VES-3-18-OT-RR:BSTC:CCI H143219 GOB
Supervisory Import Specialist
c/o Vessel Repair Unit
U.S. Customs and Border Protection
1515 Poydras Street, Suite 1700
New Orleans, LA 70112
RE: 19 U.S.C. §1466; Vessel Repair Entry V72-1640003-6; Protest 2002-10-100052; MANUKAI, V-088; Cold Ironing System
Dear Sir:
This is in response to your memorandum of January 6, 2011, forwarding for our review the protest filed on behalf of Matson Navigation Company (the “protestant”) with respect to Vessel Repair Entry V72-16400003-6. Our ruling is set forth below.
FACTS:
The M/V MANUKAI (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Long Beach, California on September 28, 2008. A vessel repair entry was timely filed.
Your office issued a letter of duty determination on December 4, 2009 with respect to the application for relief. A protest was subsequently filed seeking relief from duty on numerous expenditures.
ISSUE:
Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466?
LAW AND ANALYSIS:
Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. 1514(c)(3) and 19 CFR 174.12(e).
Title 19, United States Code, section 1466 (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 and equipment for 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 its administration of the vessel repair statute, U.S. Customs and Border Protection (“CBP”) has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. See, for example, HQ 111425 dated June 26, 1991, HQ 111747 dated February 19, 1992, and HQ 113127 dated June 14, 1994. The identification of work constituting modifications vis-à-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, several factors have been considered. These factors 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 as to whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. § 1466. The factors are:
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 may not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.
Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.
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.
Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.
Additionally, we note that in order to qualify as a nondutiable modification, rather than as a repair, the documentation of record must reflect that the element which was replaced, if any, was in good and full working order at the time the work was performed.
You have requested our review with respect to the following items.
Item 857. The Installation of a Cold Ironing System. The protestant states, in pertinent part, as follows:
This was a new design feature and modification that required the installation of a cold ironing (AMP – Alternative Marine Power) system. Prior to the installation of the Cold Ironing System, the M/V MANUKAI used its diesel engine system to provide the necessary power for the vessel’s operations while at birth in port.
Cold Ironing is the process of providing shore-side electrical power to a ship at berth while its main and auxiliary engines are turned off. Cold Ironing permits emergency equipment, refrigeration, cooling, heating, lighting, etc. to receive continuous electrical power while the ship loads or unloads its cargo in port. Cold Ironing is considered a means to mitigate air pollution by significantly reducing, and in some cases, completely eliminating harmful emissions from diesel engines. The system installed on the MANIUKAI enables the vessel to operate the ship on shore power with the shipyard generators secured.
The information submitted by the protestant includes a notarized statement from Elizabeth White, a naval architect/electrical engineer employed by The Glosten Associates, the design engineer for the installation of the system on the M/V MANUKAI, who states in pertinent part as follows:
The Cold Ironing System is comprised of the following major components: a shore power cable reel, high voltage protection switch, stepdown transformer, and air conditioner. The amount of steel that was added to the vessel for the installation of the Cold Ironing System was approximately 7.5 metric tons.
The submitted information also includes a notarized statement from Curt Porterfield, President of Seamar Electronics Inc., who states that he supervised the shipyard crews installing the cold ironing system. Mr. Porterfield states, in pertinent part, as follows:
The Cold Ironing System is highly integrated into the vessel’s existing power management system and does not operate as a stand alone system. . . .
The Cold Ironing System consists of:
Cable and Reel providing the physical connection to the pier. This included welding new supports and foundations along with permanently relocating the lifeboat equipment.
Transformer Room. This included fabricating a new steel house on deck to accommodate the system components. System components installed in the transformer room are new 6.6kv switch gear, 6.6 kv to 450vac transformer of 3 million kva (watts) and air conditioning system to keep the system cool under operation.
Main Switch Board. The main switchboard was reworked for the addition of the new system. The breakers and bus bars were modified for the installation of the new shore power breaker and controls.
Automation System. The existing automation system and software was modified for the new cold ironing system. The existing power management system was modified to add the new controls and protection devices of the new system. This allows the ship to automatically connect to the shore and automatically sequence their generators off line.
Interconnections. This included many deck penetrations and cable runs to interconnect the sections of the cold ironing system. Cable trays were permanently installed on many decks to connect these system components together.
The submitted information further includes a notarized statement of Angus Lumsden who states he was the on-site project manager for the installation of the cold ironing system. Mr. Lumsden states, in pertinent part, as follows:
The step down transformer and high voltage switch components of the system are housed in a newly constructed steel deck house of approximately 7.5 metric tons, inclusive of new reinforcements of existing structure. The deck house serves no other purpose; it is completely dedicated to housing these new electrical components. New steel seatings for components of the Cold Ironing System such as the cable reel, transformer, high voltage switch, air conditioner and associated control panels were installed.
