19 U.S.C. § 1466; Proposed Vessel Modification

HQ H072555 August 25, 2009 OT-RR:BSTC:CCI H072555 GOB CATEGORY: Carriers Bruce A. King, Esq. Garvey Schubert Barer Second & Seneca Building 1191 Second Avenue, 18th Floor Seattle, WA 98101-2939 RE: 19 U.S.C. § 1466; Proposed Vessel Modification Dear Mr. King: This is in response to your correspondence of August 18, 2009, requesting a ruling on behalf of Interocean American Shipping Corporation (“Interocean”). Our ruling is set forth below. FACTS: The U.S.-flag vessel COURAGE (the “vessel”) is scheduled to enter a shipyard for scheduled surveys and inspections, and routine maintenance. The vessel is a car and vehicle carrier, which has an internal, fixed vehicle ramp that was designed to be able to handle vehicles weighing up to two tons. You state that “[t]he ramp is structurally sound, well maintained, and none of it is in need of replacement or repair.” The vessel owners wish to reinforce the ramp so that it can handle vehicles weighing up to ten tons. You state that “[t]he work to be done to the ramp consists of strengthening the ramp by welding to it additional supports and under-framing, and then painting the added steel and repainting the areas where the paint will be damaged by the modification work being done.” You further describe the work to be performed as follows: Internal Cargo Ramp Modifications Provide all labor, material, services, staging and equipment to modify the vessel’s internal cargo ramp to carry 10 ton loads instead of its current designed 2 ton load limit, in accordance with (a) Specification 317, (b) document “Internal cargo ramp – Structural Modification Details,” and (c) drawing No. 2966-S16-09. Add structural reinforcement; add stiffeners and brackets; add flat-bar doubler plates; add 6mm slot welded doubler plates; and add angle bars. Painting Cargo Ramp Modifications Prepare surfaces and repaint added material and areas where existing paint will be affected by the modifications conducted pursuant to the Work Item above. Areas not affected by the modification will not be repainted. The additional materials which you have submitted (i.e., the specifications for the “Internal Cargo Ramp Modifications” and the drawing for the “Internal Cargo Ramp Upgrade”) are consistent with the above description. ISSUE: The issue presented is whether the work described above is dutiable under 19 U.S.C. § 1466 or is a nondutiable modification to the vessel. LAW AND ANALYSIS: Title 19, United States Code, section 1466 (19 U.S.C. §1466) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of equipment purchased in a foreign country for and foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to be employed in such trade. In its administration of the vessel repair statute, Customs and Border Protection (“CBP”) has held that modifications, alterations, or additions to the hull 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. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered. These factors 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: 1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment. Whether in all likelihood an item would remain aboard a vessel during an extended lay-up. 3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function. 4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel. In your submission, you cited the following rulings as supportive of your claim. In HQ 115403, dated August 17, 2001, CBP found the following work to be a nondutiable modification to the subject vessels: the installation of container racks and deck strengthening members to expand the cargo carrying capacity of the vessels. In HQ 115346, dated April 30, 2001, CBP found that the following constituted a nondutiable modification to the subject vessel: the installation of steel panel breakers throughout the double bottom of the vessel. This work strengthened the hull of the vessel by reducing the distance between the inner bottom support systems. In HQ 115182, dated May 29, 2001, CBP found the following work to be a nondutiable modification to the subject vessel: the removal of stacking frames, hinge frames, and associated structure to provide a modern system of securing containers using semi-automatic twistlocks and lashing rods. This work included coating with paint all steel damaged by hot work where the work was performed. After a consideration of the documentation submitted in light of the factors discussed above, we find that the work described in your submission will constitute a modification to the hull of the subject vessel. Therefore, such work will not be dutiable under 19 U.S.C. § 1466. HOLDING: The work described above will constitute a modification to the hull of the subject vessel. Therefore, such work will not be dutiable under 19 U.S.C. § 1466. We emphasize that this ruling is merely advisory in nature and does not eliminate the requirement to declare work performed abroad at the vessel’s first United States port of arrival, nor does it eliminate the requirement to file a vessel repair entry showing this work (See section 4.14(d) and (e), CBP Regulations (19 CFR § 4.14(d) and (e))). Furthermore, any final determination on this matter is contingent on CBP’s review of the evidence submitted pursuant to section 4.14(i), CBP Regulations (19 CFR § 4.14(i)). Sincerely, Glen E. Vereb Chief Cargo Security, Carriers and Immigration Branch