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HQ 112357

October 8, 1992

VES-13-18-CO:R:IT:C 112357 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. H24-0012490-3; F/V ALASKA WARRIOR

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 WARRIOR, arrived at Dutch Harbor, Alaska, on January 3, 1992. Vessel repair entry number H24-0012490-3 was filed the same day, indicating work performed on the vessel in Ishinomaki, Japan. The application for relief was timely filed on March 2, 1992.

The applicant states that the vessel was converted from a mud boat into a trawler and entered the fisheries service in late 1989. The applicant now seeks relief for modifications made at Yamanishi Shipbuilding and Iron Works, Ltd. 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.

I. HULL PART
5. Paint Vessel New Names:

The invoice only states: "paint vessel with new names and company marks". In H.C. Gibbs v. United States, C.D. 1430, aff'd, C.A.D. 529, the vessel's hull, and accordingly the vessel's name, was repainted. Advertisement was also painted upon the sides of the vessel. It was determined that repainting the hull and the vessel's name was a dutiable repair, while painting the strictly ornamental advertisement was not. Since the invoice indicates that the hull of the ALASKA WARRIOR was painted {see item 3(c), HULL PART}, it is assumed that the item under consideration represents the repainting of the vessel's name. Furthermore, it is not clear from the use of the word "new", whether means the vessel's name was changed or if the name was newly painted; consequently, this item is dutiable.

I. HULL PART
6-1. Crop and Renew Chain Locker
6-16. Full Welding Center Line Bulkhead:

Item 6-1 states that the center line bulkhead was inspected and stiffened, and the chain locker aft port bulkhead and the process level port side forward head was checked for water. Item 6-16 indicates that the center line bulkhead in the chain locker (forward level) was welded. The applicant states that the shipyard's use of the word "renew" is not a proper description since the work went beyond merely replacing the existing deck with comparable materials.

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.

In this instance, because the article was stiffened and welded, it is assumed that they were in need of repair. Because the benefit accorded to modifications is not extended to existing structures in need of repair, the fact that the materials used were not mere replacements is irrelevant.

I. HULL PART
6-3. Remove and Renew Trash Chutes:

The applicant claims the discharge chutes were modified to meet Coast Guard regulations and to improve operational efficiency. The invoice indicates that two trash chutes were removed, and new chutes and local and remote closing systems were installed. It should be noted that a change or addition of equipment made to conform with a new design scheme, or for the purpose of complying with the requirements of statute or code, is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings to the vessel, would be dutiable under section 1466. Absent further evidence detailing how this operation went beyond a mere replacement, this item is dutiable.

I. HULL PART
6-10. Reinforcement of Hatch Cover:

The invoice states that the existing main hatch cover on the trawl deck was reinforced. The applicant only states that it was strengthened to meet Coast Guard regulations. This indicates that the hatch cover was deficient and needed repair; consequently, it is dutiable.

I. HULL PART
6-14. Loadline Markings:

The invoice does not provide any relevant information. The applicant states that new loadline markings were welded on the sides of the vessel. This item is dutiable since it is not clear from the applicant's use of the word "new" if the markings replace the old ones or did not exist before. Furthermore, the fact that repair work was done by a shipyard in preparation of a required survey does not by itself exempt the cost of such work from duty. C.S.D. 79-277.

I. HULL PART
6-15. Gauging Steel for Loadline:

The applicant indicates that the thickness of the shell plate and main deck was gauged as part of setting the loadline. Pursuant to C.I.E. 429/61, testing is dutiable if it is effected for the purpose of ascertaining whether repairs are required, and repairs, in fact, are performed. The record indicates that the shell plate was ground (see item 21, HULL PART); consequently, the testing done beforehand is dutiable.

I. HULL PART
6-17. Water Pressure Test on F.P.T.
6-22. Water Pressure Test on each F.O.T.
6-26. Hose Test on Hatch:

The applicant only states that water pressure tests were conducted for the loadline, and on the hatch covers to meet Coast Guard regulations. Viewing these items with the hatch cover reinforcement work (see item 6-10, HULL PART) which we held to constitute a repair, it appears that these items were performed to check the effectiveness of that repair. Pursuant to C.D. 1830 examinations, inspections and cleaning which involve no dutiable elements, to include repair or maintenance, are not dutiable. We also note that C.S.D. 79-277 does not exempt from duty the cost of any testing by the shipyard to check the effectiveness of repairs found to be necessary by reason of a required survey. In any event, the American Bureau of Shipping Report was untimely filed so it is not possible to determine if these tests were required or not.

I. HULL PART
6-21. Open Up Bowthruster:

The invoice states that the "opening" end of the bowthruster and shell plate were ground up. This appears to be a dutiable repair.

I. HULL PART
6-27. Hatch Hydraulic Cylinders:

Applicant states that larger main deck hatch hydraulic cylinders were installed. The invoice indicates that this was done to ensure a watertight area. Viewing this item with the hatch covers reinforcement work (see item 6-10, HULL PART) which we held dutiable, we are unable to determine from the description whether or not the hydraulic cylinders are a part of that repair. Accordingly, this item is dutiable.

