HQ 0111748 - Vessel Repair; 19 U.S.C. 1466; Modification; Parts - United States International Trade Commision Rulings

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HQ 111748

October 10, 1991

Ves-13-18-CO:R:IT:C 111748 RAH

CATEGORY: CARRIER

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

RE: Vessel Repair; 19 U.S.C. 1466; Modification; Parts

Dear Sir:

This is in response to your memorandum of June 15, 1991, regarding the ALASKA 1.

FACTS:

The record reflects that the ALASKA 1 arrived at the port of Dutch Harbor, Alaska, on January 1, 1991. Vessel repair entry number H24-0010244-6 was filed on January 3, 1991, reflecting foreign work to the vessel at Shiogama City, Japan. An extension of time in which to file cost documents and an application was granted until May 3, 1991.

The ALASKA 1 was originally designed as a tuna purse seiner for tropical water fishing operations. In 1985, it was converted into a stern trawler in a U.S. shipyard. In 1987 and again in 1989, the vessel underwent additional modifications at the Yamanishi shipyard to improve the operating efficiency of the vessel. In the Fall of 1990, additional modifications were made to further improve the vessel's efficiency. As part of the modifications, crew areas were expanded to accommodate additional crew members. The factory areas was gutted and expanded and substantially modified. New machinery was installed and many conveyors were lengthened or shortened and repositioned. Hatches and shutes were modified to improve the operating efficiency in the factory area.

The subject of this ruling is an application for relief dated May 2, 1991. You specifically request our advice on whether the following items constitute duty free modifications:

1. Expanded factory into area previously occupied by flume tank, including installing new bulkhead, installing manholes, current plate, and sea water suction piping, and related work. Items 8(1)-8(11).

2. As part of factory expansion, reduced coamings on no. 2, 5, 6, and 7 hold in size in order to be able to accommodate more equipment in the factory area. Items

3. As part of enlargement of crew area, installed stage and piping for washing machine in crew quarters, including associated electrical work. Item 18; Item 11.

4. Expanded crew area on upper deck to accommodate six crew members rather than four, including shifting steel wall, installing new plate of control room floor, installing new bulkhead and roof in shower room and associated plumbing work, building and installing new bunks and storage areas, and associated electrical work. Items 19(1)-(9); Item 8(2).

5. Expanded crew area on bridge deck to accommodate six crew members rather than four, including building and installing new bunks and additional storage areas and associated electrical work. Item 20; item 8(3).

6. Expanded radio room on bridge deck to accommodate two additional crew members, including building and installing new bunks and additional storage areas. Item 21; Item 8(1).

7. Built and installed new hydraulic hatch cover and installed new hatch on trawl deck and associated work, including electrical work. Items 23(1)-(15); Item 10.

8. Modified factory area to improve efficiency, including installing new depanning machine and new grazing machine; expanding work area of cutting table; installing new partitions, floor plats, duster shutes, fish bin and fish piping; installing new florescent lights; expanding or shortening length of conveyors and repositioning them; and related plumbing and electrical work. Items 24(1); Item 31; Item 34; Item 3; Item 4; Item 7; Item 9; Item 12; Item 13; Item 13; Item 2; and Items 7-11.

9. Converted no. 1 fish holding tank to hold fresh water rather than sea water, including installation of new pipe and associated plumbing work and filling with fresh water. Items 25 and 30; Item 12.

10. Extended vent from boatswain's store to weather deck. Item 28.

11. Extended bilge pipe from chain locker. Item 32.

12. Built and installed storage box in control room. Item 23.

13. Built and installed new shelves in control room. Item 33.

14. Executed new design for foundation bolts on port and starboard sides and related work. Item 10.

15. Modified design and operation of head tank for hydraulics and moved its location. Item 1.

16. Installed new oil pressure cooler and related work. Item 2.

17. Installation of new monitoring camera and monitors in factory and control room to improve efficiency and safety of vessel. Item 4; Item 6.

You also seek are advise on the dutiability of the spare parts in question.

ISSUES:

Whether the work performed on the subject vessel constitutes dutiable repairs under 19 U.S.C. 1466, or non-dutiable modifications.

Whether the purchase of the spare parts in question are dutiable under 29 U.S.C. 1466.

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 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.

Over the course of years, the identification of modification processes has evolved from judicial and administrative prece- dents. 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 hull and fittings took place for the purposes 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 an 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.

In the instant case, we have reviewed the Tohoku Doctokko K.J.K. invoice (ref. # 112-0196) dated March 25, 1991 and find the following items to be duty free modifications:

Part B: A10

Part D: 2; 7; 8; 9; 10; 11

The following items constitute dutiable repairs:

Part B: B(1),(2)

Part E: 4

Furthermore, the applicant claims that the spare parts for work on the ALASKA 1 totalled $55,301.89, of which $5,697.40 are of U.S. origin ( as shown on the invoice from Fraser Boiler). The applicant claims that these spare parts were installed by the regular crew of the vessel under the supervision of the chief engineer and should be non-dutiable.

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) provides in part:

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

(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.

Since the ALASKA 1 is not a cargo vessel it is not governed by subsection (h). Thus, in order to receive duty-free treatment the spare parts in question must comply with 19 C.F.R. 4.14(c)(3)(ii). That provision provides for remission or refund of duty if:

The equipment, equipment parts, repair parts or materials used on the vessel were manufactured or produced in the Untied States and purchased by the owner of the vessel in the United States, and the labor necessary to install such equipment or to make such repairs was performed by residents of the United States or by members of the regular crew of the vessel.

In the instant case, the Fraser Boiler & Diesel, Inc. invoice (0010909-IN) has a handwritten notation that the parts in question are "US". The invoice, however, is not accompanied by a certification from the vendor, or other relevant proof, that the parts were manufactured in the United States. Invoice 00109999981-IN has a handwritten notation that the parts are "Aus" and invoice 0010884-IN is an invoice reflecting parts sold and shipped to Trans Marine Prop. Systems Inc., not the vessel operator in question. Invoice YS02640 from Vilter and invoices

574084, 575286 and 576417 from NC Machinery Company do not indicate whether the parts were manufactured in the United States. Furthermore, the applicant has not submitted evidence that any of the parts were installed by U.S. residents or members of the regular crew of the ALASKA 1. Accordingly, the parts are dutiable.

HOLDINGS:

The work performed on the subject vessel constitute both dutiable repairs under 19 U.S.C. 1466, and non-dutiable modifications as discussed above.

The purchase of the spare parts in question are dutiable under 29 U.S.C. 1466.

Sincerely,

B. James Fritz

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