OT:RR:BSTC:CCR H332949 AFM
Jeanne Grasso, Esq.
Blank Rome, LLP
1825 Eye Street, N.W.
Washington, DC 20006
RE: 46 U.S.C. § 55102; 19 C.F.R. § 4.80b; Coastwise Transportation.
Dear Ms. Grasso:
This is in response to your correspondence of July 5, 2023, in which you requested a ruling regarding whether your client’s proposed transportation of liquified natural gas (“LNG”) under the circumstances described below would violate 46 U.S.C. §§ 55102 (“the Jones Act”). Our decision follows.
FACTS:
The following facts are taken from your July 5, 2023, ruling request and your August 9, 2023, and September 21, 2023, responses to our requests for supplemental information.
Your client, [ ] proposes to load LNG onto a foreign-flagged vessel at [ ], and then discharge the LNG outside the three-mile territorial sea limit, either at (1) an LNG Terminal in Guantanamo Bay, Cuba, or other foreign ports, or to (2) either U.S.-flagged or foreign-flagged vessels via ship-to-ship (“STS”) bunkering while located outside the U.S. three-nautical mile territorial sea. The STS bunkering will occur in U.S. Coast Guard-approved locations, such as Port Canaveral, Florida; Jacksonville, Florida; Savannah, Georgia; and Calcasieu Pass, Louisiana; or in a designated lightering area beyond the U.S. three-nautical mile territorial sea, including designated lightering areas in the Gulf of Mexico, such as the Galveston Offshore Lightering Area (Corpus Christi, Texas; Galveston, Texas; Freeport, Texas), as well as other locations, or in foreign waters.
During the STS bunkering process, either the LNG bunkering vessel or the receiving vessel will anchor beyond the three-nautical mile U.S. territorial sea. The receiving vessel will use the LNG as fuel and will not unlade the LNG at a coastwise point. Once the LNG has been discharged, the vessel which carried the LNG from a U.S. coastwise point and unladed it in one of the above-described manners will return to a U.S. LNG terminal to repeat the process.
You assert that the contemplated operations will not violate the Jones Act, arguing that:
The coastwise laws do not apply to Guantanamo Bay, Cuba (citing HQ 113260 (Nov. 1, 1994));
The LNG would be considered equipment of the receiving vessels once received because the receiving vessels will burn the LNG as fuel and would not unlade the LNG at any coastwise point;
The anchored vessel is not a coastwise point because the vessel will anchor beyond the three-nautical mile U.S. territorial sea and will not be temporarily affixed to the seabed for the purpose of exploring, developing, or producing resources therefrom; and;
CBP previously ruled that foreign-flagged vessels which anchored beyond the three-nautical mile U.S. territorial sea involved in lightering operations was not violative of the Jones Act because the cargo was not unladen at a U.S. coastwise point (citing HQ H015481 (Oct. 12, 2007) and HQ H217185 (Aug. 10, 2012)).
ISSUE:
Whether the proposed transportations of LNG would violate the Jones Act, 46 U.S.C. § 55102.
LAW AND ANALYSIS:
The coastwise law applicable to the transportation of merchandise, known as the Jones Act, is found at 46 U.S.C. § 55102, and provides in pertinent part:
Except as otherwise provided in this chapter or chapter 121 of this title, a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel—
is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and
has been issued a certificate of documentation with a coastwise endorsement under chapter 121 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement.
Title 46 United States Code § 55101, supplies the geographic reach of the coastwise laws, providing:
Except as provided in subsection (b), the coastwise laws apply to the United States, including the island territories and possessions of the United States.
(b) The coastwise laws do not apply to—
(1) American Samoa;
(2) the Northern Mariana Islands, except as provided in section 502(b) of the Covenant To Establish a Commonwealth of the Northern Mariana Islands in Political Union With the United States of America (48 U.S.C. 1801 note); or
(3) the Virgin Islands until the President declares by proclamation that the coastwise laws apply to the Virgin Islands.
The coastwise laws generally apply to points in the territorial sea, which is 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.
The Jones Act specifically prohibits the coastwise transportation of “merchandise” between coastwise points by non-coastwise qualified vessels. Pursuant to 46 U.S.C. § 55102(a): “[m]erchandise includes (1) merchandise owned by the United States Government, a State, or a subdivision of a State; and (2) valueless material.” Also, pursuant to 19 U.S.C. § 1401(c), the word “merchandise” is defined as “goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31.” For purposes of the Jones Act, merchandise also includes “valueless material.” As such, any cargo, regardless of its value or ownership, would be considered merchandise for the purposes of 46 U.S.C. § 55102. The U.S. Customs and Border Protection (CBP) regulations promulgated under the authority of 46 U.S.C. § 55102, provide in pertinent part:
A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws (“coastwise point”) is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise.
