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HQ 114264

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February 27, 1998

VES-13-18-:RR:IT:EC 114264 GEV

CATEGORY: CARRIER

Thomas W. Lord
Manager Fleet Services
Sea-Land Service, Inc.
6000 Carnegie Boulevard
Charlotte, North Carolina 28209-4637

RE: Proposed Steering Control System Modification; 19 U.S.C. ? 1466

Dear Mr. Lord:

This is in response to your letter dated February 16, 1998, requesting, on behalf of Sea-Land Service, Inc. ("Sea-Land"), a ruling that certain proposed foreign work done to Sea-Land's Atlantic Class vessels would be considered nondutiable modifications under the vessel repair statute. Our ruling on this matter is set forth below.

FACTS:

Sea-Land's U.S.-flagged Atlantic Class Ships were built in 1980 at Daewoo Shipyard (Korea). At the time of construction, the ships were fitted with steering control systems manufactured by Sperry (SRP-2000). The current TSRP-2000 system is not in a state of disrepair. The function of the system is simply to direct the action of the ship's rudder, following the orders of either the helmsman or the autopilot.

During planned Coast Guard required drydocking of the ships this year, portions of the existing control systems would be replaced with new, state-of-the-art, adaptive steering control systems (Sperry ADG-3000). The new systems are expected to improve the reliability and safety of the ships. The portions of the system that will be modified are housed in the control stand in the navigation bridge. These portions consist of the helm unit, autopilot, amplifiers and related components.

The scope of the work basically consists of removing the original control stand, installing a new control stand, and reconnecting the wiring as appropriate. The work requires approximately 2-3 days, and is best done while the vessels are in drydock because of the potential impact on schedule reliability if there are any problems during the installation.

The product is manufactured in the United States, would be purchased there, and the work would be carried out by local Sperry technicians in Germany. The primary benefit to the vessels is expected to be an increase in their reliability and safety. This will be accomplished by use of all new solid-state components, in a modern integrated system. The increase in reliability is expected to result in an increase in safety because of the critical nature of the system.

In support of your request that the proposed work be considered a modification, you have submitted a copy of the technical specifications of the ADG-3000.

ISSUE:

Whether the proposed foreign work would constitute modifications to the hull and fittings of the Atlantic Class Ships under consideration so as to render the work nondutiable 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, 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. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. ? 1466.

Upon reviewing your letter of February 16, 1998, and the supporting documentation enclosed therein, at the outset we note that since the current system that is to be replaced is stated to be operational and not in a state of disrepair, the installation of the subject steering control system would not constitute a dutiable repair. In addition, the new system would not constitute a dutiable purchase of equipment since it is not an operating entity unto itself but rather is a necessary component of the vessel's hull and fittings. Further in this regard, we note the court's decision in Otte, supra, which provides, in part, that "...the term equipment' would not include...steam steerers, and other machinery..." (Emphasis added)

The new system would, however, improve the operation of the vessel by minimizing the rudder movement thereby resulting in fuel savings. It would also increase the life of the ship's steering machinery and consequently result in lower maintenance costs. In addition, a vessel's steering control system is, by its very nature, indicative of permanent incorporation such that it which would remain aboard during an extended lay-up. It is therefore readily apparent that the installation of the steering control system under consideration would constitute a nondutiable modification.

HOLDING:

The proposed foreign shipyard work would constitute a modification to the hull and fittings of the Atlantic Class Ships under consideration so as to render the work nondutiable 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
Furthermore, any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch

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