HQ 0112356 - Vessel Repair; 19 U.S.C. 1466; Application for Relief; Vessel Repair Entry No. H24-0012461-4; F/V ALASKA PIONEER - United States International Trade Commision Rulings

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HQ 112356

October 8, 1992

VES-13-18-CO:R:IT:C 112356 MLR

CATEGORY: CARRIER

Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Vessel Repair; 19 U.S.C. 1466; Application for Relief; Vessel Repair Entry No. H24-0012461-4; F/V ALASKA PIONEER

Dear Sir:

This letter is in response to your memorandum of June 25, 1992, which forwards for our consideration the above-referenced application for relief from the assessment of vessel repair duties submitted by Jeffrey L. Turner, of Patton, Boggs & Blow, on behalf of Fishing Company of Alaska, Inc.

FACTS:

The record reflects that the subject vessel, the F/V ALASKA PIONEER, arrived at Dutch Harbor, Alaska, on December 30, 1991. Vessel repair entry number H24-0012461-4 was filed on December 31, 1991, indicating work performed on the vessel in Miyagi, Japan. The application for relief was timely filed on February 26, 1992.

The applicant states that the vessel was converted from a mud boat into a factory long liner in 1988, and that modifications were made in 1989, at Yamanishi Shipbuilding and Iron Works, Ltd., in Ishinomaki, Japan (the subject of Customs Ruling 110855). The applicant now seeks relief for further modifications made at Tohoku Dock Tekko K.K. shipyard in 1991. The applicant alleges that the modifications to the hull and fittings should be considered non-dutiable since "such work provides the serviced portion of the vessel, or the vessel as a whole, with a new feature and does not merely replace or restore parts that perform a similar function", and improves or enhances the operation or efficiency of the vessel.

We are asked to review the dutiability of numerous items (numbers correlate to the worksheet). We also address additional items not forwarded for our review.

ISSUE:

Whether the foreign work performed on the subject vessel for which the applicant seeks relief 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 trade.

TOHOKU DOCK TEKKO K.K. INVOICE:

I. HULL PART
3. Bottom Washing & Painting:

Customs has held that painting performed on existing portions of a vessel is in the nature of a dutiable maintenance operation. C.I.E. 1043/60, and Treasury Decisions 21670, 39507, and 43322. Customs has also held that coating with substances which have protective and preservative qualities is analogous to painting and therefore is dutiable. C.I.E.s 1203/60, 518/63 and 2045/66. The process of chipping, scaling, cleaning, and wire brushing to remove rust and corrosion that results in the restoration of a deteriorated item in preparation for painting has also been held to be dutiable maintenance. States Steamship Co. v. United States, 60 Treas. Dec. 30, T.D. 45001 (Cust. Ct. 1931). This item is similar to these precedents in that the bottom plate, side-plating, superstructure, and several tanks of the vessel were cleaned, sanded or scraped, and painted with owner-supplied paint; it is therefore dutiable.

I. HULL PART
8. Bowthruster Hydraulic Driving:

The applicant indicates that a new hydraulic drive was installed to absorb shocks, because the existing mechanical drive was unable to absorb them.

In its application of the vessel repair statute, Customs has held that modifications/alterations/additions 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 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.

We have held that the removal of an existing, operational system for the purpose of improving the efficient performance of the vessel is not dutiable provided that the work was not performed in conjunction with dutiable repairs. Customs Ruling 108871. Even if an article is considered to be part of the hull and fittings of a vessel, the repair of that article, or the replacement of a worn part of the hull and fittings, is subject to vessel repair duties.

Returning to the hydraulic drive, the applicant states that the shipyard's use of the word "renewed" is inaccurate because the new hydraulic drive is substantially different from the old one and improves the safety and efficiency of the vessel. The new hydraulic drive may be more efficient; however, the fact that it replaces a non-functioning article, makes this item dutiable.

I. HULL PART
13. Fish Pond:

The applicant states that a new removable aluminum fish pond was installed in the factory area. For purposes of section 1466, dutiable equipment has been defined as:

...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. United States v. Admiral Oriental Line et al., T.D. 44359 (1930) {quoting T.D. 34150, (1914)}.

Unlike the non-dutiable swimming tanks addressed in Admiral Oriental, supra., this item is portable and similar to things used in or about a vessel for the purpose of fitting or adapting it for the sea. See United States v. Richard & Co., 8 Ct. Cust. Appls. 231, T.D. 37496. Consequently, this item is considered to be dutiable equipment.

II. MACHINERY PART - GENERAL WORKS
2. Main Engine FW pump:

The applicant states that new, larger main engine freshwater pumps were installed because they are able to handle larger volumes of water than the old pumps. Insufficient evidence is presented to show that the new pumps do not replace worn irreparable pumps. Also, from the record it is not clear that any changes were made to the engine that would require larger volumes of water; however, the record does reflect the overhaul of several other pumps while the vessel was docked. Absent further evidence, this item is dutiable.

II. MACHINERY PART - GENERAL WORKS
5. Main Engine Pumps:

This item pertains to the manufacture of a permanent main engine SW pump delivery line. The applicant states that a new pump delivery line was installed to feed the new main engine freshwater pumps. Because inadequate evidence is presented for number 2, directly above, the nature of these operations is unclear as well.

