VES-13-18-CO:R:P:C 111184 GV
Chief, Technical Branch
Commercial Region
Pacific Region
1 World Trade Center
Long Beach, California 90831
RE: Vessel Repair; Entry No. 906-1514342-8; OCEAN ROVER V-1;
Conversion; Norwegian Subsidy Program
Dear Sir:
This is in response to your memorandum dated July 13, 1990,
transmitting an application for relief from duties assessed
pursuant to 19 U.S.C. 1466. You request that we review all items
contained in the above entry. Our findings are set forth below.
FACTS:
The OCEAN ROVER is a U.S.-flag vessel owned by Birting
Fisheries, Inc., of Edmonds, Washington. The subject vessel had
shipyard work performed on her at the shipyard of Langsten Slip &
Batbyggeri, A/S, ("Langsten") Tomrefjord, Norway, from August 8,
1988, until December 12, 1989, for the purpose of converting the
vessel from an oil rig supply ship used to service oil and gas
rigs in Malaysia to a surimi factory processing ship to be
operated in the North Bering Sea area of Alaska. This work
included the following: (1) the replacement of the vessel's bow,
superstructure, and stern; (2) the re-engining of the vessel;
(3) the installation of a bow thruster; (4) the installation of
refrigeration; (5) the installation of a fish meal plant; (6)
the installation of a surimi plant; (6) the installation of deck
machinery; and (7) the installation of personnel living spaces,
storage rooms, increased tank capacity, bridge, etc. Subsequent
to the completion of this work the vessel arrived in the United
States at Seattle, Washington on January 18, 1990. A vessel
repair entry was filed on the date of arrival.
Pursuant to an authorized extension of time, an application
for relief, dated April 16, 1988, was timely filed. The
applicant claims, inter alia, that various work performed on the
vessel constitutes nondutiable modifications, that various
expenses are otherwise classifiably free, and that imported
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equipment placed on the vessel after its arrival in the U.S. is
nondutiable. In support of this claim the applicant submitted
shipyard invoices, blueprints, letters from the naval architects
and marine engineers involved, and photographs of the work in
question. The applicant also states that while the contract for
conversion contains a final price (albeit with itemized costs
contained therein) the work was performed pursuant to a subsidy
program of the Norwegian Government to encourage such work in
that country.
ISSUE:
Whether the foreign expenses for which the applicant seeks
relief are dutiable under 19 U.S.C. 1466.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466, provides in
pertinent part, for payment on 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.
A leading case in the interpretation and application of
section 1466 is United States v. Admiral Oriental Line et al., 18
C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished
between equipment and repairs on one hand and permanent additions
to the hull and fittings on the other, the former being subject
to duty under section 1466.
The Court in Admiral Oriental, supra., cited with approval
an opinion of the Attorney General (27 Op. Atty. Gen. 288). That
opinion interpreted section 17 of the Act of June 26, 1884, (23
Stat. 57, which allowed drawback on the vessels built in the U.S.
for foreign account, wholly or in part of duty-paid materials.
In defining equipment of a vessel, the Attorney General found
that items which are not equipment are:
...those appliances which are permanently attached
to the vessel, and which would remain on board
were the vessel to be laid up for a long period...
[and] are material[s] used in the construction of
the vessel...
While the opinion of the Attorney General interpreted a provision
of law other than section 1466 or a predecessor thereto, it is
considered instructive and has long been cited in Customs Service
rulings as defining permanent additions to the hull and fittings
of a vessel.
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For purposes of section 1466, dutiable equipment has been
defined as:
...portable articles necessary or appropriate for
the navigation, operation, or maintenance of a
vessel, but not permanently incorporated in or
permanently attached to its hull or propelling
machinery, and not constituting consumable
supplies. (T.D. 34150 (1914)).
It should be noted that the fact that a change or addition
of equipment is made to conform with a new design scheme, or for
the purpose of complying with the requirements of statute or
code, is not a relevant consideration. Therefore, any change
accomplished solely for these reasons, and which does not
constitute a permanent addition to the hull and fittings to the
vessel, would be dutiable under section 1466.
In regard to the issue of dutiability of shipyard work
subsidized by the Norwegian Government, we note that the dutiable
value of foreign repairs to U.S.-flag vessels is the cost of such
repairs (T.D. 39340). We therefore have held that if the cost of
equipment or repairs is subsidized by the government in a foreign
country where they are purchased or made, so that the vessel
owner does not pay the subsidized costs, that portion of the
total cost is not subject to duty under 19 U.S.C. 1466 (see
Customs Rulings 108243 and 109487).
Notwithstanding our recognition of the duty-free status of
foreign subsidized work, we have nonetheless reviewed Langsten
invoice 6422 (the invoice listing all of the work in question) as
to the dutiability of all costs listed thereon. Upon reviewing
the entire record with regard to the applicant's claims, we note
that the work listed on Item 26 of Langsten invoice no. 6422
constitutes nondutiable modifications to the vessel with the
exception of the itemized costs of equipment (i.e., ropes, flags,
etc.) listed on the recap sheet.
In regard to the remainder of the costs listed on invoice
no. 6422, we note that all are considered to be classifiably free
under section 1466 with the exception of the following. Item 25
(costs of repairs made to original hull) does not constitute part
of the modification work and therefore is dutiable. Items 21
(costs of fishing gear), 28 (allowance for materials placed on
board in U.S.), 31 (allowance for spare parts, accessories,
equipment shipped), and 32 (spare parts), all cover nets, parts
and other equipment claimed to be either placed on board the
vessel in Norway and therefore dutiable, or imported, duty-paid,
and placed on board the subject vessel after its arrival in
Seattle and therefore not dutiable under section 1466.
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While under the recent amendment to section 1466 the
foregoing might excuse the parts and equipment from the
assessment of the 50% ad valorem duty if the subject vessel were
documented under the laws of the United States to engage in the
foreign or coastwise trade, and used as a cargo vessel, that is
not the situation here. We note, however, that in regard to
these four items, the record contains copies of entry summaries
(CF 7501) showing the import dates of various of these items to
be within several days of the subject vessel's date of arrival in
Seattle thus evidencing their duty-paid status and placement
aboard the subject vessel subsequent to its arrival in the U.S.
Furthermore, at the time these items are placed aboard the
subject vessel it will be documented for, and intended to be
engaged in, the fisheries and therefore not within the purview of
section 1466. Accordingly, those costs of nets, spare parts and
equipment referenced in Items 21, 28, 31 and 32 and listed on the
entry summaries provided are nondutiable.
HOLDING:
The foreign work for which the applicant seeks relief is
dutiable under 19 U.S.C. 1466 with the exception of those items
noted above.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch