HQ 0113064 - Dutiable Status under 19 U.S.C. 1466 of Foreign Work on U.S.- flag Vessels - United States International Trade Commision Rulings

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HQ 113064

April 12, 1994

VES-13-18-CO:R:IT:C 113064 GOB

CATEGORY: CARRIER

John P. McConville, Esq.
Sea-Land Service, Inc.
Law Department
P.O. Box 2555
Elizabeth, New Jersey 07207

RE: Dutiable Status under 19 U.S.C. 1466 of Foreign Work on U.S.- flag Vessels

Dear Mr. McConville:

This is in response to your letter of March 29, 1994 in which you request a ruling as to whether certain foreign shipyard work performed on three U.S.-flag vessels will be dutiable under 19 U.S.C. 1466.

FACTS:

Sea-Land Service, Inc. ("Sea-Land") is the owner of the three container vessels at issue - GALVESTON BAY, SEA-LAND VALUE, and RALEIGH BAY ("vessels"). It proposes to modify the vessels in a foreign shipyard in order to increase the vessel speed. Sea-Land describes the proposed modifications as follows:

...installation of a package designed to augment propulsion power by completion of the following additions or deletions to the three specified existing vessels of the Atlantic class:

(a) elimination of hatch groups 9, 10, and 11 (approx. 40M midbody section removal);

(b) reconnecting the vessel in way of existing frames 105 and 132;

(c) cropping and removing the existing lower bow structure from forward of frame/bulkhead 202 approximately to the forward end at frame 217, from the baseline to approx. 9.5 M above baseline at frame 202 to a point just below the second deck at the stem;

(d) construction of a diaphragm supported hull fairing from approximately frame number 179 to frame 202 to a point just below the second deck at the stem;

(e) pre-fabrication and installation of a new bow structure incorporating a new bow thruster installation and a bulbous bow as well as other structural modifications which will result in the lengthening of the bow by approximately 17 frames spaces of 810 mm each, in order to improve vessel lines and contribute to the increase of speed;

(f) installation of diesel driven shaft booster motor, having an output of approximately 4,000 kW to the vessel's new propeller shafting to increase speed;

(g) replacement of existing propeller with a controllable pitch propeller of a new design to enhance vessel speed;

(h) modification or conversion to existing piping, electrical, and mechanical systems affected by the above modifications including, but not limited to, monitoring, control, and alarm systems.

Sea-Land states that the proposed modifications will result in a more efficient and effective use of the vessels. It asserts that the work will not cure any defect or repair any damage. Sea- Land states that it does not intend to make any repairs to the vessels during the modification process.

ISSUE:

Whether the foreign shipyard work described herein would constitute modifications to the hull and fittings of the vessels so as to render the work non-dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

19 U.S.C. 1466 provides for the payment of duty at a rate of fifty 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 be employed in such trade.

In its application of the vessel repair statute, the Customs Service has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis- a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair.

2. Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.

3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.

4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.

HOLDING:

After a review of the documentation submitted, we conclude that the work described constitutes modifications to the vessels which are nondutiable under 19 U.S.C. 1466.

We emphasize, however, that this ruling is based on the information submitted and counsel's assertion that Sea-Land does not intend to make any repairs during the modification process and if any such repairs are determined to be required they will be undertaken under a separate Repair Agreement and will be invoiced separately by the non-U.S. shipyard or the party performing the repairs. This ruling does not eliminate the requirement of 19 CFR 4.14(b) to declare and enter work performed abroad at the vessels' first port of arrival. Any final determination as to whether repairs are involved will be made after Customs review of the evidence required to be submitted pursuant to 19 CFR 4.14(d).

Sincerely,

Arthur P. Schifflin
Chief

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