VES-03-01-CO:R:IT:C: 111591 BEW

Ronald M. Hershkowitz, Esquire
American Telephone and Telegraph Company
295 North Maple Avenue
Basking Ridge, New Jersey 07920

RE: Applicability of coastwise merchandise law, 46 U.S.C. App. 883, to proposed carriage of cable by a foreign-built vessel

Dear Mr. Hershkowitz:

This is in reference to your request for a ruling on behalf of Transoceanic Cableship Company (TCSC), a wholly owned subsidiary of the American Telephone and Telegraph Company (AT&T) regarding the proposed use of a U.S. registered foreign- built vessel for cable laying operations.

FACTS:

You state that a U.S. registered foreign-built vessel will be used to transport equipment that will either (1) form a part of a submarine telecommunications cable system (cable system) that is to be laid in international waters or (2) that is equipment used to lay or repair a cable system. You state that AT&T provides international services principally through two types of facilities: (1) leased international satellite circuits, and (2) territorial circuits in cable systems jointly owned by AT&T and other United States and foreign telecommunications carriers, such as British Telecom, France Telecom and Koku.

You state that various parts of a cable system are manufactured in several locations in the United States. The principal cable manufacturing facility in the United States is owned by Simplex Wire and Cable Company and is located in Newington, New Hampshire. You state that the repeaters are made by AT&T in its Clark, New Jersey, plant, and optical fiber is manufactured by AT&T at its plant in Atlanta, Georgia. You state that fiber and the repeaters are shipped to Simplex by land carriers where they are processed into submarine cable. The cable and repeaters are assembled and loaded directly into the cable ship's special tanks. The vessel then lays the cable system along its prescribed route in the United States, international and foreign territorial waters. You state that while the cable laying is being done, the cable is continuously tested by technicians on the cable laying vessel and in the cable station ashore.

You state that C.S. LONG LINES and the C.S. CHARLES L. BROWN are used by TCSC in performing both cable laying and repair services. You state that the C.S. LONG LINES has laid or participated in the laying of all of the major cable systems in which AT&T has an ownership interest. You state that while the cable systems have a good record for continuous operation, they are subject to the possibility of outages due to such causes as trawling activities and underwater landslides. In addition, you state that it is possible that the underwater repeaters and related equipment will develop trouble and have to be replaced. You state that an arrangement has been worked out with Cable Systems, AT&T, foreign governments, and telecommunication entities which own cable systems and cable ships for the efficient and orderly use of the available ships to safeguard the vast cable network. Under the said arrangement, the subject ships are stationed at strategic points in the Atlantic and Pacific Basins in order to give the best overall coverage of the large ocean area involved. Each ship is responsible for the maintenance and repair of the cables in its general area. The C.S. LONG LINES and the C.S. CHARLIE BROWN are the only U.S. flag vessels that participate in these maintenance programs.

When a cable breaks or fault occurs, a repair ship is dispatched to the area of the trouble indicated by testing techniques ashore. Upon arrival at the site, the vessel lowers a grappling hook and proceeds slowly to drag the bottom on courses perpendicular to the known route of the cable. The cable is raised to the surface and taken aboard ship. The damaged cable is cut out and replaced by splicing new cable to the old cable. The repaired cable is lowered to the bottom. To facilitate the prompt dispatch of the vessels to the repair areas, the cable ships are maintained in a state of readiness to depart on very short notice. You state in order to minimize delay in proceeding to the cable area, the ships generally carry a limited amount of cable and a few spare repeaters and related apparatus on board at all times for repair work. You state that the spare cable, repeaters and apparatus are an integral and highly essential part of the vessel's repair equipment.

You state that AT&T has established depots where inventories of the different types of cables and repeaters are stored. AT&T presently operates cable depots in Baltimore, Maryland, and Honolulu, Hawaii. You state that a study is being made of the feasibility of establishing a cable depot in the Puget Sound area of Washington state.

In general, the cable ships are maintained on a standby basis at the depot, subject to immediate activation in response to a cable failure. You state that on occasion, it has been necessary for the cable ships to proceed to other locations to load spare cable which is not in inventory at the depot.

You state that if TCSC is not permitted to pick up submarine cable in Newington, New Hampshire, and store it in its depots in Baltimore, Honolulu, or potentially, the Puget Sound area, its ability to compete for cable contracts will be undermined. In addition, you will not be able to make efficient use of the proposed depot and the existing depot in Baltimore with respect to the construction of cable systems connected to the Pacific and Atlantic Coasts of the United States, respectively.

