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HQ 114456

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August 28, 1998

VES-13-18-RR:IT:EC 114456 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 107 P.O. Box 2450
San Francisco, CA 94126

RE: 19 U.S.C. 1466; ARCO INDEPENDENCE, V-191; Vessel Repair Entry No. C31- 0005033-6; Petition; 19 U.S.C. 1315(d)

Dear Madam:

This ruling is in response to your memorandum dated August 12, 1998, which forwarded the petition submitted by ARCO Marine, Inc. ("petitioner" or "ARCO") 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.

In Ruling 114341 dated May 8, 1998, the application for relief was granted in part and denied in part.

ISSUES:

Whether the subject items are dutiable pursuant to 19 U.S.C.

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.

Petitioner's Claim with respect to the Application of the Texaco Case

The petitioner contends, as it has with respect to numerous other vessel repair entries, that Customs violated 19 U.S.C. 1315(d) with respect to its application of Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994), aff'g 815 F.Supp. 1484 (CIT 1993).

We find that this claim is without merit.

This claim has been thoroughly addressed in many rulings, including numerous rulings where ARCO was the party requesting relief. See, for example, Ruling 226873 dated October 29, 1996 and Ruling 227063 dated October 31, 1996. In Ruling 226873 we stated:

In its petition, the petitioner raises the issues as to whether Customs violated 19 U.S.C. 1315(d) and 19 U.S.C. 1625(c). We have dealt with these issues previously.

In Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 815 F.Supp. 1484 (CIT 1993), 44 F.3d. 1539, 1544 (CAFC 1994), the Court of Appeals for the Federal Circuit stated in pertinent part:

Texaco urges us to reject the Court of
International Trade's "but for" approach and to interpret "expenses of repairs" so as to exclude those expenses (e.g., expenses for clean-up and protective covering work) not incurred for work directly involved in the actual making of repairs. Such a reading has no basis in the plain language of the statute, however. Aside from the inapplicable statutory exceptions, the language "expenses of repairs" is broad and unqualified. As such, we interpret "expenses of repairs" as covering all expenses (not specifically exempted in the statute) which, but for dutiable repair work, would not have been incurred. (Emphasis supplied.)

The subject vessel repair entry was filed after the CAFC decision in Texaco. In Memorandum 113350 dated March 3, 1995, published in the Customs Bulletin and Decisions on April 5, 1995 (Vol. 29, No. 14, p. 24), we stated in pertinent part:

All vessel repair entries filed with Customs on or after the date of that decision [the CAFC decision in Texaco, December 29, 1994] 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).

Memorandum 113350 was preceded by Memorandum 113308 dated January 18, 1995. Memoranda 113350 and 113308 were both published in the Customs Bulletin.

In Ruling 113474 dated October 24, 1995, we stated:

... the applicant contends that the CAFC decision in Texaco, supra, should not be applicable to the subject vessel repair entry and by doing so Customs has violated 19 U.S.C. ? 1315(d). Title 19, United States Code, ? 1315(d) provides, in pertinent part, as follows:

No administrative ruling resulting in the imposition of a higher rate of duty or charge than the Secretary of the Treasury shall find to have been applicable to imported merchandise under an established and uniform practice shall be effective with respect to articles entered for consumption or withdrawn from warehouse for consumption prior to the expiration of thirty days after the date of publication in the Federal Register of notice of such ruling... (emphasis added)

The applicable Customs Regulations governing this matter are found at 19 CFR Part 177 (entitled "Administrative Rulings"). With respect to the applicability of 19 CFR Part 177, we note that neither of the two Headquarters memoranda published in the Customs 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. Accordingly, 19 U.S.C. ? 1315(d) is inapplicable in these circumstances.

In Ruling 113500 dated October 24, 1995, we stated:

Specifically, the applicant 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 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.
...
With respect to the applicability of 19 CFR Part 177, we note that neither of the two Headquarters memoranda published in the Customs 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 application.

Based on the above authorities, we find that the petitioner's claims with respect to 19 U.S.C. 1315(d) and 1625(c) are without merit.

[End of excerpt from Ruling 226873.]

Based on the above authorities, and as stated above, we find that ARCO's claim in this petition with respect to 19 U.S.C. 1315(d) is without merit.

Proration of General Services Costs and Drydock Costs

As we have held on many occasions with respect to post-Texaco vessel repair entries, general services costs and/or drydock costs are to be prorated between dutiable costs and nondutiable costs. Most of the items which the petitioner lists on pp. 10-11 of its petition are general services costs and/or drydock costs. Included within this category are mooring lines (item 002.02) and insurance (item 012). Accordingly, these costs are to be prorated, as you have done in your review of this entry.

Item 903.00 - Bottom Plate and Internal Structure Modification

The petitioner claims that this item is nondutiable based upon the following assertions: the design of the cropped out section was replaced with an entirely different design item; the cropped out section had not deteriorated, nor did it require repair to properly function as per original design had the modification not been accomplished; and this item did not involve repairs.

In support of its claim, the petitioner has submitted statements from its senior port engineer, an engineering manager from MCA Engineers, Inc., and an operations manager from International Inspection, Inc. In Exhibit C to the petition, the operations manager from International Inspection, Inc. states that "[t]hese longitudinals were all fully intact before the modification work was commenced and were in no need of repair work."

We find that the petitioner has now submitted adequate documentary evidence in support of its claim that this item is a nondutiable modification. Accordingly, we find that this item is nondutiable.

Other Items

We note that, with respect to many of the items mentioned in the petition, the petitioner has merely listed these items by item number (pp. 10-11 of petition), i.e., the petitioner has not provided any narrative description or assertion.

Item 301. This item was determined to be nondutiable by your office in the application stage. Thus, there is no need to petition for relief with respect to this item.

Item 002.D - Engine Room and Pump Room Cleaning. The invoice reflects that this item relates to repairs. Accordingly, we find that it is dutiable.

Item 002.02 - Cow Machine Staging. We find that this item is dutiable. Neither the petition nor the invoice indicate an adequate and valid basis upon which this item should be found to be nondutiable.

Item 011 - Sea Trial. The invoice reflects that this item is incident to repairs, i.e., the invoice provides that the sea trial is to occur "[w]hen repairs are completed." Accordingly, we find that this item is dutiable.

Item 406.02 - Cargo Gear Shackles. The petitioner claims that 19 U.S.C. 1466(h)(3) is applicable. The invoice provides: "Furnish two new replacement ABS certified cargo gear shackles. To be galvanized under item 406.01." Item 406.01 provides: "In conjunction with item 406, when cargo gear is disassembled, furnish labor and material to hot dip galvanize all cargo block parts." We find that this item is dutiable under 19 U.S.C. 1466(a), and that it is not eligible for treatment pursuant to 19 U.S.C. 1466(h)(3).

Addition to Item 808.8. This invoice and other related invoices indicate that this item is incident to dutiable repairs, i.e., this sub-item was an addition to dutiable repair work. Accordingly, this item is dutiable.

Item 811.C. Similar to the previous item, the invoice indicates that this item is incident to dutiable repairs. Accordingly, it is dutiable.

HOLDINGS:

As detailed above, the petition is granted in part and denied in part.

Sincerely,

Director,
International Trade Compliance

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