HQ 0111546 - Vessel repair; Application for relief; Vessel ACONA; Entry no. 779-1514831-4; Vessel conversion - United States International Trade Commision Rulings

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HQ 111546
October 28, 1991

VES-13-18-CO:R:IT:C 111546 LLB

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations Division
One World Trade Center
Long Beach, California 90831

RE: Vessel repair; Application for relief; Vessel ACONA; Entry no. 779-1514831-4; Vessel conversion

Dear Sir :

Reference is made to your memorandum of February 14, 1991, which forwarded for our consideration the Application for Relief from vessel repair duties submitted by Panpac Corporation in connection with the above-captioned vessel repair entry.

FACTS:

In July of 1989, the vessel departed the United States bound for Norway for the purpose of undergoing conversion from a marine research vessel to a factory fish processor vessel. The vessel remained in a shipyard in Norway for a period of nine months, and returned to the United States in June of 1990. A vessel repair entry was filed in the port of Seattle Washington three days after arrival of the vessel. The vessel was converted in order to operate in the Alaskan fisheries.

ISSUE:

Whether the costs incurred may qualify for duty-free treatment under the vessel repair statute in line with judicial and administrative interpretations.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a), provides in pertinent part for payment of duty in the amount of 50 percent ad valorem on the cost of foreign equipment purchases for or repairs to, vessels documented under the laws of the United States to engage in the foreign or coastwise trade, or vessels intended to be employed in such trade.

Subsection (d) of the statute (19 U.S.C. 1466(d)), provides that duty may be remitted if the vessel owner or master furnishes evidence that materials or equipment was made in the United States and installed with the use of labor supplied by residents of the United States or members of the regular crew of the vessel.

On August 20, 1990, the President signed into law the Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of which amends the vessel repair statute by adding a new subsection (h). Subsection (h) has two elements, which are as follows:

(h) The duty imposed by subsection (a) of this section shall not apply to--

(1) the cost of any equipment, or any part of equipment, purchased for, or the repair parts or materials to be used, or the expense of repairs made in a foreign country with respect to, LASH (Lighter Aboard Ship) barges documented under the laws of the United
States and utilized as cargo containers, or

(2) the cost of spare repair parts or materials (other than nets or nettings) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United
States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff
Schedule of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country.

The effective date of the amendment is stated as follows:

Effective Date.--The amendment made by this section shall apply to--

(1) any entry made before the date of enactment of this Act that is not liquidated on the date of enactment of this Act, and (2) any entry made--
(A) on or after the date of enactment of this Act, and
(B) on or before December 31, 1992.

For the purposes of dutiability under the vessel repair statute, the term " equipment" has been defined as including portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel and not permanently incorporated in its hull or machinery, and not constituting consumable supplies. The term includes, therefore, such articles as anchors, chains, cables, tackle, boats, life-saving apparatus, communications apparatus, navigational instruments, searchlights, signal lights, lamps, furniture, carpets, table linen, tableware, bedding, etc. T.D. 40934, Southwestern Ship Building Co. v. United States, citing T.D. 32956.

Over the course of years, the identification of modification processes has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a modification which is not subject to duty, the following elements may be considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel (see United States v. Admiral Oriental Line et al., T.D. 44359 (1930), either in a structural sense or as demonstrated by the means of attachment so as to be indicative of the intent to be permanently incorporated. This element should not be given undue weight in view of the fact that vessel components must be welded or otherwise "permanently attached" to the ship as a result of constant pitching and rolling. In addition, some items, the cost of which is clearly dutiable, interact with other vessel components resulting in the need, possibly for that purpose alone, for a fixed and stable juxtaposition of vessel parts. It follows that a "permanent attachment" takes place that does not necessarily involve a modification to the hull and fittings.

2. Whether in all likelihood, an item under consideration would remain aboard a vessel during an extended layup.

3. Whether, if not a first time installation, an item under consideration replaces a current part, fitting or structure which is not in good working order.

4. Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.

The items under review in this matter include:

- Costs of naval architecture and design. - Costs of winch classification.
- Costs of refrigeration plant installation. - Costs of installation of certain electronic instruments. - Costs of fresh water plant installation. - Costs of fishmeal plant installation.
- Costs of surimi plant installation.
- Costs of fish filleting plant installation. - Costs of hydraulic deck machinery installation. - Costs of installation of deck cranes.
- Costs of installing built-in conveyor system. - Costs of hull modifications.
- Allowances for materials placed aboard in the United States. - Allowances for fuel and consumable stores. - Allowances for spares, accessories, and equipment shipped.

Following a thorough review of the evidence submitted in this case, we have determined that the expenditures under consideration are proven to have been made for duty-free modifications, with the following exceptions:

1. Invoice Item 15, the costs of installation for certain electronic instruments. Articles such as these are delicate and sensitive in nature and are considered to be of the type which would in all likelihood be removed were the vessel to be laid-up for any significant period of time.

2. Invoice Item 26, the costs of hull modifications. In particular, subitems 280 (painting the inside of the vessel), 381 (video cameras on the trawl deck), 431 (anchors and chains), 436 (mooring lines), 500 (life saving equipment), 501 (lifeboat), 519 (curtains all over the ship), 540 (loose furniture), 550 (loose galley equipment), 560 (gangway), 600 (personal computer and three printers), and 880 (removable electronic equipment). The painting cost is a repair cost, while the remainder are dutiable equipment expenditures.

3. Invoice Item 28, allowances for materials placed aboard in the United States. The claims made in this regard are presumed to be made either under 1466(d) or (h), as recited previously. These claims must fail. Under subsection (d), there must be evidence of United States manufacture or production, not mere placement aboard in the United States. In the case of subsection (h) claims, the benefits accorded are limited to materials used aboard a cargo vessel. A factory processor does not qualify as such.

4. Invoice Item 30, allowances for fuel and consumable stores. It is noted that this item includes the cost of 50 liters paint. Paint is considered a maintenance or repair material which is subject to duty.

5. Invoice Item 31, allowances for spares, accessories, and equipment shipped. It is not possible to discern from the claim whether the relief sought is for the cost of the listed items or for their transportation. Absent proof as to the character of the expenditure, the item is considered dutiable.

HOLDING:

Following a thorough review of the evidence and an analysis of the applicable judicial and administrative precedents, the Application is allowed in part and denied in part, as set forth in the Law and Analysis portion of this ruling.

Sincerely,

B. James Fritz
Chief

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