VES-3-02-OT: RR:BSTC:CCI H008903 GG
Ms. Sharon Steele Doyle, Esq.
Givens & Johnston, PLLC
Counselors at Law
950 Echo Lane, Suite 360
Houston, Texas 77024-2788
RE: Proposed Control and Monitoring System Modification; 19 U.S.C. § 1466
Dear Ms. Doyle:
This is in response to your letter dated March 26, 2007, requesting, on behalf of Matson Navigation Company (“Matson”), a ruling as to whether certain proposed foreign work done to M/V R.J. PFEIFFER (the “vessel”) would be considered nondutiable modifications under the vessel repair statute. Our ruling on this matter is set forth below.
FACTS
The M/V R.J. PFEIFFER is certified “ACCU” (Automatic Control Console Unattended) by the American Bureau of Shipping (ABS) and the United Stated Coast Guard (USCG) for unmanned automatic operation of the power plant. The vessel’s current control and monitoring system, which provides a means of monitoring pressures, temperatures, viscosity, tank levels, bilge levels, and fire indication of the vessel’s machinery and machinery spaces, is a computer based system and provides alarms when any parameter deviates from preset limits. The current system is fully functional, in good working order and operating as designed, however, it does not have design features that are available on newer systems, such as scalability to include additional alarm monitoring parameters that contribute to the efficient operation and safety of the vessel.
The original system’s manufacturer, “Bailey,” sold its business unit and there has been no development effort to modernize this product. Matson proposes to replace the vessel’s current control and monitoring system with a modern system developed by “Kongsberg.” The proposed new design would expand the entire monitoring and control capabilities of the vessel for greater efficiency and safer operation of the vessel’s entire power plant. This would include additional monitoring points which are sensors to measure bearing temperatures on the main engine to provide an early warning system, and, sensors on the electrical generation system for load and power management of the ship service diesel generators.
The projected plan is to drydock the vessel in China beginning on or about July 25, 2007. The scope of the work consists of removing the original “Bailey” system and installation of the new “Kongsberg” system. The proposed work would modify the design of the vessel’s entire control and monitoring systems to improve the overall control and monitoring systems of the vessel, and enhance the operations of the vessel with new additional features including additional alarm monitoring parameters. This in turn will improve the overall operations of the vessel. The proposed work on the control and monitoring system would also enhance the operations of the vessel by adding greater operational efficiency and safety to the vessel. The new design features will be incorporated into the hull and fittings of the vessel. The proposed modifications would be permanent and essential to the successful operation of the vessel.
In support of your request that the proposed work be considered a modification, you have submitted drawings depicting the locations and configurations on the vessel for the new “Kongsberg” control and monitoring system for the proposed modifications.
ISSUE
Whether the proposed foreign work would constitute modifications to the hull and fittings of the M/V R.J. PFEIFFER under consideration so as to render the work nondutiable under 19 U.S.C. § 1466.
LAW AND ANALYSIS
Title 19, United States Code, § 1466, provides in pertinent part for payment of an ad valorem duty of 50 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, or a vessel intended to engage in such trade.
In its application of the vessel repair statute, Customs (now CBP) 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-à-vis work constituting repairs has evolved from judicial and administrative precedent. (See Otte v. United States, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, T.D. 44359 (1930); and Customs Bulletin and Decisions, Vol. 31, Number 40, published October 1, 1997.) The factors discussed within the aforementioned authority 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 of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. § 1466.
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 Admiral Oriental supra), 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.
Upon reviewing your letter of March 26, 2007, and the supporting documentation enclosed therein, at the outset we note that since the current system that is to be replaced is stated to be operational and not in a state of disrepair, the installation of the subject control and monitoring system would not constitute a dutiable repair. Moreover, it is apparent that the proposed work would meet the above-discussed criteria for non-dutiable modifications. In this regard, we note the nature of the work to be done to the control and monitoring system is such that it would be a permanent incorporation into the vessel. As such, it would remain aboard the vessel during an extended lay up. Furthermore, the work is stated not to be done to replace a current part, fitting or structure which is not in good working order. Finally, the proposed work will improve the operation of the vessel by including additional alarm monitoring parameters that contribute to the efficient operation and safety of the vessel.
In addition, the new system would not constitute a dutiable purchase of equipment since it is not an operating entity unto itself but rather is a necessary component of the vessel’s hull and fittings.
Accordingly, the proposed work to the M/V R.J. PFEIFFER as described above and in the supporting documentation would meet the criteria for a modification and would therefore not be dutiable under 19 U.S.C. § 1466.
HOLDING
The proposed foreign shipyard work would constitute a modification to the hull and fittings of the M/V R.J. PFEIFFER under consideration so as to render the work nondutiable 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 § 4.14(e), Customs Regulations (19 CFR § 4.14(e)). Furthermore, any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to § 4.14(f), Customs Regulations (19 CFR § 4.14(f)).
Sincerely,
Glen E. Vereb
Chief
Cargo Security, Carriers and Immigration Branch