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HQ 226522

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February 2, 1996

VES-13-01-:RR:IT:EC 226522 GEV

CATEGORY: CARRIER

Sharon Steele Doyle, Esq.
Givens and Kelly
950 Echo Lane, Suite 360
Houston, Texas 77024-2788

RE: Proposed Conversion to Cable Storage Vessel; 19 U.S.C. § 1466

Dear Ms. Doyle:

This is in response to your letter dated October 31, 1995, requesting, on behalf of your client, Penn-Attransco Corp., a ruling as to whether certain proposed foreign work done to your client's vessel would be considered a non-dutiable modification under the vessel repair statute. Our ruling on this matter is set forth below.

FACTS:

The M/V KANSAS TRADER is a U.S.-flag vessel operated Penn-Attransco Corp. The vessel is currently in service as a dry bulk carrier. The proposed work would convert the vessel into a cable storage vessel for the carriage of underwater submarine fiber optic cable.

The work in question consists of tank construction, repeater storage tank construction, and cable highway installation. The conversion will require the installation of two sixteen meter diameter cable tank storage tanks in the number 3 and number 5 cargo holds. The new tanks are seven meters high with a seven meter high vertical center cone to facilitate fiber optical cable storage. Repeater storage tanks also must be constructed in the number 3 and 5 cargo holds. The cable highway also must be installed consisting of a large bellmouth and cable highway with a cable hauler to be affixed on top of each cargo hold. The cable highway will allow cable laying of speeds up to 8 knots.

In support of your request that the proposed work be considered a modification, you have submitted a further detailed description (Exhibit 1), photographs (Exhibits 2, 3, and 4), and drawings (Exhibits 5, 6, 7, 8 and 9). The photographs are of similar work done on other cable storage vessels, the C/S DOCK EXPRESS and the JOHN CABOT. You also cite the following
precedents: T.D. 44359; Otte v. United States, 7 CCPA 166, 169 (1916); C.S.D.s 89-94; 83-35; 81-230; and 79-278. While this authority collectively discusses the requisite criteria for a modification as applied to various foreign shipyard work, it does not address work such as you propose and therefore is not dispositive of the issue under consideration.

ISSUE:

Whether the proposed shipyard work would constitute a modification to the hull and fittings of the M/V KANSAS TRADER 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 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 October 31, 1995, and the supporting documentation enclosed therewith, it is apparent that proposed work would be a permanent incorporation into the vessel (e.g., Exhibit 1 states, "All components to be permanently welded into ships [sic] structure."). As such it would remain aboard the vessel during an extended lay up. Furthermore, since the work is done pursuant to the conversion of the vessel from a dry bulk carrier to a cable storage vessel for the carriage of underwater submarine fiber optic cable, it is evident that the work is a first time installation and is not being done to replace a current part, fitting or structure which is not in good working order. Finally, the proposed work will improve the operation of the vessel in its new trade. (See also Customs Headquarters ruling 113511, dated August 9, 1995, holding similar foreign work done to a vessel's holds enabling it to carry fiber optic cable to be a nondutiable modification.)

Accordingly, the proposed work to the M/V KANSAS TRADER as described above and detailed in the supporting documentation would meet the criteria for a modification and would therefore not be dutiable under 19 U.S.C. § 1466.

HOLDING:

The proposed foreign shipyard work would constitute a modification to the hull and fittings of the M/V KANSAS TRADER so as to render the work non-dutiable under 19 U.S.C. § 1466.

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 §§ 4.14(b)(1)(2), Customs Regulations (19 CFR §§ 4.14(b)(1)(2)). Furthermore, any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to § 4.14(d)(1), Customs Regulations (19 CFR § 4.14(d)(1)).

Sincerely,

William G. Rosoff

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