HQ 114298

July 7, 1998

VES-3-RR:IT:EC 114298 LLB

CATEGORY: Carriers

Mr. Kenneth G. Weigel

Kirkland and Ellis

655 Fifteenth Street, N.W.

Washington, D.C. 20005

RE: Vessel entry and clearance; Vessel supplies and equipment;

Satellite launch from vessel; Foreign-flag vessels; American

home port operations; Temporary unlading; Passengers; Entry

for consumption; 19 U.S.C. 1433, 1434; 46 U.S.C. App. 91,

289, 883

Dear Mr. Weigel:

Reference is made to your letter of March 17, 1998, which

you supplemented with a letter dated May 15, 1998, and another of

June 15, 1998. You request a ruling on numerous issues

concerning an up-coming long-term project which will seek to

launch commercial satellites from the deck of a vessel which will

be located outside of the territorial waters of the United States

at the times of launch. You have requested that certain

information contained in your submissions, which you have

identified by enclosure within brackets, be accorded confidential

treatment under section 177.2(b)(7), Customs Regulations (19 CFR

177.2(b)(7)). Our ruling follows.

FACTS:

A foreign corporation, Sea Launch Company, LDC, a consortium

of aerospace companies which is headquartered in the Cayman

Islands, proposes to utilize two foreign-documented vessels to

support and effectuate the launch of a series of rockets bearing

commercial satellite payloads. The launches would take place

over an extended period of time, and would take place in the

Pacific Ocean, most probably in waters identified as being within

the 200 mile exclusive economic zone of a foreign nation.

One of the two vessels would be dedicated as the launch

platform (LP) and is in fact a converted oil platform. The

second vessel would act in the role of a support, assembly and

command ship (CS) and would transport persons and equipment

necessary for launch activities. Both vessels are self-propelled.

Prior to launch activities ensuing, a home port facility for

the two vessels would be established in the United States at Long

Beach, California. Initially (for the first two launches), the

two vessels themselves would be used to bring rocket stages,

fuel, parts, and necessary equipment and paraphernalia from their

foreign ports of origin to the home port site. For subsequent

launch programs, the necessary elements would be brought into the

United States and landed at the home port by other vessels.

Actual assembly operations would take place aboard the CS, with

only minimal materials being landed in the home port during

initial stages of the project. For later launches, necessary

elements would be landed, and then placed aboard the two vessels

as needed. At certain times, equipment may be placed aboard the

vessels and then removed. The encapsulation of satellites

within fairings would take place on shore in the home port, and

the payloads would then be placed aboard the CS for integration

with their rockets.

Once assembly operations are completed in the home port, the

CS would move around the common finger-pier where each of the two

vessels would occupy its own side-by-side berth separated by the

pier, and would proceed to the side of the pier occupied by the

LP vessel. Here, the CS would be joined to the LP by a

gangplank, with the two vessels being in a stern-to-stern

configuration. This maneuver would be performed for the purpose

of transferring the assembled rocket from the CS assembly vessel

to the LP for transportation and launch purposes. The vessels

would thereafter proceed to the launch site located beyond the

territorial waters of the United States.

At the launch site, the vessels would again be connected by

gangplank in order that crewmembers, supplies, and equipment

might be moved between the two. Prior to launch, all personnel

and equipment would be returned to the CS which would move

several miles distant from the LP for safety reasons. Actual

launch would be commanded from the CS by remote control.

While at sea and at the launch site, it might be necessary

from time to time to order and receive additional parts. In

addition, persons referred to as VIPs may join the CS by

helicopter or vessel in order to observe launches, or may

observe from vessels upon which they would travel to the launch

site. Those persons would not return to the home port aboard

either the CS or the LP vessel, and any parts separately

transported would be incorporated in launch vehicles. Any waste

or debris generated as a result of crewmembers living aboard the

vessels or resulting from assembly and launch activities would be

brought back to the home port for disposal.

ISSUE:

May the personnel, merchandise, and vessels involved in the

proposed program as outlined in the Facts portion of this ruling

be utilized in the described fashion without consequence under

United States law.

