OT:RR:BSTC:CCR H346571 KAM

Constantine G. Papavizas
Winston & Strawn, LLP
1901 L Street, NW
Washington, DC 20036

RE: 19 U.S.C. § 1466; Vessel Repair.

Dear Mr. Papavizas:

This responds to your April 4, 2025, letter and supplemental material (“ruling request”), in which you request a ruling on behalf of your client, [ ] (“the Company”) determining that the proposed work on the [ ] to be renamed [ ] (“the subject vessel”) constitutes modifications for the purposes of 19 U.S.C. § 1466.1 Our decision follows.

FACTS

Your client, the Company, is the owner of the United States-flagged vessel the subject 2 vessel. The Company intends to have shipyard work done on the subject vessel in the

1 You have asked this office for confidential treatment of all information contained in brackets, which includes your client’s name. CBP Regulations at 19 C.F.R. § 177.2(b)(7) provide that the requester of a ruling from our office may ask that privileged or confidential commercial or financial information supplied for purposes of preparing the requested ruling not be disclosed. Such requests will be considered if the information is clearly identified and the reasons for requesting that information not be disclosed are provided. If this office receives a Freedom of Information Act request for your submission, Regulations at 6 C.F.R. § 5.12, et seq. regarding the disclosure of business information provide that the submitter of business information will be advised of receipt of a request for such information whenever the business submitter has in good faith designated the information as commercially or financially sensitive information. We accept your request for confidential treatment as a good faith request. 2 [ ] - CBP Request - at 1. [ ] (“foreign country”) at the [ ] 3 (“foreign shipyard”). Your ruling request states that the subject vessel is currently in lay-up status awaiting transit for work to begin in the foreign shipyard on or about [ ]. 4

On [ ], CBP issued a ruling [ ] (“the Initial Ruling”), which is incorporated herein by reference, on a similar request [ ]. 5 In the Initial Ruling, CBP determined that both repowering the propulsion systems of the vessels and converting a hold’s container stowage arrangement to enhance refrigerated container capacity constituted non-dutiable modifications. The proposed work was not performed on the subject vessel.

Now, the Company proposes to carry out work discussed in the Initial Ruling with three modifications on the subject vessel:

(1) repowering the propulsion systems on the subject vessel to increase fuel efficiency and lessen environmental impact;

(2) converting the container stowage arrangement of multiple cargo holds [#1 and #3] to enhance the subject vessel’s refrigerated container capacity; and

(3) the addition of a bridge console to accommodate new control and monitoring systems and a steering alarm system.6

The Initial Ruling addressed the replacement of the vessel’s current steam propulsion plant with a medium speed diesel engine. 7 That modification was confirmed in the initial ruling.8 The current request also concerns the replacement of the current steam propulsion. However, rather than a medium speed diesel engine, the Company instead proposes to replace the vessel’s current steam propulsion plant with a slow speed diesel, liquified natural gas (“LNG”) ready engine plant and auxiliary power plants. 9

The Initial Ruling also considered the conversion of one cargo hold, [ ]. 10 That 11 modification was confirmed in the Initial Ruling. The current request also concerns the conversion of cargo holds, but instead of a single cargo hold [ ], modification is contemplated for multiple cargo holds, [ ]. 12

3 Id. 4 RFI Response 6-4-2025 at 1. 5 Id. 6 Id. 7 Id. 8 [ ]. 9 Id. 10 Id. 11 [ ]. 12 Id.

2 Vessel Repowering

As described in the Initial Ruling [ ] and renewed by the current ruling request, this project will involve the complete removal of the subject vessel’s extant steam power plant.13 The steam power plant will then be replaced with a slow-speed diesel power plant specifically designed to support or be compatible with the capability to burn LNG. 14 The Company asserts that “the purpose of this first phase of modifications is to remove the existing boilers/steam turbine and auxiliary systems, and install new dual-fuel main and auxiliary generators with the required engine room auxiliaries to make up the machinery plant.” 15 The installation of the LNG system is second phase of the modification, currently planned for 2028/2029.16 The following items will be added to repower the vessel: 17

