VES-13-18 CO:R:IT:C 111849 JBW

Robert S. Zuckerman
Deputy General Counsel-Corporate
Sea-Land Service Inc.
P. O. Box 800
Iselin, New Jersey 08830

RE: Vessel Repair; Modification; Advisory Ruling; 19 U.S.C. 1466; 19 C.F.R. 4.14.

Dear Mr. Zuckerman:

This letter is in response to your requests for an advisory ruling on proposed modifications to certain of your vessels.

FACTS:

Sea-Land Service, Inc., is the owner or demise owner of the NEDLLOYD HOLLAND, SEA-LAND ATLANTIC, SEA-LAND QUALITY, NEWARK BAY, SEA-LAND PERFORMANCE, SEA-LAND ACHIEVER, RALEIGH BAY, SEA- LAND VALUE, SEA-LAND INDEPENDENCE, and SEA-LAND FREEDOM. These vessels are fully cellularized D-9J class container vessels.

At this time, Sea-Land intends to modify the vessels as follows:

(1) NEDLLOYD HOLLAND, SEA-LAND ATLANTIC, SEA-LAND QUALITY, NEWARK BAY, SEA-LAND PERFORMANCE, SEA-LAND ACHIEVER, RALEIGH BAY, and SEA-LAND VALUE: These vessels will be converted to permit the vessels to carry two twenty-foot containers in one forty-foot cell space. (Letter dated August 8, 1991)

(2) SEA-LAND ACHIEVER and RALEIGH BAY: The plans and descriptions submitted call for: (a) shortening the foremast; (b) removing and remounting the forward anchor light, the forward masthead light, the steering light, and the amber crane warning light; (c) relocating the port and starboard sidelights; and (d) removing the telescopic aftermast and its light. (Letter dated September 25, 1991)

(3) SEA-LAND INDEPENDENCE and SEA-LAND FREEDOM: Sea-Land intends to convert one or both of these vessels to permit the carriage of certain twenty and forty foot containers. (Letter dated November 18, 1991)

In each case, Sea-Land has submitted descriptions or drawings of the proposed conversions.

ISSUE:

Whether the foreign shipyard work described herein would constitute modifications to the hull and fittings so as to render the work nondutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in pertinent part for payment of an ad valorem duty of fifty 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.

In its application of the vessel repair statute, Customs has held that modifications to the hull and fittings of a vessel are not subject to vessel repair duties. Over the course of years, the identification of modification processes has evolved from judicial and administrative precedent. 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 United States v. Admiral Oriental Line et al., T.D. 44359 (1930)), 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

Very often when considering whether an addition to the hull and fittings took place for the purpose of 19 U.S.C. 1466, we have considered the question from the standpoint of whether the work involved the purchase of "equipment" for the vessel. It is not possible to compile a complete list of items that might be aboard a ship that constitute its "equipment". An unavoidable problem in that regard stems from the fact that vessels differ as to their services. What is required equipment on a large passenger vessel might not be required on a fish processing vessel or offshore rig.

"Dutiable equipment" has been defined to include:

...portable articles necessary or appropriate for the navigation, operation, or maintenance of a vessel, by not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies. Admiral Oriental, supra., (quoting T.D. 34150, (1914))

By defining what articles are considered to be equipment, the Court attempted to formulate criteria to distinguish non- dutiable items which are part of the hull and fittings of a vessel from dutiable equipment, as defined above. These items might be considered to include:

...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... Admiral Oriental, supra., (quoting 27 Op. Atty. Gen. 228).

A more contemporary working definition might be that which is used under certain circumstances by the Coast Guard; it includes a system, accessory, component or appurtenance of a vessel. This would include navigational, radio, safety and, ordinarily, propulsion machinery.

Upon reviewing the evidence submitted, we determine that the work to reconfigure the container cells of the NEDLLOYD HOLLAND, SEA-LAND ATLANTIC, SEA-LAND QUALITY, NEWARK BAY, SEA- LAND PERFORMANCE, SEA-LAND ACHIEVER, RALEIGH BAY, SEA-LAND VALUE, SEA-LAND INDEPENDENCE, and SEA-LAND FREEDOM to permit them to carry two twenty-foot or one forty-foot container in each cell-- as described in your letters of August 8, 1991, and November 18, 1991, and the accompanying documentation--would constitute nondutiable modifications to the subject vessels.

The proposed work on the SEA-LAND ACHIEVER and the RALEIGH BAY, as described in your letter of September 25, 1991, is more problematic. The letter includes work specifications that make reference to certain sketches, but these sketches were not included with the letter. Without these details, we cannot comment on whether these operations constitute non-dutiable modifications. Furthermore, the descriptions provided include orders to "refurbish" certain items. Without specific descriptions of the work required, such refurbishment of parts may constitute "repairs" that are dutiable under the vessel repair statute.

HOLDING:

The proposed shipyard work described herein to reconfigure the vessels to carry forty-foot containers would constitute modifications to the hull and fittings so as to render the work nondutiable under 19 U.S.C. 1466. Without further details, we cannot comment on whether operations to shorten the foremast, to remove and remount the forward anchor light, the forward masthead light, the steering light, and the amber crane warning light, to relocate the port and starboard sidelights, and to remove the telescopic aftermast and its light are modifications or dutiable repairs 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 sections 4.14(b)(1)(2), Customs Regulations (19 CFR 4.14(b)(1)(2)). Furthermore, any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to section 4.14(d)(1), Customs Regulations (19 CFR 4.14(d)(1)).

Sincerely,

B. James Fritz
Chief
Carrier Rulings Branch