You state that the Department of the Treasury has ruled that a small amount of unused cable -- 5% or less -- may be off- loaded at a U.S. port other then that of original loading without violating the Jones Act. You state the 5% limitation was arbitrarily set and unrelated to the reasoning behind the ruling. You indicate that the 5% limitation is extremely restrictive. You state that cable laying projects require substantially more than 5% additional cable to satisfy reasonable margins for error, particularly when, as is often the case, the cable system's repeaters are tested on board the cable ship while the cable is being laid. You cite the following examples:

1. A two part cable system is to be laid in the Pacific, part 1 is to be laid between California and Hawaii, and at a later date, part 2 is to be laid between Hawaii and Guam. Part 1 of the system is loaded aboard a cable ship in Newington, New Hampshire, and laid as planned. Surplus cable and spare repeaters are off loaded at the Honolulu depot for use as repair stock. Subsequently, the system experiences several outages, the repair of which depletes the depot stock inventory. Several months later, while in Newington loading Part 2 of the system, the vessel loads several sections of cable in excess of the cable system's requirements . The vessel transits to Hawaii where prior to commencement of part 2, it off loads the additional spare cable sections at Honolulu depot, replenishing the repair cable inventory.

2. AT&T purchases cable F.O.B. Newington, New Hampshire, for a transatlantic cable with a planned construction start date of January 1. The start project is delayed. The cable factory, having manufactured the cable, requires AT&T to take delivery of the cable as they are unable to store it at their facility. The cable is loaded aboard a TCSC cable ship at Newington and transported to the AT&T depot, Baltimore, for storage. On July 1, AT&T commences construction, TCSC reloads the cable on the same or a different cable ship and proceeds to lay the cable.

3. A decision is made to establish the Puget Sound Depot. The initial stock of spare cable inventory, spare repeaters, and associated equipment are transported from the Baltimore and Honolulu depots, and the cable factory in Newington.

You state that the coastwise law does not apply to the transportation of equipment carried aboard a foreign built cable laying and repair vessel so long as that equipment is either a part of the cable system or is equipment used to lay and repair a cable system.

ISSUE:

Whether the carriage of cable by a foreign-built cable laying and repair vessel from its point of lading in the United States to a second point in the United States where it will be either temporarily unladed into an onshore storage depot or unladed directly onto another foreign-built cable-laying and repair vessel located within U.S. territorial waters which will subsequently install the cable, constitutes a violation of 46 U.S.C. App 883.

LAW AND ANALYSIS:

Generally, the coastwise laws (e.g., 46 U.S.C. App. 289 and 883, and 46 U.S.C. 12106 and 12110) prohibit the transportation of merchandise or passengers between points in the United States embraced within the coastwise laws in any vessel other 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.

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 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 ....

For purposes of the coastwise laws, a point in United States territorial waters is considered a point embraced within the coastwise laws. The coastwise laws generally apply to points in the territorial sea, defined as the belt, three (3) nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ.

Transportation of the cable being paid out by the cable laying vessel from a coastwise point to a second coastwise point, other than in very narrow circumstances not applicable in this case, is not considered coastwise trade. We have stated that it is the fact that the cable is not landed but is merely paid out in the cable laying operation which makes this operation permissible. To avoid the coastwise prohibition, the cable must be paid out by the transporting vessel during the voyage immediately following the lading of the cable. A lading at the beginning of the voyage followed by an unlading at its termination will result in a coastwise violation.

If a non-coastwise-qualified vessel lades cable as cargo for the purposes not of using it before arrival at a second U.S. point, but merely to transport it to that second such point, the vessel will be considered to have transported merchandise in the coastwise trade in violation of section 883. The operations you outlined would not be prohibited under the provisions of 46 U.S.C. App. 883, provided that the subject cable system and repeaters are transported as a part of the cable-laying operation.

The circumstance outlined in example 1, would not violate the coastwise statute provided the cable is laid on the voyage between California and Hawaii, and the off-laded cable laying equipment was laden to be consumed on the same voyage. If the cable and repeaters are carried as repair stock, that equipment is cargo.

Under the circumstances outlined in example 2, the transportation from New Hampshire to Maryland would be a coastwise transportation and would be prohibited under the coastwise statute (46 U.S.C. App.883).

With regard to example 3, the transportation of the cable for the purposes of initial stock of spare cable inventory, spare repeaters, and associated equipment, from the Baltimore depot, the Honolulu depot, or the cable factory, to establish the Puget Sound depot is coastwise trade and would be prohibited under section 883.

With regard to ruling 105644 (C.S.D. 82-136) which stated that no coastwise violation exists when a ship pays out 1,100 nautical miles of cable and unlades a small amount of left over cable at a second coastwise point, it is not analogous to the case at hand. We cannot as you suggest, hypothesize as to how we might rule if at some future time either more or less cable was so left over and unladen.

HOLDING:

The carriage of cable by a foreign-built cable-laying and repair vessel from its point of lading in the United States to a second point in the United States where it will be temporarily unladed into an onshore storage depot for future use or unladed directly onto another foreign-built cable laying and repair vessel located within U.S. territorial waters which will subsequently install the cable, constitutes a violation of 46 U.S.C. App. 883.

Sincerely,

B. James Fritz
Chief
Carrier Rulings Branch