U.S. Customs and Border Protection (CBP) is proposing the modification and revocation of ruling letters relating to the use of foreign flagged vessels in offshore drilling under the Jones Act (46 U.S.C. 55102). The Jones Act prohibits transportation of certain “merchandise and equipment” between coastwise points by foreign flagged vessels (i.e., any vessel without coastwise endorsement, or one that is not built in and wholly owned by citizens of the U.S. for purposes of engaging in the coastwise trade). The term “coastwise” distinguishes vessels engaging in domestic trade from those engaged in foreign trade.
In the past, CBP interpreted the definition of vessel equipment to include “portable articles necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board.” According to Treasury Decision (T.D.) 49815(4), if the article was used “in furtherance of the fundamental operation” of the vessel, then the article was considered vessel equipment. CBP has applied its interpretation broadly, and considered materials such as cement, chemicals, and offshore drilling repair materials as “vessel equipment.” For example, in Headquarters ruling letter (HQ) 101925 issued in 1976, CBP found that a foreign flagged vessel could be used to transport repair (and other) materials to locations within the U.S. because transport of this type of “equipment” was not in violation of the coastwise laws, as it did not constitute an engagement in coastwise trade.
Now CBP is proposing to revoke prior CBP rulings, and hold that while certain types of offshore repair and installation work do not constitute an engagement in coastwise trade, the transportation of repair materials from U.S. points of lading to points of unlading within U.S. waters and offshore platforms and pipelines on the Outer Continental Shelf (coastwise points pursuant to Outer Continental Shelf Lands (OCSLA)) would be a violation of Jones Act. Below is a summary of the proposed ruling:
- CBP would revoke the prior HQ ruling that transport of pipe for repair of offshore sites was not considered engagement in coastwise trade. CBP proposes ruling that although the repair of the pipes is not an engagement in coastwise trade, the transportation of the repair materials by a vessel from a U.S. point to a coastwise point would be a violation of the Jones Act.
- CBP would revoke the prior HQ ruling that the installation of anodes on a subsea pipeline did not constitute an engagement in coastwise trade because the activity was in the nature of the repair. CBP proposes ruling that although the installation of anodes is not an engagement in coastwise trade, the transportation of this merchandise between U.S. points embraced by coastwise laws by a non-coastwise qualified vessel is prohibited.
- CBP would revoke the prior HQ ruling that a foreign flagged vessel may engage in laying and repairing of pipe in territorial waters and installing pipeline connectors to offshore drilling platforms and subsea wellheads. CBP proposes ruling that use of a foreign flagged vessel to transport merchandise for these activities (even if it is transported as “incidental to an operation”) is a violation of the Jones Act.
- CBP would revoke the prior HQ ruling that if the sole use of a vessel is underwater repairs to offshore or subsea structures, then it is not considered a use in coastwise trade. CBP proposes ruling that transportation of repair materials, regardless of their value or use on any part of a drilling platform, is transportation between U.S. coastwise points and such use of a foreign flagged vessel would violate the Jones Act.
- CBP would revoke the prior HQ ruling that if the sole use of a vessel is in the installation or servicing of a wellhead assembly at a location within U.S. waters, then it is not considered a use in the coastwise trade. CBP proposes ruling that the transportation of well-head equipment, valves and valve guards from a U.S. point to a wellhead assembly that is a coastwise point pursuant to the OCSLA using a foreign flagged vessel would violate the Jones Act.
CBP intends to revoke or modify all prior rulings that are inconsistent with the new proposed rule. Interested parties may file comments to U.S. Customs and Border Protection, Office of Trade, Regulations and Rulings on or before February 17, 2017.
For more information, contact: Jeff Snyder, John Brew, Mariana Pendás