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HQ 115487





November 20, 2001

VES-3-15-RR:IT:EC 115487 GEV

CATEGORY: CARRIER

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

RE: Coastwise Trade; Outer Continental Shelf; Pipe-laying; Umbilical/ Methanol Line-Laying; 43 U.S.C. § 1333(a); 46 U.S.C. App.

Dear Mr. Baldwin:

This is in response to your letter dated September 10, 2001, with attachments, submitted in conjunction with your letter of September 25, 2001, on behalf of your client, [ ] requesting a ruling concerning the applicability of the coastwise laws to the laying of a methanol line and an umbilical line between a U.S. port and an offshore worksite by a foreign-flag pipe-laying vessel. Our ruling is set forth below.

FACTS:

[ ], a Delaware corporation, is a subsidiary of Saipem Inc., a Texas corporation. Saipem Inc. 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 [ ] 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).

The single methanol distribution line (a 2.875 outer diameter underwater distribution line sometimes referred to as the “Methanol Line”) will deliver methanol to each subsea well in order to prevent hydrate formations during the course of production of the three fields. The Methanol Line will be tied into a nearby production platform called Canyon Station (hereinafter referred to as the “Platform”). The Methanol Line will be laid from the Platform to the three subsea developed fields in the Project, respectively identified on Attachment 1 as [ ] and [ ].

In addition, flexible tubular goods or “umbilicals” (a main umbilical line and an infield umbilical line hereinafter 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 attached to the Platform and will be laid on a course parallel to the Methanol Line on the ocean floor. 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 Methanol Line will be wound onto reels in the U.S. and the Umbilical Line will be wound onto a carousel and reels before the Vessel arrives in the U.S. The carousel and reels containing the lines will be carried by the Vessel to the Offshore Worksite and the empty reels will be carried back to a U.S. Gulf Coast Port onboard the Vessel at the end of the installation of the Methanol Line and the Umbilical Lines. The carousel and reels will be mounted on the Vessel and will be used in the laying of the Umbilical Lines and the Methanol Line.

The Umbilical Line Materials shall mean the materials assembled into and used in connection with laying the Umbilical Lines 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”).

While the Umbilical Lines and some of the Umbilical Line Materials such as the Uraduct, the Hang Off Clamp and the Abandonment/ Recovery Head will be foreign-sourced, the remaining Umbilical Line Materials will be U.S.-sourced. The ISUTs, MSUTs and SHOs will be sourced in the United States by the Customer and delivered to [ ] to be assembled into and made a part of the M.U.L.s and I.U.L.s (i.e., the Umbilical Lines) prior to the voyage on the Vessel from Norway to the U.S. Gulf Coast Port. The Pipeline Mattresses, EDHUs, Muc Mats, Hydraulic Bridges and Flying Leads will be sourced in the United States and delivered to the U.S. Gulf Coast Port to be loaded onto the Vessel, transported to the Offshore Worksite and assembled into and used in connection with the laying of the Umbilical Lines.

The Methanol Line Materials shall mean the materials assembled into and used in connection with the laying of the Methanol Line and shall include Methanol Distribution Units (MDUs), flanges and the Cathodic Protection anodes (hereinafter collectively referred to as “Methanol Line Materials”). The flanges will be foreign-sourced and added to the Methanol Line in the U.S. before the Methanol Line is delivered to the U.S. Gulf Coast Port. The Methanol Line and remaining Methanol Line Materials will be U.S.-sourced.

The Umbilical Line and Umbilical Line Materials and Methanol Line and Methanol Line Materials will include all of the functional parts of the lines, which are to be incorporated into the operation of the respective lines. The Umbilicial Line Materials and Methanol Line Materials will be an integral working part of the lines, without which each line would become inoperable. Viewed as a whole distribution line and umbilical line system, the materials will serve as the nerve center of the lines by managing the resources to make the lines function and protect them from damage while in operation.

An additional section of foreign-sourced “spare” Umbilical Line, stored onto one or two foreign-sourced “storage” reels, will be placed on board the Vessel in [ ] and unloaded at the U.S. Gulf Coast Port.

The “storage” reels and the “spare” Umbilical Lines will be delivered to the Customer at the U.S. Gulf Coast port and will remain in the United States.

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. The transportation of the carousel, reels, Umbilical Line and Umbilical Line Materials and reels, Methanol Line and Methanol Line Materials will be essential to the mission of the Vessel and it is proposed that the respective carousel, reels, lines and materials are to be carried onboard the Vessel between the U.S. Gulf Coast Port and the Offshore Worksite in connection with the laying of the Umbilical and Methanol Lines. 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.

