U.S.-Dominican Republic-Central America Free Trade Agreement; Foreign Shipyard Work; 19 U.S.C. § 1466(a)

HQ H014147 August 7, 2007 VES-13-18-OT:RR:BSTC:CCI H014147 GG CATEGORY: Carriers Mr. William N. Myhre, Esq. Kirkpatrick & Lockhart Preston Gates Ellis LLP 1601 K Street NW Washington, DC 20006 RE: U.S.-Dominican Republic-Central America Free Trade Agreement; Foreign Shipyard Work; 19 U.S.C. § 1466(a) Dear Mr. Myhre: This is in response to your letter of July 12, 2007, in which you request an expedited ruling pursuant to 19 C.F.R. 177.2(d), regarding whether pursuant to the U.S.-Dominican Republic-Central America Free Trade Agreement (“DR-CAFTA”), certain foreign shipyard work would not be subject to duty under the vessel repair statute (19 U.S.C. § 1466(a)). Our ruling is set forth below. FACTS Two U.S.-flagged barges, the KARLISSA A and the KARLISSA B (the “vessels”), owned by Titan Marine, Inc., a subsidiary of Crowley Maritime Corporation, are scheduled to undergo a variety of inspections, modifications, vessel upgrades and miscellaneous repairs in the Dominican Republic in September 2007. You inquire into the application of the DR-CAFTA as it pertains to vessel repair duties. Specifically, you maintain that pursuant to DR-CAFTA, the shipyard work to be performed on the subject vessels should not be subject to duty under the vessel repair statute. ISSUE Whether the shipyard work to be performed in the Dominican Republic on the U.S.-flagged vessels described above would be subject to duty under 19 U.S.C. § 1466(a), or exempt from such duties pursuant to the Dominican Republic—Central America Free Trade Agreement. 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. See 19 U.S.C. § 1466(a). The U.S.-Dominican Republic-Central America Free Trade Agreement (“DR-CAFTA”) was implemented on March 1, 2007, and provides for tariff elimination. Specifically, Article 3.3.2 of DR-CAFTA, “Tariff Elimination,” states that “[e]xcept as provided in this Agreement, each Party shall progressively eliminate its customs duties on originating goods, in accordance with Annex 3.3.” Annex 3.3.1(a) provides for staging categories which apply to the elimination of customs duties, and states that “duties on goods provided for in the items in staging category A in a Party’s Schedule shall be eliminated entirely and such goods shall be duty-free…” on the date the Agreement enters into force. Article 3.3.1(a)(ii), DR-CAFTA (March 1, 2007). In that regard, the U.S. Tariff Schedule in Annex 3.3 lists as a staging category A tariff “[o]ther equipment or parts, upon first arrival in any port of the U.S. of any vessel.” Further, Article 3.6.1 of DR-CAFTA, “Goods Re-entered after Repair or Alteration,” provides that “No party may apply a customs duty to a good, regardless of its origin, that re-enters its territory after that good has been temporarily exported from its territory to the territory of another Party for repair or alteration, regardless of whether such repair or alteration could be performed in the territory of the Party from which the good was exported for repair or alteration.” Thus, Article 3.6 excludes from duty repairs to goods re-entering U.S. territory after being repaired in the territory of another party to the Agreement, even if the repairs could have been performed in the U.S. Moreover, Article 3.6.3 provides that “repair or alteration does not include an operation or process that: (a) destroys a good’s essential characteristics or creates a new or commercially different good; or (b) transforms an unfinished good into a finished good.” We note that while the language in Article 3.6 of the DR-CAFTA does not specifically reference ship repairs, it nevertheless obligates the importing Party to provide duty-free treatment to all repairs and alterations performed in the territory of the other Party; there is no language which excludes vessel repairs from receiving duty-free treatment. Upon reviewing your request in the instant case, we are of the opinion that based on the foregoing, the shipyard work to be performed on the subject vessels in the Dominican Republic will not be subject to duty under the vessel repair statute. HOLDING Pursuant to the U.S.-Dominican Republic-Central America Free Trade Agreement, work performed on the U.S.-flagged vessels described above in the Dominican Republic is not subject to duty under 19 U.S.C. § 1466(a). 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 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 Chief Cargo Security, Carriers and Immigration Branch