OT-RR:BSTC:CCI H083356 GOB
Ama Adams, Esq.
Baker Botts LLP
1299 Pennsylvania Avenue, N.W.
Washington, DC 20004-2400
RE: 19 U.S.C. § 1466; United States-Singapore Free Trade Agreement
Dear Ms. Adams:
This is in response to your correspondence of November 3, 2009, requesting a ruling on behalf of Transocean, Inc. (the “requester”). Our ruling is set forth below.
FACTS:
The GSF EXPLORER (the “vessel”) is a U.S.-documented vessel owned by the U.S. Department of the Navy (the “Navy”). The vessel operates as an oil and gas drilling rig and is chartered by the requester under a 30-year lease from the Navy. The vessel will arrive in Singapore in February 2010 for maintenance, repair, and overhaul work. The requester expects the vessel to be docked in Singapore for about 80 days. Subsequently, the vessel will depart Singapore to commence drilling operations in Indonesia.
You provide a detailed description of the work to be performed on the vessel in Singapore. You state that this work falls into three categories: (1) maintenance, overhaul, and repair work to restore equipment and parts to good working condition; (2) modifications which enhance the efficiency or operation of the vessel; and (3) work that falls outside the scope of the vessel repair statute. You also state that:
In addition, there are several tasks for which preparatory work will be performed on the high seas between Cape Town, South Africa and Singapore by third-party contractors who are not U.S. residents in order to limit the duration of the docking period in Singapore [footnote omitted]. In each instance, the work performed en route to Singapore is in preparation for nondutiable repair work or vessel modifications that will be performed at the Sembawang Shipyard … Inasmuch as this preparatory work is directly incident to nondutiable work to be performed in Singapore, we ask that CBP confirm that the costs of the preparatory work are also dutiable.
As described in detail in your letter, the work to be performed will include the following: (1) rebuilding of the horizontal pipe racker (“HPR”) and fitting of a new containment under the HPR to include a collection tank and transfer pump; (2) complete strip down and overhaul of the draw works; (3) draw works mechanical brake repairs; (4) draw works brake cooling system piping and instrumentation project; (5) overhaul of the derrick PRS4i; (6) replacement of the drill floor drains; (7) complete strip down and overhaul of the mud pumps; (8) replacement of the drilling hydraulic power unit system; (9) replacement of the top drive; (10) replacement of the trip tank pump; (11) overhaul of the crown blocks, traveling blocks, and crown mounted compensator; (12) upgrade of the active pit room and deck over the active pits; (13) overhaul of the riser elevator system; (14) removal of the overboard gumbo chute; (15) installation of manlift equipment; (16) testing of the switchboard main breakers injection; (17) calibration of the main switchboard generator relays; (18) testing of the functions of the alternate power source system and repairs, as necessary, on the feeds; (19) cleaning of the main switchboards; (20) installation of the fire and gas detection system upgrade; (21) replacement of the TDS service loops; (22) pulling of the tail shafts, renewing of the strut and line shaft bearings, and complete inspection of the props and tail shafts; (23) replacement of the vessel’s lighting; (24) renewal of the input shaft and prop shaft seals for all tunnel thrusters; (25) overhaul of the LIPS thrusters; (26) installation of the lube oil purifier for the Nordberg engines; (27) installation of new port oily water separators; (28) heating, ventilation, and air conditioning repairs in forward and aft accommodations; (29) installation of a high pressure air compressor; (30) replacement of the piping and valves in the vessel’s deluge system; (31) renewal of packing for the port and starboard rudders; (32) replacement of sea water cooling system piping, strainers, and drains; (33) replacement of the exhaust fan and ducting in the Nordberg engine room; (34) installation of crane access stairs; (35) rebuilding of three Nordberg engines; (36) renewal of fuel oil and lube oil tank vents; (37) repairs to the pump room catwalk and hand rails; (38) installation of power-operated hydraulic watertight door operators; (39) conversion of the No. 1 port and starboard fuel oil storage tanks to ballast tanks; (40) cleaning and coating of the potable and wash water tanks; (41) removal of the aft anchor and jewelry; (42) ranging, blasting, gauging, and coating of the port and starboard bow anchor chains; (43) blasting and recoating hydrophone tubes; (44) overhaul of the davit winches and brakes of the lifeboats; (45) conducting of a deadweight survey and possible inclining of the vessel to conform with stability tables; (46) overhaul of the skin valves and reach rods of the azimuth thrusters’ tubes; (47) repairing cracks in the ROV moon pool; (48) replacement of the hydraulic piping in the blowout preventer; (49) replacement of the diverter valves and overhaul diverter; (50) overhaul of the riser tensioner and turndown sheaves; (51) replacement of the lifting gear for the lower marine riser package; (52) hydrostatic pressure testing of the air pressure vessels; (53) installation of a new hotline hose reel; (54) overhaul of the BOP; (55) fitting of a new, lower annular BOP; (56) replacement of connectors for wellhead, riser, choke, and kill lines and the riser collet; (57) installation of new DMS accumulator bottles; (58) renewal of hydraulic pipe work on the tree cart transporter; (59) construction of a subsea engineer workshop; (60) renewal of the flanges and couplings on the CMC control pipe work; (61) renewal of intermediate and upper flex joint; (62) replacement of slip joints; (63) replacement of riser termination joints; (64) overhaul of the riser SRL ring; (65) replacement of vertical ladders and high angle stairs; (66) repairs to the casing deck drains; (67) asbestos removal and fire detection upgrade; (68) replacement and overhaul of generators; (69) installation of padeyes; (70) inspection of derrick bolts; (71) repainting of derrick wind wall signs; (72) removal of high pressure hydraulic piping and installation of industrial shelving; (73) inspection of the internals of the wing and double bottom tanks and check of the integrity of the fuel piping; (74) replacement of the collision bulkhead forepeak bilge suction valves; (75) inspection of sea chests and installation of a biocide injection system; (76) replacement of rig floor boards; (77) overhaul of galley range exhaust hood and fire extinguishing equipment; (78) refurbishment of bath rooms; (79) installation of sanitary service pressure set in forward accommodations; (80) survey of switchboard and electrical control systems of generators; (81) analysis of the vessel’s dynamic positioning engineering documentation; (82) inspection and repair of deck cranes; (83) classification and statutory surveys and regulatory requirements; (84) blasting and painting of hull and replacement of anodes; (85) servicing of the cathodic protection system; (86) repair of remote tank level indicating system; (87) cleaning and recoating of the fuel oil storage and settling tanks; (88) inspection of the southwest ballast tanks; (89) replacement of the ballast transfer system piping in the forward pump room and in the fuel oil, ballast and drill water tanks; (90) refurbishment of the starboard flare burner boom; (91) repair or replacement of the drill water pump manifold valves; (92) replacement of the flooring in the galley and mess rooms; (93) installation of a fast rescue craft; (94) replacement of the salt water service pumps; (95) replacement of brine pumps and base oil pumps; (96) installation of client shaker upgrades and blasting and painting of the shaker house; (97) installation of structural lifting beams and hoists under the rig floor; and (98) overhaul of the main propulsion motor.
