HQ 113412

June 22, 1995

VES-3-R:IT:C 113412 LLB

CATEGORY: Carriers

Mr. William K. Sheehy

Gilmartin, Poster and Shafto

One William Street

New York, New York 10004

RE: Coastwise trade; Offshore drilling; Towing; Vessels; Outer
continental shelf; Duty; 46 U.S.C. App. 289; 46 U.S.C. App. 883; 46
U.S.C. App. 316 (a)

Dear Mr. Sheehy:

Reference is made to your letter of February 24, 1995, supplemented by
your facsimile transmission of April 18, 1995, in which you request that
Customs rule upon the proposed use by your client of a mobile offshore
drilling unit. You raise questions with possible coastwise trade,
towing, and Customs duty implications. You have requested that your
request be accorded confidential treatment in order that your client\'s
competitive position might be protected. Accordingly, we will insulate
all identifying information from release.

FACTS:

It is proposed that a mobile offshore drilling unit (MODU) be converted
into a floating production system (FPS) for use in operations on the
Outer continental shelf (OCS). The MODU vessel would at all times
relevant to this matter maintain its documentation as a foreign-flag
vessel. The semi-submersible MODU vessel would be modified by the
addition of:

\- sponsons to columns and/or pontoons to increase deck load capacity;

\- mooring system to enable the rig to remain on location during a 100
year hurricane;

\- production and export riser attachments and processing equipoment.

The modified rig (the FPS) would operate by pumping a combination of
crude oil, gas, and water from the well site on the seabed through
flexible piping (risers) and into pontoons on the vessel. The mixture
would then be moved up the columns to production manifolds where it will
undergo heating and separation processes. Resulting will be
export-quality crude oil, gas, and water which is sufficiently cleansed
to permit it to be discharged back into the Gulf of Mexico. The crude
oil would be metered and sent ashore via pipeline, and the gas would be
compressed and treated aboard the vessel. Some of the gas would be used
aboard the vessel and the remainder would be sent ashore via pipeline.

Prior to the arrival of the vessel at the operating site, there will
have been drilled one to four wells. These wells will be capped
temporarily in anticipation of the arrival of the FPS. Upon arrival, the
vessel will be anchored to the site by a mooring system consisting of
twelve anchors, three to be affixed at each corner of the FPS. It is
anticipated that the anchor system will be in place prior to arrival of
the FPS. Once anchored, the FPS would then be connected to the flexible
production risers already connected to the well sites, and would
commence operations. The FPS will remain afloat at all times. When
necessary, the vessel may be moved by disconnecting the flexible
production and export risers, and then slackening and disconnecting the
twelve mooring lines before commencing towing operations.

Under Chapter 89 of the Harmonized Tariff Schedule of the United States
Annotated (HTSUSA), vessels other than yachts and pleasure craft are
exempt from duty assessment. A vessel, as defined for Customs purposes,
is that which is capable of transportation of persons or merchandise on
water. The claim is made that the MODU which is converted to FPS status
retains the status of a vessel for purposes of duty consideration.

ISSUES:

1\. Whether a point on the Outer continental shelf of the United States
at which there exists one or more pre-drilled temporarily capped
production wells, a pre-installed mooring system consisting of twelve
26-ton drag embedment anchors connected to wire ropes as well as anchor
chains and buoys, and pipelines connected to shore through which will be
sent crude oil and gas, is a point considered to be governed by the laws
of the United States as provided under the terms of the Outer
Continental Shelf Lands Act of 1953, as amended, 43 U.S.C. 1333 (a)
(OSCLA).

2\. Whether the transportation of crew members and necessary vessel
equipment aboard the FPS vessel in question while under tow from a point
in the United States to the intended operating site on the Outer
continental shelf might be proscribed under 46 U.S.C. App 289 or 883,
respectively.

3\. Whether the towing of the FPS from a point in the United States to
the intended operating site on the Outer contineltal shelf is governed
by the terms of 46 U.S.C. App 316 (a).

4\. Whether the FPS at all times relevant to this matter retains its
status as a commercial vessel so as to render it free of the assessment
of duty under Chapter 89 of the HTSUSA.

LAW AND ANALYSIS:

Under Section 4(a) of the Outer Continental Shelf Lands Act of 1953, as
amended (43 U.S.C. 1333(a) (OCSLA)), 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 located within a State.
The provisions for dutiability of merchandise, as well as the coastwise
and other navigation laws, apply to production platforms. C.S.D. 83-52.

As

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 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
recoveredfrom 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\...

While merchandise includes all manner of articles and substances, the
definition does not include the legitimate and necessary equipment of a
vessel. The information provided in this case indicates that the FPS
while under tow

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.

For your general information, we have 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 (see the amendment to section 883 by the Act of June 7, 1988,
Pub. L. 100-329; 102 Stat. 588).