HQ 0112984 - Vessel Repair; Applicability of 19 U.S.C. 1466 to work performed while vessel is under foreign-flag; STRONG CAJUN - United States International Trade Commision Rulings

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HQ 112984
January 18, 1994

VES-13-08/18-CO:R:IT:C 112984 GOB

CATEGORY: CARRIER

District Director of Customs
101 E. Main Street
Norfolk, Virginia 23510

RE: Vessel Repair; Applicability of 19 U.S.C. 1466 to work performed while vessel is under foreign-flag; STRONG CAJUN

Dear Sir:

We have received correspondence dated January 7, 10, and 11, 1994 ("the submission") from Sharon Steele Doyle ("counsel") with respect to the STRONG CAJUN ("the vessel"), which is owned by Seacor Ocean Lines Inc. ("Seacor"). Your office and the Vessel Repair Liquidation Unit in New Orleans have received copies of most or all of the correspondence. We are treating the correspondence as a request for internal advice from your office pursuant to 19 CFR 177.11. Please provide counsel with a copy of this ruling.

FACTS:

The facts as presented by counsel may be summarized as follows. The vessel was built in Port Arthur, Texas in 1979 and operated under the U.S. flag as the BIGORANGE X until she was sold and reflagged Panamanian under MARAD Order MA16379 in August 1980. The vessel departed the U.S. in 1980 and has been foreign since that time. After departing the United States, the vessel operated as a seismic vessel off the northern coast of Africa. Seacor purchased the vessel in January 1992, reflagged her under the Vanuatu flag, and continued to operate her as a seismic vessel off the African coast. On October 3, 1993, the vessel entered Blohm & Voss shipyard in Hamberg, Germany for conversion work to modify the vessel for operation as a container ship. After the conversion work was completed at the cost of approximately DM5,000,000, the vessel was documented under the U.S. flag on December 10, 1993. Since that time, some miscellaneous repairs have been accomplished at an estimated cost of $10,000.

Seacor's Claims

Seacor claims that 19 U.S.C. 1466 was not intended to apply to work done on a vessel which is not under American registry at the time the work is done. It cites C.S.D. 83-35, C.S.D. 79-265, and

C.I.E. 854/60. Seacor states that the facts in C.S.D. 90-22 are distinguishable from the facts in this case.

Seacor states that, in the event that 19 U.S.C. 1466 is found to apply to the vessel, pursuant to 19 U.S.C. 1466(e) and 19 CFR 4.14(a)(2)(iii)(A), the only costs that are subject to declaration, entry, and duty are the costs incurred from August 1980, the date of departure from the United States, through February 1981.

ISSUE:

Whether, in the specific facts of this case as stated supra, the duty imposed by 19 U.S.C. 1466(a) applies to foreign shipyard work performed while the vessel was under a foreign-flag.

LAW AND ANALYSIS:

19 U.S.C. 1466(a) states in part:

The equipments, or any part thereof, including boats, purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country. (emphasis provided.)

The primary question at issue here is whether the phrase underlined supra, "a vessel intended to be employed in such trade", applies to the subject vessel.

C.S.D. 79-265, which pertained to the applicability of 19 U.S.C. 1466 to a foreign-built barge operating in foreign waters under a certificate of American ownership, stated in part:

T.D. 75-146(1), reissued as Legal Determination 3730-01 in the CIS, held that because the vessel repair statute, 19 U.S.C. 1466, applies to the first arrival in a U.S. port (after foreign repairs or purchases of equipment) of a vessel documented under U.S. law, no liability for duty on foreign repairs arises if the vessel relinquishes its U.S. documentation after the repairs are made and is registered under a foreign flag prior to its arrival in the United States.

CIE 854/60 dated June 17, 1960, held, in part, that drilling rigs, tenders, and other craft of American manufacture operating in Venezuelan waters and upon which repairs were effected while the vessels were under foreign registry are not
liable to the provisions of 19 U.S.C. 1466. ...
It is clear from the precedents outlined above that the vessel repair statute by its terms is intended to apply only to vessels which are American-registered when they arrive at a U.S. port, and in the narrow factual situation presented herein, only to repairs and equipment purchases accomplished during the period of time relating back from the vessel's arrival to when its American registry was obtained. In the instant case, liability for declaration of foreign repairs will begin on October 12, 1977, the date on which the barge was officially documented by the U.S. Coast Guard.

C.S.D. 83-35 stated in part:

The Customs Service has always taken the position that the conjunctive phrase contained in 19 U.S.C. 1466(a), "A vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade", means that the vessel repair statute levies a duty on expenditures for American vessels which are either documented to engage in foreign or coastwise trade or are non-documented but nonetheless intended to engage in foreign or coastwise trade.

C.S.D. 90-22 stated in part:

The vessel in question was constructed in a U.S. shipyard in (yr.) as a general cargo vessel. It was documented under the United States flag and thus operated until June 5, 1989, when its sale to a foreign company invalidated its United States documentation. On June 9, 1989, it was documented under a foreign flag and delivered to a foreign shipyard. It has been under foreign documentation since that time, and remains so today. Conversion work to transform the vessel into a surimi factory trawler commenced on June 14, 1989. ...
Customs has long held that in certain cases foreign shipyard work performed on a vessel prior to its documentation under the laws of the United States is nondutiable under section 1466. Customs is now clarifying that position inasmuch as the factual situation in the case at issue might, with a slight change in circumstances, result in the assessment of duty. If the vessel were about to enter the foreign or coastwise trade, section 1466 would apply. We note, however, that in view of the fact that at the time of the conversion the subject vessel is not documented under the laws of the United States to engage in the foreign or coastwise trade, nor is it intended to engage in such trade but rather to engage in the fisheries, the conversion work is not within the purview of section 1466. In addition, notwithstanding the issue of documentation, it would appear that the work in question constitutes
modifications to the vessel which are nondutiable under the vessel repair statute.
...
Holding:
1. Where a vessel is temporarily removed from U.S. documentation during the course of, or prior to, work performed in a foreign shipyard and is then redocumented for, or used in, or from available evidence deemed intended to be used in the U.S. foreign or coastwise trade, 19 U.S.C. 1466 is applicable.

The U.S. Coast Guard informs us that the vessel applied for U.S. documentation on November 30, 1993 and was granted documentation on December 10, 1993.

After a consideration of the record and the applicable precedent, we find that the duty imposed by 19 U.S.C. 1466(a) is not applicable to the foreign shipyard work performed on the vessel prior to its documentation as a U.S. vessel on December 10, 1993.

We find that C.S.D. 90-22 is distinguishable from the case at issue here in that the vessel here was under foreign documentation for over 13 years. It was not temporarily removed from U.S. documentation.

HOLDING:

As stated supra, the duty imposed by 19 U.S.C. 1466(a) is not applicable to the foreign shipyard work performed on the vessel prior to its documentation as a U.S. vessel on December 10, 1993.

Sincerely,

Stuart P. Seidel
Director, International

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