VES-3-02-OT:RR:BSTC:CCR H332921 HKC
Helen M. Cousineau
Managing Director, Global Trade Advisory
Deloitte Tax LLP
111 South Wacker Drive
Chicago, IL 60606
RE: Vessel Importation; Deepwater Ports Act; 33 U.S.C. § 1518; Title 19, U.S. Code
Dear Ms. Cousineau,
This letter is in response to your June 12, 2023, ruling request and subsequent correspondence on behalf of your client Delfin LNG LLC (“Delfin”) regarding whether Delfin’s Floating Liquefied Natural Gas Vessel (“FLNGV”) qualifies as a vessel, whether such vessel is subject to the customs laws in Title 19 of the U.S. Code (U.S.C.), and whether such vessel is exempt from importation-related customs duties. Our decision follows.
FACTS
The following facts are from your June 12, 2023, ruling request and subsequent correspondence. Delfin proposes to moor foreign-flagged FLNGVs at a deepwater port located on the Outer Continental Shelf (“OCS”) approximately 40 nautical miles off the coast of Cameron Parish, Louisiana. The FLNGVs will arrive at the deepwater port from Asia under their own power.
While at the deepwater port, FLNGVs will be moored to the seafloor using Submerged Soft-Yoke systems (“SSYs”). Unlike permanent mooring systems, the SSYs will enable the FLNGVs to unmoor and disconnect from the deepwater port’s pipeline in a matter of hours.
Once moored, the FLNGVs will take on natural gas from the deepwater port using a pipeline connection. The FLNGVs will then liquefy the natural gas to produce Liquefied Natural Gas (“LNG”) and store the LNG onboard in storage tanks. The FLNGV will then offload the LNG onto LNG tankers temporarily moored alongside it via loading arms using ship-to-ship transfer procedures.
The deepwater port in question will solely be utilized to export U.S. origin LNG. As configured, Delfin’s deepwater port is incapable of importing foreign-origin LNG into the customs territory of the United States, and Delfin has not applied for a Department of Energy permit to do so. Accordingly, this ruling does not address the dutiability of oil and gas products imported through a deepwater port.
The FLNGVs are capable of sailing under their own propulsion with LNG stored on board. They can also steer and dynamically position without assistance. Upon their return to the deepwater port, the FLNGVs are capable of reconnecting to the SSYs on their own. The United States Coast Guard (“USCG”) has issued Delfin a determination letter stating that for the purposes of Title 33 of the Code of Federal Regulations (CFR), the FLNGVs are vessels and not part of the deepwater port.
The following schematic illustrating the superstructure and hull shape of an FLNGV was provided by Delfin:
ISSUES
In correspondence subsequent to your ruling request, you requested that we rule on the following issues:
1. Under the facts presented, is Delfin’s FLNGV considered a vessel as contemplated by 19 U.S.C. § 1401(a) and 33 U.S.C. § 1502 (19)?
2. Under the facts presented, is Delfin’s FLNGV exempt from the customs laws administered by the Secretary of the Treasury within the meaning of 33 U.S.C. § 1518(d)?
3. Under the facts presented, is Delfin’s FLNGV exempt from importation into the customs territory of the United States and exempt from dutiability as merchandise for the purposes of Title 19 and Title 33 U.S. Code?
LAW AND ANALYSIS
The coastwise law applicable to the waiver of customs laws at a deepwater port is found at 33 U.S.C. § 1518(d) and provides:
“(d) Customs laws inapplicable to deepwater port; duties and taxes on foreign articles imported into customs territory of United States –
The customs laws administered by the Secretary of the Treasury shall not apply to any deepwater port licensed under this chapter, but all foreign articles to be used in the construction of any such deepwater port, including any component thereof, shall first be made subject to all applicable duties and taxes which would be imposed upon or by reason of their importation if they were imported for consumption in the United States. Duties and taxes shall be paid thereon in accordance with laws applicable to merchandise imported into the customs territory of the United States.”
(Emphasis added).
The term “customs laws administered by the Secretary of the Treasury” has been held by CBP to encompass the statutes contained in Title 19 U.S. Code.
