HQ H009898 - Vessel Repair; Proposed Modification; Double Hulling; Cargo Crane Replacement; 19 U.S.C. § 1466 - United States International Trade Commision Rulings

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HQ H009898

July 12, 2007

VES-3-02-OT:RR:BSTC:CCI H009898 GG

CATEGORY: CARRIER

Mr. Harvey J. Mott
VP Fleet Management
Seabulk Tankers, Inc.
2200 Eller Drive
P.O. Box 13138
Ft. Lauderdale, FL 33316

RE: Vessel Repair; Proposed Modification; Double Hulling; Cargo Crane Replacement; 19 U.S.C. § 1466

Dear Mr. Mott:

This is in response to your letter dated March 26, 2007, with enclosures, on behalf of Seabulk Tankers, Inc. ("Seabulk"), requesting a ruling as to whether certain proposed foreign work done to the M/T SEABULK TRADER and the M/T SEABULK CHALLENGE (the "vessels") would be considered nondutiable modifications under the vessel repair statute. Our ruling on this matter is set forth below.

FACTS

Seabulk operates petroleum product tankers serving the U.S. coastwise and international petroleum and chemical shipping markets. The subject vessels are U.S. flagged, U.S. coastwise endorsed, double bottom, single sided oil/chemical carriers, built domestically at the Litton Avondale Shipyards in 1981. The scope of the proposed modifications to the hulls of the vessels is identical. The vessels are documented to be in compliance with the American Bureau of Shipping (ABS) classification and the United Stated Coast Guard (USCG) rules. They are not in a state of disrepair, decay or deterioration necessitating restoration or installation of any component contemplated to restore the vessels to good working order.

The original design on the vertical sides of the vessels' hulls is single sided. As such, the subject vessels are scheduled to be phased out of service in 2011 in accordance with the Oil Pollution Act of 1990 (OPA 90). In order to extend the operational trading life of the vessels and exempt them from the OPA 90 retirement dates, Seabulk has initiated a conversion program to "double hull" the referenced vessels. The scope of work contemplated for the "double hulling" involves structural modifications to allow for the installation of the double hull boundary; piping, pumping and access work to reflect the new tank arrangements; and cargo and ballast control system installations and reconfigurations to reflect the new cargo and ballast arrangements. There is no reasonable likelihood for the double hull to be subsequently removed from the vessels during an extended lay up, and the structural double hulling represents a first time installation onto the vessels. Further, the double hulling enhances the prevention of environmental pollution such that the vessels will be able to engage in U.S. coastwise trade beyond the OPA 90 retirement date of 2011.

In addition, Seabulk has undertaken other alleged modification work during the same period, including the replacement of the cargo/hose handling cranes to improve and enhance the cargo and material handling capabilities of the vessels. In regard to the proposed crane replacement, the vessels are outfitted with two permanently mounted cargo/hose handling cranes, used for handling cargo connections, hoses, gangways, fenders and hoisting of various articles to and from the ships. The cranes are part of the ships' original construction, permanently installed on the main deck structures, and reinforced by permanent turrets on which the booms (or jibs) rotate. The scope of work contemplated for the proposed crane replacement consists of replacing the existing two cargo/hose handling cranes with units that have a greater effective capacity with an increased deployment range while operating at increased speeds. The replacement cranes would be partially incorporated into the vessels' main decks and structures by permanent turrets. As such, the installation would be permanent in nature and there would be no reasonable likelihood for the cranes to be subsequently removed from the vessels during an extended lay up. The existing cranes are being replaced in order to enhance the operational capabilities of the vessels and not due to restorative or deterioration issues.

The time frame for the proposed work on the M/T SEABULK TRADER was estimated to reach completion on or about April 25, 2007. The anticipated completion date for the M/T SEABULK CHALLENGE is in late August, 2007.

In support of your request that the proposed work be considered a modification, you have submitted specifications as well as drawings depicting the locations and configurations on the vessels for the new double hulls and replacement cranes.

Seabulk is also using a portion of the time-frame allowed in the shipyard modification period to conduct segregated repair and inspection events that are not related to the subject proposed modifications (such as rudder inspections and anchor chain renewal). Seabulk intends to properly segregate such repair and inspection events from the proposed modifications at the time of submission of the cost evidence and filing for the application for relief of duty.

ISSUE

Whether the proposed foreign work would constitute modifications to the hull and fittings of the M/T SEABULK TRADER and the M/T SEABULK CHALLENGE under consideration so as to render the work nondutiable 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 19 U.S.C. the vessel repair statute, Customs (now CBP) 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.

In considering whether an operation has resulted in a modification which 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 Admiral Oriental supra), 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 is 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.

Upon reviewing your letter of March 26, 2007, and the supporting documentation enclosed therein, at the outset we note that since the current single hulls and cranes that are to be replaced are stated to be operational and not in a state of disrepair, the installation of the double hulls and replacement cranes would not constitute a dutiable repair. Moreover, it is apparent that the proposed work would meet the above-discussed criteria for non-dutiable modifications. In this regard, we note the nature of the work to be done to the hulls and fittings is such that it would be a permanent incorporation into the vessels. As such, it would remain aboard the vessels during an extended lay up. Furthermore, the work is stated not to be done to replace a current part, fitting or structure which is not in good working order. Finally, the proposed work will improve the operation of the vessels by 1) conversion to double hulling would enhance prevention of environmental pollution; and 2) replacement cranes would improve and enhance the cargo and material handling capabilities of the vessels by providing the vessels with greater effective capacity and an increased deployment range while operating at increased speeds.

Accordingly, the proposed work to the subject vessels the M/T SEABULK TRADER and the M/T SEABULK CHALLENGE as described above and in the supporting documentation would meet the criteria for a modification and would therefore not be dutiable under 19 U.S.C. § 1466.

HOLDING

The proposed foreign shipyard work would constitute a modification to the hull and fittings of the M/T SEABULK TRADER and the M/T SEABULK CHALLENGE under consideration so as to render the work nondutiable 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 vessels' first United States port of arrival, nor does it eliminate the requirement of filing the entry showing this work (see § 4.14(e), Customs Regulations (19 CFR § 4.14(e)). Furthermore, any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to § 4.14(f), Customs Regulations (19 CFR § 4.14(f)).

Sincerely,

Glen E. Vereb

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