Contract project management and field engineer personnel necessary to the mission of the Vessel will visit the Vessel at the Offshore Worksite location and might travel on the Vessel in transit from the U.S. Gulf Coast Port to the Offshore Worksite and back again. The role of the project management and field engineer personnel will be to monitor the laying of the Umbilical and Methanol Lines. They might get off the Vessel at the Platform and might return to the Gulf Coast Port on the Vessel or travel to and from the Vessel at the Offshore Worksite by U.S.-flag crew boat or helicopter.

Two Remotely Operated Vehicles (ROVs) supplied in the U.S. will be placed onboard the Vessel at the U.S. Gulf Coast Port, will be carried to the Offshore Worksite where they will be used in order to support the laying of the Umbilical and Methanol Lines. Once such operations have been completed, these units will be carried back on the Vessel to the U.S. Gulf Coast Port where they will be offloaded.

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 lines or materials whatsoever at another U.S. Gulf Coast Port or any offshore platform.

The details of the proposed operating plan and sequence of loading and unloading and transportation activity are contained in Attachment 2 of your letter. The specific activities of the Vessel in this matter are stated to be as follows:
transportation of the foreign-sourced carousel, 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 to a U.S. Gulf Coast Port (some of the foreign-sourced reels containing the Umbilical Line and some of the Umbilical Materials sourced outside the U.S. will be off- Loaded and placed in temporary storage in a bonded area at a U.S. Gulf Coast Port). The remaining foreign- sourced carousel, reels, Umbilical Line and Umbilical Materials will remain onboard the Vessel;
transportation (Phase One) of the foreign-sourced carousel, reels, Umbilical Line and Umbilical Line Materials to the Offshore Worksite and the laying of the Umbilical Line and Umbilical Line Materials;
transportation of the empty foreign-sourced carousel and reels from the Offshore Worksite to the U.S. Gulf Coast Port;
transportation (Phase Two) of the U.S.-sourced reels, Methanol Line and Methanol Line Materials to the Off- Shore Worksite and the laying of the Methanol Line and Methanol Line Materials;
transportation of empty U.S.-sourced reels from the Offshore Worksite to the U.S. Gulf Coast Port;
transportation (Phase Three) of the remaining foreign- sourced reels and Umbilical Line and Umbilical Line Materials (offloaded at the U.S. Gulf Coast Port for temporary storage in a bonded area) and remaining Umbilical Line Materials (foreign-sourced Umbilical Line Materials left onboard the Vessel) and U.S.-sourced Umbilical Line Materials from the U.S. Gulf Coast Port to the Offshore Worksite and the laying of the Umbilical Line and Umbilical Line Materials at the Offshore Worksite; and

7. transportation of the empty foreign-sourced reels from the Offshore Worksite to the U.S. Gulf Coast Port.

It is noted that the U.S.-sourced reels (and the foreign-sourced “storage reels” containing the “spare” Umbilical Line) will be delivered to the Customer at the U.S. Gulf Coast Port and the foreign-sourced carousel and reels (except the “storage” reels) will be loaded back onto the Vessel for a direct voyage to a foreign port at the end of the Project.

As an alternative to the above transportation plan, some of the Umbilical Lines to be laid on the ocean floor in Phase 3 (stored onto approximately 3 foreign-sourced reels) and the foreign-sourced “storage” reel, or reels, loaded with the “spare” foreign-sourced 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, these foreign-sourced reels, that were to be loaded in Norway onto the Vessel, instead would be offloaded from the ship or liner and stored at the U.S. Gulf Coast Port until Phase Three of the Project.

It is proposed that the foreign-sourced articles will be entered into the U.S. on a Temporary Importation Bond (TIB) and some of them will be stored in a bonded area of the U.S. Gulf Coast Port from the time they are offloaded from the Vessel for temporary storage until they are loaded back onto the Vessel to be taken to the Offshore Worksite in connection with the laying of the Umbilical Line. It is also proposed that the foreign-sourced empty reels will also be stored in a bonded area at the U.S. Gulf Coast Port until they are loaded back onto the Vessel for the direct voyage to a foreign country at the end of the Project.

The specific transportation issues presented for our consideration are as follows.

ISSUES:

Whether the offloading of the foreign-sourced reels, foreign-sourced Umbilical Line and Umbilical Line Materials from the Vessel at a U.S. Gulf Coast Port following the voyage from [ ], reloading the reels, Umbilicial Line and Umbilical Line Materials onboard the Vessel for transportation to the Offshore Worksite in connection with the laying of the Umbilical Line and Umbilical Line Materials and the transportation of the empty reels back to the U.S. Gulf Coast Port violates 46 U.S.C. App. § 883.

