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HQ 111184


October 9, 1990

VES-13-18-CO:R:P:C 111184 GV

CATEGORY: CARRIER

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

RE: Vessel Repair; Entry No. 906-1514342-8; OCEAN ROVER V-1; Conversion; Norwegian Subsidy Program

Dear Sir:

This is in response to your memorandum dated July 13, 1990, transmitting an application for relief from duties assessed pursuant to 19 U.S.C. 1466. You request that we review all items contained in the above entry. Our findings are set forth below.

FACTS:

The OCEAN ROVER is a U.S.-flag vessel owned by Birting Fisheries, Inc., of Edmonds, Washington. The subject vessel had shipyard work performed on her at the shipyard of Langsten Slip & Batbyggeri, A/S, ("Langsten") Tomrefjord, Norway, from August 8, 1988, until December 12, 1989, for the purpose of converting the vessel from an oil rig supply ship used to service oil and gas rigs in Malaysia to a surimi factory processing ship to be operated in the North Bering Sea area of Alaska. This work included the following: (1) the replacement of the vessel's bow, superstructure, and stern; (2) the re-engining of the vessel; (3) the installation of a bow thruster; (4) the installation of refrigeration; (5) the installation of a fish meal plant; (6) the installation of a surimi plant; (6) the installation of deck machinery; and (7) the installation of personnel living spaces, storage rooms, increased tank capacity, bridge, etc. Subsequent to the completion of this work the vessel arrived in the United States at Seattle, Washington on January 18, 1990. A vessel repair entry was filed on the date of arrival.

Pursuant to an authorized extension of time, an application for relief, dated April 16, 1988, was timely filed. The applicant claims, inter alia, that various work performed on the vessel constitutes nondutiable modifications, that various expenses are otherwise classifiably free, and that imported
equipment placed on the vessel after its arrival in the U.S. is nondutiable. In support of this claim the applicant submitted shipyard invoices, blueprints, letters from the naval architects and marine engineers involved, and photographs of the work in question. The applicant also states that while the contract for conversion contains a final price (albeit with itemized costs contained therein) the work was performed pursuant to a subsidy program of the Norwegian Government to encourage such work in that country.

ISSUE:

Whether the foreign expenses for which the applicant seeks relief are dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in pertinent part, for payment on 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 section 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 section 1466.

The Court in Admiral Oriental, supra., cited with approval an opinion of the Attorney General (27 Op. Atty. Gen. 288). That opinion interpreted section 17 of the Act of June 26, 1884, (23 Stat. 57, which allowed drawback on the vessels built in the U.S. 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 section 1466 or a predecessor thereto, it is considered instructive and has long been cited in Customs Service rulings as defining permanent additions to the hull and fittings of a vessel.

For purposes of section 1466, dutiable equipment has been defined as:

...portable articles necessary or appropriate for the navigation, operation, 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 statute or code, is not a relevant consideration. Therefore, any change accomplished solely for these reasons, and which does not constitute a permanent addition to the hull and fittings to the vessel, would be dutiable under section 1466.

In regard to the issue of dutiability of shipyard work subsidized by the Norwegian Government, we note that the dutiable value of foreign repairs to U.S.-flag vessels is the cost of such repairs (T.D. 39340). We therefore have held that if the cost of equipment or repairs is subsidized by the government in a foreign country where they are purchased or made, so that the vessel owner does not pay the subsidized costs, that portion of the total cost is not subject to duty under 19 U.S.C. 1466 (see Customs Rulings 108243 and 109487).

Notwithstanding our recognition of the duty-free status of foreign subsidized work, we have nonetheless reviewed Langsten invoice 6422 (the invoice listing all of the work in question) as to the dutiability of all costs listed thereon. Upon reviewing the entire record with regard to the applicant's claims, we note that the work listed on Item 26 of Langsten invoice no. 6422 constitutes nondutiable modifications to the vessel with the exception of the itemized costs of equipment (i.e., ropes, flags, etc.) listed on the recap sheet.

In regard to the remainder of the costs listed on invoice no. 6422, we note that all are considered to be classifiably free under section 1466 with the exception of the following. Item 25 (costs of repairs made to original hull) does not constitute part of the modification work and therefore is dutiable. Items 21 (costs of fishing gear), 28 (allowance for materials placed on board in U.S.), 31 (allowance for spare parts, accessories, equipment shipped), and 32 (spare parts), all cover nets, parts and other equipment claimed to be either placed on board the vessel in Norway and therefore dutiable, or imported, duty-paid, and placed on board the subject vessel after its arrival in Seattle and therefore not dutiable under section 1466.

While under the recent amendment to section 1466 the foregoing might excuse the parts and equipment from the assessment of the 50% ad valorem duty if the subject vessel were documented under the laws of the United States to engage in the foreign or coastwise trade, and used as a cargo vessel, that is not the situation here. We note, however, that in regard to these four items, the record contains copies of entry summaries (CF 7501) showing the import dates of various of these items to be within several days of the subject vessel's date of arrival in Seattle thus evidencing their duty-paid status and placement aboard the subject vessel subsequent to its arrival in the U.S. Furthermore, at the time these items are placed aboard the subject vessel it will be documented for, and intended to be engaged in, the fisheries and therefore not within the purview of section 1466. Accordingly, those costs of nets, spare parts and equipment referenced in Items 21, 28, 31 and 32 and listed on the entry summaries provided are nondutiable.

HOLDING:

The foreign work for which the applicant seeks relief is dutiable under 19 U.S.C. 1466 with the exception of those items noted above.

Sincerely,

B. James Fritz

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