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HQ 115672




May 14, 2002

VES-3-24-RR:IT:EC 115672 GEV

CATEGORY: CARRIER

Jonathan K. Waldron, Esq.
Dyer Ellis & Joseph
Watergate, Eleventh Floor
600 New Hampshire Ave., NW
Washington, D.C. 20037

RE: Coastwise Trade; Towing; Instruments of International Traffic; 46 U.S.C. App. §§ 316(a), 883; 19 U.S.C. § 1322

Dear Mr. Waldron:

This is in response to your letter dated May 3, 2002, on behalf of your client, Heerema Marine Contractors Nederland B.V. (“Heerema”), requesting a ruling on a proposed transportation/assembly operation involving foreign-flag vessels. Our ruling in this matter is set forth below.

FACTS:

The HERMOD, a foreign-flag, large capacity crane vessel, operates in the U.S. Gulf of Mexico. It will be completing an Outer Continental Shelf (OCS)-related construction project in early May 2002, and then will be idle from May 15 to August 12, 2002, when it will depart en route to Trinidad and Tobago. During the May 15 – August 12 idle period, the HERMOD will be anchored on the OCS outside the 3-mile territorial sea, where it will undergo repairs and maintenance. At the same time, the HERMOD will be used to assemble steel crates for holding, and to assist in the transportation (handling and lifting) of large pipe that will be laid by another Heerema construction vessel, the BALDER. Specifically, the steel will be transported from Fourchon, Louisiana, aboard the H-302, a foreign-flag barge owned by Heerema Shipping 14 B.V., and towed by a chartered foreign-flag tug to the anchored HERMOD for assembly/welding into crates.

Each assembled crate will be 17’ x 50’ x 13’ and weigh 30 metric tons. Initially, 42 crates will be assembled. Each crate will be numbered sequentially. The tug and barge will return to the U.S. point of departure upon delivery of the steel to the HERMOD.

During the period of time when the crates are being assembled, the H-302 will be repositioned to Mobile, Alabama, using a coastwise-qualified tug. A chartered foreign-flag tug will then tow the H-302 from Mobile to the HERMOD where the assembled crates will be onloaded, and then tow the H-302 back to Mobile where the crates will be stored until the BALDER is scheduled to lay pipe on the OCS later in 2002. Crating of pipe is necessary for lifting and transportation in a safe and economical manner. No steel, supplies, equipment, consumables, or any other provisions transported to the HERMOD from a U.S. port will be used to supply a rig or any other fixed structure attached to the seabed of the OCS for the purpose of resource exploration, production, or development operations.

ISSUES:

Whether the use of foreign-flag tugs in the scenario described above is violative of 46 U.S.C. App. § 316(a).

Whether the use of a foreign-flag vessel in the scenario described above is violative of 46 U.S.C. App. § 883.

Whether the assembled crates under consideration may be designated as instruments of international traffic within the meaning of 19 U.S.C. § 1322(a) and § 10.41a, Customs Regulations (19 CFR § 10.41a).

LAW AND ANALYSIS:

ISSUES 1 AND 2

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).

Title 46, United States Code Appendix, § 316(a) (46 U.S.C. App. § 316(a), the towing coastwise 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.

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 applicability of the above-cited coastwise laws in this scenario, our position is as follows.

During the time the HERMOD will be anchored on the OCS outside the 3-mile territorial sea, it will be undergoing repairs and maintenance. It also will be used as an assembly site for steel crates that will be used to hold and assist in the transportation (handling and lifting) of large pipe. This pipe will ultimately be laid by the BALDER at an undisclosed location later in 2002. It is therefore apparent that although the HERMOD is attached to the seabed of the OCS via anchor lines, such attachment is not for the purpose of exploration, development, or production within the meaning of the OCSLA. The HERMOD in this scenario therefore does not constitute a point embraced within the coastwise laws.

Accordingly, the provisions of 46 U.S.C. App. § 316(a) are inapplicable in this case. Since the HERMOD is not a coastwise point, the use of a foreign-flag tug to tow the H-302 from Fourchon, Louisiana, to the HERMOD and return to the same U.S. point from which it departed upon delivery of the steel to the HERMOD is not a violation of that statute. The same rationale applies with respect to the use of a foreign-flag tug to tow the H-302 from Mobile to the HERMOD and return (provided the H-302 is returned to the same point in Mobile). The only coastwise tow in this scenario involves the repositioning of the H-302 from Fourchon to Mobile which, as stated above, will be accomplished by a coastwise-qualified tug. Con-sequently, the facts of this case do not give rise to a violation of 46 U.S.C. App. § 316(a).