1. One dual-fuel slow-speed main engine with associated engine foundations; 2. Three dual fuel auxiliary generators; 3. Indirect distributed fresh water cooling system; 4. Lube oil purification and filtration system; 5. Fresh water handling module; 6. Fresh water distiller; 7. Ballast and cargo hold bilge pumps and piping; 8. Compressed air system; 9. Electrical distribution boards; 10. Engine control and monitoring systems; 11. Ventilation system; 12. Exhaust gas system; 13. Engine room cranes and associated components; 14. Engine room wiring; 15. Engine room lighting; and 16. Flats and decks to support the revised engine room layout.

The Company states that the installation of slow-speed diesel fuel LNG-ready engines will achieve better fuel efficiency and reduce environmental impacts. 18 The Company further asserts that all the above-listed systems and components proposed to be removed are currently fully operational and in good repair.19

Conversion of Cargo Holds [ ]

The Company intends to modify multiple cargo holds to allow stowage of refrigerated containers below deck in [ ]. 20 That conversion will require “the installation of

13 Id. 14 Id. (The Initial Ruling concerned medium speed diesel engines, whereas this request concerns slow speed diesel engines.). 15 RFI Response 6-4-2025 at 2. 16 Id. 17 [ ] - CBP Request - at 1. 18 Id. 19 Id. 20 Id. (In the same manner as was proposed in the Initial Ruling for a single, different hold).

3 platforms and inclined ladders to access refrigeration machinery, ventilation fans with distribution ducting, refrigerated container power supply plugs, new lighting, and associated electrical cables.”21

The ruling request states that “[a]dditional reefer power distribution supports the increased demand of refrigerated cargo to support interstate commerce to the islands of Hawaii,” as well as, “increases operating efficiency.” 22 Your request also states that, “[h]eavier cargo below deck allows the vessel trim to be optimized to the characteristics of the new propulsion shafting and propeller arrangement.

Addition of Bridge Console

The Company further intends to add a bridge console to accommodate new control and monitoring systems and a steering alarm system, both of which are integral to the re-power modification.23 Your request states that, “in neither instance are components in need of repair being replaced,” and that repowering will not be complete without these bridge modifications. 24

ISSUE

Whether the work described above constitute repairs to the subject vessel such that the work is dutiable under 19 U.S.C. § 1466?

LAW AND ANALYSIS

Title 19, United States Code, section 1466(a) 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 19 U.S.C. § 1466, CBP has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties.25 In considering whether a modification occurred, several factors may be considered. These factors are not by themselves determinative, nor are they the only factors which may be relevant in a given case. 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.26 However, we note that a permanent incorporation or attachment may not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.

21 Id. 22 RFI Response 6-4-2025 at 3. 23 Id. 24 Id. 25 See HQ 116627 (Mar. 16, 2006); HQ 111425 (June 26, 1991); HQ 111747 (Feb. 19, 1992); and HQ 113127 (June 14, 1994). 26 See United States v. Admiral Oriental Line, 18 C.C.P.A. 137, 139 (C.C.P.A. 1930) citing Otte v. United States, 7 Ct. Cust. 166, 169 (Ct. Cust. App. 1916) and 27 Op. Atty Gen. 228, 239.

