VES-3-15/16-RR:IT:EC 113838 GEV

Harold E. Mesirow, Esq.
Robins, Kaplan, Miller & Ciresi L.L.P.
1801 K Street, N.W.
Suite 1200
Washington, D.C. 20006-1301

RE: Coastwise Trade; Salvage; Outer Continental Shelf; Dive Support Vessels; Dynamic Positioning Vessels; Derrick Barge; 46 U.S.C. App.  289, 883, 316(d); 43 U.S.C.  1333

Dear Mr. Mesirow:

This is in response to your letter dated February 10, 1997, on behalf of your client, requesting a ruling confirming your understanding of the applicability of the above-referenced statutes to a myriad of activities involving your client's use of non-coastwise-qualified vessels in operations either within the territorial waters of the United States or in waters over the Outer Continental Shelf ("OCS"). Our determinations with respect to your inquiry are set forth below.

FACTS:

Your client and its subsidiaries own and operate non-coastwise-qualified vessels (both U.S. and foreign-flagged) which they propose to use in providing various services in conjunction with subsea construction, inspection, maintenance, repair, and salvage operations for the offshore natural gas and oil industry in the territorial waters and OCS of the United States. These services, which would be primarily in support of offshore production-related natural gas and oil field infrastructure projects, would include the inspection, installation, maintenance, repair, and removal of underwater oil and natural gas pipelines, the inspection, maintenance, and repair of production platforms, rigs, and wellheads, and the installation of wellheads and coring.

The operation of the vessels in question would entail their departing a U.S. port and proceeding to one or more points, either in U.S. territorial waters or in waters over the OCS, where one or more of the aforementioned services would be performed, and thereafter returning - 2 -

to their U.S. port of departure. In addition to the crew, other personnel would be carried aboard the vessels in furtherance of their respective missions. Each vessel would also carry consumables, materials and equipment necessary to perform the services noted above.

The vessels, their work, and the articles and personnel to be carried on board are detailed below.

Vessel Descriptions

One class of vessel to be used during the operations in question is a saturation diving vessel with a dynamic positioning ("DP") system. These DP vessels, which would operate exclusively beyond U.S. territorial waters over the OCS for marine construction and subsea services, are specially constructed to provide an above water platform that functions as an operational base for divers. The DP system allows the vessels to maintain position without the use of anchors, and therefore, enhances productivity in extreme weather conditions. Computer controlled thrusters mounted on the vessels' hulls ensure the proper counteraction to wind, current, and wave forces to maintain position. There are no anchors, chains, or cables deployed to hold the DP vessels in position.

Another class of vessel involved in these operations is a four-pointed, moored, saturation ("SAT") diving vessel. SAT diving, required at water depths greater than 300 feet, involves divers working from special chambers for extended periods at a pressure equivalent to the depth of the work site. The divers are transferred from the surface to the work site by diving bells. The SAT vessels would customarily operate in U.S. territorial waters (but may operate over the OCS) and would be anchored to the seabed during operations for safety purposes.

A third class of vessel to be engaged in the aforementioned services is a dive support vessel. These vessels would be used for surface diving involving the use of divers linked to the surface by a diving umbilical containing compressed air lines and communication equipment. They would also be used to transport personnel, supplies, equipment, consumables and materials from U.S. ports to the above-discussed DP vessels when the DP vessels are operating over the OCS.

Finally, a U.S.-flagged, non-coastwise-qualified derrick barge would be used in salvage operations of oil facilities within U.S. territorial waters and over the OCS.

Work Descriptions

The work to be performed from the above vessels can be grouped into the following four categories: (1) pipelaying and repair; (2) platform-related work; (3) wells, wellheads and coring-related work; and (4) salvage-related work. These work categories are detailed below:

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The services to be performed with respect to pipelaying and repair include the following: connecting pipelines to platforms via risers and other pipelines via side taps or hot taps; burial of laid pipelines to specified depths below the mudline using hand jetting by divers and/or machine jetting; setting of pipeline crossings in connection with laying pipelines (i.e., separating pipelines by inserting sand bags or concrete mats between and over the lines); at the conclusion of pipelaying, hydrostatically testing and then dewatering the lines; repairing of leaking pipelines by the installation of clamps around the damaged area or installing a new section of pipe to replace the damaged area; installing risers (i.e., the vertical portion of a pipeline clamped to a platform leg); laying of flexible and hard pipe using conventional s-lay, j-lay or reeled methods; pipeline flushing and abandonment at the end of its use which entails flushing with chemicals and seawater (using a pig) and then cutting, plugging and burying the pipeline; pipeline inspection; and laying umbilicals (control and ejection) alongside of the pipeline for activation of control valves subsea, electrical supply or chemical injection.

