**HQ W116720**

September 12, 2006

**VES-3-RR:BSTC:CCI** W116720 GOB

**CATEGORY:** Carriers

Constantine G. Papavizas, Esq.

Winston & Strawn LLP

1700 K Street, N.W.

Washington, D.C. 20006-3817

**RE:** Coastwise Trade; 46 U.S.C. App. § 883; Commingled Merchandise

Dear Mr. Papavizas:

This letter is in reply to your letter of September 1, 2006 on behalf of
Sempra Energy (the \"Company\"), requesting a ruling with respect to the
applicability of 46 U.S.C. App. § 883 (the "Jones Act") to certain
proposed transportation. Our ruling follows.

**FACTS:**

You describe the pertinent facts as follows:

A Mexican affiliate of our client Sempra Energy (the "Company") is
currently building a Liquefied Natural Gas (LNG) Gasification Terminal
in the Baja California region of Mexico (the "Terminal"). The Company
plans to commission the Terminal in early 2008. During commissioning and
start-up of the facility, LNG will be delivered to the Terminal,
gasified and delivered via pipeline to Mexico and the United States.

The total amount of time from initial LNG delivery to completion of
commissioning and start-up is estimated to be about 120 days. During
this period, the Company is considering having Alaska-source LNG
delivered to the terminal in one or several non-U.S. flag vessels but
only so long as it is in compliance with the Jones Act. The
Alaska-source LNG will be blended with non-U.S.-source LNG ("Blended
LNG") to alter the heat content of each.

There currently are no LNG tank vessels documented in the United States,
and there is no prospect of there being a Jones-Act eligible LNG tank
vessel for the foreseeable future. . .

Access to LNG supplies for commissioning purposes is generally limited
because most LNG is committed on long-term supply contracts. In
addition, there are only a few LNG sources which can provide the right
heat content to meet California's gas specifications. Alaska is one of
the only sources that is both available for commissioning purposes and
contains the needed low heat content that the Terminal can effectively
utilize for commissioning and

start-up. . . .

As a result, the use of Alaska-source LNG facilitates the earliest
start-up date of the Terminal and access to additional gas supply for
the western United States beginning in 2008 instead of 2009. Following
start-up of the Terminal, all LNG delivered to U.S. customers will be
non-U.S. source LNG. Thus, the Jones Act issues only pertain to the
commissioning or start-up period.

With respect to the 120-day commissioning period, the Company will
execute one or more sales agreements with Mexican customers for the sale
of a specified volume of Blended LNG that exceeds the volume of
Alaska-source LNG contained in that volume of Blended LNG. Some of the
Blended LNG being delivered to Mexican customers may be transported in
pipelines that traverse the United States.

On some days during the 120-day start-up period, the volume of Blended
LNG delivered from the Terminal may be less than the volume of Blended
LNG contracted to be sold to customers in Mexico. When that occurs,
U.S.-source gas entering Mexico by pipeline will be borrowed to make-up
the shortfall. The borrowed gas will be repaid with Blended LNG when the
volume of Blended LNG available exceeds the amount contracted to be sold
to Mexican customers.

On certain days, the volume of Blended LNG available for delivery from
the Terminal may exceed the volume of Blended LNG that is required by
customers in Mexico. When this occurs, the Company may be able to
arrange for storage of Blended LNG in the United States. Or the Blended
LNG may be delivered to customers in the United States before an
equivalent amount of Blended LNG is delivered to Mexican customers,
although more Blended LNG will be sold and delivered to Mexican
customers than the quantity of Alaska-source LNG contained in the
Blended LNG during the commissioning period as a whole.

Alaska-source LNG will be utilized only in compliance with the Jones
Act. Advance planning is required to ensure that the Terminal is
commissioned on time to meet the needs of customers in the United States
and Mexico. . . .

**ISSUES:**

You have requested out determination with respect to the following
issues which you have formulated.

1\. Whether the Jones Act is violated if blended LNG is transported in
pipelines that traverse the United States to be delivered to Mexican
customers?

2\. Whether the Jones Act is violated if blended LNG is transported to
the United States for storage in the United States and is not delivered
to any U.S. customers until such time as an amount of blended LNG is
sold and delivered to Mexican customers that exceeds the amount of
Alaska-source LNG contained in the blended LNG?