The term “deepwater port” is defined at 33 U.S.C. § 1502 (9), and vessels are specifically excluded from the definition:
“(9) “deepwater port”—
(A) means any fixed or floating manmade structure other than a vessel, or any group of such structures, that are located beyond State seaward boundaries and that are used or intended for use as a port or terminal for the transportation, storage, or further handling of oil or natural gas for transportation to or from any State, except as otherwise provided in section 1522 of this title, and for other uses not inconsistent with the purposes of this chapter, including transportation of oil or natural gas from the United States outer continental shelf;
(B) includes all components and equipment, including pipelines, pumping stations, service platforms, buoys, mooring lines, and similar facilities to the extent they are located seaward of the high water mark;
(C) in the case of a structure used or intended for such use with respect to natural gas, includes all components and equipment, including pipelines, pumping or compressor stations, service platforms, buoys, mooring lines, and similar facilities that are proposed or approved for construction and operation as part of a deepwater port, to the extent that they are located seaward of the high water mark and do not include interconnecting facilities; and
(D) shall be considered a “new source” for purposes of the Clean Air Act (42 U.S.C. 7401 et seq.), and the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.).”
(Emphasis added).
The term “vessel” is defined at 1 U.S.C. § 3, saying:
“The word “vessel” includes every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water.”
For the purposes of the customs laws, Title 19 further defines “vessel” at 19 U.S.C. § 1401(a), incorporating the definition found in Title 1, and further specifically exempting aircraft, saying:
“(a) Vessel - The word “vessel” includes every description of water craft or other contrivance used, or capable of being used, as a means of transportation in water, but does not include aircraft.”
A similar definition of “vessel” for the purposes of Title 33 is codified at 33 U.S.C. § 1502 (19):
“(19) “vessel” means every description of watercraft or other artificial contrivance used as a means of transportation on or through the water.”
(Emphasis added).
Inasmuch as these definitions of the term all include language of great breadth, “…every description of watercraft or other artificial contrivance…,” our consideration of the term “vessel” as utilized in statute should be broad in scope.
Further, the courts have provided considerable guidance as to the physical characteristics of a vessel. The Supreme Court has opined that for the purposes of the Jones Act, a watercraft “capable of being used” as a means of transportation is a vessel, regardless of whether the watercraft was actually engaged in transportation. The Court applied the plain meaning definition of “vessel” in the U.S. Code, which included every watercraft “used, or capable of being used, as a means of transportation on water.”
Special purpose structures not usually employed as means of transport, but designed to float on water, have also been held to be vessels. In Offshore Co. v Robinson, the 5th Circuit Court of Appeals (“5th Circuit”) held a drilling barge incapable of self-propulsion or holding cargo, but containing navigation lights, anchors, bitts, living quarters, and bilge pumps, to be a vessel. Conversely, the 5th Circuit in Richendollar v. Diamond M Drilling held that a drilling rig with a hole in its hull, and not capable of flotation or navigation, is not a vessel for the purposes of the Longshoreman and Harbor Worker’s Act provisions contained in Title 33 U.S.C. Flotation alone may be insufficient to deem a structure a vessel: the Supreme Court held a floating home not to be a vessel in Lozman v. City of Riviera Beach because it lacked the physical characteristics of a vessel. The floating home in question lacked a rudder or steering mechanism, did not contain a raked hull, could not store electricity aboard, and had only been towed twice in seven years.
In the instant case, the FLNGVs have a traditional hull structure and are capable of navigating under their own power while merchandise (LNG) is stored on board. They are also capable of independently detaching from the deepwater port and moving to another location on the OCS in a matter of hours. We note the U.S. Coast Guard, responsible for enforcing Title 33 U.S.C., has opined that the FLNGVs should be considered vessels. In the past, CBP has held mobile drilling rigs registered as vessels and capable of transporting merchandise or passengers to be vessels, but held drilling rigs and production platforms not practically capable of being moved to another site on the OCS not to be vessels. Accordingly, we find the FLNGVs to be vessels for the purposes of 19 U.S.C. and 33 U.S.C. as contemplated by the definitions at 19 U.S.C. § 1401(a) and 33 U.S.C. § 1502(19).
Regarding the final issue of whether the FLNGVs are considered imported merchandise and subject to customs duty, as noted above, the federal courts and CBP have traditionally held vessels to be non-dutiable, reasoning that they are not imported merchandise. Here, CBP has held the FLNGVs are vessels for the purposes of 19 U.S.C. and 33 U.S.C. Therefore, the FLNGVs will not be considered imported into the customs territory of the U.S. and will not be assessed customs duties under these titles.
Section 1518(d) of Title 33 clearly excludes deepwater ports from the applicability of the customs laws. The definition of “deepwater port” at 33 U.S.C. § 1502 (9), however, excludes vessels, such as the FLNGVs. The question is thus when “the customs laws” would or would not apply to the vessel itself, as opposed to the deepwater port. In this context, it is useful to identify the type of “customs laws” that apply to vessels. The most obvious examples are the requirements for a vessel: to “report arrival” when it comes to a U.S. port or place; to make “vessel entry” within 48 hours after arrival at a U.S. port or place; to obtain a permit to unlade if it intends to unlade merchandise in a U.S. port or place; to obtain CBP clearance to depart a U.S. port for a foreign port or place; and to file an export manifest (“outward cargo declaration”) when it departs a U.S. port for a foreign port or place. These requirements attach to vessels when they are going to or leaving a U.S. port or place; a vessel merely transiting off the U.S. coastline under the right of innocent passage does not have any of these reporting requirements. The aforementioned requirements for vessels under the customs laws, thus, attach in connection with the vessel’s travel to and use of a U.S. port or place. However, because Section 1518(d) of Title 33 excludes deepwater ports from these customs laws, these requirements do not attach to vessels arriving or departing from a deepwater port.
Under the facts presented, the FLNGVs will be moored alongside Delfin’s deepwater port. The statutory and regulatory framework for deepwater ports places primary responsibility for deepwater port operations upon the U.S. Coast Guard and the Maritime Administration (MARAD). Accordingly, the regulations of these two agencies govern the actions of the deepwater ports and the vessels calling at them. Although vessels are not included in the definition of “deepwater port,” it is CBP’s position that the exclusion of deepwater ports from the application of the customs laws would be undermined if the vessels calling at and using such ports are subjected to the customs laws. Because the requirements of 19 U.S.C. do not apply to deepwater ports, the customs requirements placed upon vessels when they are utilizing U.S. ports do not apply when they are utilizing deepwater ports. Thus, the FLNGVs will not be subject to the Title 19 requirements while moored alongside the deepwater port. Although Delfin’s FLNGVs are exempt from 19 U.S.C. while at the deepwater port, they would be subject to the various requirements contained in 19 U.S.C. if they depart the deepwater port and berth at another port subject to the customs laws. CBP further notes that “the customs laws administered by the Secretary of the Treasury” are limited in scope to 19 U.S.C. and do not include other statutes such as “the navigation laws.” Hence the requirements of, for example, the Jones Act (46 U.S.C. § 55102) and the Passenger Vessel Services Act (46 U.S.C. § 55103) remain applicable.
Based on extensive legal precedent, vessels transporting merchandise have not been considered “imported merchandise” for the purposes of the customs laws contained in 19 U.S.C., but rather the vehicles for such merchandise. Consequently, customs duties have not been imposed on such vessels.
HOLDING
Under the facts presented, Delfin’s FLNGVs are vessels for the purposes of Titles 19 and 33, U.S. Code, as contemplated by the definitions at 19 U.S.C. § 1401(a) and 33 U.S.C. § 1502 (19).
Under the facts presented, the customs laws administered by the Secretary of the Treasury will not apply to Delfin’s FLNGVs while they are moored at a deepwater port because 33 U.S.C. § 1518(d) specifically excludes deepwater ports from the application of the customs laws.
Under the facts presented, Delfin’s FLNGVs are not considered merchandise imported into the customs territory of the United States for the purposes of Title 19 U.S.C. and Title 33 U.S.C. Because they are not imported merchandise, the customs duties contained in these chapters will not apply.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” If the facts at hand vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177.2(b)(1), (2), and (4), and § 177.9(b)(1) and (4).
Sincerely,
W. Richmond Beevers
Chief
Cargo Security, Carriers and Restricted Merchandise Branch
Office of Trade, Regulations and Rulings
U.S. Customs and Border Protection