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HQ 113388

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April 12, 1995

VES-13-18-R:IT:C 113388 GEV

CATEGORY: CARRIER

Chief, Residual Liquidation and Protest Branch Commercial Operations
U.S. Customs Service
6 World Trade Center
New York, N.Y. 10048-002980

RE: Vessel Repair Entry No. C09-0016169-3; M/V PRESQUE ISLE; Presidential Proclamation 6579; Modifications; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated March 31, 1995, forwarding for our review an application for relief. Our findings on this matter are set forth below.

FACTS:

The M/V PRESQUE ISLE is a U.S.-flag vessel operated by Litton Great Lakes Corp. The vessel had certain work done in Canada in June and July of 1993. The vessel arrived at the Port of Buffalo, N.Y., from Port Weller, Ontario, Canada on July 8, 1993. A vessel repair entry covering the work in question was timely filed.

The applicant requests relief on a myriad of repair costs, including certain work claimed to be non-dutiable pursuant to Presidential Proclamation 6579, and work claimed to constitute modifications to the vessel. In support of these claims the applicant has submitted shipyard invoices.

ISSUE:

Whether the foreign costs for which the applicant seeks relief are dutiable pursuant to 19 U.S.C. ? 1466.

LAW AND ANALYSIS:

Title 19, United States Code, ? 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.

The President issued Proclamation 6579 on July 4, 1993, in which he stated that the cost of equipment originating in Canada and repairs made in Canada "shall be subject to duty at a rate of free, effective with respect to any U.S.-documented vessel arriving in any port of the United States on or after the date specified in a notice by the United States Trade Representative and published in the Federal Register." To date, the United States Trade Representative has not published the required notice. Accordingly, the applicant's claims with respect to Proclamation 6579 are denied and the schedule previously established for the elimination of duties should be followed.

In its application of the vessel repair statute, Customs has held that modifications 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 lay up.

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

Very often when considering whether an addition to the hull and fittings took place for the purpose of 19 U.S.C. ? 1466, we have considered the question from the standpoint of whether the work involved the purchase of "equipment" for the vessel. It is not possible to compile a complete list of items that might be aboard a ship that constitute its "equipment". An unavoidable problem in that regard stems from the fact that vessels differ as to their services. What is required equipment on a large passenger vessel might not be required on a fish processing vessel or offshore rig.

"Dutiable equipment" has been defined to include:

...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. Admiral Oriental, supra., (quoting T.D. 34150, (1914))

By defining what articles are considered to be equipment, the Court attempted to formulate criteria to distinguish non-dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. These items might be considered to include:

...those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period... Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228).

A more contemporary working definition 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.

The applicant claims that costs for labor and materials listed on Port Weller Dry Docks invoice nos. 08-69-93, 08-70-93 and 08-75-93 cover work which constitutes non-dutiable modifications. Upon reviewing this documentation, it is apparent that it is insufficient to substantiate these claims. Accordingly, in the absence of evidence to the contrary, these costs are dutiable as repairs to the vessel.

Parenthetically, we note that Port Weller Dry Docks invoice no. 08-66-93 references a subcontract invoice in the amount of $14,220.00 for "Marine Clean." However, this subcontractor invoice has not been included in the record. Accordingly, this cost is dutiable.

With respect to the balance of the items listed in the application, we agree with the applicant's position.

HOLDING:

The foreign work for which the applicant seeks relief is dutiable in part as discussed in the Law and Analysis portion of this ruling.

Sincerely,

Arthur P. Schifflin

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