3\. Whether the Jones Act is violated if blended LNG delivered to the
United States exceeds the amount of Alaska-source LNG on those days when
available blended LNG exceeds the requirements of Mexican customers
provided that (a) the amount of blended LNG first sold to Mexican
customers will exceed the amount of Alaska-source LNG contained in the
blended LNG; and (b) the amount of blended LNG sold and delivered to
Mexican customers will exceed the amount of Alaska-source LNG contained
in the blended LNG during the specified time period (120 days for
start-up and commissioning)?

**LAW AND ANALYSIS:**

Generally, the coastwise laws prohibit the transportation of passengers
or merchandise between points in the United States embraced within the
coastwise laws in any vessel other than a vessel built in, documented
under the laws of, and owned by citizens of the United States. A vessel
that is built in, documented under the laws of, and owned by citizens of
the United States, and which obtains a coastwise endorsement from the
U.S. Coast Guard, is referred to as \"coastwise-qualified.\"

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.

Title 46, United States Code Appendix, § 883 (46 U.S.C. App. § 883),
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 a coastwise-qualified vessel (see above).

Section 4.80b(a), Customs and Border Protection ("CBP") Regulations (19
CFR § 4.80b(a)), promulgated pursuant to 46 U.S.C. App. § 883, provides
as follows:

> **§ 4.80b Coastwise transportation of merchandise.**

(a) *Effect of manufacturing or processing at intermediate port or
    place*. A coastwise transportation of merchandise takes place,
    within the meaning of the coastwise laws, 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.

In determining whether merchandise which is transported from one point
in the United States to a point in a foreign country and then to another
point in the United States is subject to the prohibition in section 883
by virtue of being transported between coastwise points \"via a foreign
point,\" we have relied upon the holding of the Supreme Court in *The
Bermuda*, 70 U.S. 514 (1865).

In that decision, the Supreme Court held that:

> A transportation from one point to another remains continuous, so long
> as intent remains unchanged, no matter what stoppages or
> transshipments intervene. \[70 U.S. at 553.\]

The Supreme Court went on to reaffirm the longstanding rule that:

> \... \[E\]ven the landing of goods and payment of duties
>
> does not interrupt the continuity of the voyage of the
>
> cargo, unless there be an honest intention to bring
>
> them into the common stock of the country \.... \[70
>
> U.S. at 554.\]

The Attorney General of the United States relied upon *The Bermuda* in
his consideration of the application of section 883 to certain
transportation. In 34 Op. Att\'y Gen. 335 (1924) (see also, 32 Op.
Att\'y Gen. 350 (1920), concerning the transportation of fish from
Alaska to United States point via Vancouver, British Columbia, Canada),
the Attorney General considered the applicability of section 883 to the
transportation of grain from Chicago

or Milwaukee to a Canadian port in non-coastwise-qualified vessels. The
grain was unladen into an elevator where it remained for an indefinite
time until it was loaded into railroad cars for transportation by rail
to points in New England. In some instances the grain had already been
sold for delivery at an American port when it reached the Canadian port,
while in other instances there was an existing intent to ship the grain
to the Canadian elevator for storage in anticipation of demands for
future deliveries for domestic consumption in Canada, for export abroad,
or for sale and delivery in the United States.

The Attorney General\'s opinion was requested as to whether the
transportation of the grain in the manner described violated section
883. As to grain which had been consigned through the Canadian port to a
point in the United States or which had been shipped with the intention
that the grain should ultimately be shipped to a point in the United
States, it was the Attorney General\'s opinion \"that such
transportation is without a doubt in

violation of \[section 883\]\" (34 Op. Att\'y Gen. at 357). When there
was no intent by the shipper to transship the grain to a United States
port or place, it was the Attorney General\'s opinion that \"only
general rules of law may be laid down\" (34 Op.Att\'y Gen. at 362). The
general rule of law given by the Attorney General in this case was that
\"the intention of the shipper is the controlling factor\" (34 Op.
Att\'y Gen. at 363). The Attorney General also stated that:

> \... \[W\]hether the facts presented in any particular case come
> within such rules must be determined by the officer charged with the
> administration of that Act. \[34 Op. Att\'y Gen. at 362.\]