The services to be performed with respect to platforms include the following: anode installation on platforms (i.e., the replacement of sacrificial cathodic protection devices); removal of debris (trash) from the ocean floor around platforms; platform inspection (i.e., visual and non-destructive testing of platform members); platform repair including the replacement or repair of the tubular members; and the salvage of platforms and wellheads by removal of existing structures.

The services to be performed with respect to wells, wellheads and coring include the following: pigging (i.e., the clearing of a pipeline with water) and abandonment of wells by cementing them in at the end of production; drilling support by assisting and observing drilling operations; well servicing and testing; installation of new and repaired wellheads; servicing and repair of wellheads; use of drilling for coring to collect geotechnical data; and performing bottom surveys (i.e., mapping debris and bottom contours).

The services to be performed with respect to salvage operations, include not only the removal of existing platform and wellhead structures mentioned above, but specifically the use of the aforementioned derrick barge in lifting and depositing salvage materials at a fixed site.

Descriptions of Items/Personnel Carried Aboard The Vessels

The various items and personnel carried aboard the subject vessels, both permanently and for the purpose of effecting the work described above, include the following:

Equipment - water blasters, hot tap machines, fabrication equipment, welding habitat, bolt tensioners, jet pump hoses, jetting machines, test pumps, manifolds, chart recorders, hoses, test flanges, pig traps/launchers, hydraulic pipe- line cutters, x-ray equipment, tensioners, welding equipment, pipehandling systems, stingers, piperacks, robotic vehicles (ROVs), reel lay equipment, test equipment, winches, trash baskets, sonar, buffers/grinders, magnetic

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particle inspection equipment, video and photographic equipment, ultra- sound testing equipment, epoxy injection equipment, handling frames, spreader bars, wireline equipment, cementing pumps, perforating guns, wirelines, electric lines, coiled tubing, production risers, well test equip- ment, logging equipment, acidation equipment and materials, flare equip- ment, wellhead adapter tools, drill string, drill rigs, mud tanks, geotechnical equipment and buoys, survey and positioning equipment, diving equipment, surface burning equipment, underwater burning equipment, jetting equip- ment, rigging slings, shackles, rope, winches, burning rods, welding rods, air or water lifts, tool compressors, tools (hand and hydraulic), and pipeline completion tools.

Consumables - epoxy, pigs, explosives, tie down materials, compressed gasses, fittings, plugs, fuel, water, chemicals, cargo mats, pipelay consumables and groceries.

Materials - pipe, hot tap fittings, flanges, bolts/o-rings, sand bags/cement mats, valve assemblies, repair clamps, wellhead repair parts, cement, pipe end con- nectors, termination skids, piles, anodes, bridge plugs and miscellaneous repair parts not preventive in nature.

Personnel - vessel crew, employees of the vessel owner/operator making up the vessel's dive crew (including divers, tenders, technicians and supervisors), subcontractors hired as part of the dive crew, client supervisors for whom the work is being performed, welders and survey positioning equipment and personnel.

In support of the position that the operation of the subject non-coastwise vessels as described above is not in violation of the coastwise laws, the following appendixes to the ruling request have been submitted: Appendix A which lists the types of work performed, and equipment, personnel, consumables and goods utilized by, the non-coastwise-qualified vessels in question; and Appendix B consisting of a compilation of six rulings issued by Customs (101925, dated October 7, 1976, published as Treasury Decision (T.D.) 78-387; 108442, dated August 13, 1986; 109516, dated June 15, 1988; 109576, dated July 12, 1988; 110391, dated May 3, 1990; and 113247, dated October 26, 1994).