I. HULL PART
6-28. Steel Cover:

No evidence is presented to establish that the installation of a steel cover on the mess door was not a replacement for a deficient cover that did not meet Coast Guard regulations. Absent further evidence, this item is dutiable.

I. HULL PART
6-30. Sideshell Penetrations:

The invoice indicates that the sump pump sideshell penetrations were reinforced, and that new check valves were added. Based on this description, this item is a dutiable repair.

I. HULL PART
8. Remove and Install Processing Lines
21. PVC Pipe to Seawater Lines
III. ELECTRICAL WORK
14. Belt Conveyors
IV. BELT CONVEYOR
3. Conversion Belt C:

The applicant states that these four items resulted from modifications done to the factory area to enable roe and fillet extraction. The applicant states that the reconfiguration of some of the conveyor belts and equipment required the installation of new processing lines. Since the applicant claims that these four items are interrelated, all four items must be denied at this time because the description of the conversion belt work (item 3, BELT CONVEYOR) lacks sufficient detail to rule out any repair work.

I. HULL PART
9. Steel Stairs
10. Bilge Well:

Item 9 indicates that expanded metal treads were installed on the steel stair steps. From this description, it is possible to assume that worn treads were replaced. Since the burden of proof rests with the applicant, this item is denied. Item 10 also does not specify if the installed bilge well is a first- time installment; accordingly, it is denied as well.

I. HULL PART
18. Net Recording Boom:

The invoice only provides that a hold down was installed for the net recording boom. From this description, we are unable to determine if this constitutes a repair or a modification.

I. HULL PART
22. Anti-Sweating Aft Port Quarter Wall:

The invoice provides no details beyond the title of this item; the applicant states that a new cork lining was installed to provide insulation and to prevent sweating on the wall abutting the freezer compartment. No indication is given whether this is a first-time installment or whether the old insulation needed replacing; therefore, this item is dutiable.

I. HULL PART
25. Gratings:

The invoice states that new gratings were installed in front of the refrigerating rooms for safety purposes. Again, we are unable to determine whether or not this item involves replacing gratings that have been worn down. Accordingly, this item is dutiable.

I. HULL PART
27. Modification of Deck:

This item states: "Modification fitting way of above the tops of the aluminum deck on the forward bridge deck." From this description, we are unable to determine what transpired; therefore, it is dutiable.

I. HULL PART
29. Covers:

The invoice only states: "fabricate covers", while the applicant states that new vent covers were fabricated to meet Coast Guard requirements. Absent further description pertaining to what articles were covered, this item is dutiable.

II. MACHINERY
3. Insulate Lines:

The invoice indicates that the lines going from the main auxiliary engines to the water wakers and in the pump area were insulated. No indication is given that this is a first-time installment. Accordingly, this item is dutiable.

II. MACHINERY
5. Nozzles - Extended:

The invoice states: "All halon nozzles should be extended to positions over engines and equipment". This description does not indicate what areas were affected. A notation indicates that this was part of the U.S. Coast Guard Loadline requirements, which the American Bureau of Shipping examined. We note that C.S.D. 79-277 does not exempt from duty repair work done by a shipyard in preparation of a required survey. Nor does it exempt from duty the cost of any testing by the shipyard to check the effectiveness of repairs found to be necessary by reason of the required survey. Accordingly, although the work performed may have been necessary to fulfill Coast Guard requirements, absent further evidence to the contrary this item is dutiable.

II. MACHINERY
9. Beams:

The invoice does not indicate if this is a first-time installment of rollertrack beams over the main engine, and again the applicant's use of the word "new" is vague. Accordingly, this item is dutiable.

III. ELECTRICAL WORK
4. Rewire System:

This item partially indicates that "the system" of fans, main engines, and generators should shutdown when halon is discharged. This was done to meet U.S. Coast Guard requirements. As stated above, C.S.D. 79-277 does not exempt from duty repair work done by a shipyard in preparation of a required survey. Nor does it exempt from duty the cost of any testing by the shipyard to check the effectiveness of repairs found to be necessary by reason of the required survey. Accordingly, this item is dutiable.

III. ELECTRICAL WORK
9. Float Switches Modification of Starters:

The invoice states that float switches were installed at the four corners of the factory deck to automatically turn off the factory water supply when the water level on the factory deck is too high. The electric work (Y105,000) and materials (Y184,000) are non-dutiable modifications; however, the "modification of starters" work in the amount of Y53,000 is dutiable because the description is not specific enough.

III. ELECTRICAL WORK
10. Push Button:

The invoice provides that a push button switch was removed, and although the invoice is not clear, it seems that the switch was removed from the hyd. motor to the wheelhouse. No rationale for this switch is provided. Accordingly, this item is dutiable.

We agree with the applicant that the following items constitute modifications:

I. HULL PART
6-4. Exhaust Vent
6-5. Galley Exhaust Vent
6-6. Mess Exhaust Vent
6-7. Factory Vents
6-8. Engine Room Vents
6-9. Ports
6-11. Increase rail height; portable rails 6-12. Air Vents
6-13. Closing Valves
6-29. Additional Ports
17. Anchor Stopping
26. Modification from Fish Master's Room to Hospital 33. Remove crane

II. MACHINERY
8. Increase Height of Crankcase Vents

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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