CBP is \"charged with the administration\" of 46 U.S.C. App. § 883. We
have held, as did the Supreme Court in *The Bermuda*, that an \"honest
intention to bring the goods \[transported\] into the common stock of
the \[intermediate foreign\] country\" is required to break the
continuity of transportation between coastwise points via a foreign
point. We have also held that when, at the time of shipment of
merchandise from the United States to an intermediate foreign port,
there existed the expectation that a substantial portion of the
merchandise would not be consumed in the country of the foreign port,
entry through the foreign country\'s customs and payment of duty is not
considered to break the continuity of the transportation when any of the
merchandise is transported onward to a second point in the United
States. See HQ 109475, dated October 4, 1988.

In HQ 114172, dated June 18, 1998, we determined that the transportation
of caustic soda from the United States to Canada on a
coastwise-qualified vessel, its commingling in Canada with fungible soda
shipped to Canada on non-coastwise-qualified vessels, and its subsequent
return by truck to the United States, did not violate 46 U.S.C. App. §
883, provided that adequate records were maintained to show that an
amount of the commingled soda equal to the amount transported to Canada
on non-coastwise-qualified vessels was first sold foreign. We stated:

> The transportation of caustic soda from the United States to Canada on
> a coastwise-qualified vessel, its commingling in Canada with fungible
> soda shipped to Canada on non-coastwise-qualified vessels, and its
> [subsequent return by truck to the United States]{.underline}, does
> not violate 46 U.S.C. App. § 883, provided adequate records are
> maintained to show that an amount of the commingled soda equal to the
> amount transported to Canada on non-coastwise qualified vessels [is
> first sold foreign]{.underline}. \[Emphases supplied.\]

In HQ 115762 dated September 3, 2002, we held that:

> The [transportation]{.underline} of LNG from Alaska \[to Mexico\] by a
> foreign-flag vessel in the proposed scenario does not constitute a
> violation of 46 U.S.C. App. § 883 if, after the Alaska-source LNG is
> commingled with the foreign-source LNG and processed into gas form, an
> amount of product equal to the amount brought from Alaska is first
> [sold]{.underline} in Mexico and remains in Mexico. Adequate records
> must be maintained to verify that an amount equal to that transported
> to Mexico on foreign-flag vessels is first sold in Mexico. The failure
> to maintain such records would subject the Company to penalties for
> violation of the aforementioned statute. \[Emphases supplied.\]

In HQ 116515, dated August 9, 2005, we held that:

> The transportation of a product on a foreign flag vessel from the U.S.
> to a foreign facility for blending, with the product subsequently
> returned to the U.S., does not constitute a violation of 46 U.S.C.
> App. § 883 [provided that]{.underline}: after the U.S.-sourced product
> is blended with foreign-sourced product, an amount of the blended
> product at least equal to the amount of U.S.-sourced product is
> [sold]{.underline} to a foreign source at a foreign location [prior to
> the transportation]{.underline} of any of the blended product to the
> U.S.; complete and adequate records are maintained with respect to all
> material aspects of the proposed activity; and such records will be
> promptly made available to Customs and Border Protection officials
> upon written request. \[Last two emphases supplied.\]

Pursuant to the above three rulings, the merchandise at issue must be
[sold]{.underline} in the foreign country [prior to the
transportation]{.underline} of the merchandise to the United States.

# 

# Issue One

We find that there will be no violation of 46 U.S.C. App. § 883 if
blended LNG is transported in pipelines that traverse the United States
to be delivered to Mexican customers. Such a scenario presents neither a
lading nor an unlading at a coastwise point (See 19 CFR 4.80b(a)).
Consequently, the mere traversal of the United States is not a movement
subject to 46 U.S.C. App. § 883.

# Issue Two

In the three rulings discussed above, we held that there was no
violation of 46 U.S.C. App. § 883 where an appropriate amount of the
goods was [transported]{.underline} to the United States
[after]{.underline} a corresponding amount of the goods was
[sold]{.underline} in the foreign country. We decline to depart from
this standard.

