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HQ 115668

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July 15, 2002

VES-13-18-RR:IT:EC 115668 GEV

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs Service
423 Canal Street
New Orleans, Louisiana 70130

RE: Vessel Repair Entry No. 906-0307671-3; SS KENAI; V-118; Modification; U.S.-Resident Labor; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated April 29, 2002, forwarding an application for relief from vessel repair duties assessed pursuant to 19 U.S.C. § 1466. Our ruling on this matter is set forth below.

FACTS:

The SS KENAI is a U.S.-flag vessel which incurred foreign shipyard costs. Subsequent to the completion of the work in question, the vessel arrived at Valdez, Alaska, on October 17, 2001. A vessel repair entry was timely filed.

An application for relief with supporting documentation was timely filed. The applicant seeks relief for a myriad of costs, including those alleged to be modifications, U.S.-resident labor, and Canadian-origin parts imported into the U.S. and shipped aboard the subject vessel for installation in Korea. It is these claims for which you seek our advice.

ISSUES:

Whether the items for which the applicant seeks relief are dutiable under 19 U.S.C. § 1466(a).

LAW AND ANALYSIS:

Title 19, United States Code, § 1466(a) (19 U.S.C. § 1466(a)), 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”

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 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 nondutiable under 19 U.S.C. § 1466.

The alleged modification work for our review was marked in volume 2 of Hyundai Mipo Dockyard Co., Ltd. invoice no. 011221. Upon reviewing the work described therein, it is readily apparent that the following items constitute nondutiable modifications to the subject vessel: 038 (Forward Impressed Current System Installation); 111 (No. 2 Winch Drum Modification); 113 (Rapp-Hydema Winch Hydraulic Clutch Modification; 141 - Field Order 69 (Piping Modification); 142 (Butterworth Heater Stacey Blind Installation); 167 (Obsolete Gangway Foundation Sole Plate Removal) (we note that the dutiable repair of deck fractures also appearing as Field Order 175 under this item is properly segregated); 170 (Foam Room Scuttle Hatch Installation); 213 – Field Order 48 (C Deck Scuttle Hatch Installation); 215 – Field Order 65 (Weld Life-Ring Holders to Rail); 221 – Field Order 92 (Wheelhouse Deck Camera Mount).

In regard to the remaining items alleged to constitute nondutiable modifications, our findings are as follows. Item 139 (Pumproom Bilge Pump Installation) is merely the installation of equipment and is therefore dutiable. As for Items 149 (Manifold Gauge Connections),

152 (Manifold Air Service Line Installation), 192 (Combustion Control Upgrade), the information provided is insufficient upon which to grant relief. These items are therefore dutiable.

In regard to the U.S.-resident labor marked in volume 4 of the application and claimed by the applicant to be duty-free, we note that it is not reflected on the actual invoices listing the parts and/or materials installed but rather is referenced on appended pro forma pages prepared by the vendor with various blank spaces where the vendor cross-referenced the aforementioned invoice and placed a check to indicate U.S.-resident labor. We further note that the applicant has submitted no evidence to corroborate these claims of U.S. residency (e.g., copies of U.S. passports, drivers’ licenses, birth certificates, etc.). Absent such corroborating evidence, the labor in question is dutiable.

The final cost for which you seek our review is that of Canadian-origin condenser tubes invoiced from Wolverine Tube (Canada) Inc., transported via truck from Montreal, Canada, to Bellingham, WA, then to Port Angeles, WA, where they were loaded aboard the SS KENAI bound to Hyundai Mipo Dockyard Co., Ltd. in Korea for installation. Notwithstanding the absence of documentation evidencing the transportation of these tubes from Canada to the U.S., the record supports their duty-free treatment.

HOLDING:

The items for which the petitioner seeks relief are dutiable in part under 19 U.S.C. § 1466(a) as discussed in the Law and Analysis portion of this ruling.

Sincerely,

Jeremy Baskin

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