LAW AND ANALYSIS:

Entry of Vessels for Consumption

The initial concern expressed in the request for a ruling is

whether the two vessels, the CS and the LP as described above,

might themselves be subject to duty under the Harmonized Tariff

Schedule of the United States. The special status accorded

vessels, their tackle, apparel, equipment, and appurtenances has

long been recognized, with vessels being considered sui generis

and totally distinct from merchandise. (See The Conqueror, 166

U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937 (1896); United States v.

William Herman Wepner, 32 CCPA 30, C.A.D. 282 (1944)). The

requirements for the entry of merchandise are provided in section

1484 of title 19, United States Code. Those requirements have no

applicability to commercial vessels, of which the vessels under

consideration are examples. Accordingly, there would be no

Customs duty requirements when such vessels are brought to the

United States.

Coastwise Merchandise Transportation Statute

Inquiry is next made as to whether any of the proposed

activities might be proscribed by the provisions of the so-called

Jones Act. The coastwise law pertaining to the transportation of

merchandise, section 27 of the Act of June 5, 1920, as amended

(41 Stat. 999; 46 U.S.C. App. 883, often called the Jones Act),

provides in pertinent part that:

No merchandise\...shall be transported by

water, or by land and water, on penalty of

forfeiture of the merchandise (or a monetary

amount up to the value thereof as determined

by the Secretary of the Treasury, or the

actual cost of the transportation, whichever

is greater, to be recovered from any

consignor, seller, owner, importer,

consignee, agent, or other person or persons

so transporting or causing said merchandise

to 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

other vessel than a vessel built in and

documented under the laws of the United

States and owned by persons who are citizens

of the United States\...

Customs has consistently interpreted this prohibition to apply to

all vessels except United States-built, owned, and properly

documented vessels (see 46 U.S.C. §§ 12106, 12110, 46 U.S.C. App.

§ 883, and 19 C.F.R. § 4.80).

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

the internal waters, landward of the territorial sea baseline, in

cases where the baseline and the coastline differ. These laws

have also been interpreted to apply to transportation between

points within a single harbor. Merchandise, as used in section

883, includes any article, including even materials of no value

(Act of June 7, 1988, Pub. L. 100-329; 102 Stat. 588).

In this case, we are informed that the CS will move from one

mooring site to another in order to transfer assembled launch

vehicles with payloads to the LP vessel. The merchandise

transferred will, in all cases, include some items which were

loaded on to the CS while it is in the home port. An example of

this is found in the receipt in the home port by the CS of

encapsulated satellites. Having received any \"merchandise\" in

such a manner, as well as any other which may be received in

port, the vessel could not transship it to a second vessel within

the territorial waters of the United States, even if a transfer

takes place within the same harbor in which the merchandise was

received.

The argument is made by the requestor that the articles in

question are vessel equipment rather than merchandise. For

Customs to adopt this position, it would be necessary to

determine that the articles sought to be identified as equipment

functionally remain the equipment of the CS vessel, or indeed of

both vessels, following placement on the LP vessel. The

coastwise transportation statute makes it clear that the

definition of merchandise is all inclusive for purposes of

section 883 issues, even to the point of including materials of

no value whatsoever. In addition, by separate statute

administered by Customs (19 U.S.C. 1401), merchandise is defined

to include wares and chattels of every description. Therefore,

the proscriptions set forth in section 883 would be invoked by

the transshipment of merchandise in such circumstances as are

outlined above. The result would be different, however, if the

articles transferred were found to constitute and to remain

identified as vessel equipment of the CS vessel rather than as

merchandise.

We find the circumstances flowing from the facts in this

case to be unique in our experience. Here we are presented with

two specialty vessels, neither of which could fulfill its project

mission without the other. There have been occasions when we

have been asked to rule upon the legality of proposed projects

involving the use of two vessels which would work in tandem. In

such cases, one vessel could not realize its purpose in

completing the project without the presence of a second vessel of

the type proposed to be used. In the present circumstance,

however, the specific vessels under consideration have been

configured especially for the proposed project, and with the

physical arrangement and limitations of the home port facilities

taken fully into account. There is no other vessel of the same

type that can be substituted for either ship. They are, in a

sense, halves of the same whole.