We find that there will be no violation of 46 U.S.C. App. § 883 if
blended LNG is [transported]{.underline} to the United States
[after]{.underline} other blended LNG is [sold]{.underline} to Mexican
customers [provided]{.underline} the amount of Alaska-source LNG in the
blended LNG sold to the Mexican customers equals or exceeds the amount
of Alaska-source LNG in the blended LNG transported to the United
States. This is consistent with our rulings described above. Complete
and accurate records must be maintained with respect to all material
aspects of the proposed activity. Such records will be promptly made
available to Customs and Border Protection officials upon written
request. Our determination here does [not]{.underline} permit the
transportation and storage of blended LNG to the United States
[prior]{.underline} to the sale of LNG to Mexican customers, which we
would deem violative of 46 U.S.C. App. § 883.

# Issue Three

In your subsequent correspondence in response to our request for
clarification, you elaborate on this issue as follows:

With issue 3, we request CBP's concurrence that delivery timing for
compliance with CBP's commingling rulings can be achieved on a period of
time basis without any U.S. storage involved. So, during the
120-commissioning period taken as a whole, we propose that more Blended
LNG will be sold and delivered to Mexican customers than the volume of
Alaska LNG. And, the Blended LNG that is sold to Mexican customers will
be sold to them before any is sold to U.S. customers. The issue arises
because at any particular time during the 120-day period, more Blended
LNG may have been delivered to U.S. customers than the volume of Alaska
LNG that has been delivered to Mexican customers. This will not be the
case by the end of the period. At that point, more Blended LNG will be
sold and delivered to Mexican customers than the volume of Alaska LNG
taking the period as a whole.

As stated above, we decline to depart from the standard of our previous
rulings that there is no violation of 46 U.S.C. App. § 883 where an
appropriate amount of the goods is [transported]{.underline} to the
United States [after]{.underline} a corresponding amount of the goods is
[sold]{.underline} in the foreign country.

Accordingly, as in Issue Two, we find that there will be no violation of
46 U.S.C. App. § 883 if blended LNG is [transported]{.underline} to the
United States [after]{.underline} other blended LNG is
[sold]{.underline} to Mexican customers [provided]{.underline} the
amount of Alaska-source LNG in the blended LNG sold to the Mexican
customers equals or exceeds the amount of Alaska-source LNG in the
blended LNG transported to the United States. Our determination does not
permit the latitude you request with respect to the 120-day
commissioning period. Such latitude is beyond the scope of our previous
rulings and we decline to extend that scope.

**HOLDINGS:**

1\. There will be no violation of 46 U.S.C. App. § 883 if blended LNG is
transported in pipelines that traverse the United States to be delivered
to Mexican customers. The mere traversal of the United States under
these circumstances includes neither a lading nor an unlading at a
coastwise point and therefore is not a movement subject to 46 U.S.C.
App. § 883.

2\. There will be no violation of 46 U.S.C. App. § 883 if blended LNG is
[transported]{.underline} to the United States [after]{.underline} other
blended LNG is [sold]{.underline} to Mexican customers
[provided]{.underline} the amount of Alaska-source LNG in the blended
LNG sold to the Mexican customers equals or exceeds the amount of
Alaska-source LNG in the blended LNG transported to the United States.
Complete and accurate records must be maintained with respect to all
material aspects of the activity. Our determination here does
[not]{.underline} permit the transportation and storage of blended LNG
to the United States [prior]{.underline} to the sale of LNG to Mexican
customers, which would be violative of 46 U.S.C. App. § 883.

3\. As with Issue Two, there will be no violation of 46 U.S.C. App. §
883 if blended LNG is [transported]{.underline} to the United States
[after]{.underline} other blended LNG is [sold]{.underline} to Mexican
customers [provided]{.underline} the amount of Alaska-source LNG in the
blended LNG sold to the Mexican customers equals or exceeds the amount
of Alaska-source LNG in the blended LNG transported to the United
States. Complete and accurate records must be maintained with respect to
all material aspects of the activity. Our determination here does
[not]{.underline} permit the latitude which you request. A violation of
46 U.S.C. App. § 883 will occur if blended LNG (see above in regard to
the Alaska-source requirement) is [transported]{.underline} to the
United States [prior]{.underline} to the time that an appropriate amount
of is [sold]{.underline} to customers in Mexico.

Sincerely,

Glen E. Vereb

Chief

Cargo Security, Carriers, and Immigration Branch