VES-13-18-CO:R:P:C 111267 RAH
Deputy Assistant Regional Commissioner
Commercial Operations Division
New Orleans, Louisiana 70130
RE: Vessel Repair; Protest; Parts; One-Round-Voyage-Rule
Dear Sir:
This is in response to your transmittal of August 17, 1990,
regarding protest number 2704-90-001816.
FACTS:
The record reflects that the M/V GREEN WAVE, VOYAGE 8,
arrived at the port of Port Hueneme, California, on March 16,
1986. The protestant did not file its vessel repair entry
(number C270018549-2) until September 9, 1989, approximately
1,290 days after arrival, with entered costs of $42,996.60 and
an estimated duty of $21,498.30. The entry was liquidated on
February 9, 1990, in the amount of $19,785.76. The subject of
this ruling is a protest of that liquidation dated April 30,
1990.
In September 1984, the protestant acquired the M/V GREEN
WAVE from Sloman Neptun, a German shipping company. The
protestant claims that there were no qualified U.S. citizen crew
engineers and electricians with necessary diesel engine operating
experience, and arrangements were made with U.S. maritime unions
to allow temporary employ of Sloman Neptun's crew experts to
instruct and advise the new crew.
After the vessel was documented under the U.S. flag she was
chartered to the Military Sealift Command of the U.S. Navy.
During her initial voyage to Antarctica in January 1985, the
vessel experienced numerous engine failures and a cylinder
explosion. At that time, the protestant made arrangements for a
representative of Wallem Shipmanagement, Ltd., to meet the vessel
in New Zealand on its return voyage to the United States to
determine why the ship was having so much engine trouble. Based
on subsequent recommendations the protestant made arrangements to
indefinitely extend the temporary employment of Sloman Neptun's
crew instructors.
The vessel returned to the United States on March 11, 1985,
from her first voyage and was shifted from the west coast to the
east coast of the United States to engage in two round trip
voyages to northern Europe and two round trip voyages to
Greenland-Iceland. These voyages occurred between March and
September of 1985. In late September 1985 the vessel was laid up
for repairs.
When the vessel returned to Bayonne, New Jersey, from its
second voyage to northern Europe in September, 1985, repairs were
made by Brady Marine Repair Co., Inc., on the diesel governor
linkage and a broken valve operator from its main s.w. overboard
discharge valve. After these repairs, the GREEN WAVE sailed
empty from the east coast, through the Panama Canal, to
California for extensive U.S. shipyard repairs and thorough
inspections prior to departure for Antarctica. Repairs were made
by SW Marine Inc. on the ship's diesel engine system and the
evaporator unit and connecting pipes.
Thereafter, additional engine system repairs were made in
California by Harbor Diesel & Equipment, Inc., including: further
repairs to the main engine governor; repairs necessary to stop
engine "overspending"; check engine compression and to change an
injection pump; fuel lines were also replaced; work was
performed on the ship's radar system by International Telephone &
Telegraph Co. before the vessel left California. Before the
vessel departed [on voyage 8] survey certificates were issued by
the American Bureau of shipping as well as a semi-annual
conditions inspection by the protestant, all of which found the
vessel in good condition.
The vessel departed for Antarctica on voyage 8 in January
1986. Shortly thereafter, she experienced engine and fuel line
problems. When she reached Port Lyttleton, New Zealand, at the
end of January 1986, both the governor and intake pump system
were repaired or replaced and serviced again.
The protestant asserts that charges for the following work,
including repair parts are duty free, to wit:
- Invoice of MAK Krupp for a new engine
governor (exhibit L-1, L-2) and engine repair
parts (exhibit P-1, P-2) shipped to the
vessel in New Zealand.
- Invoice of Deutz Motoren B.V. for water
pump (exhibit M) shipped to the vessel in
New Zealand.
- Invoice of Sinclair Melbourne & Co. Ltd.
(exhibit N) for installation and repair of
the ship's water pipe and pump.
- Invoice of Machinefabriek Bolier (exhibit
O) for the hydraulic pump delivered to the
vessel in New Zealand.
- Invoices of Simms Diesel & Turbocharger
Service Ltd. (exhibit Q) for governor and
Deutz inspector repair work in New Zealand.
- Invoice of New Zealand ship repair company
(exhibit R) for repairs to the vessel's Atlas
6500 10 CM radar system.
- Amount paid to Sloman Neptun in wages and
other contractual charges for the German crew
instructor from January 1 through March 1986
(exhibit T).
Finally, the protestant claims that the following amounts
are not subject to duty either under the "six-month rule" or
are subject to lower-than 50% duty under the amendment to 19
U.S.C. 1466 contained in section 1707 of H.R. 1594, 101st
Cong., 2 Session:
- Shakles delivered by Schiller
International Corp. to New Zealand for the
vessels cargo crane (exhibit U).
- Compression ring, fuel pipe, O-rings etc.
delivered by Machinefabriek Bolier to the
vessel in New Zealand (exhibit V).
- Fuses, lamps delivered by Siemens-Allis to
the vessel in New Zealand (exhibit W).
