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HQ 115431





September 4, 2001

VES-3-15-RR:IT:EC 115431 GEV

CATEGORY: CARRIER

Robert H. Nicholas, Jr., Esq.
Mark C. Joye, Esq.
Baker & Hostetler LLP
1000 Louisiana, Suite 2000
Houston, Texas 77002-5009

RE: Coastwise Trade; Outer Continental Shelf; Offshore Floating Production Facility; Hotel Accommodations; Entry; Clearance; Pipe-laying; 43 U.S.C. § 1333(a); 19 U.S.C. § 1434; 46 U.S.C. App. §§ 91, 289, 883

Dear Messrs. Nicholas and Joye:

This is in response to your letter dated July 6, 2001, as supplemented by your letter dated July 27, 2001, on behalf of your client, [ ], requesting a ruling concerning the applicability of certain Customs laws and regulations to the installation of two floating offshore oil and gas production platforms, foreign-flag heavy lift vessels, hotel vessels, and the entry of merchandise shipped directly to the platform installation site. Our ruling is set forth below.

FACTS:

In furtherance of the development of certain [ ] oil and gas leases, [ ] has contracted with numerous parties for the installation of two moored floating platform facilities referred to as [ ] and [ ]. Each facility will consist of two major components, the lower Spar subassembly and the topside structure. The lower Spar subassemblies are five hundred and forty-three-foot long structural units which will house and protect multiple production risers, piping, production stems, and other equipment. The lower Spar subassemblies are being fabricated in [ ]. They will be delivered
by a chartered heavy lift self-propelled vessel as cargo to a shipyard location near [ ]. They will then be offloaded before being towed in a horizontal position to their respective installation sites in the [ ].

The upper portion or topside structures of the lower Spar sub-assemblies are being fabricated in the United States. The topside structures consist of production facilities as well as the quarters for the crews. Once the lower Spar subassembly sections of each facility are installed in a vertical or upright position, the upper topside structure of the platforms will be installed as a single component which will require a single heavy lift utilizing two foreign-flag heavy lift vessels, the [ ] and the [ ]. After initial installation, additional work will be performed to install the underwater production systems which consist of a number of components. This part of the work will also require the utilization of other offshore installation support vessels that have lifting capabilities. These vessels may also be foreign-flag, non-coastwise-qualified vessels.

Prior to the installation of each floating facility, [ ] contractors will install on the seabed a mooring system consisting of nine pilings permanently attached to the seabed. Each piling will have chains and cables attached to it which will eventually be attached to each of the lower Spar subassemblies to anchor and hold it in place.

In order to install these floating facilities, it will be necessary to mobilize workers and equipment at the installation sites. To accomplish this, [ ] subcontractors plan to utilize a number of different types of vessels. At this time, with the exception of the [ ] and [ ] which are foreign-flag heavy lift vessels, no other specific vessels have been named or identified but may, depending upon the specific use, be foreign-flag vessels. The facts as presented are, to the best of your knowledge, representative of the types of activities any such foreign-flag vessels, if employed, will be used to perform whether or not presently identified.

Certain vessels will be used to quarter the work crews. These vessels are expected to be foreign-flag. One such vessel is the aforementioned [ ] which is a non-self-propelled dynamic positioning vessel (“DPV”) which is capable of maintaining station at a fixed location without anchoring or mooring to the seabed through the use of a dynamic positioning system. It is also capable of anchoring to the seabed utilizing conventional anchors. Other foreign-flag vessels which may be used to house and feed the work crews may be
of similar design and construction and may or may not be self-propelled or have DPV capabilities. It is planned to mobilize these vessels at a [ ] port before proceeding to the installation sites.

Supplies, stores, and fuel for use only aboard the hotel vessels will be loaded at the port of mobilization. The vessels will then proceed either under their own power or be towed to a location near the installation sites. The only persons that will be onboard the vessels during their transit to the installation sites will be the crewmembers of the respective vessels. No passengers or work crews will be transported to the installation sites onboard any of the vessels. Upon arrival at the installation sites, the vessel or vessels that will house the work crews will be tethered or attached to the lower Spar subassembly by means of a gangway between the vessel, and to the lower Spar subassembly itself, or will be dynamically positioned at or near the installation site.