We note that in addition to the above information regarding the non-coastwise-qualified vessels under consideration and their proposed activities, Cal Dive intends to use chartered third party coastwise-qualified vessels to perform the following services: (1) the transportation of materials to be used in work performed off of the subject non-coastwise-qualified vessels which are preventive in nature and not de minimis in value, such as anodes, new and repaired wellheads and tubular members; (2) the transportation of materials salvaged by the derrick barge; (3) the transportation of hydrocarbons produced by testing or servicing wells; (4) the transportation of

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corings taken on the subject non-coastwise-qualified vessels; and (5) the transportation of personnel and/or supplies, equipment or other materials which are not an integral part of the operation of the vessels but rather are off-loaded to a vessel, platform or structure in U.S. territorial waters or to a vessel, platform or other installation or device permanently or temporarily attached to the seabed of the OCS.

Notwithstanding the magnitude of the proposed operations, your ruling request is limited to our opinion as to the three issues specified on page 8 of your letter as set forth below.

ISSUES:

1. Whether the use of non-coastwise-qualified diving support vessels in providing the services described herein for subsea construction, inspection, maintenance, coring, repair and salvage operations is in contravention of 46 U.S.C. App.  883, 289 and/or 316(d).

2. Whether the use of non-coastwise-qualified diving support vessels for the carriage of supplies, equipment, materials and personnel from a U.S. port to DP vessels operating over the OCS as described herein is in contravention of 46 U.S.C. App.  883 and/or 289.

3. Whether the use of a U.S.-flagged, non-coastwise-qualified derrick barge in the lifting and depositing of salvage materials at a fixed site in U.S. territorial waters or over the OCS as described herein is in contravention of 46 U.S.C. App.  883, 289 and/or 316(d).

LAW AND ANALYSIS:

The coastwise law pertaining to the transportation of merchandise,  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...

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The term "merchandise" as used in  883 includes valueless material (see amendment to  883 by the Act of June 7, 1988, Pub.L. 100-329; 102 Stat. 588). Furthermore, the statute provides that the prohibitions set forth therein apply to the transportation of "valueless material or any dredged material regardless of whether it has commercial value, from a point or place in the United States or a point or place on the high seas within the Exclusive Economic Zone [(EEZ)] as defined in the Presidential Proclamation of March 10, 1983, to another point or place in the United States or a point or place on the high seas within that [EEZ]." Id. The March 10, 1983, Presidential Proclamation defined the EEZ as a zone contiguous to the territorial sea extending to a distance 200 nautical miles from the territorial sea baseline.

Further in regard to the term "merchandise" as used in  883, it should be noted that Customs has long-held the equipment of a vessel to be considered as other than merchandise. To that end, vessel equipment has 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." (T.D. 49815(4), dated March 13, 1939)

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.

Customs has consistently interpreted the above 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; 19 CFR  4.80). Furthermore, for purposes of the above statute a "passenger" is defined as "...any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership, or business." (See 19 CFR  4.50(b)) 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 internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ. Furthermore,  4(a) of the Outer Continental Shelf Lands Act of 1953, as amended (67 Stat. 462; 43 U.S.C.  1333(a)) (OCSLA), provides, in part, that 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

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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 within a State.

The statute was substantively amended by the Act of September 18, 1978 (Pub. L. 95-372, Title II,  203, 92 Stat. 635), to add, among other things the language concerning temporary attachment to the seabed. The legislative history associated with this amendment is telling, wherein it is stated that:

...It is thus clear that Federal law is to be applicable to all activities or all devices in contact with the seabed for exploration, development, and production. The committee intends that Federal law is, therefore, to be applicable to activities on drilling rigs, and other watercraft, when they are connected to the seabed by drillstring, pipes, or other appurte- nances, on the OCS for exploration, development, or production pur- poses. [House Report 95-590 on the OCSLA Amendment of 1978, page 128, reproduced at 1978 U.S.C.C.A.N. 1450, 1534.] Under the foregoing provision, we have ruled that the coastwise laws and other Customs and navigation laws are extended to mobile oil drilling rigs during the period they are secured to or submerged onto the seabed of the OCS (T.D. 54281(1)). We have applied the same principles to drilling platforms, artificial islands, and similar structures, as well as devices attached to the seabed of the OCS for the purpose of resource exploration operations. (Customs Service Decisions (C.S.D.s) 81-214 and 83-52)

