VES-3-07-OT:RR:BSTC:CCI H036016 JLB
Mr. L. Etienne Balart
Jones, Walker, Waechter,
Poitevent, Carrère & Denègre L.L.P.
201 St. Charles Avenue
New Orleans, Louisiana 70170-5100
RE: Coastwise Trade; 46 U.S.C. §§ 55102, 55103, 55111; Vessel Equipment; Outer Continental Shelf
Dear Mr. Balart:
This letter is in response to your correspondence dated August 18, 2008, in which you inquire about whether a non-coastwise-qualified mobile, submersible barge operating in the coastal waters and in the waters overlaying the Outer Continental Shelf performing in drilling operations for natural resources constitutes a violation of the Jones Act, 46 U.S.C. § 55102. Our ruling on your request follows.
FACTS
You represent Odyssea Marine, Inc. (“Odyssea”), a privately owned Louisiana company that provides towing services and other specialized services to the oilfield industry. Odyssea is contemplating a refurbishment of the HAWKEYE (“the vessel”), a Russian-built deck barge measuring approximately 205 feet in length, 54 feet in width and 18 feet in depth, to enable it to operate as a submersible drilling vessel for use in the Gulf of Mexico. The vessel is currently documented under the laws of the United States with a limited registry endorsement.
The vessel would be operating from its home port of Berwick, Louisiana, but would occasionally travel to various ports located in the Gulf of Mexico. Since the barge is not self-propelled, its movement would be accomplished by the use of coastwise-qualified towing vessels. The vessel would carry only the usual crew, personnel, supplies, and equipment incidental to and necessary for drilling operations. The mineral resources produced would not be stored onboard. It may be necessary for one or more of the crew or personnel to disembark the vessel and board another platform or rig, however, those individuals would re-board the vessel. From time to time, materials and equipment may be brought aboard the vessel by coastwise-qualified vessels. The only time an individual would permanently disembark the vessel while it is on a voyage would be in the event of safety considerations, such as work schedules requiring crew changes, personal health reasons or significant inclement weather, i.e. a hurricane. If such an event occurs, the individuals will travel to a U.S. port aboard a coastwise-qualified vessel. The vessel would remain stationary during its drilling operations. After the drilling operations are completed, the vessel would move to another drilling site or return to a U.S. port.
Under Scenario One, the vessel would undergo a substantial modification to be transformed from a deck barge to a mobile, submersible drilling rig. The vessel would then travel to locations in coastal waters and waters outlaying the Outer Continental Shelf (“OCS”) to conduct drilling operations. Occasionally, the vessel may also travel to existing well locations to perform new drilling operations.
Under Scenario Two, the vessel will undergo a substantial modification to be transformed from a deck barge to a mobile, submersible platform. Equipment and supporting members would be added to ensure that a drilling rig owned by a third-party could be affixed, in a semi-permanent manner, to the vessel under either a long-term charter, a joint venture with the rig owner or some other long-term agreement. The vessel would engage in the same operations as the vessel proposed under Scenario One.
ISSUES
Whether the use of a non-coastwise-qualified vessel to perform drilling operations in the coastal waters and the waters outlaying the OCS described above constitutes an engagement in coastwise trade in violation of 46 U.S.C. § 55102?
If a third-party drilling rig is affixed, in a semi-permanent manner, to the subject vessel, does it constitute “merchandise” for purposes of 46 U.S.C. § 55102?
LAW AND ANALYSIS
The Jones Act, former 46 U.S.C. App. § 883 recodified as 46 U.S.C. § 55102, pursuant to P.L. 109-304 (October 6, 2006), states that “a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port” unless the vessel was built in and documented under the laws of the United States and owned by persons who are citizens of the United States. See also 19 C.F.R. §§ 4.80, 4.80b. Such a vessel, after it has obtained a coastwise endorsement from the U.S. Coast Guard, is said to be “coastwise-qualified.”
