VES-13-18-CO:R:IT:C 111546 LLB
Chief, Technical Branch
Commercial Operations Division
One World Trade Center
Long Beach, California 90831
RE: Vessel repair; Application for relief; Vessel ACONA;
Entry no. 779-1514831-4; Vessel conversion
Dear Sir :
Reference is made to your memorandum of February 14, 1991,
which forwarded for our consideration the Application for Relief
from vessel repair duties submitted by Panpac Corporation in
connection with the above-captioned vessel repair entry.
In July of 1989, the vessel departed the United States bound
for Norway for the purpose of undergoing conversion from a
marine research vessel to a factory fish processor vessel. The
vessel remained in a shipyard in Norway for a period of nine
months, and returned to the United States in June of 1990. A
vessel repair entry was filed in the port of Seattle Washington
three days after arrival of the vessel. The vessel was converted
in order to operate in the Alaskan fisheries.
Whether the costs incurred may qualify for duty-free
treatment under the vessel repair statute in line with judicial
and administrative interpretations.
LAW AND ANALYSIS:
Title 19, United States Code, section 1466(a), provides in
pertinent part for payment of duty in the amount of 50 percent ad
valorem on the cost of foreign equipment purchases for or repairs
to, vessels documented under the laws of the United States to
engage in the foreign or coastwise trade, or vessels intended to
be employed in such trade.
Subsection (d) of the statute (19 U.S.C. 1466(d)), provides
that duty may be remitted if the vessel owner or master furnishes
evidence that materials or equipment was made in the United
States and installed with the use of labor supplied by residents
of the United States or members of the regular crew of the
On August 20, 1990, the President signed into law the
Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of
which amends the vessel repair statute by adding a new subsection
(h). Subsection (h) has two elements, which are as follows:
(h) The duty imposed by subsection (a) of this section shall
not apply to--
(1) the cost of any equipment, or any part of
equipment, purchased for, or the repair parts
or materials to be used, or the expense of
repairs made in a foreign country with
respect to, LASH (Lighter Aboard Ship) barges
documented under the laws of the United
States and utilized as cargo containers, or
(2) the cost of spare repair parts or
materials (other than nets or nettings) which
the owner or master of the vessel certifies
are intended for use aboard a cargo vessel,
documented under the laws of the United
States and engaged in the foreign or coasting
trade, for installation or use on such
vessel, as needed, in the United States, at
sea, or in a foreign country, but only if
duty is paid under appropriate commodity
classifications of the Harmonized Tariff
Schedule of the United States upon first
entry into the United States of each such
spare part purchased in, or imported from, a
The effective date of the amendment is stated as follows:
Effective Date.--The amendment made by this
section shall apply to--
(1) any entry made before the date of
enactment of this Act that is not liquidated
on the date of enactment of this Act, and
(2) any entry made--
(A) on or after the date of enactment of this
(B) on or before December 31, 1992.
For the purposes of dutiability under the vessel repair
statute, the term " equipment" has been defined as including
portable articles necessary or appropriate for the navigation,
operation, or maintenance of a vessel and not permanently
incorporated in its hull or machinery, and not constituting
consumable supplies. The term includes, therefore, such articles
as anchors, chains, cables, tackle, boats, life-saving apparatus,
communications apparatus, navigational instruments, searchlights,
signal lights, lamps, furniture, carpets, table linen, tableware,
bedding, etc. T.D. 40934, Southwestern Ship Building Co. v.
United States, citing T.D. 32956.
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 layup.
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.
The items under review in this matter include:
- Costs of naval architecture and design.
- Costs of winch classification.
- Costs of refrigeration plant installation.
- Costs of installation of certain electronic instruments.
- Costs of fresh water plant installation.
- Costs of fishmeal plant installation.
- Costs of surimi plant installation.
- Costs of fish filleting plant installation.
- Costs of hydraulic deck machinery installation.
- Costs of installation of deck cranes.
- Costs of installing built-in conveyor system.
- Costs of hull modifications.
- Allowances for materials placed aboard in the United States.
- Allowances for fuel and consumable stores.
- Allowances for spares, accessories, and equipment shipped.
Following a thorough review of the evidence submitted in
this case, we have determined that the expenditures under
consideration are proven to have been made for duty-free
modifications, with the following exceptions:
1. Invoice Item 15, the costs of installation for certain
electronic instruments. Articles such as these are delicate and
sensitive in nature and are considered to be of the type which
would in all likelihood be removed were the vessel to be laid-up
for any significant period of time.
2. Invoice Item 26, the costs of hull modifications. In
particular, subitems 280 (painting the inside of the vessel), 381
(video cameras on the trawl deck), 431 (anchors and chains), 436
(mooring lines), 500 (life saving equipment), 501 (lifeboat),
519 (curtains all over the ship), 540 (loose furniture), 550
(loose galley equipment), 560 (gangway), 600 (personal computer
and three printers), and 880 (removable electronic equipment).
The painting cost is a repair cost, while the remainder are
dutiable equipment expenditures.
3. Invoice Item 28, allowances for materials placed aboard in
the United States. The claims made in this regard are presumed
to be made either under 1466(d) or (h), as recited previously.
These claims must fail. Under subsection (d), there must be
evidence of United States manufacture or production, not mere
placement aboard in the United States. In the case of subsection
(h) claims, the benefits accorded are limited to materials used
aboard a cargo vessel. A factory processor does not qualify as
4. Invoice Item 30, allowances for fuel and consumable stores.
It is noted that this item includes the cost of 50 liters paint.
Paint is considered a maintenance or repair material which is
subject to duty.
5. Invoice Item 31, allowances for spares, accessories, and
equipment shipped. It is not possible to discern from the claim
whether the relief sought is for the cost of the listed items or
for their transportation. Absent proof as to the character of
the expenditure, the item is considered dutiable.
Following a thorough review of the evidence and an analysis
of the applicable judicial and administrative precedents, the
Application is allowed in part and denied in part, as set forth
in the Law and Analysis portion of this ruling.
B. James Fritz
Carrier Rulings Branch