VES-13-18-CO:R:IT:C 112778 GOB
Deputy Regional Director
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90831
RE: Vessel Repair Entry No. 110-0104407-9; 19 U.S.C. 1466; SEA-LAND RELIANCE, V-21-23; Modification; United States-Canada Free-Trade Agreement
Dear Sir:
This is in response to your memorandum dated June 8, 1993, which forwarded
the application for relief submitted by Sea-Land Service, Inc. ("applicant") in connection
with the above-referenced vessel repair entry.
FACTS:
The record reflects that the SEA-LAND RELIANCE ("the vessel") arrived at the
port of Tacoma, Washington on January 9, 1993 and filed the subject vessel repair
entry on January 13, 1993.
You request our determination with respect to the following items:
Invoice Description
8 rudder pintle operation
23 sterntube and strut inspection (mgt. fee)
24 propeller and tailshaft inspection (admin. chgs.)
31 bow thruster inspection (admin. costs)
35 removal and disposal of debris
36 removal and disposal of debris
protective equipment for labor
39 install rope guard trap doors
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Invoice Description
43 crane service charges
45 propeller polish
46 hull cleats
47 hull stencil
48 hatch cover guide
49 hatch cover gasket
50 chock relocation
51 inboard hatch cover landing blocks
65 U.S.-Canada Free-Trade Agreement
ISSUE:
Whether the subject items are dutiable pursuant to 19 U.S.C. 1466.
LAW AND ANALYSIS:
19 U.S.C. 1466 provides for the payment of duty at a rate of fifty 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 be
employed in such trade.
In Texaco Marine Services Inc. v. United States, Case No. 93-1354, decided on
December 29, 1994, the Court of Appeals for the Federal Circuit found that the costs of
post-repair cleaning and protective coverings are dutiable under 19 U.S.C. 1466.
In its application of the vessel repair statute, the Customs Service has held that
modifications, alterations, or additions to the hull and fittings of a vessel are not subject
to vessel repair duties. The identification of work constituting modifications vis-a-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:
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.
2. Whether in all likelihood an item would remain aboard a vessel during an
extended lay-up.
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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.
After a consideration of the evidence of record, we make the following
determinations.
The costs of the following items are nondutiable because the items are
modifications: 8 - rudder pintle; 39 - rope guard; 46 - hull cleats; 47 - hull stencil; 49 -
hatch cover gasket; 50 - chock relocation; and 51 - inboard hatch cover landing blocks.
The costs of the following items are nondutiable because they relate to
nondutiable items: 23 - propeller shaft clearances - sterntube and strut inspection
(management fee); 24 - propeller and tailshaft inspection (administrative charges); 31 -
bow thruster inspection (administrative costs); and 43 - crane service charges.
The costs of the following items are dutiable: 35 - removal and disposal of
debris; 36 - removal and disposal of debris and protective equipment for labor; 45 -
propeller polishing; 48 - hatch cover guide; and 65 - invoice from Canadian company
for work performed in Taiwan.
The costs of items 35 and 36 are dutiable pursuant to the Texaco case; all items
in these invoices are dutiable. The cost of item 45 is dutiable as a maintenance item.
The cost of item 48 is dutiable because it involves a repair - a lower bracket was
missing and "the bottom bracket installed."
The cost of item 65 is fully dutiable. Such work does not qualify for treatment
under the United States-Canada Free-Trade Agreement ("CFTA") because the work
was performed in Kaohsiung, Taiwan. The staged reductions of the CFTA apply to
"the equipments or any part thereof, including boats, originating in the territory of
Canada and the expenses of repairs made in the territory of Canada upon U.S.-documented vessels."
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HOLDING:
As detailed supra, the application is granted in part and denied in part.
Sincerely,
Arthur P. Schifflin
Chief
Carrier Rulings Branch