In this case, complete rockets will be placed aboard the LP

vessel by the CS vessel. The rockets will have been assembled

from separate stages and joined to payloads by specialists aboard

the CS vessel. The LP vessel, which is designed as a high seas

launch pad, will transport the rockets from the home port to the

launch site, and will provide the stable platform from which the

rockets will be fired. While the rockets will actually lift off

from the LP, all command and control functions related to launch

are the exclusive province of the CS vessel, and will be

accomplished by remote control.

We find in this case that the two vessels are co-dependent

and inexorably tied for purposes of realizing the aims of the

mission. For this reason, we find that the articles which will

be transshipped from one vessel to the other within the confines

of the home port are considered to be equipment of both vessels,

equipment which will not contribute to the successful operation

of either vessel without active utilization by both vessels.

Coastwise Passenger Transportation Statute

The requestor next seeks confirmation that none of the

personnel to be transported on either vessel would be considered

to be passengers under the laws enforced by Customs. The Act of

June 19, 1886, as amended (24 Stat. 81; 46 U.S.C. App. § 289,

sometimes called the coastwise passenger law), provides that:

No foreign vessel shall transport passengers

between ports or places in the United States

either directly or by way of a foreign port,

under a penalty of \$200 for each passenger so

transported and landed.

We are not made aware in the facts as presented, of anyone

connected with the vessels who might be considered a passenger.

Further, none of the proposed uses of the vessels, with the

exception of the proposed movements within the harbor of the home

port by the CS for transshipment purposes, appear to involve two

United States points. If activities involve the loading of

personnel and crew at the home port, sailing to the launch area,

and returning to home port again, there is a single United States

point involved and no coastwise implications are suggested. As

concerns the matter of VIPs visiting the CS at the launch site as

previously outlined, there are no coastwise issues involved since

the site is at a foreign location.

Vessel Report of Arrival, Entry and Clearance Requirements

The next issue posed for our consideration concerns

requirements for vessel report of arrival, entry, and clearance.

The pertinent portion of the report of arrival statute, 19 U.S.C.

1433, as amended, presently provides as follows:

Immediately upon the arrival at any port or

place within the United States or the Virgin

Islands of -

\(A\) any vessel from a foreign port or place;

\(B\) any foreign vessel from a domestic port;

\(C\) any vessel of the United States carrying

bonded merchandise or foreign

merchandise for which entry has not been

made; or

\(D\) any vessel which has visited a hovering

vessel or received

merchandise while outside the territorial

sea;

the master of the vessel shall report arrival

at the nearest customs facility or other such

place as the Secretary may prescribe by

regulations.

The pertinent portion of the vessel entry statute, 19 U.S.C.

1434, as amended, presently provides as follows:

Within 24 hours\...after the arrival at any

port or place in the United States of -

\(1\) any vessel from a foreign port or place;

\(2\) any

foreign vessel from a domestic port;

\(3\) any vessel of

the United States having on board bonded

merchandise or foreign

merchandise for which entry has not

been made; or

\(4\) any vessel which has visited a hovering

vessel or delivered or received

merchandise while outside the territorial

sea;

the master of the vessel shall, unless

otherwise provided by law, make formal entry

at the nearest customs facility or other such

place as the Secretary may prescribe by

regulation.

The pertinent portion of the vessel clearance statute, 46 U.S.C.

App. 91, as amended, presently provides as follows:

\(b\) When required; other \[than American\]

vessels

Except as otherwise provided by law, any

vessel that is not a vessel of the United

States shall obtain clearance from the

Customs Service before proceeding from a port

or place in the United States-

\(1\) for a foreign port or place;

\(2\) for another port or place in the United

States; or

\(3\) outside the territorial sea to visit a

hovering vessel or to

receive or deliver merchandise while outside

the territorial sea.

The central issue with regard to possible vessel report of

arrival, entry, and clearance in this case concerns whether there

has been a receipt and/or delivery of merchandise while outside

of the territorial sea of the United States (beyond three miles).

Not included within the general meaning of merchandise is the

equipment of a vessel which will be used by that vessel. Such

materials have been defined as articles, \"\...necessary and

appropriate for the navigation, operation or maintenance of the

vessel and for the comfort and safety of the persons on board.\"

(Treasury Decision 49815(4), March 13, 1939).

