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HQ 110903

August 8, 1990

VES-13-18-CO:R:P:C 110903 BEW


Chief, Technical Branch
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Protest No. 27049-002057; PRESIDENT ADAMS V-02. Warranty repairs; 19 U.S.C. 1466; Sea-Land Service, Inc. v. U.S.

Dear Sir:

This is in reference to a memorandum dated February 26, 1990, from your office which transmitted protest No. 27049- 002057, relating to vessel repair entry No. C-27-0012525-8, concerning the PRESIDENT ADAMS, Voyage No. 02. The entry was filed on December 19, 1988. Our findings are set forth below.


The PRESIDENT ADAMS is one of two C-10 or "non-Panamax" vessels (so named because their configurations include a beam too wide to transit the Panama Canal) built for American President Lines, Ltd. (APL) by Bremer Vulkan AG (BV) in Bremen, Germany. The subject vessel was delivered to APL on September 30, 1988, and had work performed shortly thereafter by BV and other foreign yards. Subsequent to the completion of the aforementioned work, the subject vessel arrived in the United States at San Pedro, California, on December 19, 1988.

A vessel repair entry covering the voyage in question was filed on the date of arrival. In a letter dated December 13, 1988, from Mr. Robert E. Weeks, Marine Customs Coordinator, APL, to the Chief, Liquidation Branch, U.S. Customs Service, San Francisco, it was stated that certain foreign work performed on the PRESIDENT ADAMS was pursuant to a new vessel construction warranty which extended one year from the date of delivery and therefore was not subject to duty. In support of this claim a copy of the construction contract (including the warranty provision) was submitted. However, no application for relief was filed to cover the particular entry in question. Furthermore, the items claimed to be subject to warranty were not identified in the December 13, 1988, letter but rather were marked as such on the entry. In view of the failure to submit an application the entry was forwarded for liquidation which took place on March 17, 1989.

A protest (with copies of invoices and job control forms) was timely filed on May 26, 1989, covering entry no. C27- 0012525-8 claiming that the following items were covered by the warranty clause of the construction contract: Items 02, 14, 17, 18, 20, and 21.

In letters to Mr. Weeks, dated July 17 and August 9, 1989, we stated that APL failed to submit the requisite evidence necessary to substantiate the warranty claims of this and other pending APL protests regarding the C-10 vessels. We therefore allotted APL a period of time until November 7, 1989, to submit evidence that the contractors either paid the invoices in question or refunded APL the costs involved pursuant to the terms of the warranty. Furthermore, we emphasized that the requested evidence must indicate not only that a particular item in question was covered by the warranty but that the entire cost was reimbursed.

By letters dated November 2 and 6, 1989, APL provided the additional documentation in support of duty-free treatment of certain identified warranty items for the PRESIDENTS KENNEDY, JACKSON, AND TRUMAN. As to the PRESIDENTS ADAMS and POLK, however, APL requested an extension of time until March 30, 1990, within which to submit additional documentation in support duty- free status of warranty items which were under deliberation with BV. In response to a letter from APL, dated March 29, 1990, requesting an extension of time until June 30, 1990, to submit the requisite documentation, Customs, by letter dated April 4, 1990, denied any additional extension of time. In the alternative, APL, by letter dated May 4, 1990, proposed a shorter extension until May 30, 1990, and agreed that no further extension would be sought. Customs granted this latter request in a letter to APL dated May 10, 1990.

By letters dated May 22 and 25, 1990, APL provided the following additional documentation in support of duty-free treatment of certain identified warranty items: affidavits from the Head of the Guarantee Department, BV, that the work in question was performed pursuant to the contract warranty provisions and was necessary to satisfy the original specifications of the contract for the construction of the vessel; and a letter signed by an official of BV enclosing a guarantee settlement agreement signed by officials of both APL and BV, and referencing the above affidavits and a wire transfer for the amount in question.


Whether the foreign work performed on the subject vessel for which the protestant seeks relief is part of the original construction pursuant to a warranty clause or dutiable repairs within the meaning of 19 U.S.C. 1466.


Title 19, United States Code, 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.

The Supreme Court has determined that although a vessel is a vehicle of dutiable articles, the vessel itself is not a dutiable article and thus the cost of foreign construction of a vessel is not dutiable. The Conqueror, 166 U.S. 110, 17 S.Ct. 510, 41 L.Ed. 937 (1897). Furthermore, the vessel's original equipment is not dutiable since it is part of the construction cost of the vessel. (See 22 Op. Atty. Gen. 360 (1899)).

In Sea-Land Service, Inc. v. United States, 638 F.Supp 1404 (CIT; March 31, 1988), the court set forth criteria to be used in determining whether a specific item is part of the original construction of the vessel or is a dutiable repair under 19 U.S.C. 1466. Some of the salient factors to be considered include the terms and nature of the guarantee or warranty clause (under the terms of the original contract), when the work was actually performed, and the nature and purpose of the work and the equipment provided. It is important to determine whether the "guarantee clause" is indeed a warranty of fitness for use and quality, and is limited in time to what may properly be deemed part of the original construction. Id. at 1407.

Finally, the court stated that the duration of the warranty clause must be reasonable, and only long enough to permit the owner of the vessel to determine whether there has been compliance with the construction specifications, and to ascertain whether the work performed pursuant to the warranty clause is related to compliance with the specifications set forth in the original contract for the construction of the vessel. Hence, all work performed and equipment added which is not encompassed by the contract are dutiable items under the foreign repair statute. Id. at 1407.

In the instant case, the work in question was performed shortly after delivery of the vessel (i.e., within the one year duration of the warranty), and the yard which constructed the vessel acknowledged coverage of the work under the warranty.

Accordingly, the protestant has submitted evidence sufficient to substantiate their claim that the work in question (i.e., Items 02, 14, 17, 18, 20, and 21) is nondutiable pursuant to the warranty provisions of the original contract for construction.


The foreign work performed on the subject vessel for which the protestant seeks relief is part of the original construction pursuant to the warranty clause and therefore is nondutiable.

Accordingly, the protest is granted.


B. James Fritz

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