ISSUE:
Whether the subject costs are dutiable under 19 U.S.C. § 1466?
LAW AND ANALYSIS:
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 equipment purchased in a foreign country for and 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.
Title 19, United States Code, section 1466(h)(4) (19 U.S.C. § 1466(h)(4)) provides as follows:
The duty imposed by subsection (a) of this section shall not apply to –
(4) the cost of equipment, repair parts, and materials that are installed on a vessel documented under the laws of the United States and engaged in the foreign or coasting trade, if the installation is done by members of the regular crew of such vessel while the vessel is on the high seas, in foreign waters, or in a foreign port, and does not involve foreign shipyard repairs by foreign labor.
Declaration and entry shall not be required with respect to the installation, equipment, parts, and materials described in paragraph (4).
In its administration of the vessel repair statute, 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. 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, the following 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 of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. 1466:
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 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 a repair the documentation of record must reflect that the element which was replaced was in full working order at the time the work was performed.
Pursuant to the United States-Singapore Free Trade Agreement (the “Singapore FTA”), which entered into force on January 1, 2004, vessel repairs performed in Singapore are not subject to duty under 19 U.S.C. § 1466. Subheading 9818.00.07, HTSUS, reflects the essential concept of 19 U.S.C. § 1466, i.e., dutiability on the cost of foreign vessel repairs and equipment purchased in a foreign country. The special program indicator “SG” (denoting Singapore) appears in the parenthesis in the “Special” rate of duty subcolumn for this subheading. The rate of duty in the “Special” subcolumn for this subheading is “Free.”
Based on the work descriptions contained in your letter, and without a full examination of the pertinent shipyard invoices, we are unable to make a definitive determination with respect to all of the described work, i.e., which work would constitute dutiable equipment and repairs and which work would constitute a nondutiable modification to the vessel. Nevertheless, as discussed above, pursuant to the Singapore FTA, the work performed on the vessel in Singapore is duty-free under 19 U.S.C. § 1466 and subheading 9818.00.07, HTSUS.
Part of your request involves worked performed en route to Singapore, e.g., certain of the work described in items 2, 6, 7, 8, 20, 28, and 29. You state: “Inasmuch as this preparatory work is directly incident to nondutiable work to be performed in Singapore, we ask that CBP confirm that the costs of the preparatory work are also dutiable.” Pursuant to the Singapore FTA, work eligible for treatment thereunder must be performed in Singapore. For example, in HQ H015615, dated October 23, 2007, we stated:
. . . the protestant seeks duty-free treatment pursuant to the United States-Singapore Free Trade Agreement for work performed in China. The fact the technicians are Singapore citizens has no bearing on the critical basic fact that the U.S.-Singapore FTA is not applicable outside of Singapore and the United States. Thus, the travel and labor costs incurred in this case for the technicians from Singapore are dutiable. [All emphasis in original.]
Therefore, we determine that work performed en route to Singapore is not eligible for duty-free treatment under the Singapore FTA.
Because this work will not be performed by members of the regular crew of the vessel, it is not eligible for treatment under 19 U.S.C. § 1466(h)(4).
HOLDINGS:
The cost of the work performed in Singapore is duty-free under the Singapore FTA.
The cost of the work performed en route to Singapore is potentially subject to duty under 19 U.S.C. § 1466. CBP is unable to make a determination as to whether certain of this work might constitute a nondutiable modification to the vessel without a full examination of the shipyard invoices. Because this work will not be performed in Singapore, it is not duty-free under the Singapore FTA. Because this work will not be performed by members of the regular crew of the vessel, it is not eligible for treatment under 19 U.S.C. § 1466(h)(4).
We emphasize that this ruling is merely advisory in nature and does not eliminate the requirement to declare work performed abroad at the vessel’s first United States port of arrival, nor does it eliminate the requirement to file a
vessel repair entry showing this work (See section 4.14(d) and (e), CBP Regulations (19 CFR § 4.14(d) and (e))). Furthermore, any final determination on this matter is contingent on CBP’s review of the evidence submitted pursuant to section 4.14(i), CBP Regulations (19 CFR § 4.14(i)).
Sincerely,
Glen E. Vereb
Chief
Cargo Security, Carriers and Immigration Branch