HQ 0112009 - Vessel Repair; Entry No. C27-0061018-4; SEA-LAND ENDURANCE V-112/115; Casualty; Seaworthiness - United States International Trade Commision Rulings

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HQ 112009

January 13, 1992

VES-13-18 CO:R:IT:C 112009 MLR

CATEGORY: CARRIER

Deputy Regional Director
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831

RE: Vessel Repair; Entry No. C27-0061018-4; SEA-LAND ENDURANCE V-112/115; Casualty; Seaworthiness

Dear Sir:

This is in response to your memorandum dated November 26, 1991, forwarding an application for relief from Ms. Carol Berger, for SEA-LAND SERVICE, Inc. Our findings are set forth below.

FACTS:

The record reflects that the SEA-LAND ENDURANCE arrived at the port of Long Beach, California, on September 1, 1991. Vessel repair entry, number C27-0061018-4, was filed on September 9, 1991. The subject vessel had foreign shipyard work performed in Nagasaki, Japan, during the period of July 5-31, 1991.

An application for relief, dated October 29, 1991, was filed requesting remission pursuant to 19 U.S.C. 1466(d)(1). The applicant states that on July 2, 1991, as the SEA-LAND ENDURANCE proceeded to berth at the Port of Busan, South Korea, the Chief Engineer, Freddie M. Toedtemeier, and the First Assistant Engineer, Robert M. Mitchell, felt the vessel surge starboard, and heard rumbling sounds. They inspected the machinery spaces and found no apparent damage, and reported the incident to the Master, Robert J. Ramsey. The Chief Mate, Robert B. Allen, reported that the vessel struck an underwater object. After the vessel was secured at the dock, water was found to be slowly rising in the #3 port double bottom tank.

Divers found damage to the hull in the bilge strake #2 and #3 double port ballast tanks. Specifically, six cracks and a variety of dents were found in the bottom plates from frame no. 128 to frame no. 164., and dents were found from the port frame no. 128 bottom plates to the stern. The divers cut the port side bilge keel which was torn approximately 3 meters long.

The American Bureau of Shipping (ABS) survey and the Posa Marine Services, Ltd. (Posa) survey (conducted on behalf of Sea- Land Service, Yokohama, Japan) indicate that the owners elected permanent repairs be made at the first available shipyard at Nagasaki, Japan. Both the ABS and Posa surveyor recommended that the vessel be offloaded and drydocked to ascertain the amount of damages and extent of necessary repairs. The record also contains the vessel log and U.S. Coast Guard (USCG) Report of Marine Accident. The Posa survey indicates that William D. Crawford, the vessel owner's representative, and Larry McBee, USCG, also carried out a preliminary survey of the damages. Because the record neither contains a certification that the repairs conducted were necessary for the safety and seaworthiness of the vessel, nor any USCG documentation permitting the vessel to proceed to Nagasaki, this office contacted the USCG. The USCG indicated that a casualty had occurred, and that the vessel was allowed to proceed to Nagasaki because that was where the vessel was built and the shipyard there was most familiar with the vessel.

At Nagasaki, the ABS and Posa conducted further surveys and recommended that various repairs be made from frame no. 15 to frame no. 171. The ABS also conducted a Continuous Survey of the Machinery and Electrical Equipment and found damage to the engine room void space, which was considered not to affect the fitness of the vessel. The ABS Survey-Damage (items 3 and 18), Posa Marine Survey (item 4), paint (item 10), and repairs to hull (item 11) are referred for our review.

The vessel was also painted under warranty by Mitsubishi Heavy Industries, Ltd. (MHI) with locally manufactured paint supplied by International Paint Company from local stocks. Because Sea-Land was not charged for this work, it seeks remission of the duty related to this repair (item 15 and 16).

ISSUES:

(1) Whether the evidence presented is sufficient to prove that the foreign repairs performed on the vessel for which relief is sought, were necessary for its safety and seaworthiness thus warranting remission pursuant to 19 U.S.C. 1466(d)(1).

(2) Whether the foreign paint job performed under warranty with the use of foreign manufactured paint is dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

(1) Title 19, United States Code, section 1466, provides in part for payment of an ad valorem duty of 50 percent of 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 engage in such trade. Section 1466(d)(1) provides that the Secretary of the Treasury is authorized to remit or refund such duties if the owner or master of the vessel was compelled by stress of weather or other casualty to put into such foreign port to make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination.

A three-part test must be met in order to qualify for remission:

1. The establishment of a casualty occurrence.

2. The establishment of unsafe and unseaworthy conditions.

3. The inability to reach the port of destination without obtaining foreign repairs.

Section 4.14(d)(1)(iii)(A-G), Customs Regulations [19 CFR 4.14(d)(1)(iii)(A-G)], sets forth the evidence which shall be included for relief from duties under 19 U.S.C. 1466(d). That evidence includes all itemized invoices, relevant parts of the vessel's logs, a certification by the master of the facts relating to the relief sought, including details of the claimed stress of weather or other casualty, and a certification by the master that the repairs were necessary for the safety and seaworthiness of the vessel.

