HQ 114855 - Rebuilt vessel; Foreign documentation; Customs duties; Floating hotel; Floating museum - United States International Trade Commision Rulings

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HQ 114855

December 14, 1999

VES-13-17-RR:IT:EC 114855 LLB

Category: CARRIER

Mr. Robert B. Yoshitomi
Lillick & Charles
Two Embarcadero Center
San Francisco, California 94111-3996

RE: Rebuilt vessel; Foreign documentation; Customs duties; Floating hotel; Floating museum

Dear Mr. Yoshitomi:

Reference is made to your letter of November 5, 1999, in which you request that this office rule upon the proposed rebuilding and future use of a vessel which was built in
the United States and last documented under foreign law. The issues raised primarily concern duty liability which may exist when the vessel first reenters the United States. Our ruling follows.

FACTS:

It is proposed that a vessel built in the United States will be purchased and completely refurbished in the Bahamas. The vessel, the BELOFIN I, was most recently documented under the laws of Panama but that documentation has been cancelled. In the Bahamas the vessel will be rebuilt to become a hotel and museum vessel. The hull and superstructure would be retained but virtually everything else would be replaced.

All interior partitions would be removed from the vessel. Elements such as interior structure, plumbing, electrical, and a natural gas system would be installed along with furniture, fixtures and other hotel equipment. Resulting from these changes would be cabins, a lobby, business and meeting rooms, kitchen, dining rooms, ballroom, spa, lounges, and other hotel and museum facilities. The engine room and bridge would be turned into museums, and the vessel would no longer be self-propelled.

Following the work in the Bahamas the vessel would be towed to the United States for possible additional work and for berthing in San Francisco, California, for operation as a hotel and museum vessel. The vessel would be towed to drydock every few years for completion of any necessary work. The vessel may eventually be documented under the laws of some foreign country but will never be documented under United States law. ISSUE:

The overarching issue presented is whether upon first arrival in the United States following foreign shipyard work, the rebuilt BELOFIN I will be considered to retain its status as a vessel or whether some other designation might attach, thus necessitating entry for consumption and payment of duty.

LAW AND ANALYSIS:

Pursuant to 19 U.S.C. 1401(a), the word "vessel" includes every description of water craft or other contrivance used, or capable of being used, as a means of transportation in water, but does not include aircraft. Included within the definition are water craft of every description including drilling rigs and platforms, floating cranes, barges and others. Many of such vessels are non-self-propelled and must rely on towing vessels for their motive power. We state this in order to make it clear that the fact that a water craft has no engine or has an engine which has been rendered inoperative is not determinative in assigning its status as a vessel as opposed to some other structure.

In regard to the dutiability of such vessels upon their arrival in the United States, it was long ago determined that commercial vessels, being instrumentalities rather than articles of commerce, are not subject to duty upon being brought into this country. See The Conqueror, 166 U.S. 110, 17 S.Ct. 510 (1897). While provisions for the classification of commercial vessels appear in Chapter 89 of the Harmonized Tariff Schedule of the United States (HTSUS) for statistical purposes, such vessels remain free from the assessment of duty.

In the present matter we are asked to consider the status of a vessel which will be converted from one service to another in a foreign shipyard. The vessel will be extensively modified and will, following its arrival in the United States, cease to be used for transportation purposes. This does not, however, affect its potential to provide a means of transportation on water for persons or merchandise. As such, it is our determination that the converted BELOFIN I will continue to enjoy the status of a vessel following conversion, thus no duty will be collected under Chapter 89 of the HTSUS.

Section 466(a), Tariff Act of 1930, as amended (19 U.S.C. 1466(a)) provides, in pertinent part, that:

The equipments, or any part thereof ... 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 to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country.

In determining whether there might be liability for duty under the vessel repair statute (section 1466), the focus of inquiry is upon the statutory phrase, “vessel intended to be employed in [foreign or coasting] trade.” As a vessel whose foreign documentation was cancelled and which today remains undocumented, the vessel obviously would not be subject to duty as a “vessel documented under the laws of the United States to engage in the foreign or coasting trade.” The question of intent to engage is all which remains for determination.

We are informed that the vessel may at some point in the future “ be documented foreign, but she will not be documented under the laws of the United States.” Further, we are informed that the vessel will be berthed in San Francisco for exclusive use as a floating but stationary hotel and museum facility. It is stated that although it will be necessary once every several years to tow it to drydock for assurance as to its continuing structural integrity, the vessel will not be used to transport either persons or merchandise. We believe there to be no indication of intent to utilize the vessel in the named trades. As such, there is no requirement that a vessel repair declaration and entry be filed or that duty under the vessel repair statute be tendered.

HOLDING:

Following a thorough review of the facts as well as analysis of the applicable law, regulations, and precedents, we have determined that the BELOFIN I will be considered to be a vessel upon its arrival in the United States following foreign conversion operations. As such, there will not be duty consequences under Chapter 89 of the HTSUS. Further, we have determined that there will be no requirement for filing or duty payment under the vessel repair statute (19 U.S.C. 1466) with regard to the foreign shipyard work which will be performed.

Sincerely,

Jerry Laderberg

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