The work crews will be transported to the work sites by either coastwise-qualified vessel or by helicopter. Access by the work crews to the work areas or to the lower Spar subassemblies will be by the use of the gangway which will permit ingress and egress between the hotel vessels and the lower Spar subassemblies. Some crews may also be transported to the work site by coastwise-qualified work boats or helicopters.

In addition to the vessel or vessels designated as hotel facilities, two or possibly three other non-coastwise-qualified vessels will be used in connection with the installation of the lower Spar subassembly’s topside structures. Two such vessels that have been identified are the [ ] and the [ ], referenced above. Both the [ ] and the [ ] are non-self-propelled heavy lift barges. They will be used for each single heavy lift required during the installation of the topside structures for each lower Spar subassembly.

These two vessels’ primary function will be to perform the single heavy lift required in connection with the installation of the topside structures of the floating production facilities. Part of the time, the vessels will be moored or anchored or dynamically positioned at or near the installation site. The work crews living aboard the [ ] and possibly the [ ] or any other designated foreign-flag hotel vessel or vessels will be transported between these vessels and the work site by other coastwise-qualified vessels.

Neither the [ ] nor the [ ] will be used to transport merchandise or passengers to the installation site. The only movement of any merchandise by either the [ ] or [ ] will be performed exclusively, by the operation of each vessel’s derrick or crane when making the heavy lift from a U.S.-flag transport barge to the lower Spar subassemblies. There will be little horizontal or surface movement of the vessels except as is necessary or incidental to the lifting operations. No cargo of any type will be loaded on board and transported by either the [ ] or [ ] or by any other foreign-flag heavy lift vessel or offshore installation support vessel not coastwise-qualified that may be used along with these two vessels during any part of the installation of either facility.

In the event the installation of either facility is threatened by tropical storm, hurricane or other severe weather conditions, it is anticipated that all vessels, whether U.S. or foreign-flag, will be used for the emergency evacuation of work crews and uninstalled materials and/or equipment. Such emergency transportation will necessarily involve the coastwise transport of passengers and merchandise. However, in any such event, any uninstalled material and/or equipment loaded onto any foreign-flag vessels and transported to a port or place in the U.S. will not be offloaded from any such vessels and will be taken back to the same location from which it was transported, i.e., the respective installation sites of the facilities.

After the main installation of the topside structures and the lower Spar subassemblies is complete, installation of the subsea components of the lower Spar subassembly’s production systems will begin. In particular, the Top Tension Risers will be delivered by foreign-flag barges and tow boats directly to the respective installation sites from Mexico, as well as other subsea production components to be installed which will come from the United States. The Top Tension Riser consists of component parts furnished from the United States, Germany and the United Kingdom which are being manufactured in Mexico. The function of the Top Tension Risers is to serve as both a support and tensioner of the production risers that will transport the produced oil and gas up to the surface. The unassembled Top Tension Risers will be shipped directly to the installation sites where upon assembly and installation they will be entered through U.S. Customs. As previously mentioned, other components of the subsea production systems to be installed will be supplied from the United States.

Each floating offshore platform location has been designed to receive the production of oil and gas from a number of wells previously drilled in the area of each offshore facility. Not all of the wells are located in the immediate area or vicinity of each floating offshore production platform ([ ] and [ ]). Additional wells have been drilled in other areas adjacent to each platform. In order for the production of oil and gas from these surrounding wells to reach either the [ ] or [ ] production platforms, field pipelines will have to be installed which run from these subsea wells over to the floating platforms. The field pipelines will be laid between predrilled wells and either the [ ] or [ ] platforms utilizing a foreign-flag pipe-laying vessel. The vessel(s) in some cases will load the pipe to be installed at a designated U.S. port and will proceed to the area of installation, which for either floating platform, is located ]. In other cases, the pipe to be installed will be delivered to the pipe-laying vessel(s) at or near the installation site. The pipe which is transported from a U.S. port to the pipe-laying vessel located [ ] may be transported in foreign-flag vessels or vessels not otherwise qualified to engage in the coastwise trade.

