HQ 0111642 - Vessel Repair; Entry No. 131-0772734-2; S/S MANULANI; Insulation; Access; 19 U.S.C. 1466 - United States International Trade Commision Rulings

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HQ 111642

August 9, 1991

VES-13-18-CO:R:IT:C 111642 GEV

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731

RE: Vessel Repair; Entry No. 131-0772734-2; S/S MANULANI; Insulation; Access; 19 U.S.C. 1466

Dear Sir:

This is in response to your memorandum dated April 9, 1991, forwarding an application for relief from duties assessed pursuant to 19 U.S.C. 1466. You request that we review one (1) item. Our finding is set forth below.

FACTS:

The S/S MANULANI is a U.S.-flag vessel owned and operated by Matson Navigation Company, Inc., of San Francisco, California. The subject vessel had work performed on her at Versatile Pacific Shipyards, Inc., in Victoria, British Columbia, Canada, during the period of January 7-13, 1991. Subsequent to the completion of this work the vessel arrived in the United States at Seattle, Washington, on January 14, 1991. A vessel repair entry was filed on the date of arrival.

Pursuant to an authorized extension of time, an undated application for relief, received by the San Francisco Vessel Repair Liquidation Unit on March 28, 1991, was timely filed. The applicant requests that Item 19 on the shipyard invoice be determined nondutiable under the vessel repair statute. Item 19, entitled "INSULATION", covers work involved with the removal and installation of insulation covering the main propulsion boiler air heater assemblies. Specifically, the existing insulation was removed to gain access to a repair area (i.e., the removal and replacement of boiler air heaters) and, since this insulation material contained asbestos and could not be reinstalled once it was removed, it was disposed of and replaced with new insulation.

ISSUE:

Whether the removal of asbestos insulation in order to gain access to a repair area and the subsequent installation of new insulation after the completion of the repairs is dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, 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 trades.

In its application of the vessel repair statute, Customs has held that modifications to the hull and fittings of a vessel are not subject to vessel repair duties. 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 lay up.

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

Very often when considering whether an addition to the hull and fittings took place for the purpose of 19 U.S.C. 1466, we have considered the question from the standpoint of whether the work involved the purchase of "equipment" for the vessel. It is not possible to compile a complete list of items that might be aboard a ship that constitute its "equipment". An unavoidable problem in that regard stems from the fact that vessels differ as to their services. What is required equipment on a large passenger vessel might not be required on a fish processing vessel or offshore rig.

"Dutiable equipment" has been defined to include:

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

By defining what articles are considered to be equipment, the Court attempted to formulate criteria to distinguish non- dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. These items might be considered to include:

...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... Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228).

A more contemporary working definition might be that which is used under certain circumstances by the Coast Guard; it includes a system, accessory, component or appurtenance of a vessel. This would include navigational, radio, safety and, ordinarily, propulsion machinery.

In regard to the dutiability of the insulation work covered by Item 19 discussed above, we have long-held that the removal of an article for access to an area where repair work is to take place, and its reinstallation subsequent to the completion of the repairs, is dutiable as an integral part of the repairs. (see ruling 108366, dated March 4, 1987) Notwithstanding the fact that the existing insulation contained asbestos and could not be reinstalled once removed, we have held that the removal and renewal of insulation does not constitute a nondutiable modification. (ruling 108366, supra.) Accordingly, Item 19 is dutiable.

HOLDING:

The removal of asbestos insulation in order to gain access to a repair area and the subsequent installation of new insulation after the completion of the repairs is dutiable under 19 U.S.C. 1466.

Sincerely,

B. James Fritz

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