Whether the use of the Vessel to transport the foreign-sourced carousel, reels, Umbilical Line and Umbilical Line Materials from the U.S. Gulf Coast Port to the Offshore Worksite in connection with the laying of the Umbilical Line and Umbilical Line Materials and to carry the empty reels back to the U.S. Gulf Coast Port violates 46 U.S.C. App. § 883.

Whether the use of the Vessel to carry the U.S.-sourced reels, Methanol Line and Methanol Line Materials from the U.S. Gulf Coast Port to the Offshore Worksite in connection with the laying of the Methanol Line and Methanol Line Materials and to carry the empty reels back to the U.S. Gulf Coast Port violates 46 U.S.C. App. § 883.

Whether the use of the Vessel to carry the U.S.-sourced Umbilical Line Materials from the U.S. Gulf Coast Port to the Offshore Worksite in connection with laying of the Umbilical Line and Umbilical Line Materials violates 46 U.S.C. App. § 883.

Whether the transportation of contract project management and field engineer personnel on the Vessel from the U.S. Gulf Coast Port to the Offshore Worksite and back again 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)

With respect to the proposed use of the Vessel, 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 103668, dated December 12, 1978, published as Customs Service Decision (C.S.D.) 79-321)

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.

Crewmembers of a 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.

With respect to the laying of umbilicals, Customs has held that activity “to be akin to the laying of subsea cable or pipe” Customs ruling letter 113726, dated November 7, 1996. Furthermore, umbilicals (including spares) and ROVs have been held not to constitute merchandise under 46 U.S.C. App. § 883 but rather are considered to be in the nature of supplies or equipment of a cable/pipe-laying vessel necessary for the accomplishment of the mission of the vessel. (Customs ruling letter 113841, dated February 28, 1997)

In regard to the issues presented for our consideration, we note at the outset that the entry of articles pursuant to a TIB and their placement in a bonded facility are of no consequence for purposes of Customs administration of 46 U.S.C. App. § 883. Furthermore, it is readily apparent that the Platform and the three subsea wells depicted in Attachment 1 are coastwise points pursuant to the OCSLA. However, based on the above-cited precedents, we have determined that the reels (whether empty or not), Umbilicial Line, Umbilical Line Materials, Methanol Line and Methanol Line Materials to be transported between the U.S. Gulf Coast Port to the Offshore Worksite in connection with the laying operations to be conducted by the Vessel are not “merchandise” for purposes of 46 U.S.C. App. § 883. Rather, these articles are equipment and/or supplies of the Vessel in furtherance of its mission. Consequently, the transportation of these articles as described above does not give rise to a violation of 46 U.S.C. App.

Furthermore, the construction project management and field engineer personnel carried onboard the Vessel pursuant to its mission are not considered to be “passengers” for purposes of 46 U.S.C. App. § 289 so that the transportation between the U.S. Gulf Coast Port and the Offshore Worksite by the Vessel would not give rise to a violation of that statute. However, their transportation between these coastwise points on any other vessel necessitates that vessel being coastwise-qualified.

HOLDINGS:

The offloading of the foreign-sourced reels, foreign-sourced Umbilical Line and Umbilical Line Materials from the Vessel at a U.S. Gulf Coast Port following the voyage from [ ], reloading the reels, Umbilicial Line and Umbilical Line Materials onboard the Vessel for transportation to the Offshore Worksite in connection with the laying of the Umbilical Line and Umbilical Line Materials
and the transportation of the empty reels back to the U.S. Gulf Coast Port does not violate 46 U.S.C. App. § 883.

The use of the Vessel to transport the foreign-sourced carousel, reels, Umbilical Line and Umbilical Line Materials from the U.S. Gulf Coast Port to the Offshore Worksite in connection with the laying of the Umbilical Line and Umbilical Line Materials and to carry the empty reels back to the U.S. Gulf Coast Port does not violate 46 U.S.C. App. § 883.

The use of the Vessel to carry the U.S.-sourced reels, Methanol Line and Methanol Line Material from the U.S. Gulf Coast Port to the Offshore Worksite in connection with the laying of the Methanol Line and Methanol Line Materials and to carry the empty reels back to the U.S. Gulf Coast Port does not violate 46 U.S.C. App. § 883.

The use of the Vessel to carry the U.S.-sourced Umbilical Line Materials from the U.S. Gulf Coast Port to the Offshore Worksite in connection with laying of the Umbilical Line and Umbilical Line Materials does not violate 46 U.S.C. App. § 883.

The transportation of contract project management and field engineer personnel on the Vessel from the U.S. Gulf Coast Port to the Offshore Worksite and back again does not violate 46 U.S.C. App. § 289.

Sincerely,

Larry L. Burton

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