The pipe-laying activities in question will consist of the installation of the field flow lines or pipelines between outlaying predrilled wells and either floating offshore platform. Other pipelines, including production and distribution pipelines, the export pipelines, and/or subsea umbilicals, which consist of electrical cables and hydraulic lines, will be installed from predrilled well locations on the seabed in the immediate area of each floating offshore platform. Some of the pipe to be installed will come from pre-welded reels of pipe while other pipe will be installed in straight welded length sections.

Crew members, technicians, as well as employees of contractors and subcontractors necessary for the operation of any foreign-flag pipe-laying vessel(s) will, at various times during the operation of such vessels, be carried on board while the vessel(s) is being relocated or during pipe-laying operations. Such personnel may also transfer from a foreign-flag pipe-laying vessel(s) back and forth between either the [ ] or [ ] platforms. Pipe-laying vessel personnel may also be aboard a pipe-laying vessel(s) during the transit of any such vessel between a U.S. port and the site or location of the pipe-laying operations.

The location of each well and the location of the moored floating offshore production platforms are locations with installations permanently or temporarily attached to the seabed for the purpose of removing and transporting oil and gas and, as such, are considered to be coastwise points.

ISSUES:

Whether the use of the non-coastwise-qualified vessel(s) to be designated, including the [ ] and [ ], for the purpose of housing and boarding the installation crews at or near the lower Spar subassembly installation sites described above, violates 46 U.S.C. App. § 289.

Whether the work crews, which will be transported to the foreign-flag hotel vessels at or near the installation sites by coastwise-qualified vessels or aircraft, subsequent to their being disembarked onboard these hotel vessels, will be allowed to move freely between the installed lower Spar subassemblies and the hotel vessels, which will be either attached to the lower Spar subassembly by gangway or stationed nearby without entering and clearing Customs each time they leave the hotel vessels.

Whether, prior to departure from the U.S. port(s) of mobilization to the installation sites, the foreign-flag hotel vessels will be required to clear pursuant to 46 U.S.C. App. § 91.

Whether the vertical heavy lift operations of either the [ ], and/or any other heavy lift vessel utilized for the lifting of components of the offshore installations as described herein constitute the transportation of merchandise in violation of 46 U.S.C. App. § 883.

Whether the merchandise transported to the installation site directly from Mexico may be entered through Customs at the installation site upon assembly and installation. Whether the vessels arriving with such merchandise are required to enter and clear Customs.

Whether the use of foreign-flag pipe-laying vessel(s) for the installation and laying of pipe on the seabed of the waters of the [ ] between established coastwise points violates 46 U.S.C. App. § 883.

Whether the transportation of the pipe to be installed on board the foreign-flag pipe-laying vessels and necessary supplies and equipment to be used in laying the pipe from a U.S. port to the installation sites (predrilled wells and either the [ ] or [ ] platforms) located in the waters of the [ ] violates 46 U.S.C. App. § 883.

Whether the transportation of pipe-laying vessel crew members, technicians, as well as employees of the installation contractor and/or its subcontractors, from a U.S. port to the installation sites or to and from either the [ ] or [ ] platforms, violates 46 U.S.C. App. § 289.

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 § 4.80b(a), Customs Regulations (19 CFR § 4.80b(a)), promulgated pursuant to 46 U.S.C. App. § 883, a coastwise transportation of merchandise takes place when merchandise laden at one coastwise point is unladen at another coastwise point.

