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HQ 115522





December 3, 2001

VES-3-15-RR:IT:EC 115522 GEV

CATEGORY: CARRIER

Matthew D. Eisele, Esq.
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760

RE: Coastwise Trade; Outer Continental Shelf; Flexible Pipeline; Riser Pipe; Umbilical Tie-Ins; 43 U.S.C. § 1333(a); 46 U.S.C. App. § 883

Dear Mr. Eisele:

This is in response to your letter dated October 18, 2001, requesting a ruling regarding the use of foreign-flagged installation vessels for subsea operations. Our ruling is set forth below.

FACTS:

A deepwater foreign-flagged installation vessel fully equipped for subsea work will arrive from a foreign port to load reels of flexible flowlines at a U.S. port. The vessel will then proceed to an offshore location on the Outer Continental Shelf (OCS). The flexible flowline will be paid out from the reels on board the installation vessel during the course of the installation operations. A Remotely Operated Vehicle (ROV) equipped aboard the vessel will then monitor the retrieval of the end of the flowline/riser to the platform. A platform winch will be used to assist in the retrieval of the flowline/riser to the platform. The installation vessel will be dynamically positioned during the installation operation. Upon completion of the installment work the installation vessel will return to the same port in the U.S. at which the reels were loaded to offload the empty reels.

The same or a similar foreign-flagged installation vessel will be used for offshore work on the OCS to install riser pipe and umbilical tie-ins between wells, pipelines, manifolds, and platforms. The vessel is specially outfitted for such operations with a ROV, onboard crane, dynamic positioning capability, and other essential systems to perform subsea tie-ins. It is envisioned that the riser pipe, umbilicals, and other tie-in materials will be loaded aboard the vessel at a U.S. port and carried to the installation site. The subsea connection and installation work will be performed on or from the installation vessel.

ISSUES:

Whether the use of a foreign-flagged vessel for the installation of flexible flowlines on the OCS as described above constitutes a violation of 46 U.S.C. App. § 883.

Whether the use of a foreign-flagged vessel for the installation of riser pipe and umbilical tie-ins on the OCS as described above constitutes a violation of 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). 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.

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)m 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 issues presented for our consideration, we note at the outset that the flexible flowlines in question will be installed in the same manner as cable or pipe laid on the ocean floor (i.e., paid out, not unladed). Customs has long-held that the laying of cable between two points embraced within the coastwise laws of the United States is
not coastwise trade. (see C.S.D. 79-346) Consequently, we have held that the installation of flexible flowlines in this manner is not coastwise trade. (Customs ruling letter 115311, dated May 10, 2001) It is therefore our position that the installation of flowlines as described above is not coastwise trade and the use of a foreign-flagged vessel to effect such installation is not a violation of 46 U.S.C. App. § 883.

The riser pipe and umbilical tie-ins to be installed are part of the connection apparatus used to link the wells, pipelines, manifolds, and platforms. Although the risers and tie-ins will not be “paid out” as will the flexible flowlines described above, we note that Customs has held that the use of a foreign-flag vessel to transport pipeline connectors and tools from a port in the United States to an OCS job site and to connect a pipeline to a drilling platform or subsea wellhead would not violate the coastwise laws if the work was done from the vessel, but would violate the coastwise laws if the vessel merely transported the connectors and tools to the drilling platform or subsea wellhead and the connection operation was not performed on or from that vessel. (see Customs ruling letter 108442, dated August 13, 1986; see also Treasury Decision (T.D.) 78-387) Accordingly, the proposed use of a foreign-flag vessel in installing the subject riser pipe and umbilical tie-ins is not violative of 46 U.S.C. App. § 883 provided, as stated above, such installation is performed on or from that vessel.

HOLDINGS:

The use of a foreign-flagged vessel for the installation of flexible flowlines on the OCS as described above does not constitute a violation of 46 U.S.C. App. § 883.

2. The use of a foreign-flagged vessel for the installation of riser pipe and umbilical tie-ins on the OCS as described above does not constitute a violation of 46 U.S.C. App. § 883.

Sincerely,

Larry L. Burton
Chief

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