Pursuant to 19 U.S.C. § 1401(c), the word "merchandise" is defined as "goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31.” For purposes of the Jones Act, merchandise also includes “valueless material.” See 46 U.S.C. § 55102(a)(2). Vessel equipment and supplies of the transporting vessel, however, do not constitute “merchandise.” Vessel equipment is defined as items which are "...necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board." See Headquarters Ruling Letter 114298, dated July 7, 1998 quoting Treasury Decision (“T.D.”) 49815(4), March 13, 1939. The U.S. Customs and Border Protection (“CBP”) Regulations promulgated under the authority of 46 U.S.C. § 55102 provide that a coastwise transportation of merchandise takes place when merchandise laden at a coastwise point is unladen at another coastwise point, regardless of origin or ultimate destination. See 19 C.F.R. § 4.80b(a).
The coastwise passenger statute, former 46 U.S.C. App. § 289 recodified as 46 U.S.C. § 55103, pursuant to P.L. 109-304 (October 6, 2006), states that no foreign vessel shall transport passengers “between ports or places in the United States to which the coastwise laws apply, either directly or by way of a foreign port,” under a penalty of $300 for each passenger so transported and landed. See also 19 C.F.R. § 4.80(b)(2). Under 46 U.S.C. § 55103, a “passenger” is any person carried aboard a vessel “who is not connected with the operation of the vessel, her navigation, ownership, or business.” See also 19 C.F.R. § 4.50(b). In this regard, CBP provides a strict interpretation of “passenger” defining the term as persons transported on a vessel unless they are "directly and substantially" connected with the operation, navigation, ownership or business of that vessel itself. See Customs Bulletin of June 5, 2002, Vol. 36, No. 23, at pp. 50.
Scenario One
The coastwise laws generally apply to points in the territorial sea, which is 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. Under Section 4(a) of the Outer Continental Shelf Lands Act of 1953, as amended (43 U.S.C. § 1333(a)), the laws of the United States are also extended to the subsoil and seabed of the OCS, 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 as if the OCS were an area of exclusive Federal jurisdiction located within a State. We have applied this statute to drilling platforms, artificial islands, and similar structures, as well as to devices attached to the seabed of the OCS for the purpose of resource exploration operations. See Headquarters Ruling Letter 114586, dated January 21, 1999.
In accordance with this principle, we have ruled that the coastwise laws are extended to mobile drilling rigs during the period they are secured to or submerged onto the seabed of the OCS. See Treasury Decision (“T.D.”) 54281(1); Headquarters Ruling Letter 109817, dated November 14, 1988. CBP, however, has consistently held that a vessel used solely in drilling operations is not considered to be engaged in the coastwise trade. Accordingly, the use of the non-coastwise-qualified drilling vessel under consideration solely for drilling purposes in U.S. coastal waters or waters over the OCS adjacent to the U.S. would not violate the coastwise laws, provided that the vessel transports no persons other than the usual crew and personnel engaged in the drilling operations, and no cargo other than the usual supplies and equipment necessary for the drilling operations, between coastwise points. See Headquarters Ruling Letter 109817, dated November 14, 1988; Headquarters Ruling Letter 109340, dated March 1, 1988; Headquarters Ruling Letter 116117, dated February 26, 2004. Given your statement that the vessel will carry only the aforementioned crew, personnel, supplies and equipment and will not store any of the mineral resources produced during its operations, 46 U.S.C. §§ 55102 and 55103 are not violated in this instance.
While the vessel is not considered to be engaged in coastwise trade, the coastwise laws are still applicable in this scenario. Thus, since the drilling vessel would be attached to the seabed of the OCS for the purpose of “exploring for, developing, or producing resources” from the OCS, the vessel would constitute a coastwise point. The vessel would be considered to be attached to the seabed of the OCS while engaged in drilling operations and while at anchor before or after engaging in drilling at that location. See, e.g., Headquarters Ruling Letter 109817, dated November 14, 1988; Headquarters Ruling Letter 109340, dated March 1, 1988; Headquarters Ruling Letter 115850, dated November 15, 2002. Consequently, any vessel transporting merchandise or passengers between the drilling vessel, while it is attached to the seabed, and any other coastwise point must be coastwise-qualified. See Headquarters Ruling Letter 109849, dated November 18, 1988; Headquarters Ruling Letter 113657, dated September 21, 1996.
