19 U.S.C. § 1466; Vessel Repair; Replacement of Longitudinal Bulkheads; S/S HORIZON ANCHORAGE, S/S HORIZON TACOMA and S/S HORIZON KODIAK; Horizon Lines, Inc.

HQ H249183 March 7, 2014 VES-3-18-OT-RR:BSTC:CCR H249183 WRB CATEGORY: Carriers Jonathan K. Waldron, Esquire Blank Rome, LLP Watergate 600 New Hampshire Avenue, N.W. Washington, DC 20037 RE: 19 U.S.C. § 1466; Vessel Repair; Replacement of Longitudinal Bulkheads; S/S HORIZON ANCHORAGE, S/S HORIZON TACOMA and S/S HORIZON KODIAK; Horizon Lines, Inc. Dear Mr. Waldron: This is in response to your letter of January 8, 2014, requesting an advisory ruling on behalf of your client, Horizon Lines, Inc., (hereinafter “Horizon”) to determine whether the proposed work described below will constitute modifications for the purposes of 19 U.S.C. § 1466 (the “Vessel Repair Statute”). Our advisory ruling is set forth below. FACTS You seek our advice with respect to proposed modifications to three United States-flag vessels, the S/S HORIZON ANCHORAGE, S/S HORIZON TACOMA and S/S HORIZON KODIAK (hereinafter, the “Vessels”). Horizon proposes to carry out modifications on the Vessels which will include the replacement of existing inboard longitudinal bulkheads with thicker, higher-grade steel in order to increase the overall strength of their structures, which are claimed to improve the overall safe operation and operational life of the vessels. The proposed work will involve work to the Vessels’ inboard longitudinal bulkheads to include replacing the existing inboard longitudinal bulkheads of the box girders with steel material that is both thicker and made from a higher grade material. Due to the Vessels’ relatively narrow beam to length ratio, they are subject to significant levels of stress, bending and fatigue during operation. The proposed modifications are intended to increase the overall strength of the Vessels’ structures, reduce structural stress levels, increase operational safety, and extend the Vessels’ service lives. The proposed modifications will require the removal of approximately 617 feet of inboard longitudinal bulkhead plating at various locations between the second deck and main deck levels, with the proposed modifications to be performed in various locations from Frame 77 to Frame 124. The existing plating proposed to be removed is 25mm thick ABS Grade AH36 steel (3/4” thick ABS AH36 steel forward of Frame 117). The total weight of steel material proposed to be removed is approximately 87 long tons (“LTs”). Following the removal of the current bulkhead plating, approximately 114 LTs of new plating, which is 32mm thick ABS Grade EH36 steel, will be installed. Horizon asserts that the new steel plates are of a higher grade than the existing steel plates, in that they will have improved impact resistance and notch toughness at lower temperatures, which will contribute to increased bulkhead strength and resistance to fracturing, ultimately resulting in the extension of the Vessels’ service lives. Horizon submitted drawings to illustrate the proposed modification of the Vessels’ longitudinal bulkheads in support of this request. ISSUE Whether the work described above constitutes modifications to the subject vessels under 19 U.S.C. § 1466? LAW AND ANALYSIS Title 19, United States Code, section 1466(a) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to and equipment for 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, CBP has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. See HQ 111425 (June 26, 1991); HQ 111747 (Feb. 19, 1992); and HQ 113127 (June 14, 1994). 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 modification, several 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 as to whether certain work may be a modification of a vessel under 19 U.S.C. § 1466. The factors are: 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, citing Otte v. United States, and 27 Op. Atty Gen. 228. However, we note that a permanent incorporation or attachment may not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment. 2. 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. Additionally, we note that in order to qualify as a modification, rather than a repair, the documentation of record must reflect that the element which was replaced, if any, was in good and full working order at the time the work was performed. CBP has consistently ruled that newly designed systems and components permanently installed on a vessel, which would remain on board the vessel during extended layup, do not replace an item in need of repair, and will improve the operation or efficiency of the vessel are modifications. See e.g., HQ 114093 (Sept. 12, 1997); HQ H143219 (Feb. 22, 2011); and, HQ 116627 (Mar.16, 2006). Your client asserts that the bulkhead plating to be removed is currently structurally sound and not in need of repair or replacement, although fracture repairs have been made to this plating in the past. Horizon asserts that the bulkhead plating is being removed solely to allow the installation of steel that is of higher quality and strength to increase the strength of the bulkheads, and to reduce the Vessels’ structural bending and stress. Considering the first factor, whether there is a permanent incorporation into the hull or superstructure, the nature of the work to be done to the Vessels’ hulls and fittings is such that it would constitute a permanent incorporation into the Vessels. The proposed modifications involve the removal of portions of the Vessels’ inboard longitudinal bulkheads and the installation of steel plates of a higher grade and thickness. The new materials to be installed will be permanently incorporated and integrated into the structure of the vessels and will not be capable of being removed from the Vessels without significant labor and possible structural damage. Regarding the second factor, whether, in all likelihood, an item would remain aboard a vessel during an extended lay-up, the nature of the work to be done to the hulls and fittings is such that it indicates that the contemplated items would remain aboard a vessel during an extended lay-up. The new materials to be installed will be permanently incorporated and thoroughly integrated into the Vessels’ structures, usually accomplished by welding. They will not be capable of being removed from the Vessels without significant labor and possible structural damage. For this reason, the new materials to be installed during the modification would remain in place during an extended layup period. The third factor of our analysis, whether an item constitutes a new design feature and is not merely replacing a part, fitting, or structure that is performing a similar function, the nature of the proposed work indicates that a modification is contemplated. We also note that your client states that the work is not contemplated to replace a current part, fitting or structure which is not in good working order. Although the proposed work would result in new longitudinal bulkheads performing the same function as those removed, the new, stronger, thicker steel would result in increased bulkhead strength and resistance to fracturing, ultimately resulting in the extension of the Vessels’ service lives. We are of the opinion that this sufficiently meets requirements to be considered a new design feature. Last, whether an item provides an improvement or enhancement in operation or efficiency of the vessel, the proposed work is intended to increase the overall strength of the Vessels’ structures, and improve the overall safe operation and operational life of the Vessels, by increasing bulkhead strength and resistance to fracturing. Such an outcome would result in enhancement in operation or efficiency of the Vessels, indicating that the proposed work would qualify as a modification rather than as a repair. CBP has examined similar work in the past. In HQ 112050 (Apr. 7, 1992), we examined the dutiability of structural reinforcement operations performed on a vessel’s longitudinal bulkhead. In that matter, we determined that foreign shipyard operations limited to modification processes with no repairs being performed were considered a duty-free modification. Similarly, in HQ 115346 (Apr. 30, 2001), we determined that permanent installation of steel panel breakers throughout a vessel’s double bottom below the cargo tanks to reduce the overall plate loading, improving the local structural performance of the vessel, constituted a nondutiable modification to the subject vessel. Likewise, in HQ 115255 (Apr. 10, 2001), we ruled that removal of a vessel’s steel bottom, determined to be in good working order and not in need of repair, to be replaced with steel of a higher grade and thickness, thereby improving the safe operation of the vessel and extending the vessel’s useful life, was a nondutiable modification. And, in HQ 113678 (Oct. 7, 1998), while noting that work performed to remedy actual bulkhead cracking was dutiable under the statute, modification work to eliminate the design defect in the original construction of the vessel which lead to the bulkhead cracking was not dutiable as a repair where there was no evidence of any need for repair at the time the work was performed. Based upon the information provided by Horizon and after consideration of each of the four factors, we are of the opinion that that the proposed work would meet the above-discussed criteria for vessel modifications. Accordingly, the proposed work to the subject Vessels, the S/S HORIZON ANCHORAGE, S/S HORIZON TACOMA, and S/S HORIZON KODIAK, as described above and in the supporting documentation would meet the criteria for a modification under 19 U.S.C. § 1466. HOLDING The proposed foreign shipyard work described above constitutes non-dutiable modifications to the hull and fittings of the S/S HORIZON ANCHORAGE, S/S HORIZON TACOMA, and S/S HORIZON KODIAK. 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 19 C.F.R. §§ 4.14(d) and (e). Furthermore, any final determination on this matter is contingent on CBP’s review of the evidence submitted pursuant to 19 C.F.R. § 4.14(i). Sincerely, Lisa L. Burley, Chief Cargo Security, Carriers and Restricted Merchandise Branch Office of International Trade, Regulations and Rulings U.S. Customs and Border Protection