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HQ 109908

March 16, 1989

VES-13-18 CO:R:P:C 109908 LLB


Douglas M. Fryer, Esq.
Mikkelborg, Broz, Wells & Fryer
Seattle, Washington 98154

RE: Duty liability under 19 U.S.C. 1466 and the Harmonized Tariff Schedule of the United States for certain operations associated with foreign and domestic conversation of a vessel

Dear Mr. Fryer:

This is in response to your letter of December 9, 1988, in which you request a ruling concerning the duty consequences (both vessel repair and tariff duties) associated with the United States and foreign shipyard conversion of a vessel from an oil drilling vessel to a fishing and fish processing vessel. That which follows is advisory in nature.


The vessel MV GLOMAR GRAND ISLE was acquired on November 1, 1988, by All Alaska Seafoods, Inc., from the United States Maritime Administration. The vessel was constructed in the United States in 1967 as an oil drilling vessel and last departed a port of the United States more than two years ago.

The present owner intends to convert the vessel into a United States fisheries-documented fishing and processing ship by accomplishment of the following steps, in the following order:

1. In a foreign shipyard, overhaul the engines, remove all drilling apparatus, seal the hull where necessary following equipment removal, remove the bulk cement tanks forward, and seal 'tween deck areas with steel plate.

2. In a United States shipyard, add a shelter deck which will be built from pre-cut sections which will be imported.

3. In a foreign shipyard, add all apparatus necessary to make the vessel a complete fish processing factory. It is stated that the equipment will be bolted to foundations and will be 2
removable. In addition, it is stated that refrigeration equipment will be installed and certain holds will be refrigerated.

It is stated that the best information indicates that "no significant work was performed on the vessel during the first six months of its extended absence from the United States, earlier stated to be more than two years in duration.


Whether and which of the operations discussed above are subject to duty consequences under either the Harmonized Tariff Schedule of the United States, or the vessel repair statute codified at 466, Tariff Act of 1930, as amended (19 U.S.C. 1466).


Section 1466 provides, in pertinent part, for payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to engage in such trade.

A leading case in the interpretation and application of 1466 is United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137 (T.D. 44359 (1930)). That case distinguished between equipment and repairs on one hand and permanent additions to the hull and fittings on the other, the former being subject. to duty under 1466.

The Court in Admiral Oriental, supra., cited with approval an opinion of the Attorney General (27 Op. Atty. Gen 228). That opinion interpreted 17 of the Act of June 26, 1884 (23 Stat. 57), which allowed drawback on vessels built in the United States for foreign account, wholly or in part of duty-paid materials. In defining equipment of a vessel, the Attorney General found that items which are not equipment are:
those appliances which are permanently attached to the vessel, and which would remain on board were the vessel to be laid up for a long period...[and] are material[s] used in the construction of the vessel...

While the opinion of the Attorney General interpreted a provision of law other than 1466 or a predecessor thereto, it is considered instructive and has long been cited in Customs Service rulings a defining permanent additions to the hull and fittings of a vessel.

For purposes of 1466, dutiable equipment has been defined as:
portable articles necessary or appropriate for the navigation, operations, or maintenance of a vessel, but not permanently incorporated in or permanently attached to its hull or propelling machinery, and not constituting consumable supplies. (T.D. 34150 (1914))

It should be noted that the fact that a change or addition of equipment is made to conform with a new design scheme, or for the purpose of complying with the requirements of state or code, is not relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings of the vessel, would be dutiable under 1466.

Section 1466 was amended by the Act of January 5, 1971 (Pub. L. 91-654), to exempt from duty consideration any repairs to special purpose vessels (those used for other than passenger or merchandise carriage), remaining continuously outside the United States for a period of two years, except for those repairs occurring during the first six months after United States departure.

The Act of October 30, 1984 (Pub. L. 98-573), further amended the statute by extending to all vessels, regardless of the character of their service, the benefits previously offered only to "special purpose" vessels by the 1971 amendment, except, in the case where a passenger or cargo vessel departed the United States expressly for the purpose of obtaining equipment or repairs abroad.

Under the amended law, duty applies only to those repairs made and materials purchased for vessels during the first six months away from the United States. The history of any such repairs can usually be found in the vessel's deck and/or Chief Engineer's logs which remain aboard at all times. If no repairs were made during the first six months of a vessel's absence, there would be no duty liability under 19 U.S.C. 1466.

In the first of the enumerated items above, the kinds of operations listed, with one exception, are commonly held to be non-repair-related modifications to the hull and fittings. The item largely involves removal of apparatus with no replacement, and the permanent addition to the hull of steel plates. The exception is found in the stated "overhaul" of the main and auxiliary engines. This indicates that operating deficiencies are being addressed which are in the nature of repairs. This item wold in all likelihood be held to be dutiable under 1466. 4

In regard to the second category of operations, if the materials, pre-cut steel deck house sections, arrive aboard the GLOMAR GRAND ISLE for United States installation, their cost is dutiable under 1466 as a foreign purchase for the vessel, notwithstanding the fact that actual installation would take place in the United States.

From the information supplied, it appears that the bulk of the items and procedures listed in connection with the third category of operations would be considered dutiable equipment purchases within the meaning of the previously cited T.D. 34150 (1914), as it is stated that the items are bolted down (temporarily installed), and will be removable. The exception to this may be any piping, etc., which is permanently installed as part of the hold refrigeration system. If such operations are undertaken, they may well be considered duty-free modifications to the hull and fittings. A determination on this issue will be made after the entry is filed.

In regard to the statement that "no significant work" was done on the vessel during the first six months of its extended absence from the United States, duty would be due on any otherwise non-remissible work done during that period, no matter how insignificant. It is incumbent upon the vessel operator to show through presentation of the best available evidence exactly what work, if any, was performed on the vessel. It is also necessary to prove that the vessel last departed a United States port two or more years prior to its first arrival in order to benefit from the provisions of the exemption (1466(e)). In any event, all work and purchases must be declared and entered at the time of the vessel's arrival in the United States.


The findings stated in this ruling are advisory in nature, and specific determinations regarding dutiability must necessarily await the arrival of the vessel and an examination of the actual invoices.


B. James Fritz

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