- Printed circuit boards delivered by C.
Wilh.Stein Sohn and HDW-Elektronik (exhibits
X-1 and X-2).
- Filter, O-rings delivered by Inham b.v.
(exhibit Y).
- Elastiche Leitung, etc. delivered by
Strover Nederland (exhibit Z).
- Amounts paid to purchase and test two
hoist ropes for the crane. (no exhibit).
- Printed circuit boards, electrical
equipment and crane parts delivered to vessel
in New Zealand by other German suppliers (no
exhibit).
ISSUES:
(1) Whether compensation paid by a vessel owner to employ a
German engineer to instruct and teach inexperienced U.S. citizen
crew members, and to aid in the operation and servicing of the
German built ship is dutiable under 19 U.S.C. 1466.
(2) Whether the "six-month-rule" under 19 U.S.C. 1466 renders
the foreign repairs and the foreign repair parts purchased during
the GREEN WAVE's voyage 8 to Antarctica nondutiable as casualty
charges.
LAW AND ANALYSIS:
WHETHER COMPENSATION PAID BY A VESSEL OWNER TO EMPLOY A GERMAN
ENGINEER TO INSTRUCT AND TEACH INEXPERIENCED U.S. CITIZEN CREW
MEMBERS, AND TO AID IN THE OPERATION AND SERVICING OF THE GERMAN
BUILT SHIP IS DUTIABLE UNDER 19 U.S.C. 1466.
Title 19, United States Code, section 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. Section 1466(d)(2) provides
that the Secretary of the Treasury is authorized to remit or
refund such duties if the master or owner of the vessel provides
good and sufficient evidence that such equipments or parts
thereof or repair parts or materials used for repairs were
manufactured or produced in the United States and the labor
necessary to install such equipments or to make such repairs was
performed by residents of the United States, or by members of the
regular crew of such vessel.
The protestant asserts four arguments why the compensation
paid to the German engineer, Mr. Wonneberger, is not dutiable, to
wit:
1. He was not employed as a foreign repairman; he was
not a foreign shipyard worker; he was a seasoned,
trained electrical engineer who had served for years as
a crewman on vessels of Sloman Neptun;
2. He served with the regular crew of the M/V GREEN
WAVE and was treated as an instructor-crew member for
several voyages. All engine repairs and installation
of equipment at sea were made exclusively by the
regular crew, which includes the German instructor who
was there to teach and direct the inexperienced U.S.
citizen members;
3. Even if the German instructor did oversee or
participate in regular crew engine repairs at sea when
the governor malfunctioned or the intake pipe broke,
charges for that participation are not dutiable because
of the "six-month rule" or "one-round-voyage rule."
4. The vessel repair statute is limited to amounts
expended "in a foreign country" and no duty can be
assessed for compensation to the German instructor in
the United States. Further, Congress restricted duty
payments to "the cost in a foreign country" of "vessel
repairs" and "equipment purchases." Customs has
assessed 50% duty on "all sums paid for the German
instructor" and made no attempt to restrict its claim
to any actual repair or equipment installation
activities.
The German engineers were employed by Sloman Neptun, paid
directly by Sloman Neptun and were made available to the
protestant for a limited purpose and time, i.e., to acquaint the
protestant's personnel with the operation of the main and
auxiliary engines of the vessel (protestant's exhibits A-1 and A-
2, Agreements between the protestant and Sloman Neptun) and
because "qualified U.S. citizen crew engineers and electricians
with the necessary diesel engine operating experience were not
available for employment aboard the GREEN WAVE (page 1,
protest). Customs has long held that foreign shipyard workers
employed in a temporary or limited capacity do not constitute
members of the regular crew of a vessel. For example, we have
held that foreign shipyard workers proceeding with a United
States vessel between foreign or domestic ports for the sole
purpose of making repairs to the vessel are not considered
members of the regular crew. Customs Letter 198819; T.D. 69-
252(1); T.D. 71-106(2); Customs Memorandum 109669 GV (August 15,
1988). See also, Mount Washington Tanker Co. , A subsidiary of
Victory Carriers, Inc. v. United States, 505 F. Supp. 209 (CIT,
1980), affd. 665 F.2d 340 (CCPA 1981), which held that employees
of a Swedish corporation who were flown from Sweden to the
Philippines to join the tanker and make repairs were not regular
members of the ship's crew.
Except for the assertions raised in the protest for the
purpose of avoiding duty under 1466, we find no evidence that the
German engineer was a member of the regular crew of the vessel.
Indeed, protestant's exhibit T (Sloman Neptun invoice) refers to
Mr. Wonneberger's services as "temporary employment of engineer."
Moreover, pursuant to 19 CFR 4.7 when a U.S. vessel arrives in
the United States, a manifest must be filed including not only
Customs Form 226 (vessel repair entry) but also a passenger and
crew list. The master of the GREEN WAVE listed the German
engineer, Mr. Wonneberger, on the passenger list, not on the crew
list.
Finally, we note under 46 U.S.C. 8103, the German
engineer would be prohibited from serving as part of the
"regular crew." That section provides in part:
(a) Only a citizen of the United States may
serve as master, chief engineer, or officer
in charge of a deck watch or engineering
watch on a documented vessel.