II. MACHINERY PART - GENERAL WORKS
9. FO Piping:

Applicant states that new, more efficient piping was installed to service the fuel oil purifier. A portion of this item indicates that the existing pipes were removed and "blinded", and that "the said pipings" were "pickled" and "painted". Although the invoice does not make it clear whether the "said pipings" are the new or old pipes, it is assumed that the old pipes were painted and pickled, since it is not likely that new pipes would require such work. Having assumed this, as discussed above, painting and operations that remove rust and corrosion are dutiable maintenance operations. These maintenance operations have not been segregated from the total item amount. Furthermore, as to the new piping being more efficient than the old piping, this has not been satisfactorily established. Accordingly, this item is dutiable.

IV. BELT CONVEYOR
1. Head cutter:

The invoice indicates that the head cutter was "modified", and that "operation adjustment works" were made. The applicant only states that the head cutter was moved. The decision in each case as to whether an installation constitutes a non-dutiable addition to the hull and fittings of the vessel depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed. Even if an article is considered to be part of the hull and fittings of a vessel, the repair of that article, or the replacement of a worn part of the hull and fittings, is subject to vessel repair duties. The description provided is insufficient to determine how the head cutter was "modified"; accordingly, this item is dutiable.

IV. BELT CONVEYOR
2. Belt conveyor:

The invoice indicates that the belt conveyor was "modified" and "improved". The applicant states that the belt conveyors were relocated as part of related work that improved the efficiency of the factory room. No other details are provided. Viewing this item with item 1, Electric Part, where wiring work was conducted for the deck belt conveyor motor and for which the applicant does not seek relief, absent further details regarding the improvements made, the item under consideration is denied in that some non-segregated dutiable repairs appear to have been included.

V. REFRIGERATING PART
1-13. Ceiling Coil
1-14. Suction Valve
1-16. Water Pipe
2-6. Cooling Coil

The applicant states that new freezer space was added to increase the vessel's frozen storage capacity. As discussed above, the decision in each case as to whether an installation constitutes a non-dutiable addition to the hull and fittings of the vessel depends to a great extent on the detail and accuracy of the drawings and invoice descriptions of the actual work performed. Absent further evidence to this effect, this item is dutiable.

VI. NAVIGATION EQUIPMENT
3. Transceiver:

The applicant states that a new amateur transceiver for radio equipment was installed, and that in all likelihood it would be left on board the vessel during an extended layup. The invoice does not provide further details.

As discussed above, dutiable equipment has been defined as "...portable articles necessary or appropriate for the navigation...of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery...." United States v. Admiral Oriental Line et al., T.D. 44359 (1930) {quoting T.D. 34150, (1914)}. A more contemporary working definition of equipment 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 Customs Ruling 109936, we determined that a satellite communications system was a non-dutiable permanent addition to the fittings of the vessel. However, in that case, three letters from three different enterprises were presented to show that not only was the system designed for permanent installation and was left on board during layup, but specific examples of other vessels were cited to show that the system did, in fact, remain on board the vessels during an extended layup. In light of the fact that we have consistently held that such delicate electronic equipment is dutiable, the evidence submitted is insufficient for relief to be granted.

VI. NAVIGATION EQUIPMENT
4. Sell-call Buoy:

Again, the applicant claims that this article would remain on board the vessel. For the same reasons as number 3, directly above, this item is denied.

We agree with the applicant as to the following items, and find them to be non-dutiable modifications:

I. HULL PART:

7. Wheel House Battery Box (parts 1, 2, and 3) 11. Lining of Bathtub
12. Bait Room Hatch
14. Duster Shoot
15. Crew's Cabin

III. ELECTRIC PART

2. Wiring works
4. Fan

VI. NAVIGATION EQUIPMENT

5. Whip antenna

VII. MISCELLANEOUS INVOICES

The applicant states that many of the materials used were shipped from the United States on the ALASKA PIONEER and the ALASKA VOYAGER. Invoices are presented to show that most of the items were purchased in the United States.

Title 19, United States Code, section 1466(h) exempts from duty spare repair parts or materials that have been manufactured in the United States or entered the United States duty-paid and are used aboard a cargo vessel engaged in foreign or coasting trade. As discussed in Customs Ruling 111464, the Customs Service interprets the use of the term cargo to limit the exception contained in the statute to vessels whose sole service is the transportation of cargo and which are actually engaged in that service while documented for the foreign or coasting trade. The ALASKA PIONEER, at the time of arrival, was a long liner and consequently does not qualify for the exceptions contained in 19 U.S.C. 1466(h).

Failing qualification for the exceptions accorded to cargo vessels, we must evaluate duty treatment of parts under the previously established statutory rules. Customs administration of duty assessment issues under section 1466 regarding United States manufactured materials purchased in the United States has been guided by the terms of Treasury Decision 75-257, 9 Cust. B. & Dec. 576 (1975). That decision provides that when materials of United States manufacture are purchased by the vessel owner in the United States for installation abroad by foreign labor, the labor cost alone is subject to duty under 19 U.S.C. 1466. The owner or master must submit written documentation or other physical evidence, such as an affidavit by the equipment manufacturer, that the equipment was manufactured and purchased in the United States. Customs Ruling 110953. Absent such documentation, the material is deemed foreign and consequently is dutiable.

With the exception of Dynamic invoice #D3052, and O. Mustad & Son (Can) Ltd. invoice #3480 (worksheet numbers 6 and 7, respectively), the applicant has satisfied the second element; however, the first element (i.e., that the items were manufactured in the United States) has not been satisfied. Accordingly, miscellaneous invoices 1-5, and 8-17 are dutiable.

HOLDING:

The application for relief is denied and granted in part as detailed in the Law and Analysis portion of this ruling.

All other items, not specifically discussed in this letter, were reviewed and we agree with the determinations of duty made by the San Francisco Vessel Repair Liquidation Unit.

Sincerely,

B. James Fritz

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