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HQ 113511

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August 9, 1995

VES-13-18-CO:R:IT:C 113511 GEV

CATEGORY: CARRIER

J.L. Craft, Jr.
Assistant Vice-President
Maritime Overseas Corporation
43 West 42nd Street
New York, N.Y. 10036

RE: Proposed Cargo Hold Modification; 19 U.S.C. ? 1466

Dear Mr. Craft:

This is in response to your letter dated July 21, 1995, attaching preliminary drawings, requesting a ruling as to the dutiable status of the above-referenced foreign shipyard work to one of your vessels. Our position on this matter is set forth below.

FACTS:

Maritime Overseas Corporation wishes to have one of its U.S.-flag bulk carriers carry a temperature and abrasion-sensitive cargo (i.e., fiber optic cable). The cargo holds of the subject vessel are not acceptable in their present construction to meet the stowage requirements of the cargo. To address the chafing and heat sensitivities of the intended cargo, it is proposed to fabricate a cone-shaped structure that would function as a fixed (i.e., welded) dunnage, and an extensive temperature control system in up to four of the vessel's cargo holds. The fabrication would be solely for the safe and proper carriage of the cargo and would most likely be accomplished outside of the United States, but the cargo would be loaded in the United States immediately after the work done to the cargo holds is completed. The cargo would be discharged at a facility outside of the United States.

The subject vessel would be dedicated to carrying this special cargo for approximately one year after which the cone shaped structure and temperature control system would be removed and destroyed, most likely at the same facility that initially performed the fabrication. The vessel would then return to her present service, that of carriage of bulk grain commodities.

ISSUE:

Whether the proposed foreign shipyard work would constitute a modification to the hull and fittings of the vessel so as to render the work non-dutiable under 19 U.S.C. ? 1466.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466, provides in pertinent part for payment of an ad valorem duty of 50 percent of the cost of foreign repairs to or equipment purchased for a vessel documented under the laws of the United States to engage in the foreign or coastwise trade, or a vessel intended to engage in such trade.

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 - 3 -
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.

Upon reviewing your letter of July 21 and the attached preliminary drawings, it appears that notwithstanding their subsequent removal the cone-shaped structures functioning as fixed dunnage meet the requisite criteria of a modification as discussed above and would therefore be considered non-dutiable. With respect to the extensive temperature control system, the information submitted is insufficient for us to reach the same conclusion. Accordingly, in the absence of evidence to the contrary, we consider the fabrication of the temperature control system to be an installation of dutiable equipment.

HOLDING:

The proposed proposed fabrication of the cone-shaped structure acting as fixed dunnage would constitute a modification to the hull and fittings of the vessel so as to render the work non-dutiable under 19 U.S.C. ? 1466. The fabrication of the temperature control system would constitute the installation of dutiable equipment.

It is noted, however, that this ruling is merely advisory in nature and does not eliminate the requirement to declare work done abroad at the subject vessel's first United States port of arrival, nor does it eliminate the requirement of filing the entry showing this work (see ruling on this matter is contingent on Customs review of the evidence submitted pursuant to

Sincerely,

Arthur P. Schifflin

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