HQ 113533 - Protest No. 2704-95-101867; Vessel Repair Entry No. C27-0097081-0; PRESIDENT EISENHOWER; V-105; 19 U.S.C. ? 1466 - United States International Trade Commision Rulings

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HQ 113533

September 18, 1995

VES-13-18-R:IT:C 113533 GEV

CATEGORY: CARRIER

Chief, Liquidation Section
U.S. Customs Service
630 Sansome Street (Alley Way)
Loading Dock #07
San Francisco, California 94111

RE: Protest No. 2704-95-101867; Vessel Repair Entry No. C27-0097081-0; PRESIDENT EISENHOWER; V-105; 19 U.S.C. ? 1466

Dear Sir:

This is in response to your memorandum dated August 7, 1995, forwarding the above-referenced protest with supporting documentation for our review. Our ruling is set forth below.

FACTS:

The PRESIDENT EISENHOWER is a U.S.-flag vessel owned and operated by American President Lines, Inc. (APL). The vessel incurred costs for foreign repair work during January and February of 1995. Subsequent to the completion of this work the vessel arrived in the United States at San Pedro, California on February 14, 1995. A vessel repair entry was timely filed on February 15, 1995.

The subject entry was liquidated on May 19, 1995. A protest requesting further review, dated June 8, 1995, was timely filed. The basis of the protest is Customs implementation of the opinion of the U.S. Court of Appeals for the Federal Circuit (CAFC) in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (1994) resulting in the assessment of duty pursuant to 19 U.S.C. ? 1466 on various foreign expenses contained within the subject entry that would otherwise be non-dutiable.

Specifically, the protestant contends that Customs implementation of the CAFC decision pursuant to Headquarters memorandum 113308, dated January 18, 1995, as amended by Headquarters memorandum 113350, dated March 3, 1995, both of which were published in the Customs Bulletin on February 8, 1995 and April 5, 1995, respectively, violated 19 U.S.C. established and uniform practice of the Customs Service without giving interested parties an opportunity to comment beforehand. Furthermore, it is requested that the effective date of Customs implementation of the CAFC decision as set forth in the aforementioned memoranda be delayed at least 90 days pursuant to 19 CFR ? 177.9(d)(3).

ISSUE:

Whether Customs implementation of the CAFC decision in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (1994), set forth in Headquarters memorandum 113308, as amended by Headquarters memorandum 113350, is violative of 19 U.S.C. ? 1625 and 19 CFR Part 177.

LAW AND ANALYSIS:

Title 19, United States Code, ? 1466 (19 U.S.C. ? 1466), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of "...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..." (Emphasis added)

In Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 815 F.Supp. 1484 (1993), the issue before the U.S. Court of International Trade (CIT) was whether costs for post-repair cleaning and protective coverings incurred pursuant to dutiable repairs constituted "expenses of repairs" as that term is used in 19 U.S.C. ? 1466. In holding that the costs at issue were dutiable as "expenses of repairs" the court adopted the "but for" test proffered by Customs; that is, these costs were an integral part of the dutiable repair process and would not have been necessary "but for" the dutiable repairs.

On appeal, the CAFC issued a watershed decision which not only affirmed the opinion of the CIT regarding the specific expenses at issue, but also provided clear guidance with respect to the interpretation of 19 U.S.C. ? 1466, hence, Customs administration of that statute. In upholding the "but for" test adopted by the CIT, the CAFC stated:

"...the language expenses of repairs' is broad and unqualified.
As such, we interpret expenses of repairs' as covering all expenses (not specifically excepted in the statute) which, but for dutiable repair work, would not have been incurred.
Conversely, expenses of repairs' does not cover expenses
that would have been incurred even without the occurrence of dutiable repair work. As will be more clearly illustrated below...the but for' interpretation accords with what is commonly understood to be an expense of repair." 44 F.3d 1539, 1544.

In reaching the above determination, the CAFC steadfastly rejected the non-binding judicial authority relied upon by the plaintiff/appellant. Specifically, the court addressed the following: Mount Washington Tanker Co. v. United States, 505 F.Supp. 209 (CIT 1980) which held that transportation compensation for members of a foreign repair crew performing dutiable repairs was not dutiable as an expense of repairs; American Viking Corp. v. United States, 150 F.Supp. 746 (Cust.Ct. 1956) which held that the expense of providing lighting needed to perform a dutiable repair was not dutiable as an expense of the repair; and International Navigation Co. v. United States, 148 F.Supp. 448 (Cust.Ct. 1957) which held that transportation expenses for a foreign repair crew to travel to and from an anchored vessel being repaired was not dutiable as expenses of repairs. With regard to these three cases, the CAFC stated, "Seemingly, these expenses too would have been viewed as coming within the [vessel repair] statute if the court had used a "but for" approach." 44 F.3d 1539, 1547. The CAFC concluded, "Thus Mount Washington Tanker, like American Viking and International Navigation, was incorrectly decided." Id.