In addition, if the above requirements are satisfied by evidence, the remission is restricted to the cost of the minimal repairs necessary to enable the vessel to reach her port of destination. Repair costs beyond that minimal amount are not subject to remission. In the case under consideration, the vessel log, statements by the crew, and surveys support the claim that the subject vessel suffered a marine casualty. Whether the repairs conducted were necessary for the safety and seaworthiness of the vessel, is the critical issue.

Based on the record before us, there is no certification by the master that the repairs performed were necessary for the seaworthiness of the vessel. Further, the record does not contain a "Certificate of Fitness to Proceed." Pursuant to 2.01-15, USCG Regulations (46 CFR 2.01-15) a vessel may not proceed from one port to another for repairs unless prior authorization is obtained from the USCG Officer in Charge, Marine Inspection (OCMI) either through the issuance of a USCG "Permit to Proceed to Another Port for Repairs" (CG-948) or a CG-835 which would specify the restrictions on, and duration of, any voyage undertaken prior to obtaining permanent repairs. (See also 46 CFR 91.45-1 regarding cargo vessels which provides, inter alia, that "No repairs or alterations affecting the safety of the vessel with regard to the hull, machinery, or equipment, shall be made without the knowledge of the Officer in Charge, Marine Inspection.") Other than the USCG Report of Accident, the record contains no USCG documentation of any kind. In a telephone conversation, the USCG indicated to this office that it permitted the vessel to proceed to Nagasaki because the vessel was built there, and therefore the shipyard was more familiar with the vessel and could repair it more easily.

The ABS documentation indicates that the vessel was fit to proceed to Nagasaki, the "first available shipyard", for repairs, but this statement is made after the owners elected to drydock the vessel at that location. We are of the opinion that, as a general proposition, there do not exist degrees of seaworthiness. It is our position that a vessel is either considered seaworthy or not, and may not be considered seaworthy for one purpose within the scope of its trade, and not so for another within the scope of its trade. (See Headquarters Ruling 110879). It has been our longstanding and present policy that commercial feasibility is an irrelevant consideration.

Accordingly, because a certification is lacking that the repairs were necessary for the safety and seaworthiness of the vessel (see Headquarters Ruling 110931); the owners elected not to repair the vessel in Busan, but to proceed to Nagasaki for commercial reasons despite the casualty occurrence, and the USCG indicated that the vessel was allowed to proceed to Japan because it was built there, the applicant has failed to substantiate its claim for remission under 1466(d)(1). Therefore, items 3, 4, 7, 8, 10, 11, and 18 are dutiable.

(2) Section 1466 assesses liability for duty on the cost of repairs made in a foreign country. Exempted from duty under section 1466(h) is the cost of spare repair parts or materials which have been previously imported into the United States as commodities with applicable duty paid under the Harmonized Tariff Schedule of the United States. Customs has long held that repairs covered by a service agreement contract are dutiable under section 1466 even though the vessel owner was not charged for the repairs.

Further, in Sea-Land Service, Inc. v. United States, 683 F. Supp. 1404 (1988), the Court addressed whether repair work performed on a newly constructed vessel subsequent to its delivery to the owner might be considered to be part of the new construction contract. Simply put, the Court considered whether "completion of construction" is a viable concept so as to render the duty provisions of 19 U.S.C. 1466(a) inapplicable if proven. The Court found completion of new construction to be a valid concept, subject to specific conditions, which are:

1. "All work done and equipment added [must be] pursuant to the original specifications of the contract for the construction of the vessel ...."

2. "This basic standard is limited to work and equipment provided within a reasonable period of time after delivery of the vessel."

Absent evidence indicating that the warranty repairs are considered to be part of a new construction contract, work done under a warranty agreement is considered a repair under the vessel repair statute and the cost thereof is dutiable. (See C.S.D. 81-50). Because the record clearly indicates that the paint was manufactured in Japan and had not been previously imported into the United States with applicable duty paid, the cost of the paint is also dutiable. Accordingly, we find that the costs associated with the labor and repairs listed (item 15 and 16) are dutiable.

HOLDING:

(1) The evidence presented is not sufficient to prove that the foreign repairs performed on the subject vessel for which relief is sought were necessary for its safety and seaworthiness therefore remission pursuant to 19 U.S.C. 1466(d)(1) is denied.

(2) Absent evidence indicating that the warranty repairs are considered to be part of the new construction contract, work done under a warranty agreement is considered a repair under the vessel repair statute and the cost thereof is dutiable.

Sincerely,

B. James Fritz

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