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 passengers 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))

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)

ISSUE 1

With respect to the first issue presented for our consideration, it should be noted that the use of a foreign-flag vessel as a floating hotel within U.S. territorial waters has long been held by Customs not to violate 46 U.S.C. App. §§ 289 and/or 883 provided the vessel remains stationary during such use. (See Customs ruling letter 108359, dated May 21, 1986) The same use of such vessel(s) either through use of a dynamic positioning system or by anchoring or mooring to the seabed (the latter of which would render it a coastwise point pursuant to the OCSLA) would yield the same result when operated at a location outside U.S. territorial waters, even if it may occasionally move short distances, as long as such movement does not constitute the transportation of passengers or merchandise between coastwise points. (See Customs ruling letter 114492, dated October 6, 1998)

In the event of any emergency evacuations which would involve the use of these non-coastwise-qualified vessels in the coastwise transportation of passengers or merchandise in contravention of the coastwise laws cited above, such exigent circumstances may be taken into consideration in the assessment of any penalty action.

Furthermore, in the event such vessel(s) would not be considered a coastwise point as provided for in the OCSLA if maintaining station at a fixed position solely through the use of its dynamic positioning system, those individuals transported to it from the mainland and back to their point of embarkation need not be ferried by a coastwise-qualified vessel.

Notwithstanding the absence of any violations of the coastwise laws with regard to the use of the above-described vessels (either by dynamic positioning or anchoring/mooring on the OCS) in your client’s proposal, you should also know that those vessels transporting work crews between the floating hotel and a U.S. port will have to make formal vessel entry, and obtain clearance from Customs. (See §§ 4.3(a)(4) and 4.60(a)(4), Customs Regulations (19 CFR

ISSUE 2

In regard to the second issue presented for our consideration, the work crews will be permitted to move freely between the installed lower Spar subassemblies and the foreign-flag hotel vessels without entering or clearing Customs each time they leave the foreign-flag
hotel. Although the installed lower Spar subassemblies will be considered locations to which U.S. law would apply pursuant to the OCSLA, whereas the foreign-flag hotel vessel would not, no law or regulation administered by this agency requires individuals to enter or clear Customs under these circumstances (see title 19, United States Code, § 1459 (19 U.S.C. § 1459)).

ISSUE 3

In regard to the third issue, the hotel vessel(s) will be required to clear prior to departure from a U.S. port or port of mobilization pursuant to 19 CFR § 4.60(a)(4) which requires all vessels to obtain clearance from Customs if they are “departing for points outside the territorial seato receive merchandise or passengers while outside the territorial sea,...” Since these vessels will definitely be receiving passengers (work crews) and possibly merchandise outside the territorial sea, Customs clearance is required prior to their departure.

ISSUE 4

In regard to the fourth issue presented for our consideration, the Customs Service has long held that the use of a non-coastwise-qualified crane barge to load and unload cargo or construct or dismantle a marine structure is not coastwise trade and does not violate the coastwise laws, provided, that any movement of merchandise is effected exclusively by the operation of the crane and not by movement of the vessel, except for necessary movement which is incidental to a lifting operation while it is taking place. Thus, a crane barge could lift merchandise with its crane at one coastwise point, be pivoted while remaining in that location, and put down the merchandise at a coastwise point other than that from which it was lifted. A crane barge would be prohibited from lifting merchandise with its crane at one coastwise point, being towed or pushed or otherwise moving to another coastwise point while the merchandise is suspended from the crane, and placing the merchandise at that second coastwise point. (Customs ruling letters 106351, dated November 1, 1983, and 108213, dated March 6, 1986)

Accordingly, the crane barge to be used in the project in question would not be required to be coastwise-qualified as long as it is used within the parameters of the above-cited Customs decisions.

