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HQ 115133

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May 11, 2001

VES-13-18-RR:IT:EC 115133 RSD

CATEGORY: CARRIER

Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. C27 0171397-9, SEA-LAND ENDURANCE V2; Modification of container stowage; 19 U.S.C. 1466,

Dear Sir:

This is in response to your memorandum dated August 9, 2000, which forwards for our consideration an application for relief from vessel repair duties assessed pursuant to 19 U.S.C. § 1466. Your office requests our review with respect to certain of the applicant’s alleged modifications of the vessel. Our findings are set forth below.

FACTS:

SEA-LAND ENDURANCE is a U.S.-flag vessel owned by U.S. Ship Management, Inc. which incurred costs at foreign shipyards. Subsequent to the completion of the work, the vessel arrived at the port of Long Beach, California, on May 3, 2000. A vessel repair entry was timely filed on May 16, 2000, as was an application for relief with supporting documentation. The entry contains many alleged modifications, which are marked on spreadsheets. We have been asked to review several of these alleged modifications.

According to the applicant, SEA-LAND ENDURANCE is a D9J class vessel which means that it is a fully cellularized container vessel having 14 hatch groups for carrying containers above and below deck plus a container stowage group over the aft mooring station. Previously, the SEA-LAND ENDURANCE utilized a system of portable stacking frames on hatches 1 to 7 and 9 to 12 and a system of permanently attached hinged frames for hatches 7A, 7B and 8. The portable stacking frames were truss type frames, which were four containers wide that were placed on top of each tier of containers on deck to secure the containers. The frames were fixed by pin at either end and secured by jaws attached to the fixed buttress towers installed between each hatch group. The stacking and hinge frames were a technology developed in the 1970s and early 1980s that had become outdated and costly to utilize and maintain and were an impediment to terminal productivity.

USSM removed the stacking frames, hinge frames and the associated structure to provide a modern system of securing containers, using semi-automatic twistlocks and lashing rods. In addition, for hatches 7A through 10, parts of existing hinge frame towers and buttress towers were used to create lashing bridges at the top of the first tier of containers on deck. A lashing bridge is a horizontal beam and walkway, which is used for securing the lashing rods connected to the containers. The lashing bridges provide a more effective lashing than lashing to the hatch cover, and allow a loaded fifth tier of containers to be carried on these hatches. Other hatches have conventional lashing to the hatch covers.

In addition, lashing capability was added to above deck container stowage on group 13 over the aft mooring station and 20 foot stowage capability was added below deck in one to four hatches per ship depending on the existing vessel capacity. The installation primarily accomplished by means of welding is a permanent incorporation into the hull or superstructure. The work was performed on the vessel to improve its productivity, lower operating costs and enhance its market value.

ISSUES:

Whether the documentation submitted substantiates the applicant’s claim that certain costs contained within the subject vessel repair entry are modifications and therefore are non-dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, § 1466 (19 U.S.C. § 1466), provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “equipments, or any part thereof, including boats, 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”

ITEMS No. 1A, 2A 3A 4A

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-à-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 that 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

In regard to these claims, we note that in its application of the vessel repair statute, Customs has held that modifications to the hull and fittings of a vessel are not subject to vessel repair duties. In considering whether an operation has resulted in a modification that is not subject to duty, the following elements may be considered.

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel (See United States v. Admiral Oriental Line et al., T.D. 44359 (1930)), either in a structural sense or as demonstrated by the means of attachment so as to be indicative of the intent to be permanently incorporated. This element should not be given undue weight in view of the fact that vessel components must be welded or otherwise "permanently attached" to the ship as a result of constant pitching and rolling. In addition, some items, the cost of which are clearly dutiable, interact with other vessel components resulting in the need, possibly for that purpose alone, for a fixed and stable juxtaposition of vessel parts. It follows that a "permanent attachment" takes place that does not necessarily involve a modification to the hull and fittings.

2. Whether in all likelihood, an item under consideration would remain aboard a vessel during an extended lay up.

3. Whether, if not a first time installation, an item under consideration replaces a current part, fitting or structure which is not in good working order.

4. Whether an item under consideration provides an improvement or enhancement in operation or efficiency of the vessel.

Headquarters Ruling 226968 dated May 31, 1996, concerned the conversion of deck stowage to carry six rows of 24ft containers in combination with exiting 40-ft container stowage. This work involved the construction and installation of eight new 40ft hatch covers per ship contract plan 1), and modification on hatch covers and pedestals for 24-ft container stowage, contract plan 2) and modification to the hatch coamings contract plan. After a consideration of the record, we found that this item was non-dutiable. The work described, conversion of stowage to carry six rows of 24-ft containers in combination with the existing 40ft container stowage, is the type of work which is a nondutiable modification as opposed to a repair dutiable under 19 U.S.C. § 1466.

In this instance, 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. Therefore, these items would not be dutiable.

ITEM 1B-3

This item relates to shell plate modification. According, to the applicant this work was intended to upgrade the existing structure of the shell plate and internals of selected ballast tanks to prevent fatigue fractures from occurring in the shell plate of the double bottom tanks between frames 120 and 151. The work also upgraded the shell plating from Grade 21mm steel to Grade E 22mm steel. The work will also crop out intercostal side girder #5 from frame 120 to 155 and install one continuous longitudinal side girder to transmit stress forces through out plating. The bottom intercostal longitudinal 8 and 9 will also be removed. New continuous bottom longitudinals 8 and 9 will be installed between frames 120 to frames 146. According to the applicant the drawings are approved by ABS as modification for the continued safe operation of the vessel. Based on this description, we are satisfied that this work constitutes a modification to the structure of the vessel and would not be dutiable.

ITEM 3C

This item concerns the expenses incurred for conducting vessel surveys. With respect to surveys or inspections, the general rule is that a survey undertaken to meet the specific requirements of a governmental entity, classification society, or insurance carrier is not dutiable even when dutiable repairs are effected as a result of a survey. When an inspection or survey is conducted to ascertain the extent of damage sustained or whether repairs are necessary, the surveys cost is dutiable as part of the repairs which are accomplished.

In this case, we note that there is a statement from the American Bureau of Shipping that indicates that the surveys were performed in connection with a modification of the vessel. There is no indication that the surveys in item 3C were connected to a repair of the vessel and thus the cost of the survey would not be dutiable.

ITEM 4

You have also asked us to evaluate whether certain expenses set forth in item 4 would be dutiable. These expenses were incurred for the supervision of labor, travel/hotel/meals/misc. The invoice from Kobelco Marine Engineering Co. Ltd. indicates that the expenses were incurred for supervision work conducted by Kobelco’s engineer, Mr. S. Fujii and Kobelco’s agent Mr. K.S. Lee of Komarine Services Services Ltd., for modification of aft stern seal to Kobelco double compact Seal Dx-750 in M/V SEA-LAND ENDURANCE from April 6 to April 10, 2000 and April 27 to May 3, 2000, while it was docked at Hyundai Nipo Dockyard. Because these expenses were incurred in connection with a modification rather than repair, they would not be dutiable.

HOLDING:

As detailed above, the application for relief for the items specified is granted.

Sincerely,

Larry L. Burton

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