United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 2002 HQ Rulings > HQ 115630 - HQ 228011 > HQ 115657

Previous Ruling Next Ruling
HQ 115657

---

June 12, 2002

VES-3-24-RR:IT:EC 115657 GEV

CATEGORY: CARRIER

Carl D. Cammarata, Esq.
Law Offices of George R. Tuttle
Three Embarcadero Center, Suite 1160
San Francisco, California 94111

RE: Coastwise Trade; Guam; Cranes; New and Different Product; 46 U.S.C. App. § 883

Dear Mr. Cammarata:

This is in response to your letter of April 10, 2002, on behalf of your client, [ ], requesting a ruling regarding the transportation of two cranes by foreign-flag vessels from California to Guam via China where they will be modified into “typhoon grade” cranes. Our ruling on this matter is set forth below.

FACTS:

The cranes in question are currently being used at the Ports of Oakland and Los Angeles for the lading/unlading of cargo from ships. They weigh 722 tons and travel on 34-foot wide rail tracks to transport cargo to and from ships. The cranes are powered externally, by dedicated, high-voltage lines. In their present configuration, these cranes are not capable of use or operation in Guam, as they would have neither the source of power nor tracks upon which to operate, and the cranes are not in compliance with the legal requirements of Guam as they are not capable of withstanding typhoons. They are only suitable for use in [ ] U.S. mainland terminal facilities.

The proposed work to be completed in China is described below.

Cranes To Be Converted From External Powered To Self-Powered With New Diesel Power Plants

The Port of Guam does not have permanently installed high-voltage power on its docks to power cranes. Therefore, the Chinese operations will convert the subject cranes from external electrical power-supplied cranes to self-powered diesel cranes thereby enabling them to operate in Guam. The current 2400-volt electric collector trench power supply will be removed from each crane in China, and a 480-volt, diesel-engine generator power plant and new associating wiring to the hoist house will be added. Further, a 1,000 gallon fuel tank will be added at the portal level, with a fill line system from the tank to ground level. A feedback resistor load bank will also be installed.

Cranes Will Become Typhoon Class By Addition of Structural Reinforcements and Tie-Downs

Cranes routinely used at West Coast ports in the United States usually are not designed to possess the capability of withstanding the severe typhoon-class wind loads that occur in Guam. However, Guam’s Building Code Regulations provide for these extremely high wind conditions that necessitate incorporating greater stability, additional tie-downs and reinforcing steel to the structure of cranes. The winds in Guam are approximately four times stronger than on the West Coast of the United States and, consequently, the cranes are required by law to be able to withstand the additional wind loads. The [ ] cranes would include some 100 tons of additional steel to reinforce the superstructure (not including the generator), raising the crane weight from 722 tons to approximately 830 short tons.

Further, besides the difference in assumed worst wind speed, other building code standards must be met. West Coast cranes follow the California Uniform Building Code requirements of 1997, which references the American Society of Civil Engineers (ASCE) Minimum Design Loads for Buildings and Other Structures, ASCE 7-93. In order to operate the cranes in Guam, they must be modified to comply with International Building Code 2000, which references ASCE 7-98. Assuming worst wind speed, ASCE 7-93 yields lower calculated forces to be resisted than does ASCE 7-98.

Conversion of 34-Foot Wide Track Cranes To 50-Foot Wide Track Cranes Adds Additional Stability

The track structure in Guam is different from [ ] West Coast track structures, requiring significant alteration of the track gauge in China from the existing 34-foot wide gauge to accommodate the 50-foot wide tracks in Guam. Fifty-foot wide tracks are necessary to give the cranes significantly better stability and broader usage. This conversion work includes machining existing treads on the 32 gantry wheels on one crane and replacing 32 gantry wheels on the other crane. This is required so that both will fit with Guam’s 175 lb. rail.

Additionally, the work to be done in China will also require the replacement of the seals and bearings on the wheels, and installation of all new portal beams, rear legs below portal beams, sill beam alterations and new wiring to rear leg gantry motor level. With these modifications, the cranes will no longer be capable of use by [ ] at its facilities in the United States and will only be usable in Guam.

Substantial Increase In Cost

[ ] has not yet obtained a bid from the Chinese contractor to perform this proposed work. You state that the original 1985 price of the cranes was about [ ]. You further state that [ ] engineers estimate the cost to modify the tracks on the cranes to be approximately [ ] per crane and for the engine set, and another [ ] per crane for the reinforcing steel and tie-downs for a total estimated price of [ ] for each crane. This is over a [ ] increase in the original cost of each crane.

Physical Appearance

Although the height and width of each crane will not be changed, after the Chinese work is completed, the cranes will look substantially different, both because of the change to the 50-foot gauge tracks from their original 34-foot gauge configuration and the changes in power supply and reinforcement.

Other Factors

The work to be performed in China is complex and labor intensive. It will require the labor and supervision of between 20 and 40 people over at least a 2-3 month period. In addition to the typhoon steel reinforcing and gauge change steel fabrication, the work specifically includes, but is not limited to the following:

At portal beam level, installation of a 480V, 1000 Kw diesel engine generator with house, installation of a 1,000 gallon fuel-tank at the portal level with fill line system from tankage to ground level, installation of a feedback resistor load bank, removal of existing high voltage collector plow and high voltage disconnect switch (pull back wiring as required), disconnect existing trolley, and hoist isolation transformers and auxiliary transformer in hoist machinery house, upgrade existing programmable controller on one crane, relocate on new gantry landside legs on existing trucks, equalizer, sill, beam gantry motors, brakes, rail clamps, phone, bells, strobes, remote maintenance station and limit switches, including rewiring, machine existing treads on 32 gantry wheels on one crane and replace 32 gantry wheels on the other crane for fit with Guam 175 pound rail, replace seals and bearings on all wheels, fabricate and install tie down brackets and turnbuckles at all four legs, fabricate and install stow pin assemblies, paint cranes in Guam Terminal colors, and include all engineering, fabrication, materials and labor to install required sea bracing and fastenings.

