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HQ H015615





October 23, 2007

VES-13-18:RR:BSTC:CCI H015615 ALS

CATEGORY: CARRIER

Supervisory Import Specialist
Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, Louisiana 70112

RE: Vessel Repair Entry No. 410-0077010-1; HORIZON CRUSADER; V-213; Protest No. 2002-07-100858

Dear Sir:

This is in response to your memorandum of August 6, 2007. The memorandum forwards an application for further review of a protest, filed on behalf of Horizon Lines, LLC (“Horizon”), seeking relief for duties assessed pursuant to 19 U.S.C. § 1466. You have asked us to review numerous items listed in your memorandum. Our ruling follows.

FACTS:

The HORIZON CRUSADER (the “vessel”), a U.S.-flag vessel owned by the protestant, incurred foreign shipyard costs. The vessel arrived in the port of Oakland, California on February 26, 2006. A vessel repair entry was timely filed. Horizon filed an application for relief from duties on the entry. Upon review of the filing, your office determined that the application should be granted in part and denied in part, and notified Horizon of this decision via a letter dated November 3, 2006. Horizon timely filed the subject application for further review, seeking relief based on a myriad of claims.

ISSUE:

Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 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 . . . “

Item 5, Invoice 5, Anti-Fouling System Initial Survey

The protestant contends that this work was done pursuant to an International Maritime Organization (IMO) requirement, which is purportedly administered by the American Bureau of Shipping (ABS), and therefore is not dutiable. Your office found this item dutiable because it was specifically related to the dutiable coating/painting of the anti-fouling system.

In following C.S.D. 79-277 (1979), regarding the dutiability of inspection/survey costs, C.S.D. 79-277 provides that, "[i]f the survey was undertaken to meet the specific requirements of a governmental entity, classification society, insurance carrier, etc., the cost is not dutiable even if dutiable repairs were effected as a result of the survey." We emphasize, however, that the holding exempts from duty only the cost of a required scheduled inspection by a qualifying entity (such as the U.S. Coast Guard or the ABS). The documentation submitted, including the ABS invoice, indicates that this was an initial survey of the anti-fouling system prior to dutiable coating/painting, not a required or scheduled inspection. Therefore, the costs of this item are dutiable.

Items 6 and 13a, Invoices 6 and 13a, Trip Account, Tugs, Pilotage, Transportation Fee and Lay Berth

The protestant contends that this item is non-dutiable because “[t]he dutiability of tugs was determined in [a Court of International Trade decision]” that “the cost of the tugs was a non-dutiable expense because it was ‘an inevitable expense of a mandatory inspection.’” American Ship Management, LLC v. United States, 162 F. Supp.2d 671, 675 (CIT 2001). Your office found this item to be dutiable because CBP has repeatedly found costs such as these to be general services expenses. You further note that general services expenses are to be prorated between free and dutiable items incurred during the dry-docking.

As we noted in CBP Ruling HQ 116501 (August 11, 2005), the U.S. Court of Appeals for the Federal Circuit in SL Service, Inc. v. United States, 357 F.3d 1358 (Fed. Cir. 2004), cert. denied December 13, 2004, upheld CBP’s “long-standing practice of apportioning the cost of various expenses between dutiable repairs and non-dutiable inspections and modifications[, which] comports with both the statute and common sense.” (Quoted from SL Service, supra.) In HQ 116501, we determined that tug services may be prorated between dutiable and non-dutiable costs. This continues to be our position on this issue. Thus, the tug services, as well as the general services expenses in this item (e.g., pilotage, transportation fee, etc.), are to be prorated accordingly.

Item 7c, Invoice 7c, Cleaning of Engine Room

The protestant contends that the engine room cleaning “does not constitute dutiable repairs” because the work “was done by U.S. technicians.” While CBP has held that the cost of U.S.-resident labor is not subject to duty under 19 U.S.C. § 1466 when no equipment, parts, or materials are used in conjunction with the expertise of U.S.-labor (CBP Ruling HQ 112728 (October 8, 1993)), the documentation submitted does not support such a granting of relief. Since the record does not support a finding that the cleaning was done by U.S. technicians, your office found this item to be dutiable.

Customs has long held that cleaning performed in preparation of or in conjunction with dutiable repairs is dutiable. See CBP Ruling HQ 112779 (July 26, 1993), citing Customs Memorandum 109789 (Nov. 4, 1988). See also Texaco Marine Services, Inc. and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (Fed. Cir. 1994), aff’g 815 F. Supp. 1484 (CIT 1993). Therefore, this item is dutiable because of the absence of documentation verifying the protestant’s claim.

Items 8, 9, 18, and 19, Invoices 8, 9, 18, and 19, Singapore Labor

The protestant contends that labor and travel expenses incurred for sending technicians from Singapore to China to work on the vessel should be treated as non-dutiable because the expenses were incurred under free trade agreements (FTAs) similar to the U.S.-Singapore FTA. Citing CBP Ruling HQ 116254 (August 2, 2004), the protestant further contends that CBP “grants relief for non-FTA labor so long as said labor is undertaken in an FTA country.” Your office found these expenses to be dutiable because the work was not done in an FTA country.

The protestant is correct in stating that we ruled in HQ 116254, supra, that labor performed in Canada by technicians from Poland and the United Kingdom was non-dutiable pursuant to the U.S.-Canada Free Trade Agreement. The case at hand, however, is plainly distinguishable from HQ 116254 in that the protestant seeks duty-free treatment pursuant the United States-Singapore Free Trade Agreement for work performed in China. The fact the technicians are Singapore citizens has no bearing on the critical basic fact that the U.S.-Singapore FTA is not applicable outside of Singapore or the United States. Thus, the travel and labor costs incurred in this case for the technicians from Singapore are dutiable.

Items 13, 14a, and 15, Invoices 13, 14a, and 15, Exterior Hull Tin-Free Coating Expenses and FD Fan Work

The protestant contends that the tin-free coating of the hull constitutes a non-dutiable modification because “[t]he anti-fouling system was required by the IMO ...the paint is a permanent incorporation into the hull,” and “the tin-free paint is not replacing paint that is in deteriorated condition.” The protestant contends that the hull washing is non-dutiable because it “only pertains to the portion of the ship that received the anti-fouling upgrade.” The protestant further contends that the FD Fan Work is a non-dutiable modification because the “fan was permanently incorporated to the hull by means of attachment so as to be indicative of a permanent incorporation,” citing CBP Ruling HQ 114140 (November 18, 1997). The protestant also contends that the freeboard coating and blast and coat hatch cover work is not dutiable because “Horizon mistakenly identified Freeboard Coating System and Blast and Coat Hatch Covers as dutiable items” and these “items are related to the anti-fouling coating.”

Your office found the tin-free coating, freeboard coating system, blast and coat hatch covers work to be dutiable repairs. We agree. The descriptions of the work performed on the invoices clearly indicate that repair work was done in each case. You also state that the hull washing was in preparation for a required ABS inspection and therefore should be duty-free. We also agree with this determination.

Your office also found the FD fan work to be a dutiable repair because the invoice indicates that the fan was dismantled, transported to a workshop where parts were fabricated and machined to meet the owner’s requirements, and then transported back to the vessel and reassembled onto the vessel. Your office found that these activities did not constitute a modification of the fan, but rather were dutiable repairs of portable equipment. We agree that the requisite modification criteria have not been met and that this work is dutiable.

HOLDING:

Following a thorough analysis of the facts as well as of the law and applicable precedents, we have determined that the protest with respect to the items considered above should be partially granted and partially denied as specified in the Law and Analysis portion of this ruling.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Glen E. Vereb
Chief

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