HQ 0110294 - Request for opinion regarding the dutiability of certain foreign shipyard operations performed on the U.S.-flag vessel OMI MISSOURI - United States International Trade Commision Rulings

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HQ 110294
September 11, 1989

VES-13-18-CO:R:P:C 110294 LLB

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN: Regional Vessel Repair Liquidation Unit New York, New York 10048-0945

RE: Request for opinion regarding the dutiability of certain foreign shipyard operations performed on the U.S.-flag vessel OMI MISSOURI

Dear Sir:

Reference is made to your undated correspondence forwarding for our consideration the July 27, 1988, application for relief from vessel repair duties files by the OMI Corporation relative to the May 15, 1988 arrival of the vessel in the port of Albany, New York. Duty was assessed upon the cost of foreign shipyard operations pursuant to section 466, Tariff Act of 1930, as amended (19 U.S.C.1466), under vessel repair entry number 336- 0062171-9.

FACTS:

The vessel underwent routine drydocking and repair operations in Portugal from April 16 to April 26, 1988. The invoices presented are divided into five categories. These are:

1. Setenave shipyard invoice I/80/047 (general drydocking and repair services).

2. Triton Marine Services invoice 87/88/047 (O ring, gasket, and seal ring sets).

3. Catonave (cathodic protection) invoice 071/88 (supply of anodes to the vessel).

4. Catonave (cathodic protection) invoice 075/88 (anode maintenance and protective applications).

5. American Bureau of Shipping (ABS) survey report.

ISSUE:

Whether evidence is presented sufficient to permit refund of duties.

LAW AND ANALYSIS:

Section 1466 provides, in pertinent part, for payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to engage in such trade.

A leading case in the interpretation and application of section 1466 is United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished between equipment and repairs on one hand and permanent additions to the hull and fittings on the other, the former being subject to duty under section 1466.

The Court in Admiral Oriental, supra., cited with approval an opinion of the Attorney General (27 Op. Atty. Gen. 288). That opinion interpreted section 17 of the Act of June 26, 1884, (23 Stat. 57, which allowed drawback on the vessels built in the U.S. for foreign account, wholly or in part of duty-paid materials. In defining equipment of a vessel, the Attorney General found that items which are not equipment are:

...those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period... [and] are material[s] used in the construction of the vessel...

While the opinion of the Attorney General interpreted a provision of law other than section 1466 or a predecessor thereto, it is considered instructive and has long been cited in Customs Service rulings as defining permanent additions to the hull and fittings of a vessel.

For purposes of section 1466, dutiable equipment has been defined as:

...portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies. (T.D. 34150 (1914)).

It should be noted that the fact that a change or addition
of equipment is made to conform with a new design scheme, or for the purpose of complying with the requirements of statute or code, it is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings of the vessel, would be dutiable under section 1466.

One early case (United States. v. George Hall Coal Co., 134 F. 1003 (1905)), was the first to find any of various types of expenses associated with repairs to be classifiably free from the assessment of vessel repair duties. The case established that the expenses of drydocking a vessel (regardless of the underlying need to drydock) is not an element of dutiable value in foreign repair costs. Drydocking is a major, but not isolated, expense in general ship repair operations. Many other associated expenses and services are necessary adjuncts to drydocking and are logically inseparable from the drydocking rule. These include such items as drydock block arrangement, sea water supply (for fire-fighting equipment), hose hook-up and disconnection charges, fire watch services, the services of a crane for drydocking-related operations, the provision of compressed air, cleaning of the drydock following repairs, and numerous others.

Under the above-cited precedent, some of the items are classifiably free, some are clearly dutiable repairs, and some are insufficiently described to permit a determination. The items which we find to be dutiable repairs are:

Invoice Page Item Description

004 seachest painting
004 replace anodes
006 replace outboard seal
007 new life raft falls/wires
012 main sea valves
014 washing/painting/blasting
014 cleaning/blasting/painting
014 propeller repairs
015 plate renewals
017 frame 2 crane grab reel
017 crane grab reels
017 crane grease line
018 fore mast stays
018 lifeboat falls
018 fish plate
018 aft draft gauge
019 echo sounder
019 doppler speed log
020 machinings
024 access work
024 hydraulic gauge

BB Triton Marine Services
CC Catonave (anodes)
DD Catonave (protective coat)
EE ABS survey (incomplete)

The items for which insufficient information has been submitted and which will therefore be considered dutiable are shown as numbers 01,02, and 03 on page 015 of the main invoice. The other items not specified in this ruling are considered free of duty either as modifications or, in the case of items 1-15 on the first 4 invoice pages, as classifiably free charges.

HOLDING:

Following a thorough review of the evidence as submitted, we recommend that the application be allowed in part and denied in part, as specified in this ruling.

Sincerely,

B. James Fritz

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