In addition to the above judicial authority, the CAFC discussed at length the case of United States v. George Hall Coal Co., 142 F. 1039 (1939), heavily relied upon by the plaintiff/ appellant, which held dry-docking expenses were not an expense of repair and therefore were not dutiable. Although this decision seemingly supported the position that the expenses at issue were dutiable, the CAFC examined the rationale provided in a December 31, 1903, unpublished decision of the Department of Treasury Board of General Appraisers (Board) upon which the court's decision was based. It noted that, "...the Board held the dry-docking expense was not subject to the vessel repair duty because the Board found that the expense would have been incurred irrespective of whether or not dutiable repairs were performed." 44 F.3d 1539, 1546 The CAFC went on to state, "George Hall Coal simply stands for the proposition that expenses that would have been incurred irrespective of whether or not dutiable repairs are performed are not dutiable as an expense of repairs." Id. It therefore concluded, "...George Hall Coal is entirely consistent with the but for' interpretation of the statute." Id.

Recognizing that the decision of the CAFC was not only dispositive of the expenses at issue, but also instructive as to Customs administration of the vessel repair statute with respect to the interpretation of the term "expenses of repairs" contained therein, the Assistant Commissioner, Office of Regulations and Rulings, issued a memorandum to the Regional Director, Commercial Operations, New Orleans (file no. 113308) dated January 18, 1995, published in the Customs Bulletin on February 8, 1995 (Customs Bulletin and Decisions, vol. 29, no. 6, at p. 59) In that memorandum, copies of which were disseminated to two other Customs field offices charged with the liquidation of vessel repair entries, it was stated that pursuant to the
decision of the CAFC, a myriad of foreign repair expenses previously accorded duty-free treatment would, under certain circumstances, no longer receive such treatment. The memorandum further provided that any such affected costs contained in vessel repair entries not finally liquidated as of the date of the CAFC decision (December 29, 1994) should be liquidated as dutiable "expenses of repairs" provided they pass the "but for" test discussed above.

Subsequent to the publication of the above memorandum, on February 22, 1995, various representatives of U.S.-flag vessel owners/operators, including the protestant, met with the Assistant Commissioner, Office of Regulations and Rulings, and members of the Carrier Rulings Branch. It was the collective opinion of the vessel owners/operators that the memorandum be rescinded, contending, inter alia, that it was violative of 19 U.S.C. ? 1625(c)(1) and 19 CFR Part 177. Upon further review of this matter, the Assistant Commissioner, Office of Regulations and Rulings, again issued a memorandum to the Regional Director, Commercial Operations Division, New Orleans (file no. 113350), dated March 3, 1995, published in the Customs Bulletin on April 5, 1995 (see Customs Bulletin and Decisions, vol. 29, no. 14, at p. 24) clarifying the January 18 memorandum with respect to Customs implementation of the CAFC decision. It provided that all vessel repair entries filed with Customs on or after the date of that decision are to be liquidated in accordance with the full weight and effect of the decision (i.e., costs of post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable and all other foreign expenses contained within such entries are subject to the "but for" test). With respect to vessel repair entries filed prior to December 29, 1994, all costs for post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable. It further provided that in view of the fact that carriers have relied on Customs rulings (some of which were based on court cases which the CAFC in Texaco held were incorrectly decided), and retroactive application would cause both the Government and the carriers a major administrative burden, Customs will not apply Texaco retroactively except as to the two issues directly decided by the court. All other costs contained within such entries are to be accorded that treatment previously accorded them by Customs prior to the decision of the CAFC in the Texaco case.

Parenthetically, we note that the CAFC decision was published in its entirety in the Customs Bulletin on March 8, 1995 (See Customs Bulletin and Decisions, vol. 29, no. 10, at p. 19).

The protestant contends that the CAFC decision should not be applicable to the subject vessel repair entry and by doing so Customs has violated 19 U.S.C. ? 1625(c) as amended by Implementation Act (Pub.L. 103-182, 107 Stat. 2057 (the "Mod Act"). Title 19, United States Code, ? 1625(c) provides, in pertinent part, as follows:

A proposed interpretive ruling or decision which would--

(1) modify...or revoke a prior interpretive ruling or decision which has been in effect for at least 60 days; or

(2) have the effect of modifying the treatment previously accorded by the Customs Service to substantially identical transactions;
shall be published in the Customs Bulletin. The Secretary shall give interested parties an opportunity to submit...comments on the correctness of the proposed ruling or decision.

Specifically, the protestant contends that the publication in the Customs Bulletin of memorandum 113308, subsequently clarified by memorandum 113350, without the solicitation of public comments, constitutes a violation of 19 U.S.C. ? 1625(c). The underlying rationale of the protestant's position is that, "The letter by the Customs Service was clearly an interpretive ruling' within the meaning of the Mod Act." (See p. 1 of the attachment to the protest) It is further contended that this "interpretive ruling" modified or revoked "a host of interpretive rulings or decisions that have been in effect for more than sixty days." (See p. 1 of the attachment to the protest) We do not agree.

