Proposed Modification; Installation of a Crane Assembly; 19 U.S.C. § 1466

HQ H028903 June 9, 2008 VES-3-02-OT:RR:BSTC:CCI H028903 CK CATEGORY: Carriers Ms. Jeanne M. Grasso Blank Rome LLP Watergate 600 New Hampshire Avenue, NW Washington, DC 20037 RE: Proposed Modification; Installation of a Crane Assembly; 19 U.S.C. § 1466 Dear Ms. Grasso: This is in response to your letter dated May 20, 2008, with enclosures, on behalf of ABF Barge LLC ("ABF Barge"), requesting a ruling as to whether certain proposed foreign work done to the U.S.-flag steel deck barge, LEFT COAST LIFTER (the "vessel") would be considered a nondutiable modification under the vessel repair statute. Our ruling on this matter is set forth below. FACTS: The vessel at issue is a steel deck barge, classed by the American Bureau of Shipping as a Maltese Cross A-1 Barge, and has a typical configuration of an oceangoing deck cargo barge with a flush deck, modified raked bow, and a square transom stern. The work to be performed by Shanghai Zhenhua Port Machinery Company, Ltd. (“ZPMC”) in China consists of the design, furnishing, and delivery of a heavy lift, shear leg crane assembly with a 100-meter boom and 10-meter gooseneck extension, and other accessory components, to be installed aboard the vessel. In support of your request that the proposed work be considered a nondutiable modification, you have submitted specifications, and change orders, as well as drawings depicting the location and configuration on the vessel for the new heavy lift shear leg crane. The work at issue includes but is not limited to the parts and labor included in the installation of the following: the crane boom, mast, hooks, and related components; machinery and electric houses, generators, mechanical, electrical and related components; outrigger floats and their attachments to the barge; winch and anchor systems; spare parts and other auxiliary components. The components are to be installed above the deck. The boom and A-frame structures shall be collapsible and stowable for transit, and the floats shall be detachable for transit. The specific features of the crane and lift hooks include: One barge-mounted, heavy lift, shear leg crane with 100 m boom and 10 m gooseneck extension for auxiliary and whip hooks Two 850 ton capacity main hoist hooks- sister hooks and safety latches One 100 ton capacity auxiliary hook- either solid fail (shackle) or single hook with safety latch, mounted on goose neck at tip of boom One 10 ton capacity whip hook- single hook with safety latch, mounted on goose neck behind auxiliary hook near tip of boom. The main power is to be supplied by three Caterpillar diesel generator sets, a GE TMEIC AC drive package, and the main motors will be Shanghai ABB/Shanghai Nanyang. Other features and equipment include: boom and A-frame stowing devices for transit; small diesel generator; working anchors; anchor chains; wire rope; deck winches; deck fittings for winch lines; outrigger floats and attachments to barge; shore power connection box; all electrical cable, switchgear, components, motor protection, installation; automatic lubrication device; anemometer; control cubicles and house; lightning protection; aviation warning beacon and flood lights on the boom; specified power outlets around crane barge; plug-in shore power; load weighing and moment indicting system with readout in cab; initial spare parts; spare parts warehouse and maintenance tools; wire rope for all hoists; hooks, sheaves, blocks, bearing; brakes, couplings, reducers for crane machinery; lebus sleeves, and telephone. Change orders included in the request detail are as follows: floating crane enhancements- anchor winch changes, extra anchors, extra winches, and gear; two removable boom supports on the 1700T Floated crane to assist in transport and removing the upper load blocks; furnish and install four spuds and associated hardware; non-skid surface paint; track beam stiffeners; float connections; repair pinholes; and replace standard hydraulic oil. ISSUE: Whether the proposed foreign work would constitute a modification of the LEFT COAST LIFTER 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. §1466, 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 May 20, 2008, and the supporting documentation enclosed therein, it is apparent that the proposed work would meet the above-discussed criteria for a non-dutiable modification. In this regard, we note the nature of the work to be performed (i.e., installing the heavy lift shear leg crane and attachments) is such that it would be a permanent incorporation into the vessel. As such, it would remain aboard the vessel during an extended lay up. Furthermore, the work is not to be done to replace a current part, fitting or structure which is not in good working order, since no crane preceded the proposed crane installation. Finally, the proposed work will improve the operation of the vessel by converting it from a deck barge to a crane barge and thereby enabling it to work on the project for which it is intended to be used. Accordingly, the proposed work to the subject vessel, the LEFT COAST LIFTER, 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 of the LEFT COAST LIFTER 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 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