# HQ 115668

July 15, 2002

## VES-13-18-RR:IT:EC 115668 GEV

CATEGORY: Carriers

Chief, Vessel Repair Unit

U.S. Customs Service

423 Canal Street

New Orleans, Louisiana 70130

RE: Vessel Repair Entry No. 906-0307671-3; SS KENAI; V-118;

Modification; U.S.-Resident Labor; 19 U.S.C. § 1466

Dear Sir:

This is in response to your memorandum dated April 29, 2002, forwarding
an application for relief from vessel repair duties assessed pursuant to
19 U.S.C. § 1466. Our ruling on this matter is set forth below.

FACTS:

The SS KENAI is a U.S.-flag vessel which incurred foreign shipyard
costs. Subsequent to the completion of the work in question, the vessel
arrived at Valdez, Alaska, on October 17, 2001. A vessel repair entry
was timely filed.

An application for relief with supporting documentation was timely
filed. The applicant seeks relief for a myriad of costs, including those
alleged to be modifications, U.S.-resident labor, and Canadian-origin
parts imported into the U.S. and shipped aboard the subject vessel for
installation in Korea. It is these claims for which you seek our advice.

ISSUES:

Whether the items for which the applicant seeks relief are dutiable
under 19 U.S.C. § 1466(a).

\- 2 -

LAW AND ANALYSIS:

Title 19, United States Code, § 1466(a) (19 U.S.C. § 1466(a)), provides
in pertinent part for the payment of an *ad valorem* duty of 50 percent
of the cost of "...equipments, or any part thereof, including boats,
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..."

In its application of the vessel repair statute, Customs has held that
modifications, alterations, or additions to the hull and fittings of a
vessel are not subject to vessel repair duties. The identification of
work constituting modifications vis-à-vis work constituting repairs has
evolved from judicial and administrative precedent. (See [Otte v. United
States]{.underline}, 7 Ct. Cust. Appls. 166, T.D. 36489 (1916); [United
States v. Admiral Oriental Line et al]{.underline}., 18 C.C.P.A. 137,
T.D. 44359 (1930); and [Customs Bulletin and Decisions]{.underline},
Vol. 31, Number 40, published October 1, 1997.) The factors discussed
within the aforementioned authority are not by themselves necessarily
determinative, nor are they the only factors which may be relevant in a
given case. However, in a given case, these factors may be illustrative,
illuminating, or relevant with respect to the issue of whether certain
work may be a modification of a vessel which is nondutiable under 19
U.S.C. § 1466.

The alleged modification work for our review was marked in volume 2 of
Hyundai Mipo Dockyard Co., Ltd. invoice no. 011221. Upon reviewing the
work described therein, it is readily apparent that the following items
constitute nondutiable modifications to the subject vessel: 038 (Forward
Impressed Current System Installation); 111 (No. 2 Winch Drum
Modification); 113 (Rapp-Hydema Winch Hydraulic Clutch Modification;
141 - Field Order 69 (Piping Modification); 142 (Butterworth Heater
Stacey Blind Installation); 167 (Obsolete Gangway Foundation Sole Plate
Removal) (we note that the dutiable repair of deck fractures also
appearing as Field Order 175 under this item is properly segregated);
170 (Foam Room Scuttle Hatch Installation); 213 -- Field Order 48 (C
Deck Scuttle Hatch Installation); 215 -- Field Order 65 (Weld Life-Ring
Holders to Rail); 221 -- Field Order 92 (Wheelhouse Deck Camera Mount).

In regard to the remaining items alleged to constitute nondutiable
modifications, our findings are as follows. Item 139 (Pumproom Bilge
Pump Installation) is merely the installation of equipment and is
therefore dutiable. As for Items 149 (Manifold Gauge Connections),

\- 3 -

152 (Manifold Air Service Line Installation), 192 (Combustion Control
Upgrade), the information provided is insufficient upon which to grant
relief. These items are therefore dutiable.

In regard to the U.S.-resident labor marked in volume 4 of the
application and claimed by the applicant to be duty-free, we note that
it is not reflected on the actual invoices listing the parts and/or
materials installed but rather is referenced on appended pro forma pages
prepared by the vendor with various blank spaces where the vendor
cross-referenced the aforementioned invoice and placed a check to
indicate U.S.-resident labor. We further note that the applicant has
submitted no evidence to corroborate these claims of U.S. residency
(e.g., copies of U.S. passports, drivers' licenses, birth certificates,
etc.). Absent such corroborating evidence, the labor in question is
dutiable.

The final cost for which you seek our review is that of Canadian-origin
condenser tubes invoiced from Wolverine Tube (Canada) Inc., transported
via truck from Montreal, Canada, to Bellingham, WA, then to Port
Angeles, WA, where they were loaded aboard the SS KENAI bound to Hyundai
Mipo Dockyard Co., Ltd. in Korea for installation. Notwithstanding the
absence of documentation evidencing the transportation of these tubes
from Canada to the U.S., the record supports their duty-free treatment.

HOLDING:

The items for which the petitioner seeks relief are dutiable in part
under 19 U.S.C. § 1466(a) as discussed in the Law and Analysis portion
of this ruling.

Sincerely,

Jeremy Baskin

Acting Chief

Entry Procedures and Carriers Branch