In regard to the applicability of 46 U.S.C. App. § 883, since the HERMOD is not a coastwise point, the transportation of steel from Fourchon to its anchorage location is not a coastwise movement. We note, however, that it is proposed to assemble this steel into crates on board the HERMOD and subsequently transport them aboard the foreign-flag H-302 to Mobile. Since 46 U.S.C. App. § 883 prohibits the use of a non-coastwise-qualified vessel to engage in the transportation of merchandise between coastwise points, either directly, indirectly, or for any part of the transportation, we note that absent compliance with the provisions of § 4.80b(a), Customs Regulations (19 CFR § 4.80b(a)) and the Customs rulings issued thereunder, the transportation of steel from Fourchon via the HERMOD anchorage to Mobile falls within the purview of that statute. Section 4.80b(a), Customs Regulations, promulgated pursuant to 46 U.S.C. App. § 883, provides, in part, that:

A coastwise transportation of merchandise takes place, , 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. However, merchandise is not transported coastwise if at an intermediate port or place other than a coastwise point (that is, at a foreign port or place, or at a port or place in a territory or posses- sion of the U.S. not subject to the coastwise laws), it is manufactured or processed into a new and different product, and the new and different product thereafter is transported to a coastwise point. (Emphasis added)

In applying § 4.80b(a), Customs has long-held that merchandise manufactured or processed into a “new and different product” must be landed and processed at an intermediate port or place other than a coastwise point and the manufacturing or processing may not take place on board a vessel. (see Customs ruling letter 111998, dated November 26, 1991)

Consequently, in order for the transportation of the subject steel to fall outside the purview of § 883, it must meet the following two criteria: (1) it must be manufactured or processed into an new and different product; and (2) such manufacture or processing must not take place on board a vessel. Since the assembly of the steel into crates is to take place on board the HERMOD, the latter criterion will not be met thereby giving rise to a violation of 46 U.S.C. App. § 883 when the assembled crates would be unloaded from H-302 in Mobile.

ISSUE 3

Title 19, United States Code, § 1322(a) (19 U.S.C. § 1322(a)), provides that "[v]ehicles and other instruments of international traffic, of any class specified by the Secretary of the Treasury, shall be excepted from the application of the customs laws to such extent and subject to such terms and conditions as may be prescribed in regulations or instructions of the Secretary of the Treasury."

The Customs Regulations issued under the authority of § 322(a) are contained in section 10.41a (19 CFR § 10.41a). Section 10.41a(a)(1) specifically designates lift vans, cargo vans, shipping tanks, skids, pallets, caul boards, and cores for textile fabrics as instruments of international traffic (IIT). Section 10.41a(a)(1) also authorizes the Commissioner of Customs to designate other items as IIT in decisions to be published in the weekly Customs Bulletin. Once designated as IIT, these items may be released without entry or the payment of duty, subject to the provisions of § 10.41a.

To qualify as an "instrument of international traffic" within the meaning of 19 U.S.C. § 1322(a) and the regulation promulgated pursuant thereto (19 CFR § 10.41a et seq.), an article must be used as a container or holder. The article must be substantial, suitable for and capable of repeated use, and used in significant numbers in international traffic. (See subheading 9803.00.50, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), and former Headnote 6(b)(ii), Tariff Schedules of the United States (HTSUS), as well as Headquarters Decisions 104766; 108084; 108658; 109665; and 109702).

With respect to the steel crates in question, notwithstanding the similarity of their physical characteristics to those articles designated as IIT in Customs Service Decision (C.S.D.) 80-220 (citing Treasury Decision (T.D.) 56243), we note that they are not used in international traffic. It is Customs position that the term “international traffic”, as found in § 10.41a(a)(1), applies to a container or other such instrument brought into the United States, even though empty, for use in an exportation planned at or before the time of importation. (Customs ruling letter 103660, dated November 6, 1978) That the use of containers pursuant to the provisions of § 10.41a contemplates the carriage of export cargo therein is reflected in Treasury Decisions (T.D.s) 69-216 and 72-2. The term “exportation” is defined in the Customs Regulations as “a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country.” (19 CFR § 101.1)

Furthermore, it is Customs position that articles placed on the OCS are not “exported” within the meaning of the applicable Customs laws and regulations. (Customs ruling letter 115311, dated May 10, 2001)

Accordingly, since the steel crates in question will not be united with the mass of things belonging to some foreign country in view of the fact that they will be temporarily placed aboard the foreign-flag vessel BALDER prior to their being laid on the OCS, they are not “exported” for Customs purposes and therefore cannot be designated as IIT. Consequently, they may not be transported coastwise pursuant to the provisions of § 4.93(a), Customs Regulations (19 CFR § 4.93(a)).

HOLDINGS:

The use of foreign-flag tugs in the scenario described above is not violative of 46 U.S.C. App. § 316(a).

The use of a foreign-flag vessel in the scenario described above is violative of 46 U.S.C. App. § 883.

The assembled crates under consideration may not be designated as instruments of international traffic within the meaning of 19 U.S.C. § 1322(a) and § 10.41a, Customs Regulations (19 CFR § 10.41a).

Sincerely,

Larry L. Burton

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