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HQ 111711

December 17, 1991

VES-13-18-CO:R:IT:C 111711 GEV

CATEGORY: CARRIER

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

RE: Vessel Repair Entry No. C31-0007658-8; ALASKAN VENTURE; Conversion Work; 19 U.S.C. 1466

Dear Sir:

This is in response to your memoranda dated May 14, 1991, and June 20, 1991, forwarding an application for relief from duties assessed pursuant to 19 U.S.C. 1466. You ask that we review the items listed under the right-hand column on the worksheets provided by the San Francisco Vessel Repair Liquidation Unit (VRLU). Our findings are set forth below.

FACTS:

The ALASKAN VENTURE is a U.S.-flag vessel (possessing both fisheries and registry documentation) owned by K & H Fisheries, Inc., of Seattle, Washington. Under the vessel's former name ("BOLD VENTURE") and prior ownership, it was a super tuna seiner based out of southern California. The current owners elected to have the vessel converted from a super tuna seiner to a long line, head and gut, freezer processor fishing vessel.

The conversion took place in two phases. The first phase took place at the shipyard of Dakota Creek Industries, Anacortes, Washington. The second phase took place at the shipyard of Murakami Zosensho Shipbuilding Company, Ltd., Ishinomaki, Japan. Various work items in the second phase of the conversion, handled by Kouhoku Co. Ltd., of Fukishima, Japan, are specified for our review.

Subsequent to the completion of the work in Japan, the vessel sailed for Alaskan fishing grounds. While at the fishing grounds an ill crewman necessitated that the vessel put into Prince Rupert, British Columbia, Canada, where some minor repairs were performed. The vessel departed Prince Rupert on

November 6, 1990, and arrived in the United States at Dutch Harbor, Alaska, on December 15, 1990. A vessel repair entry was filed on the date of arrival. An application dated March 13, 1991, was timely filed. A supplement billing from the Japanese shipyard was also filed by a letter to the VRLU dated June 3, 1991.

The applicant claims that the conversion work in question constitutes nondutiable modifications and that various other costs are otherwise nondutiable. In support of these claims the applicant submitted invoices, a recap of all invoices, a summary statement of the owner, drawings/plans/photographs, and the vessel's certificate of documentation.

ISSUE:

Whether evidence is presented sufficient to prove that the foreign work performed on the subject vessel for which the applicant seeks relief constitutes modifications/alterations/ additions so as to render the work nondutiable 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 trade.

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, but 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.

Upon reviewing the Kouhoku Co. Ltd. invoice items marked for our determination, we note that all of these items under consideration are nondutiable costs of the conversion
with the exception of the following which are dutiable installations of equipment and/or associated with dutiable repairs.

Invoice no. U-3(6) - Echo Sounder
Transducer Tank
Wiring Material
Wiring Work

Invoice no. U-9 - Electronic Equipment & Works

Invoice no. U-16 - Bilge Water Pump for Oil Separator

Invoice no. M-15(L-2) - Cleaned Whole Inner Part of Ship

In regard to the supplemental billing received by the applicant from the shipyard after their initial application was submitted, we note that the costs thereon are nondutiable with the exception of Item 5 covering main engine air clutch repair and replacement work.

HOLDING:

The evidence presented is sufficient to prove that the foreign work performed on the subject vessel for which the applicant seeks relief constitutes modifications/alterations/ additions so as to render the work nondutiable under 19 U.S.C. 1466, with the exception of those items noted above.

Sincerely,

B. James Fritz

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