ISSUE:

Whether the work to be done in China to the subject cranes as described above is sufficient to create a “new and different product” within the meaning of 19 CFR § 4.80b(a) so that the proposed transportation of the cranes by foreign-flag vessels is not violative of 46 U.S.C. App. § 883.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, § 883 (the merchandise coastwise law often called the "Jones Act") prohibits the transportation of merchandise between United States coastwise points, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States (i.e., a coastwise-qualified vessel).

In interpreting § 883, Customs has ruled that a point in United States territorial waters is a point in the United States embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline, in cases where the baseline and the coastline differ.

Pursuant to title 46, United States Code Appendix, § 877 (46 U.S.C. App. § 877) the coastwise laws are applicable to Guam. Accordingly, foreign-flag vessels are prohibited from transporting merchandise and/or passengers between United States coastwise points, including transportation between Guam and other points in the United States and between points within Guam.

However, pursuant to title 46, United States Code, § 12105(b) (46 U.S.C. § 12105(b)), a vessel for which a registry endorsement is issued may be employed in trade with Guam. Consequently, Customs has held that foreign-built vessels issued a U.S. certificate of documentation endorsed with a registry endorsement may engage in trade between United States coastwise points and Guam.

Section 4.80b(a), Customs Regulations, provides, in part, that:

A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws ("coastwise point") is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise. However, merchandise is not transported coastwise if at an intermediate port or place other than a coastwise point (that is, at a foreign port or place, or at a port or place in a territory or posses- sion of the U.S. not subject to the coastwise laws), it is manufactured or processed into a new and different product, and the new and different product thereafter is transported to a coastwise point. (Emphasis added)

Section 4.80b was promulgated subsequent to the case of American Maritime Association v. Blumenthal, 590 F.2d 1156 (D.C. Cir. 1978), which, as you state, is the leading case on this subject. In that case the U.S. Court of Appeals, District of Columbia, considered whether Alaska crude oil could be transported by non-coastwise-qualified
vessels from Alaska to the U.S. Virgin Islands (a non-coastwise point) where it was refined and then transported to a point in the continental United States. The court stated (590 F.2d 1156, at 1161) that the "central issue, therefore, is whether the 'merchandise' (crude oil) transported from Valdez to St. Croix by Hess is so similar to the 'merchandise' (refined oil products) subsequently shipped from St. Croix to the continental United States that the processing at St. Croix fails to interrupt an essentially single voyage of the oil from Valdez, Alaska to the East Coast." (See also, footnote 38, 590 F.2d 1156, at 1163, referring to letter rulings of the Customs Service on this issue. The court, in this footnote, noted that "[i]n these rulings the degree to which a product has been altered by processing at the point of transshipment has generally been dispositive of whether the continuity of its transportation has been broken at that point...")

The court in Blumenthal held that the transportation in that case did not violate 46 U.S.C. App. 883. The rationale for this holding was that the continuity of the transportation was broken because the products of the crude oil transported after refining were "quite different" from the crude oil transported to the U.S. Virgin Islands, "i.e., [they were] products which are physically, chemically, and usefully different from the original crude oil." (590 F.2d 1156, at 1162, 1163) In footnote 37 which is relevant to the issue under consideration, the Court, in pertinent part, stated:

...The issue is not whether the whole of a particular substance is more or less than its parts, but whether after a refining or manufacturing process which, for example, breaks the substance down into constituent elements or combines it with other elements to create new substances, the product remains largely the same in such respects as form, composition, value or function. Id. at p. 1163 (Emphasis added)

With respect to the applicability of the criteria established by the Blumenthal decision to the work to be performed on the cranes in China as described herein, our analysis is as follows.

At the outset, we note your reference to the estimated [ ] increase in value of each crane after the work in question would be completed. Assuming, arguendo, the veracity of this estimate (the requesting letter has no enclosed documentation corroborating this estimate), as noted by the court in Blumenthal, a change in value “is not
dispositive, because value is only one of the considerationsin determining if a product has changed through processing.” Id.

As to the physical appearance (i.e., form) of the cranes subsequent to the work in China, while they will increase in track gauge (34-foot to 50-foot), power supply and reinforcement, you state that they will change neither their height nor width.

More importantly, however, we note that the function of these cranes will not change at all. They will indisputably still be used in Guam for the same purpose they were used in California, i.e., lading/unlading cargo from ships and transporting cargo to and from ships. Notwith- standing the alterations which will enable them to become operational in Guam, the proposed work to be performed on the cranes in China will not result in their becoming “usefully different” as discussed by the court in Blumenthal.

Accordingly, it is our position that the work described above does not create a “new and different product” within the meaning of 19 CFR § 4.80b(a). Foreign-flag vessels may therefore not be used to effect the proposed transportation of the cranes from California to Guam via China.

HOLDING:

The work to be done in China to the subject cranes as described above is not sufficient to create a “new and different product” within the meaning of 19 CFR § 4.80b(a). The proposed transportation of the cranes by foreign-flag vessels is therefore violative of 46 U.S.C. App. § 883.

Sincerely,

Jeremy Baskin
Acting Chief

Previous Ruling Next Ruling