The invoice for the cold ironing system provides, in pertinent part, as follows:
Provided assistance and installed Owner’s supplied electric components inclusive of transformer, cable reel, power panel, air conditioner and etc. in new transformer room, deck house and switchboard room.
Based on the foregoing, we find the installation of the cold ironing system constitutes a nondutiable modification to the vessel given that the documentation of record indicates that this item has the general attributes of a modification. For example, the cold ironing system appears to be a permanent installation into the hull of the vessel Furthermore, the cold ironing system is a new design feature that will provide an improvement in the efficiency of the vessel by creating an alternative method of supplying power to the vessel while it is at berth. There is no evidence of dutiable repair.
Item 862. LS HFO Tank Cofferdam Breather Vent and Lighting Installation. The invoice provides in pertinent part as follows: “Provided assistance to install a new natural vent to serve the cofferdam around the LSHFO tanks and to install a new lighting circuit within the cofferdam.” The invoice reflects the routing of piping and the installation of light fixtures, a light switch, and cable. The shipyard also “[a]ir tested [the] integrity of new vent.” The protestant states that “[t]he work performed under this item modified the low sulfur HFO tank cofferdam with the installation of a new vent and new lighting. In HQ 114341 dated May 8, 2010, CBP held the installation of a new vapor recovery system (“to modify the inert gas system piping to accommodate the addition of a vapor recovery system”) to comply with the Clean Air Act to be a nondutiable modification. The overall documentation of record indicates that this work constitutes a modification to the vessel. For example, this item is a new design feature which provides an improvement in operation or efficiency to the vessel. Therefore, we find that this cost is nondutiable.
Item 863. Sludge Purifier Installation. The invoice provides in pertinent part as follows:
Provided assistance to install one (1) Owner’s supplied sludge supply pump including fabricating, fitting and welding one (1) steel foundation to suit. Fabricated and installed various pipes for sludge purifier system (using Owner’s supplied pipe materials). Made and fit insulation lagging and insulation mattress on new oil and sludge pipes.
. . .
Disconnected, re-located and refit hydraulic power pack for main engine top bracing including fabricating, fitting and welding one (1) steel foundation/support/oil tray and modify existing pipes to suit.
Removed, re-located and refit two (2) spare parts stowage boxes including cropping off, re-locating and re-welding up steel foundation to suit.
In HQ H019652, dated February 5, 2008, CBP held the installation of a purifier controller (including the removal of existing electric cables and control boxes, the building of a foundation, and the installation of new control and transformer boxes, emergency buttons, and valves) to be a nondutiable modification. We similarly find that the installation of the sludge purifier under consideration herein is a nondutiable modification.
Item 867. Main Seawater System Cooler Isolation Valve Installation. The invoice provides in pertinent part as follows: “Provided assistance to install a new isolation valve in the Main Seawater piping serving the Main FW/SW Coolers. The work was conducted in the engine room, between the Lower Level Grating and the Tank Top at Fr. 66 Stbd. Side. This will allow either cooler to be operated with normal sea water supply independently of the other.”
In HQ 115132, dated June 15, 2001, one item involved alterations to and the relocation of a vent and overflow piping so that the piping would run outside of two fuel oil tanks. CBP held this item to be a nondutiable modification. We similarly find that the subject installation of the new isolation valve under consideration herein is a nondutiable modification.
American Bureau of Shipping (“ABS”) Survey re Cold Ironing System. This item is an ABS survey concerning the installation of the cold ironing system. We held, above, that the installation of the cold ironing system is a nondutiable modification. We find that the ABS survey concerning the cold ironing system is nondutiable as an item incident to the installation of the cold ironing system.
Exhibit 73. Kongsberg Invoice. The invoice reflects that this cost is for parts related to the cold ironing system. We held, above, that the installation of the cold ironing system is a nondutiable modification. Therefore, we find that this cost is nondutiable.
Exhibit 74. Kwok Shing Co. Invoice. The invoice reflects that this cost is for cable related to the cold ironing system. We held, above, that the installation of the cold ironing system is a nondutiable modification. Therefore, we find that this cost is nondutiable.
Exhibit 139. Wilhelmsen Marine Engineering Invoice. The invoice reflects that this cost is for technical support related to the cold ironing system. We held, above, that the installation of the cold ironing system is a nondutiable modification. Therefore, we find that this cost is nondutiable.
HOLDING:
The costs discussed in this ruling are nondutiable under 19 U.S.C. § 1466, as discussed in the Law and Analysis section of this ruling.
You are instructed to grant the protest with respect to the costs discussed in this ruling.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any final duty determination of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
George Frederick McCray
Supervisory Attorney-Advisor/Chief
Cargo Security, Carriers and Immigration Branch
Office of International Trade, Regulations & Rulings
U.S. Customs and Border Protection