(b)(1) Except as otherwise provided in this
section, on a documented vessel-
(A) each unlicensed seaman must be
a citizen of the United States or
an alien lawfully admitted to the
United States for permanent
residence....
Based on the foregoing, we find that the German engineer
was not a member of the regular crew of the GREEN WAVE. With
regard to the protestant's claim that Customs has made no attempt
to restrict its duty assessment to actual repair or equipment
installations, we note that the burden of proof is upon the
protestant to provide segregated invoices of the dutiable and
nondutiable costs, which it has not done. Accordingly,
compensation paid to the German engineer is dutiable under 19
U.S.C. 1466.
WHETHER THE "SIX-MONTH-RULE" UNDER 19 U.S.C. 1466 RENDERS THE
FOREIGN REPAIRS AND THE FOREIGN REPAIR PARTS PURCHASED DURING THE
GREEN WAVE'S VOYAGE 8 TO ANTARCTICA NONDUTIABLE AS CASUALTY
CHARGES.
Section 1466(d)(1) provides that the Secretary of Treasury
is authorized to remit, or refund duties if the owner or master
of the vessel provides good and sufficient evidence that the
vessel was compelled by stress of weather or other casualty to
put into such foreign port to make repairs to secure the safety
and seaworthiness of the vessel to enable her to reach her port
of destination.
If satisfactory evidence is furnished clearly showing any
part of a vessel to have been repaired and/or serviced just prior
to the commencement of a voyage from a United States port, we
have held that it is reasonable to assume that the part is
seaworthy for a round voyage, foreign and return. Unless the
evidence indicates some other reason necessitated the repairs
during the voyage, failure of that part to function within six
months after the repair and/or servicing in the United States may
be considered a casualty within the meaning of section
1466(d)(2). Furthermore, remission of duty under the statute in
these circumstances is limited to duty on the essential, minimum
foreign repairs to the part. T.D. 71-83(38).
The term "casualty" as it is used in the statute, has been
interpreted as something which, like stress of weather, comes
with unexpected force or violence, such as fire, explosion or
collision (Dollar Steamship Lines, Inc. v. United States, 5 Cust.
Ct. 28-29, C.D. 362 (1940). In this sense, a "casualty" arises
from an identifiable event of some sort. In the absence of
evidence of such a casualty event, we must consider the repair
to have been necessitated by normal wear and tear. C.I.E.
1829/58; see, Customs Ruling Letter 106159 LLB (9-8-83).
Customs has long held that there must be a connection made
between a foreign repair and a prior domestic repair of that
same item before relief will be granted under the "six-month-
rule"; the mere fact that a vessel has undergone repair
immediately prior to a voyage is insufficient. Moreover, we
have held that a vessel inspected prior to the need for repair is
not sufficient proof of a casualty. C.I/E/ 1259/581 1161/62.
In the instant case, the "six-month-rule" claim fails for
several reasons. The protestant has failed to make a connection
between the part and/or repair work in question and prior
domestic repairs. The protestant has not identified a specific
part on the pre-voyage invoices (Brady marine Repair Co. Inc.;
Southwest Marine, Inc.; Harbor Diesel & Equipment, Inc.; exhibit
H) connecting it to a part and/or repair made during voyage 8,
but rather has referred generally to the invoices (exhibits E,
F, G, H). Furthermore, we have reviewed those invoices and do
not find a connection between the pre-voyage repairs and the
repairs for which relief is sought. We also note that the vessel
made a voyage to Rotterdam, Netherlands on September 29, 1985,
after repairs made by Brady Marine Repair Co. Inc. in New Jersey,
and before voyage 8. Obviously, voyage 8 was not the first round
trip voyage subsequent to U.S. repairs in New Jersey.
Finally, even if we could make a connection between the
repairs in question and the pre-voyage repairs, the protestant
has failed to provide any evidence that the repairs were the
minimal repairs necessary to enable the vessel to reach her
port of destination. Accordingly, the repairs made during
voyage 8 and the parts purchased therefor, constitute dutiable
repairs under 19 U.S.C. 1466.
With regard to the claim made under the newly amended
statute (19 U.S.C. 1466(h)), the statute confers duty free
treatment under 1466 for parts previously imported with tariff
duties having been paid. This benefit is of course subject to
proof of payment of duty upon prior importation. No such
evidence is present in this case and therefore, the claim is
denied.
HOLDING:
(1) Compensation paid by a vessel owner to employ a German
engineer to instruct and teach inexperienced U.S. citizen crew
members and to aid in the operation and servicing of a German
built ship as described above is dutiable under 19 U.S.C.
1466, when such costs are not segregated.
(2) The "six-month-rule" under 19 U.S.C. 1466 does not render
foreign repairs and the foreign repair parts purchased during the
GREEN WAVE's voyage 8 to Antarctica nondutiable as casualty
charges, under the facts of this case.
Sincerely,
Stuart P. Seidel
Director, Regulatory Procedures
and Penalties Division