HQ 115403 - Vessel Repair; rail barges, ACHORAGE PROVIDER, FAIRBANKS PROVIDER, WHITTIER PROVIDER; modifications; container racks; deck strengthen members; work performed in Canada; 19 U.S.C. 1466 - United States International Trade Commision Rulings

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HQ 115403

August 17, 2001

VES-13-18-RR:IT:EC 115403 RSD

CATEGORY: CARRIER

Gary M. Haugen, Esq.
Bauer Moynihan & Johnson
2101 Fourth Avenue
24th Floor
Seattle, Washington 98121-2324

RE: Vessel Repair; rail barges, ACHORAGE PROVIDER, FAIRBANKS PROVIDER, WHITTIER PROVIDER; modifications; container racks; deck strengthen members; work performed in Canada; 19 U.S.C. 1466

Dear Mr. Haugen:

This is in response to your letter dated June 4, 2001, on behalf of Alaska Railbelt Marine, LLC (ARM), requesting a ruling on the application of the vessel repair statute, 19 U.S.C. 1466, to certain work that ARM wishes to perform on three of its barges. You have submitted several diagrams and drawings, which are designed to show the barges and the work that is being proposed.

FACTS:

ARM is a limited liability company organized under the laws of the State of Alaska. It owns the rail barges, ARCHORAGE PROVIDER, FAIRBANKS PROVIDER, and WHITTIER PROVIDER (the Barges). The Barges are sister vessels, with two of the Barges having been recently placed in service. The third barge, WHITTIER PROVIDER is still under construction. The Barges are, or will be, in operation carrying cargo to and from the State of Alaska for the Alaska Railroad Corporation. ARM wishes to permanently install container racks on the main decks of the Barges.

The installation of the container racks will expand the cargo carrying capacity of the Barges by allowing them to carry general cargo containers in addition to the railcars that the barges now carry. In order to install the container racks on the barge, ANCHORAGE PROVIDER, below deck strengthening members will be added. The addition of these below deck strengthening members is necessary to support the container racks and the loaded containers that will be stowed on those racks. The other two Barges will not require the installation of the below deck strengthening members because they were incorporated in the original construction of the barges.

ARM is investigating its options with respect to having this work performed in shipyards located in: (1) the United States; (2) Canada; (3) China; or (4) a combination of yards located in the foregoing locations. Regardless where the work is performed, the container racks to be installed on the barges, and the below deck members to be installed in ANCHORAGE PROVIDER, will be fabricated in China.

ISSUE:

Whether the proposed foreign work would constitute modifications to the hull and fittings of the rail barges under consideration so as to render the work non-dutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

Title 19, United States Code, § 1466, provides in pertinent part for payment of an ad-valorem duty of 50 percent of the cost of foreign repairs to or equipment purchased for a vessel documented under the laws of the United States to engage in the foreign or coastwise trade, or a vessel intended to engage in such trade.

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-a-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, which 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 non-dutiable under 19 U.S.C. § 1466.

Upon reviewing your letter of June 4, 2001 and the supporting materials enclosed therein, we note that the proposed work will not be done to repair or replace an existing structure, component or system on the barges. There is no indication that there are structures or systems on the barges in a state of disrepair that have to be fixed or replaced. Instead, the installation of the container racks would improve the operation of the barges by allowing them to carry 138 forty to fifty-three foot containers in addition to the rail cars they can presently carry. In Headquarters Ruling Letter 111185, dated February 21, 1991, we determined that work that improved the cargo carrying capacity of a vessel to accommodate 40-foot rather than 35-foot containers was a permanent addition that did not replace existing wasted structures and was therefore a non-dutiable modification. In addition, the new container racks would not constitute a dutiable purchase of equipment since it is not an operating entity unto itself but rather is a necessary component of the vessel’s hull and fittings. Likewise in this instance, it is therefore readily apparent that the installation of the container racks under consideration would constitute a non-dutiable modification of the vessels.

You also indicate that below deck strengthening members will be added to support the container racks on one of the barges, the ANCHORAGE PROVIDER. The loaded containers will be stowed on those racks. Because this work would also be a permanent addition to hull and fittings of the vessel, it would also constitute a non-dutiable modification.

Although your additional questions may not be applicable if the work to be performed is considered a non-dutiable modification, because this ruling is only advisory in nature, we will answer your other inquiries. First, we agree that if the steel fabrications are imported from China directly to the United States for installation at a shipyard located in the United States, they would only be subject to the duty imposed on such merchandise under the Harmonized Tariff Schedule of the United States rather than the 50% ad valorem duty imposed by 19 U.S.C. 1466.

Another option that you are exploring is having the work done in Canada. Under this scenario, ARM will purchase all steel fabrications, materials, supplies and labor directly from a Canadian shipyard. The container racks and below deck members will be of Chinese origin. Pursuant to Presidential Proclamation 5923 of December 14, 1988, effective January 1, 1989, all such costs incurred in Canada were to be dutiable at a rate of 45 percent ad valorem and were to decrease at 5 percent increments on January 1 of each successive year until January 1, 1998, when duty on Canadian work assessed pursuant to 19 U.S.C. § 1466 was to be eliminated. Presidential Proclamation 5923 is codified in 19 CFR § 4.14(a) by providing that additional expenditures made in Canada or in Mexico are not subject to any vessel repair duties. Accordingly, even if the components used to install the container racks and below deck members are of Chinese origin, if the expenditures and the work is performed in Canada, no vessel repair duties under 19 U.S.C. 1466 would be incurred.

Regarding, your concern about transporting the components from China to Canada, we agree that vessel repair duties would not be imposed so long as the work on the vessel is performed in Canada and the expenditures are made in Canada.

HOLDING:

The proposed work would constitute a modification to the hull and fittings of the barges under consideration so as to render the work non-dutiable under 19 U.S.C. § 1466. The expenditures on the barges that would be incurred in Canada also would not be subject to vessel repair duties under 19 U.S.C. § 1466.

It is noted, however, that this ruling is merely advisory in nature and does not eliminate the requirement to declare work done abroad at the subject vessel's first United States port of arrival, nor does it eliminate the requirement of filing the declaration and entry showing this work (see §§ 4.14(d) and (e), Customs Regulations (19 CFR §§4.14(d) and (e). Furthermore, any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to § 4.14(i)(1), Customs Regulations (19 CFR § 4.14(i)(1)).

Sincerely,

Larry L. Burton
Chief
Entry Procedures and Carriers Branch

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