As previously discussed, the vessels under consideration

will be working in tandem in order to successfully launch

missiles. The vessels are individually documented, operated,

and crewed and are considered by Customs to be separate vessels,

but the issue remains whether there has been any receipt or

delivery of \"merchandise\" while on the high seas. As detailed

previously with regard to the issue of coastwise merchandise

transportation, we have determined that the articles under

consideration are interchangeable equipment of both vessels and

not merchandise. In the present case, this means that neither

vessel must report its arrival under section 1433 upon return to

the United States, and neither vessel must comply with entry and

clearance requirements under sections 1434 and 91, respectively.

Temporary Removal of Articles from the Vessels in the Home Port

As stated in the Facts portion of this ruling, there will be

occasion to temporarily land and then relade certain equipment on

to the two vessels. We understand that the articles herein being

considered are related to the assembly and launching of the

rockets. The requestor seeks permission to accomplish such

unlading and lading operations without the need to make an entry

for consumption. Alternative treatments are suggested in this

regard, the first being under the provisions of 19 CFR 4.39,

which is promulgated pursuant to section 446, Tariff Act of 1930,

as amended (19 U.S.C. 1446).

Title 19, United States Code, section 1446 is not operative

in the circumstances under consideration since it merely permits

the retention of equipment aboard vessels without duty

consequences, and treats any such equipment which is landed as

imported merchandise. The statute does permit transshipment to

another vessel owned by the same entity, but only where there is

an engagement in foreign trade, and only in the case in which the

vessel transferring the equipment is doing so because it is being

delayed in port for some reason. In this case, nothing is being

taken to a foreign port, and the two vessels would be traveling

together without any delay.

The second alternative offered involves temporary placement

of the articles in a bonded warehouse or foreign trade zone. It

is urged that placement aboard the vessels after initial landing

would be sufficient to meet exportation requirements for these

types of entries. Our response in this case is dependant upon

the ultimate disposition of the articles reladen. Mere placement

aboard the vessels with subsequent return to the home port or

retention aboard would not constitute an exportation as defined

in the Customs Regulations (19 CFR 101.1), that being a severance

from the things of this country and a joining with the things of

some foreign country. Withdrawal from a warehouse for

exportation is covered in 19 CFR 144.37, but that provision is

merely procedural and accomplishment of \"exportation\" is still

governed by the language of section 101.1 of the Customs

Regulations.

On the other hand, Customs has ruled that the launching into

space of articles which had been withdrawn from a foreign trade

zone would be tantamount to an exportation for satisfaction of

necessary conditions, and the same result appertains in the case

of required exportation in terms of withdrawal from a bonded

warehouse. Therefore, if the particular articles in question are

actually part of a launch vehicle or payload, their having been

launched would constitute an exportation following withdrawal

from foreign trade zone or warehouse status.

We also note that the Harmonized Tariff Schedule of the

United States does include provisions for communications

satellites as well as for spacecraft launch vehicles and other

types of satellites which may be entered for consumption. These

are provided for in items 8802.60.30 and 8802.60.90 of the

tariff, respectively. Communications satellites carry a free

rate of duty, and the remainder of the named items carry a duty

rate of 0.7 per cent ad valorem.

In summary, the only articles which if entered under a bond

or in foreign trade zone status will be considered to have been

properly exported from the United States are those which are

actually part of the launch vehicle. Articles other than those

which are to be launched must, if landed in the United States, be

entered for consumption with appropriate duty paid. If

satellites or launch vehicles are entered for consumption rather

than in a bonded status, the applicable item numbers and duty

rates are as previously detailed.

HOLDING:

Following thorough consideration of the facts as well as

analysis of the law and applicable regulations, we have

determined that the project which is the subject of this ruling

will, for purposes of the laws enforced by Customs, be governed

by the findings set forth in the Law and Analysis portion of this

ruling. We wish to emphasize that the findings set forth in

this ruling are limited to the specific facts of this case, and

that these findings should not be relied upon by any other

persons. Further determinations in this regard will be made on a

case by case basis only.

Sincerely,

Jerry Laderberg

Chief

Entry Procedures and Carriers

Branch