At the outset, notwithstanding the protestant's claim that the aforementioned memoranda published in the Customs Bulletin constitute an "interpretive ruling", we note that the protestant readily acknowledges, "...the Mod Act does not define the term interpretive ruling,' and to date no court has interpreted the term in the context of the Mod Act..." (See p. 1 of the attachment to the protest). Consequently, by his own admission the protestant's contention with respect to an "interpretive ruling" within the meaning of 19 U.S.C. ? 1625 is without legislative or judicial support.

The protestant, citing Flagstaff Medical Center, Inc., v. Sullivan, 962 F.2d 879, 886 (1992), Linoz v. Heckler, 800 F.2d 871, 877 (1986), and Powderly v. Schweiker, 704 F.2d 1092, 1098 (1983), nonetheless argues that although the term "interpretive ruling" has not been defined for purposes of the 19 U.S.C. ? 1625(c), it has been defined for purposes of the Administrative Procedures Act ("APA" 5 U.S.C. ? 553(b)-(c)). The protestant's rationale, however, is antithetic. Assuming, arguendo, the Customs memoranda in question collectively constitute an interpretive ruling for purposes of the APA, such rulings are exempt from the notice and comment provisions of the APA pursuant to 5 U.S.C. ? 553(b)(A).

Furthermore, the aforementioned memoranda did not modify or revoke any prior interpretive ruling or decision or have the effect of modifying the treatment Customs previously accorded certain foreign expenses under 19 U.S.C. ? 1466. Rather, the memoranda, in conjunction with the publication of the CAFC decision in the Customs Bulletin, merely provided notice to the public that the impetus behind any change in Customs interpretation of the term "expenses of repairs" within the meaning of the vessel repair statute is the CAFC itself, not Customs.

The protestant further alleges that Customs did not comply with its own regulations set forth in 19 CFR Part 177, entitled "Administrative Rulings." The protestant cites to numerous Customs vessel repair rulings issued prior to the CAFC decision (again, based in large measure on the court cases stated to have been incorrectly decided by the CAFC, and George Hall Coal which is in accord with the CAFC decision), some of which were published in the Customs Bulletin, stating that pursuant to 19 CFR ? 177.10(b) they established a uniform practice that certain foreign expenses are not dutiable under the vessel repair statute. Consequently, the Customs memoranda in question are alleged to have constituted a "ruling" which has the effect of changing a practice thereby necessitating its publication in the Federal Register giving interested parties an opportunity to submit written comments with respect to the correctness of the contemplated change (19 CFR ? 177.10(c)(1)).

With respect to the applicability of 19 CFR Part 177, we note that neither of the two Headquarters memoranda published in the Custom Bulletin are "rulings" within the meaning of that part. Pursuant to ? 177.1(d)(1), Customs Regulations, a "ruling" is defined as a "...written statement issued by the Headquarters Office or the appropriate office of Customs as provided in this part that interprets and applies the provisions of the Customs and related laws to a specific set of facts." (Emphasis added) Neither memorandum applied 19 U.S.C. ? 1466 or 19 CFR ? 4.14 (the applicable Customs regulations promulgated pursuant to ? 1466) to a specific set of facts (i.e., no single vessel repair entry containing foreign expenses was discussed). Rather, they provided notice to the public that Customs will administer 19 U.S.C. ? 1466 in accordance with the explicit guidelines set by the CAFC in interpreting the term "expenses of repairs" within the meaning of the statute as determined by the "but for" test. Such guidelines, prior to the date of that decision, were non-existent.

Further in regard to the applicability of 19 CFR Part 177, it is noteworthy that since neither memorandum was a "ruling" as defined in 19 CFR ? 177.1(d), the mere fact that they were published in the Customs Bulletin does not, as the protestant suggests, render either a "published ruling" within the meaning of 19 CFR ? 177.1(d). Furthermore, in view of the fact that 19 CFR ? 177.1(d) also defines a "ruling letter" as "a ruling issued in response to a written request therefor and set forth in a letter addressed to the person making the request or his designee", neither memoranda, which were issued at the behest of the Assistant Commissioner, Office of Regulations and Rulings to the Regional Director, Commercial Operations Division, New Orleans, constituted a "ruling letter" for purposes of 19 CFR Part 177. The delayed effective date provisions of 19 CFR ? 177.9(d)(3), applicable to a "ruling letter" are therefore of no consequence.

Accordingly, the provisions of 19 U.S.C. ? 1625 and 19 CFR Part 177 are inapplicable to the subject protest.

HOLDING:

Customs implementation of the CAFC decision in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (1994), set forth in Headquarters Memorandum 113308, as amended by Headquarters Memorandum 113350, is not violative of 19 U.S.C. ? 1625 and 19 CFR Part 177.

Accordingly, the protest is denied in its entirety.

In accordance with ? 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Ruling Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Harvey B. Fox

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