ISSUE 5

Customs has long-held that foreign merchandise delivered directly to OCS facilities to which Federal law applies pursuant to the OCSLA is considered imported into the Customs territory of the United States and is therefore subject to applicable entry and duty requirements. (Headquarters ruling letters 210.01, dated December 11, 1956 (published as T.D. 54281(1), and 056583, dated May 11, 1978; see also C.S.D.s 79-1 and 80-82) With respect to compliance with these requirements, in view of the uniqueness of OCS operations we recognize the discretion accorded the port director under whose jurisdiction such requirements fall. (see § 101.4(a), Customs Regulations (19 CFR § 101.4(a), promulgated pursuant to 19 U.S.C. § 1447) We therefore defer to the relevant port director(s) in regard to their administration of these requirements made applicable pursuant the OCSLA.

ISSUE 6

In regard to the vessel(s) used in the pipeline construction under consideration, we note that Customs has long-held that the sole use of a vessel in laying pipe is not considered a use in the coastwise trade of the United States, even when the pipe is laid between two points in the United States embraced within the coastwise laws. The fact that the pipe is not landed as cargo but is only paid out in the course of the laying operation makes such operation permissible. Further, since the use of a vessel in pipe-laying is not a use in the coastwise trade, a foreign-flag vessel may carry pipe which it is to lay between such points. However, the transportation of pipe by any vessel other than a pipe-laying vessel to a pipe-laying location at a point within U.S. territorial waters would be considered coastwise trade and would therefore have to be accomplished by a vessel meeting the statutory requirements entitling it to engage in such trade. (See Customs ruling letter 114833, dated April 20, 2000, see also Service Decision (C.S.D.) 79-321)

ISSUE 7

Legitimate equipment, supplies and stores of a pipe-laying vessel for use in its mission, including pipe laden on board to be paid out in the course of such operations, are not considered merchandise within the purview of § 883. However, articles transported on the vessel between points embraced within the coastwise laws which are not legitimate equipment, supplies and stores of the vessel are subject to § 883. Id.

ISSUE 8

Crewmembers of the pipe-laying vessel, including technicians necessary to assist in the vessel’s pipe-laying operation, are not considered passengers under § 289, nor are employees of the installation contractor and/or its subcontractors who are on the vessel in connection with its business. Id.

HOLDINGS:

The use of the non-coastwise-qualified vessel(s) to be designated, including the [ ] and [ ], for the purpose of housing and boarding of installation crews at or near the lower Spar subassembly installation sites described above, does not violate 46 U.S.C. App. § 289.

The work crews, which will be transported to the foreign-flag hotel vessels at or near the installation sites by coastwise-qualified vessels or aircraft, subsequent to their being disembarked onboard these hotel vessels will be allowed to move freely between the installed lower Spar subassemblies and the hotel vessels, which will be either attached to the lower Spar subassembly by gangway or stationed nearby, will not be required to enter and clear Customs each time they leave the hotel vessels.

Prior to departure from the U.S. port(s) of mobilization to the installation sites, the foreign-flag hotel vessels will be required to clear pursuant to 46 U.S.C. App. § 91.

The vertical heavy lift operations of either the [ ] and/or any other heavy lift vessel utilized for the lifting of components of the offshore installations as described herein does not constitute the transportation of merchandise in violation of 46 U.S.C. App. § 883.

The merchandise transported to the installation site directly from Mexico may be entered through Customs at the installation site upon assembly and installation. Vessels arriving with such merchandise are required to enter and clear Customs. We defer to the relevant port director(s) with respect to the administration of these requirements.

The use of a foreign-flag pipe-laying vessel for the installation and laying of pipe on the seabed of the waters of the [ ] between established coastwise points does not violate of 46 U.S.C. App.

The transportation of the pipe to be installed on board the foreign-flag pipe-laying vessels and necessary supplies and equipment to be used in laying the pipe from a U.S. port to the installation sites located in the waters of the [ ] does not violate 46 U.S.C. App. § 883.

The transportation of pipe-laying vessel crew members, technicians, as well as employees of the installation contractor and/or its subcontractors, from a U.S. port to the installation sites or to and from either the [ ] or [ ] platforms, does not violate 46 U.S.C. App. § 289.

Sincerely,

Larry L. Burton
Chief
Entry Procedures and Carriers Branch

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