19 C.F.R. § 4.80b(a).
Notably, the Jones Act prohibits a non-coastwise-qualified vessel from performing “any part” of the transportation of merchandise between two U.S. points to which the coastwise laws apply, meaning a violation would occur even if the merchandise is transferred to a coastwise-qualified vessel before reaching its destination. Additionally, a Jones Act violation occurs even if the merchandise is carried to a non-coastwise point by a non-coastwise-qualified vessel, prior to being carried to its coastwise destination by a coastwise-qualified vessel.
In addition, Section 4(a)(1) of the Outer Continental Shelf Lands Act of 1953 (“OCSLA”), as amended, provides, in pertinent part:
The Constitution and laws and civil and political jurisdiction of the United States are extended, to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction located within a State, to—
the subsoil and seabed of the outer Continental Shelf;
all artificial islands on the outer Continental Shelf;
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, including non-mineral energy resources; or
any such installation or other device (other than a ship or vessel) for the purpose of transporting or transmitting such resources.
(Emphasis added).
Accordingly, the OCSLA, as amended, extends U.S. jurisdiction to devices attached to the seabed of the OCS for the purpose of producing non-mineral energy such as wind energy.
In the present matter, you propose to discharge LNG which was laden onto a foreign-flagged vessel at a terminal located at a U.S. coastwise point onto vessels located outside the U.S. three-nautical mile limit of the territorial seas. Alternatively, you propose to transport the LNG aboard a foreign-flagged vessel, to either Guantanamo Bay, Cuba, or other foreign ports.
It is CBP’s longstanding position that Guantanamo Bay, Cuba, is not a U.S. coastwise point. Therefore, transportation of LNG between a U.S. coastwise point and Guantanamo Bay, Cuba, would not be violative of the Jones Act. Similarly, transportation of LNG aboard a foreign-flagged vessel from a U.S. port to foreign ports would not be violative of the coastwise laws, provided that there is no further oncarriage of the LNG to a coastwise point.
Regarding the STS bunkering in the above-described locations beyond the U.S. three-nautical mile territorial sea, although an anchor will be put down on the seabed during the bunkering process, a coastwise point will not be created because the bunkering will occur beyond the U.S. three-mile limit, and the anchor will be put down to facilitate the transfer of LNG to the receiving vessel rather than for a purpose of exploring, developing or producing resources from the seabed as provided in the OCSLA. Additionally, the LNG will at no point be unladen at a coastwise point.
In HQ H250175 (May 19, 2014), we examined the distinction between bunker fuel and cargo, stating “bunker fuel is fuel stored on board a vessel for the use of that vessel” whereas “[f]uel carried as cargo is not necessary to the operation of the vessel that is only transporting it.” We noted that “…’commercial cargo’ does not include- (i) bunker fuel, ship’s stores, sea stores, or the legitimate equipment necessary to the operation of a vessel.” In the present matter, LNG would be used by the receiving vessels as bunker fuel “necessary to the operation of a vessel,” rather than fuel transported as cargo, which is not consumed by the transporting vessel. Treasury Decision 49815 distinguishes between vessel supplies and equipment:
The term "supplies" as used in section 309, Tariff Act of 1930, as amended, includes articles commonly known as "sea stores", that is, food, medicines, toiletries, and so forth, and, in addition, all consumable articles necessary and appropriate for the propulsion, operation and maintenance of the vessel, such as coal, grease, gasoline, fuel oil, caulking cotton, putty, paint, waste, wiping rags, sandpaper, emery cloth, candles, polishes, cleansing compounds, and solvents.
The term "equipment", as used in section 309, as amended, includes 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. It does not comprehend consumable supplies either for the vessel and its appurtenances or for the passengers and the crew. The following articles, for example, have been held to constitute equipment: rope, sail, table linens, bedding, china, table silverware, cutlery, bolts and nuts.
Therefore, the LNG in this case would be considered merchandise as to the foreign-flagged vessel which discharges the LNG onto the receiving vessels, because the LNG would not be used as fuel for that vessel but would be transported from a U.S. coastwise point to the receiving vessels at Guantanamo Bay, Cuba, or other foreign ports, or outside the U.S. three-nautical mile territorial sea. The LNG would be considered supplies of the receiving vessels pursuant to the above Treasury Decision because it would be used as fuel for the receiving vessels, rather than fuel transported as cargo, and accordingly, transportation of the LNG would not be considered a coastwise transportation of merchandise.
HOLDING:
Under the facts presented above, the proposed transactions would not violate the Jones Act.
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