical Lines to be payed out on the ocean floor in Phase 3 and the foreign-sourced Umbilical Line Storage Reels loaded with the foreign-sourced Spare Umbilical Line would be delivered to the U.S. Gulf Coast Port by a non-coastwise-qualified third party ship or commercial liner and not by the Vessel. Under this alternative scenario, the foreign-sourced Umbilical Line Reels and Umbilical Lines destined for the Offshore Worksite that were to be loaded in [ ] onto the Vessel, instead would be offloaded from the ship or liner and stored at the U.S. Gulf Coast Port, entered under a TIB and temporarily stored in a bonded area until Phase Three of the Project. The foreign-sourced Umbilical Line Storage Reels loaded with foreign-sourced Spare Umbilical Line would be offloaded at the U.S. Gulf Coast Port and duty would be paid when the articles are entered.

It is proposed that the foreign-sourced carousel, Umbilical Line Reels, Umbilical Line and Umbilical Line Materials (except the foreign-sourced Umbilical Line Storage Reels loaded with foreign-sourced Spare Umbilical Line) offloaded from the Vessel at the U.S. Gulf Coast Port will be entered into the U.S. on a TIB. The Umbilical Line Reels, Umbilical Line and Umbilical Line Materials offloaded from the Vessel will be temporarily stored in a bonded area of the U.S. Gulf Coast Port from the time the Umbilical Reels, Umbilical Line and Umbilical Line Materials are offloaded from the Vessel (or pursuant to the alternative transportation plan from the non-coastwise-qualified third party ship or commercial liner) until the Umbilical Line Reels containing the Umbilical Line and Umbilical Line Materials are loaded back onto the Vessel to be taken to the Offshore Worksite in connection with the laying of the Umbilical Line. The empty foreign-sourced carousel and Umbilical Line Reels will be offloaded at the U.S. Gulf Coast Port, entered under a TIB and temporarily stored in a bonded area until they are loaded back onto the Vessel for the direct voyage to a foreign country at the end of the Project.

Of the four issues set forth in your letter of September 25, 2001, for which our determination is sought, three concern the filing of a TIB which is a matter within the purview of the Duty and Refund Determination Branch in the Office of Regulations and Rulings. These issues will for forwarded to that branch for their review and determination. Consequently, the sole issue for consideration by this branch is set forth below.

ISSUE:

Whether that portion of the foreign-sourced Umbilical Line and Umbilical Line Materials carried on the Vessel from [ ] to the Offshore Worksite, payed out by the Vessel and lying on the seabed of the OCS from the bottom of the Platform jacket to the Termination base at the subsea well heads would be dutiable.

LAW AND ANALYSIS:

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 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. (See Treasury Decisions (T.D.s) 54281(1)), 71-179(1), 78-225 and Customs Service Decision (C.S.D.) 85-54) 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)

With respect to the issue of dutiability of subsea cable, Customs has held as follows:
cable laid on the seabed between the production platforms will not be delivered to a point to which United States laws apply. Thus unless that part of the cable is is unloaded in a U.S. port or onto one of the platforms before being laid on the seabed, that part of the cable will not be dutiable. However, the part of the cable which rises along the platform’s structures, from the point at which it is first attached to the production platforms will be dutiable under the OCSLA. (Customs ruling letter 106454, dated November 16, 1983)

Further in this regard, Customs has held not only that the laying of umbilicals is akin to the laying of cable (Customs ruling letter 113726, dated November 7, 1996), but also that:
the dutiable portion of the umbilical will be the portion that attaches to the platform through the I tube, and the portion lying on the OCS between the platform and the termination base is not dutiable.
(Customs ruling letter 113711, dated November 26, 1996)

As applied to the proposal currently under consideration, the above-cited rulings lead us to conclude that portion of the foreign-sourced Umbilical Line and Umbilical Line Materials carried on the Vessel from

[ ] to the Offshore Worksite, payed out by the Vessel and lying on the seabed of the OCS from the bottom of the Platform jacket to the Termination base at the subsea well heads would not be dutiable.

HOLDING:

That portion of the foreign-sourced Umbilical Line and Umbilical Line Materials carried on the Vessel from [ ] to the Offshore Worksite, payed out by the Vessel and lying on the seabed of the OCS from the bottom of the Platform jacket to the Termination base at the subsea well heads would not be dutiable.

Sincerely,

Larry L. Burton

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