With respect to salvage, paragraph (d) of the Act of June 11, 1940, as amended (46 U.S.C. App.  316(d)), provides, in pertinent part, that:

No foreign vessel shall, under penalty of forfeiture, engage in salvaging operations on the Atlantic or Pacific Coast of the United States,...or in territorial waters of the United States on the Gulf of Mexico, except when authorized by treaty...: Provided, however, That if, on investigation, the Commissioner of Customs is satisfied that no suitable [U.S.-flagged vessel] is available in any particular locality, he may authorize the use of a foreign vessel or vessels in salvaging operations in that locality and no penalty shall be incurred for such authorized use.

It is noteworthy that although the aforementioned coastwise laws (i.e., 46 U.S.C. App.  883, 289) prohibit the use of any vessel other than a U.S.-built, owned and documented vessel in the transportation of merchandise or passengers, the prohibition in the salvage statute is applicable only to a "foreign vessel."

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In order for a marine operation to constitute "salvage," according to the law developed in this area (see B.V. Bureau Wijsmuller v. United States, 702 F.2d 333, 337 (1983), in which the history of salvage law is briefly discussed), three elements are necessary. These elements are: "marine peril; service voluntarily rendered, not required by duty or contract; and success in whole or in part, with the service rendered having contributed to the success." (Wijsmuller, 702 F.2d at 338, citing The Sabine, 101 U.S. 384, 25 L.Ed. 982 (1880)) To quote further from Wijsmuller, 702 F.2d at 338: "[p]eril necessary to give rise to a claim for salvage must be present and impending, although it need not be immediate or absolute. 'A situation of actual apprehension, though not of actual danger, is sufficient.' ...Absent danger, any services rendered a vessel cannot properly be called salvage..." (See also Cope v. Vallette Dry-Dock Co., 119 U.S. 625 (1887); Simmons v. The Steamship Jefferson, 215 U.S. 130 (1909); de Kerchove's International Maritime Dictionary, 2d Ed., 1961, p. 680, and Black's Law Dictionary, 5th Ed., 1979 p. 1202, 1203)

In applying the above authority to the facts of this inquiry, our analysis is as follows.

Issue 1

The first issue for our consideration involves the use of non-coastwise-qualified diving support vessels for surface diving whereby divers operate via their linkage to the surface by a diving umbilical containing compressed air lines and communication equipment. The operation of these vessels would be in conjunction with subsea construction, inspection, maintenance, coring, repair and salvage services. All equipment, consumables and materials to be carried on board as described above are to be utilized in the various facets of the vessel's work. Likewise, all personnel on board are to be carried in furtherance of the vessel's operation in providing the aforementioned diving support/assistance.

With respect to the operation of diving support vessels, it has long been the position of the Customs Service that the transportation by such vessels of equipment, supplies and materials used on or from such vessels in effecting services such as inspections of, and/or repairs to, offshore or subsea structures, including the laying and repair of pipelines, and marine coring, does not constitute a use of the vessel in the coastwise trade, provided, such articles are necessary for the accomplishment of the vessel's mission, and are usually carried on board as a matter of course. (Customs ruling letters 108442, dated August 13, 1986; 109576, dated July 12, 1988; and T.D. 78-387) The underlying rationale for this position is that the aforementioned articles are not considered "merchandise" for purposes of 46 U.S.C. App.  883. Furthermore, crewmembers of such vessels, including divers and technicians, as well as construction personnel carried on board in connection with the aforementioned services performed on or from the vessels, are not considered "passengers" within the meaning of 19 CFR  4.50(b). (Id., see also C.S.D.s 79-321, 81-214) We find the foregoing precedents applicable to the activities of the diving support vessels under consideration. - 9 -

Accordingly, the use of the subject non-coastwise-qualified dive support vessels as described herein is not in violation of 46 U.S.C. App.  883 and/or 289. We note that although the services these vessels provide may also be in support of salvage operations, the facts as presented to us do not indicate that these services meet the requisite criteria of "salvage" as provided in the above-cited authority. Consequently, the provisions of 46 U.S.C. App.  316(d) are inapplicable to the operation of these vessels.