4 2. Whether in all likelihood an item would remain aboard a vessel during an extended lay- up.27

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. 28

4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.29

Additionally, in order to qualify as a modification, rather than a repair, the documentation of record must reflect that the replaced element, if any, was in good and full working order at the time the work was performed. CBP has consistently ruled that newly designed systems and components permanently installed on a vessel, which would remain on board the vessel during extended layup, do not replace an item in need of repair, and will improve the operation or efficiency of the vessel are modifications.30

The Federal Circuit in Horizon Lines clarified the difference between “repairs” and “modifications”, saying “the term ‘repairs’ describes work putting something that has sustained damage back into working condition whereas the term ‘modifications’ describes work addressing a problematic feature.”31 The Horizon Lines court provided the yardstick to be used in the differentiation between repairs and modifications, when it said:

The plain meaning of “repair” describes putting something that has sustained damage back into working condition. It requires “restoration after decay, waste, injury, or partial destruction”—all of which indicates that the part being repaired was damaged— which necessitated the repair. Thus, the prior condition of a part that is removed or replaced during work on a vessel is relevant to whether that work constitutes a repair. We do not conclude, however, that the prior condition is always dispositive of whether work constitutes a repair or modification. We note that there would be no need to repair a part that is in working order. 32

Accordingly, we are required to make a detailed factual determination of whether proposed modifications constitute repairs, based upon the prior condition of any part that is removed or replaced during work on a vessel.

Vessel Repowering

The first factor for analysis is whether there is a permanent incorporation into the hull or superstructure. It is our position that in the instant case, the installations done in the subject

27 Id. at 140; See also 27 Op. Atty Gen. 228 at 19. 28 Horizon Lines, LLC v. United States, 626 F.3d 1354, 1360 (Fed. Cir. 2010), citing Admiral Oriental, 18 C.C.P.A. at 141. 29 Id. 30 See e.g., HQ 114093 (Sept. 12, 1997); HQ H143219 (Feb. 22, 2011); and, HQ 116627 (Mar.16, 2006). 31 626 F.3d 1354, at 1360, citing Horizon Lines, LLC v. United States, 659 F. Supp. 2d 1285, 1289 (Ct. Int'l Trade 2009). 32 Id. at 1359.

5 vessels’ repowering constitute a permanent incorporation into the subject vessel. The installations required for repowering the subject vessel necessitate the removal of the subject vessels’ existing boilers/steam turbines and auxiliary, and installation of an LNG fuel system and necessary related auxiliary systems. The installation involves structural changes to accommodate the new propulsion system design, including piping, ventilation, and electrical schemes. There is no indication that these installations are intended to be removed after a limited period of use. New structure and components added as part of the LNG installation cannot be easily removed from the subject vessel. Any such removals would require a large amount of cutting and removal of substantial steel structure. Therefore, it constitutes a permanent incorporation into the subject vessel.

The second factor asks whether, in all likelihood, an item would remain aboard a vessel during an extended lay-up. In the instant matter, since it is our position that the work to accommodate the new propulsion system constitutes a permanent incorporation into the subject vessel, it follows that none of the components or systems at issue would be portable or capable of being removed from the subject vessel without significant effort and possible structural damage. For this reason, it is likely that the proposed items would remain aboard the vessel during the extended lay-up.

The third factor considers whether an item constitutes a new design feature and is not merely replacing a part, fitting, or structure that is performing a similar function. Here, the nature of the proposed work indicates that a modification is contemplated. The installation of an LNG fuel system and necessary related auxiliary systems will take advantage of lower fuel oil consumption and produce cleaner emissions than the current steam plant. This is a new design feature that is not merely replacing the existing boilers, steam turbines, and auxiliary systems, but modifying them.

Finally, the fourth factor asks if an item provides an improvement or enhancement in operation or efficiency of the vessel. In the instant case, you state that the proposed work would be carried out for the purpose of improving fuel and operational efficiency and would reduce the vessel’s environmental impact. You state that this change allows the engine to run on marine- grade fuels and will take advantage of lower fuel oil consumption and produce cleaner emissions than the current steam plant and that, once the subject vessel adds the LNG components and vessel operates on gas, even greater fuel consumption and emission reduction will be achieved.

Based on the information provided by the Company and consideration of each of the four factors in the aforementioned analysis, it is our position that the proposed work would meet the above-discussed criteria for vessel modifications. Accordingly, the proposed work to the subject vessel, as described in this section, would meet the criteria for a modification under 19 U.S.C. § 1466, meaning that the modification is not subject to duties. This finding is specifically limited to the work described herein and does not extend to any other undescribed work that may be performed.