The coastwise towing statute, former 46 U.S.C. App. § 316(a) recodified as 46 U.S.C. § 55111, pursuant to P.L. 109-304 (October 6, 2006), provides that except when towing a vessel in distress, only a coastwise-qualified vessel may do any part of any towing between coastwise points. Given that a coastwise-qualified vessel would be utilized in propelling the subject vessel from point to point, there is no violation of the coastwise towing statute, 46 U.S.C. § 55111.
Scenario Two
You seek confirmation that a third-party drilling rig may be attached to a mobile, submersible platform, in a semi-permanent manner, without being considered “merchandise” within the meaning of 19 U.S.C. § 1401(c). You assert that the drilling rig is fundamental to the vessel’s purpose and accordingly, should constitute vessel equipment, which may be transported aboard the vessel and unladen at a coastwise point other than the point of embarkation without violating 46 U.S.C. § 55102.
As stated above, merchandise “means goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31.” 19 U.S.C. § 1401(c). However, merchandise does not include the equipment of a vessel so long as it is used by that vessel. Such articles have been defined as those which are "...necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board." See Headquarters Ruling Letter 114298, dated July 7, 1998 quoting Treasury Decision (“T.D.”) 49815(4), March 13, 1939. Whether such articles constitute vessel equipment is determined on a case-by-case basis. See Headquarters Ruling Letter 115938, dated April 1, 2003; Headquarters Ruling Letter 114487, dated October 19, 1998. CBP has specifically ruled that "vessel equipment placed aboard a vessel at one U.S. port may be removed from the vessel at another U.S. port at a later date without violation of the coastwise laws." See Headquarters Ruling Letter 113137, dated June 27, 1994; Headquarters Ruling Letter 115938, dated April, 1, 2003.
CBP has consistently held that vessel equipment consists of articles necessary to carry out a vessel’s functions. See Headquarters Ruling Letter 115356, dated May 22, 2001 (electricity generating equipment aboard a non-coastwise-qualified power barge was classified as integral to the operation of the vessel as a power barge and since the equipment was transported aboard the vessel on which it was used, it was vessel equipment); Headquarters Ruling Letter 112218, dated July 22, 1992 (equipment transported aboard non-coastwise-qualified oil and gas well drilling, workover and service barges used to remove broken tools from a well shaft, perform well cleaning and other tasks is vessel equipment since it is necessary to the work of the vessel); Headquarters Ruling Letter 103995, dated July 16, 1979 (the carriage of cement on a non-coastwise-qualified barge engaged in oil well stimulation is vessel equipment given that the purpose of the vessel is the blending, mixing, and placing of cement in the wells). In the present case, the subject vessel’s function, for the period of the long-term agreement, is to operate as drilling barge. In order to accomplish this purpose, it is necessary to modify the structure of the barge’s deck. The third-party drilling rig is integral to the operation of the vessel as a drilling barge. Consequently, the rig, which is transported aboard the vessel on which it is used, constitutes vessel equipment as defined in T.D. 49815(4), not merchandise as defined in 19 U.S.C. § 1401(c). As a result, no violation of 46 U.S.C. § 55102 exists if the rig is unladen at a different coastwise point than the point of lading.
HOLDINGS
The use of the non-coastwise-qualified vessel to perform drilling operations in the coastal waters and the waters outlaying the OCS does not constitute an engagement in coastwise trade in violation of 46 U.S.C. § 55102, provided that the vessel transports no persons other than the usual crew and personnel engaged in the drilling operations, and no cargo other than the usual supplies and equipment necessary for the drilling operations, between coastwise points.
A third-party drilling rig affixed, in a semi-permanent manner, to the subject vessel, does not constitute “merchandise” for purposes of 46 U.S.C. § 55102.
Sincerely,
Glen E. Vereb, Chief
Cargo Security, Carriers and Immigration Branch