Issue 2

The second issue for our consideration concerns the use of non-coastwise-qualified diving support vessels to transport supplies, equipment, materials and personnel from a U.S. port to DP vessels operating over the OCS. As previously stated, these DP vessels will be operating without anchors, chains, or cables deployed to hold them in position. In this regard we note that Customs has previously held that the lack of any permanent or temporary attachment to the seabed operates to exclude DP vessels operating over the OCS from becoming points on the OCS to which the coastwise laws are extended by the OCSLA. (Customs ruling letter 109576, dated July 12, 1988) Consequently, since there is no movement between two points embraced within the coastwise laws in this particular scenario, the use of non-coastwise-qualified diving support vessels for the transportation of supplies, equipment, materials and personnel between a U.S. port and the subject DP vessels operating over the OCS is not in contravention of 46 U.S.C. App.  883 and/or 289.

Issue 3

The final issue for our review pertains to the use of a U.S.-flagged, non-coastwise-qualified derrick barge in conjunction with salvage operations in U.S. territorial waters and over the OCS. These services do not include the transportation of salvage materials but are limited solely to the lifting and depositing of them onto a coastwise-qualified vessel at a fixed site. From the facts presented, the engagement in this activity by the subject derrick barge does not meet the requisite elements of "salvage" as discussed in the above-referenced authority. This, coupled with the fact that the barge is U.S.-flagged, renders inapplicable the provisions of 46 U.S.C. App.  316(d).

In regard to the proposed use of the barge, we note that Customs has long-held that the use of a non-coastwise-qualified derrick barge to load and unload cargo or construct or dismantle a marine structure is not coastwise trade and does not violate the coastwise laws, provided, that any movement of the merchandise is effected exclusively by the operation of a crane aboard the derrick barge and not the movement of the vessel, except for necessary movement which is incidental to a lifting operation while it is taking place. (Customs ruling letters 106351, dated November 1, 1983; 108213, dated March 6, 1986; and 110391, dated May 3, 1990) This holding is applicable to such service of a derrick barge either solely in territorial waters, or on the OCS if the materials being lifted are considered to be a coastwise point by virtue of the OCSLA. Thus, a non-coastwise-qualified derrick barge could lift merchandise with its crane at one coastwise

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point, be pivoted while remaining at that location, and put down the merchandise at a location other than that from which it was lifted. The barge would be prohibited from lifting merchandise with its crane at one coastwise point and, while the merchandise is suspended from the crane, transport the merchandise to a second coastwise point where it is placed by the crane. Parenthetically, we note that if the service in question takes place at a location on the OCS not considered to be a coastwise point pursuant to the OCSLA, any movement of the barge is irrelevant inasmuch as the coastwise laws would be rendered inapplicable.

Accordingly, the use of a non-coastwise-qualified derrick barge in the manner described herein does not constitute a engagement in the coastwise trade in violation of 46 U.S.C. App.  883 and/or 289.

HOLDINGS:

1. The use of non-coastwise-qualified diving support vessels in providing the services described herein for subsea construction, inspection, maintenance, coring, repair and salvage operations is not in contravention of 46 U.S.C. App.  883, 289 and/or 316(d).

2. The use of non-coastwise-qualified diving support vessels for the carriage of supplies, equipment, materials and personnel from a U.S. port to DP vessels operating over the OCS as described herein is not in contravention of 46 U.S.C. App.  883 and/or 289.

3. The use of a U.S.-flagged, non-coastwise-qualified derrick barge in the lifting and depositing of salvage materials at a fixed site in U.S. territorial waters or over the OCS as described herein is not in contravention of 46 U.S.C. App.  883, 289 and/or 316(d).

Sincerely,


Jerry Laderberg
Acting Chief
Entry and Carrier Rulings Branch