VES-13-18-CO:R:IT:C

Ms. Suzanne Smith
Purchaser/Expediter
Wartsila Diesel, Inc.
Route 5, Box 116B
Chestertown, Maryland 21620

RE: Vessel repair; Importation of marine engines; Installation in the United States; Installation on the high seas

Dear Ms. Smith:

Reference is made to your letter of June 4, 1990, in which you inquire as to the duty status of certain marine diesel engines to be imported into the United States. The question of duty involves both commodity duty issues arising under the Harmonized Tariff Schedule of the United States (HTSUS) as well as vessel repair duties arising under a separate statute.

FACTS:

Wartsila Diesel, Inc., a Finnish firm with U.S. subsidiary corporations, intends to re-power 36 vessels currently operated by a U.S.-flag carrier. The vessels currently operate with Japanese power plants, and the Japanese alternators will continue in use with the new engines following their refurbishment in the United States.

The refurbished alternators will be sent to Finland after being registered in the U.S. on a Customs Form 4455 (Certificate of Registration), and will there be coupled to new Wartsila diesel power plants. The coupled units will then be imported into the United States for installation in this country by engineers from your firm. It may also be necessary for certain work to be performed by Wartsila engineers while the vessels are on their first voyages from the U.S. with their newly installed engines.

The questions posed by Wartsila in regard to the proposed transaction concern whether the use of the CF 4455 is proper, the HTSUS duties which may be owed on the new engines and the foreign labor necessary to couple them to the registered alternators, and the vessel repair duties which may be due on the labor to install the new units in the United States and on the high seas. Questions regarding the application of the HTSUS are not within the ken of this branch and will be referred to the proper office in Customs for direct reply to you. Vessel repair duty issues will be addressed in this ruling letter.

ISSUE:

Whether the U.S. or high seas installation of imported diesel engines on U.S.-flag vessels may be subject to duty under the vessel repair statute.

LAW AND ANALYSIS:

Section 466, Tariff Act of 1930, as amended (19 U.S.C. 1466) provides, in pertinent part, for payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to engage in such trade.

Work performed in the United States will not be subject to duty under section 1466. Follow-up work performed outside U.S. territorial waters (on the high seas) may or may not be subject to vessel repair duties, depending upon the particular circumstances involved. It is not clear whether the work to be performed will be accomplished by company engineers from Finland or from the U.S. subsidiary corporations. If Finnish labor is provided, duties may be owing under section 1466 on the portion of that labor which is provided outside of U.S. jurisdiction. If, however, labor is provided by U.S. residents, there would not be duty consequences under section 1466.

Even if Finnish labor is used, however, it may be possible that no duty would be assessed under the vessel repair statute. A determination on this point would depend upon whether the installation of the new power plants constitutes a modification rather than a repair under the statute. The work would be characterized as a non-dutiable modification if the new engines replace engines which were in good working order at the time of their replacement, but only if the new engines are determined to provide an improvement in the operating efficiency of the vessels. If they merely replace defective engines which would have had to be repaired or replaced in any case, the work performed outside the United States would be dutiable, even if an improvement in operating efficiency results.

HOLDING:

Vessel repair duty liability is limited to those areas discussed in the LAW AND ANALYSIS section of this ruling. Issues regarding potential consumption entry duty liability and use of the Customs Form 4455 are being referred to the proper office within Customs for direct reply.

Sincerely,

B. James Fritz
Chief
Carrier Rulings Branch