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HQ 114380

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June 18, 1998

VES-13-18-RR:IT:EC 114380 GOB

CATEGORY: CARRIER

Kevin C. O'Rourke
Senior Vice President and General Counsel Matson Navigation Company
P.O. Box 7452
San Francisco, CA 94120-7452

RE: 19 U.S.C. 1466; Vessel Repair; Modification; Conversion of container holds; LURLINE

Dear Mr. O'Rourke:

This is in response to your letter of May 15, 1998 in which you request a ruling as to whether certain foreign shipyard work performed on the "combination roll-on, roll-off/lift-on, lift-off vessel" LURLINE (the "vessel") will be dutiable under 19 U.S.C. 1466.

FACTS:

In your letter, you state as follows:

Due to the growing demand for 40 foot container stowage, Matson has found it necessary to convert two of LURLINE's three forward 24 foot container holds to a 40 foot configuration. The reconfiguration of these container holds will involve removing and scrapping six existing 24 foot hatch covers and the internal cell structure spanning the two holds and then replacing them with four sets of new split 40 foot hatch covers and associated cell structure. It will also require the fabrication and installation of new transverse hatch girders and coamings and the relocation of existing on-deck container pedestals, access platforms and associated fittings for the reconfigured cargo stowage pattern. In addition, there will be a limited number of modifications to the ship's existing internal structure, primarily within the double bottom tanks and along the transverse bulkheads, to provide proper foundation for and attachment of the new structure. It is anticipated that these modifications will necessitate changes to refrigerated container power distribution.

Pursuant to our request, your office provided a drawing comparing the current stowage arrangement with the conversion stowage arrangement. Your office stated that specifications for the work would not be available until August.

ISSUE:

Whether the foreign shipyard work described herein is dutiable under 19 U.S.C. 1466 or whether the work would constitute modifications to the hull and fittings of the vessels so as to render the work nondutiable under 19 U.S.C. 1466.

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, and equipment purchased in a foreign country for, 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 under the vessel repair statute. 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.

After a review of the documentation submitted, we conclude that the work described therein constitutes modifications to the vessel which are nondutiable under 19 U.S.C. 1466.

The conversion or reconfiguration of a vessel to enable it to accommodate different sized containers, in the absence of repairs or a state of disrepair, is typically held to be a nondutiable modification.

We note that there is no indication from the description of the work that repairs will be involved. Vessel repairs, repair-related items, and items incident to repairs are dutiable under 19 U.S.C. 1466. Similarly, vessel equipment purchases made in a foreign country are dutiable under 19 U.S.C. 1466.

HOLDING:

After a review of the documentation submitted, we conclude that the work described therein constitutes modifications which are nondutiable under 19 U.S.C. 1466. We note that there is no indication from the brief description of the work provided that repairs will be involved. Vessel repairs and repair-related items are dutiable under 19 U.S.C. 1466.

This ruling does not eliminate the requirement of 19 CFR 4.14(b) to declare and enter work performed abroad at the vessel's first port of arrival. Customs' final determination as to dutiability of foreign shipyard work will be made within the procedure outlined in 19 CFR 4.14. In this regard, we note that you advised that specifications were not available at this time. Such specifications, as well as the pertinent invoices, will comprise important elements of the documentary evidence which will be reviewed within the 19 CFR 4.14 process.

Sincerely,

Jerry Laderberg
Chief,

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