6 Conversion of Cargo Holds [ ]

In determining whether the proposed work regarding the conversion of Cargo Holds [ ] would constitute vessel modifications versus repairs under 19 U.S.C. § 1466, we consider the four factors discussed above.

Regarding the first factor, the installation of platforms and inclined ladders to access refrigeration machinery, ventilation fans with distribution ducting, refrigerated container power supply plugs, new lighting, and associated electrical cables to allow stowage of refrigerated containers below deck would constitute a permanent incorporation into the hull of the vessel. Second, the conversion of Cargo Holds [ ] would be permanently incorporated into the hold of the vessel and remain aboard the vessel during an extended lay-up. Third, the installation of features to allow stowage of refrigerated containers below deck into Cargo Holds [ ] are new design features and not merely replacing a part that is fulfilling a similar function. Your ruling request states that the proposed work increases operating efficiency, which supports the increased demand for refrigerated cargo. Thus, there is an inference that enhancement was the primary motivation behind the work rather than repairs necessitating the operation. Fourth and finally, you assert that the proposed work would provide an improvement or enhancement in operation or efficiency of the vessel, necessary due to the increased demand of refrigerated cargo to support interstate commerce.

Based upon the information provided by the Company and after consideration of each of the four factors, it is our position that the proposed work related to the installation of platforms and inclined ladders to access refrigeration machinery, ventilation fans with distribution ducting, refrigerated container power supply plugs, new lighting, and associated electrical cables to allow stowage of refrigerated containers below deck would meet the above-discussed criteria for vessel modifications. Accordingly, the proposed work to the subject vessel, as described in this section would meet the criteria for a modification, and therefore is not dutiable, under 19 U.S.C. § 1466. This finding is specifically limited to the work described herein and does not extend to any other undescribed work that may be performed.

Addition of Bridge Console

With regard to the addition of the bridge console, it is our position that the proposed work constitutes a modification.33 Considering the first of the four factors discussed above, the installation of the bridge console would constitute a permanent incorporation into the hull of the vessel. Regarding the first factor, your request states that the bridge consol cannot be easily removed since the systems are “integral to the propulsion of the vessel.” 34 Regarding the second factor, the addition of the bridge console would remain aboard during extended lay-up. Regarding the third factor, you state that the addition of the bridge console, which will accommodate new control and monitoring systems, as well as a new steering alarm system, will not replace any components in need of repair or replacement. Finally, regarding the fourth factor, you state that the addition of the bridge console is necessary for the enhancement of the

33 Your request highlights that an affiliate of [ ] successfully protested the CBP assigned duty for these items for the vessel [ ]. 34 RFI Response 6-4-25.

7 operation or efficiency of the vessel, given that the proposed repowering of the vessel cannot occur without it.

Accordingly, the proposed work related to the addition of the bridge console to the subject vessel the [ ] as described above and in the supporting documentation would meet the criteria for a modification, and therefore is not dutiable, under 19 U.S.C. § 1466.

HOLDING

The proposed foreign shipyard work described above would appear to constitute a modification to the hull and fittings of the [ ]. Therefore, such work, as described above, would not be subject to duties under 19 U.S.C. § 1466. 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. 35 Furthermore, any final determination on this matter is contingent on CBP’s review of the evidence submitted pursuant to 19 C.F.R. § 4.14(i).

Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a {CBP} field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” If the facts of any relevant transaction described herein vary from the facts stipulated to herein, or CBP ascertains discrepancies based upon a review of any other pertinent information, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177.2(b)(1), (2) and (4), and § 177.9(b)(1) and (4).

Sincerely,

W. Richmond Beevers
Chief, Cargo Security, Carriers, and Restricted Merchandise
Office of International Trade, Regulations & Rulings
U.S. Customs and Border Protection

35
See 19 C.F.R. §§ 4.14(d) and (e).

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