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HQ 114341

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May 8, 1998

VES-13-18-RR:IT:EC 114341 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415 P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. C31-0005033-6; ARCO INDEPENDENCE, V-191; 19 U.S.C. 1466; Application

Dear Madam:

This is in response to your memorandum of April 3, 1998, which forwarded the petition submitted by ARCO Marine, Inc. ("applicant") with respect to the above-referenced vessel repair entry.

FACTS:

The evidence of record indicates the following. The ARCO INDEPENDENCE (the "vessel"), a U.S.-flag vessel, arrived at the port of Valdez, Alaska on November 15, 1997. The subject vessel repair entry was subsequently filed. The vessel underwent certain foreign shipyard work in Ulsan, Korea in October and November of 1997.

ISSUE:

Whether the costs of the subject items are dutiable pursuant to 19 U.S.C. 1466(a).

LAW AND ANALYSIS:

19 U.S.C. 1466 provides for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the
United States to engage in foreign or coastwise trade, or vessels intended to be employed in such trade.

In its application of 19 U.S.C. 1466, Customs has held that (contrary to the treatment of vessel repairs and vessel equipment) modifications, alterations, and additions to the hull of a vessel are not subject to duty. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. See, for example, Otte v. U.S., 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); U.S. v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930), and Customs Bulletin and Decisions of June 18, 1997 (Vol. 31, No. 24/25, p. 23) and October 1, 1997 (Vol. 31, No. 40, p. 13). The various factors discussed within those authorities are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case.

You have requested our review on the following items which are listed on pages 33-34 of the spreadsheets.

Item 902.00 - Vapor Recovery System. In its "Statement of Facts No. 25" signed by its senior port engineer and the master of the vessel, the applicant states:

This item was to modify the inert gas system piping to accommodate the addition of a vapor recovery system. The installation is a result of requirements adopted by the Alyeska Pipeline Co. to comply with section 183 paragraph "F" (tank vessel standards) of the Clean Air Act. Prior to loading cargoes in the port of Valdez, Alaska, vessels are required to have an approved vapor recovery system. The modification consists of new manifold headers and interconnecting piping to the inert gas system. In addition, modifications to existing pipelines, brackets, and deck fittings are required to accommodate the new piping installation.

The pertinent invoice reflects the installation of a "new vapor recovery system." The work described on the invoice appears to be consistent with the work described in the applicant's statement.

We find that this item is a nondutiable modification. The work described appears to be typical of a modification and there is no indication in the record of repair or repair-related work in connection with this item.

Item 903.00 - Bottom Plate and Internal Structure Modification. In "Statement of Facts No. 26" signed by its senior port engineer, the applicant states:

The purpose of this item is to modify the existing bottom longitudinal's in the cargo spaces. Through the use of finite element analysis' it has been determined that the structural detail of the longitudinal's at the oil-tight and swash bulkheads will initiate fractures in the hull plating. The existing structural details consisting of 2 drain holes within close proximity of the bulkhead forms a discontinuity in the structure. Such discontinuity may initiate fractures. The modification calls for the inserting the longitudinal to eliminate the discontinuity in the weld of the bottom longitudinal to the hull plating.

The pertinent invoice states: "The intend [sic] of this modification is to eliminate the rat hole cut out in the bottom long.'s in way of bottom plate and bottom long.'s master butt weld joints."

We find that this item is a dutiable repair because it is preventive maintenance in that it was work undertaken in anticipation of repairs that would be needed in the future. (As excerpted above, the applicant states that the "discontinuity may initiate fractures" and "that the structural detail of the longitudinal's at the oil-tight and swash bulkheads will initiate fractures in the hull plating.") We have consistently held maintenance and/or preventive maintenance items to be dutiable under 19 U.S.C. 1466. See, for example, Ruling 227063 dated October 31, 1996.

Items 904.00, 904.01, and 904.02 - Tank Cleaning Reservoir Installation. In "Statement of Facts No. 27" signed by its senior port engineer and the master of the vessel, the applicant states:

The purpose of these items is to section off a portion of No. 7 center cargo tank for the collection of sludge and oil residue during tank cleaning operations. The modification includes inserting the center vertical keel (cvk) and the swash bulkhead to provide an oil tight envelope. Additionally, heating coils and piping connections were added. When in operation this segregated section of the tank will enhance the oil recovery process while reducing the volume of wash-water required to be sent ashore for processing.

The pertinent invoice provides: "Furnish labor and material to provide a reservoir at the after end of 7C cargo tank to facilitate the tank cleaning process."

We find that these items are nondutiable modifications. The work described appears to be typical of a modification and there is no indication in the record of repair or repair-related work in connection with these items.

HOLDING:

As detailed above, the application is granted in part and denied in part with respect to the items upon which you have requested us to rule.

Sincerely,

Jerry Laderberg
Chief,

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