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HQ 115792

November 6, 20002

VES-13-18-RR:IT:EC 115792 RSD


Chief, Residual Liquidation and Protest Branch ATTN: Vessel Repair Unit
Newark/New York Area
1210 Corbin Street
3rd Floor
Elizabeth, New Jersey 07201

RE: Vessel repair; Vessel SEA-LAND DEFENDER, V.116; Vessel Repair Entry No. C46-001715151-5; Travel and allowance charges; 19 U.S.C. §1466; Protest, No 4601-02-102607

Dear Sir:

This is in response to your memorandum dated August 21, 2002, regarding the above-referenced protest concerning the assessment of duties under the vessel repair statute. U.S. Ship Management, Inc. filed the protest. Our findings are set forth below.


The SEA-LAND DEFENDER is a U.S.-flag vessel owned by U.S. Ship Management, Inc. During September and October of 2001, work was completed on the vessel at shipyards in Yokohama, Japan and Shanghai, China. Subsequent to the completion of the foreign shipyard work, the vessel arrived at the port of Long Beach, California on October 17, 2001, and at that time vessel repairs were declared to Customs.

An application for relief with supporting documentation was filed on February 13, 2002. Pursuant to a letter dated July 5, 2002, the Supervisory Liquidator Residual Liquidation & Protest Branch, New York, New York partly approved and partly denied the aforementioned application. The charges for travel time, hotel costs and allowances were determined to be dutiable. U.S. Ship Management filed a protest claiming that transportation expenses and allowances associated with foreign repairs should not be held to be dutiable. The protest was approved for further review and was forwarded to the Office of Regulations & Rulings for a decision.


Whether the transportation expenses and allowances incurred while a U.S. flag vessel was repaired outside of the United States are dutiable under 19 U.S.C. § 1466.


Section 466(a), Tariff Act of 1930, as amended (19 U.S.C. §1466(a)) provides, in pertinent part, that:

The equipments, or any part thereof ... purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country.

In Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 815 F.Supp. 1484 (1993), the U.S. Court of International Trade (CIT) considered whether costs for post-repair cleaning and protective coverings incurred pursuant to dutiable repairs constituted “expenses of repairs” as that term is used in 19 U.S.C. §1466. In holding that these costs were dutiable as “expenses of repairs” the court adopted the “but for” test proffered by Customs; that is, such operations were an integral part of the dutiable repair process and would not have been necessary “but for” the need to conduct dutiable repairs.

On appeal, the Court of Appeals for the Federal Circuit (CAFC) issued a watershed decision which not only affirmed the opinion of the CIT regarding the specific expenses at issue, but also provided clear guidance with respect to the interpretation of 19 U.S.C. §1466, and thus the Customs administration of that statute. In upholding the “but for” test adopted by the CIT the CAFC stated:

...the language ‘expenses of repairs’ is broad and unqualified. As such, we interpret ‘expenses of repairs’ as covering all expenses (not specifically excepted in the statute) which, but for dutiable repair work, would not have been incurred. Conversely, ‘expenses of repairs’ does not cover expenses that would have been incurred even without the occurrence of dutiable repair work. As will be more clearly illustrated below...the ‘but for’ interpretation accords with what is commonly understood to be an expense of repair. 44 F.3d 1539, 1544.

The Assistant Commissioner, Office of Regulations and Rulings, issued a second memorandum to the Regional Director, Commercial Operations Division, New Orleans (file no. 113350), dated March 3, 1995. This memorandum was published in the Customs Bulletin on April 5, 1995 (see Customs Bulletin and Decisions, vol. 29, no. 14, at p. 24). It provided that all vessel repair entries filed with Customs on or after the date of that decision were to be liquidated in accordance with the full weight and effect of the court decision (i.e., costs of post-repair cleaning and protective coverings incurred pursuant to dutiable repairs are dutiable and all other foreign expenses contained within such entries are subject to the “but for” test). Therefore, expenses that are associated with repair charges are dutiable in accordance with the “but for” approach used in Texaco. Without a showing that the charges in question are incident to a non-repair item, they are dutiable under the vessel repair statute.

In its protest United States Ship Management requests relief from vessel repair duties on transportation expenses and allowances. However, the Protestant has not presented any additional documentation or argumentation to support its claim that the transportation expenses and allowances should not be dutiable. Accordingly, we find that the application decision in this matter should be affirmed, and thus the protest should be denied.


Following a thorough review of the evidence presented as well as analysis of the law and relevant judicial and administrative precedents, we have determined that this Protest should be denied in full for the reasons specified in the Law and Analysis portion of this ruling.

In accordance with §3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any new billing (the equivalent of the reliquidation of an entry) in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.


Glen E. Vereb
Acting Chief
Entry Procedures and Carriers Branch

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