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HQ 226969





November 14, 1997

VES-13-18-RR:IT:EC 226969 CC

CATEGORY: CARRIER

Vessel Repair Liquidation Unit
U.S. Customs Service
P.O. Box 2450
San Francisco, CA 94126

RE: Application for relief; Vessel repair entry no. C27-0147637-9; MANOA, V-131; 19 U.S.C. ? 1466; Hatch cover modifications; Change of name markings; HQ 113692

Dear Madam:

This is in response to your memorandum dated May 9, 1996, which forwarded the application for relief submitted by American President Lines, Inc., and subsequently adopted by Matson Navigation Company, Inc. ("applicant"), with respect to the above-referenced vessel repair entry. The subject vessel, MANOA, was previously known as the PRESIDENT LINCOLN.

FACTS:

The MANOA is a U.S.-flag vessel owned by Matson Navigation Company, Inc. The vessel underwent foreign shipyard work in January 1996 and arrived at the port of Los Angeles, California on February 12, 1996. A vessel repair entry was filed on the day of arrival.

An application for relief from vessel repair duties was timely filed. You have asked for our determination with respect to the following items: hatchcover modifications and change of name markings. The application states in part the following:

Matson and APL announced their intent to operate a joint service that would benefit both carriers by producing significant cost savings. To accomplish these efficiencies and cost savings, APL sold the above subject vessels to Matson...

As part of this sale agreement it was necessary to make certain improvements to the vessels to increase their efficiency and to make the vessels suitable for this new deployment. These improvements are described in Enclosure A and were required to allow for the stowage of the Matson 24 foot type containers at six rows on deck...
...

Item No. 2 of this entry covers the costs only of changing the vessel[']s name, hailing port, slack insignia, and stack coating and the addition of the "Matson" insignia. As such, these changes resulting from a change of ownership of this vessel constitutes [sic] a duty free modification.

ISSUE:

Whether the subject items are dutiable pursuant to 19 U.S.C.

LAW AND ANALYSIS:

Title 19, United States Code, ? 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.

In its application of the vessel repair statute, the Customs Service has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. Over the course of years, the identification of modification processes has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a modification that is not subject to duty, the following elements may be considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel (see United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930)), either in a structural sense or as demonstrated by the means of attachment so as to be indicative of the intent to be permanently incorporated. This element should not be given undue weight in view of the fact that vessel components must often be welded or otherwise "permanently attached" to the ship because ships are subject to constant pitching and rolling. In addition, some items, the cost of which is clearly dutiable, operate with other vessel components, resulting in the need, possibly for that purpose alone, for a fixed and stable attachment to those vessel parts. It follows that a "permanent attachment" may take place that does not necessarily involve a modification to the hull and fittings.

2. Whether in all likelihood, an item under consideration would remain aboard a vessel during an extended lay-up.

3. Whether, if not a first-time installation, an item under consideration replaces a current part, fitting, or structure which is not in good working order.

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

The application for relief contained in Headquarter Ruling (HQ) 113692, dated July 2, 1997, (copy enclosed) was made by the same applicant and contained the same factual situation as that contained in this request. Consequently, our analysis is the same as in that decision. In HQ 113692 we found the hatchcover work to be a nondutiable modification. In addition, we found the change of name markings to be nondutiable pursuant to 19 U.S.C. ? 1466, based on H.C. Gibbs v. United States, 28 Cust. Ct. 318, C.D. 1430 (1952), aff'd 41 C.C.P.A. 57, C.A.D. 529 (1953) and HQ 112513, dated March 30, 1993. Consequently, both items are not dutiable.

HOLDING:

The subject items are not dutiable pursuant to 19 U.S.C. ? 1466.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers

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