VES-13-18-CO:R:IT:C
Ms. Suzanne Smith
Purchaser/Expediter
Wartsila Diesel, Inc.
Route 5, Box 116B
Chestertown, Maryland 21620
RE: Vessel repair; Importation of marine engines; Installation
in the United States; Installation on the high seas
Dear Ms. Smith:
Reference is made to your letter of June 4, 1990, in which
you inquire as to the duty status of certain marine diesel
engines to be imported into the United States. The question of
duty involves both commodity duty issues arising under the
Harmonized Tariff Schedule of the United States (HTSUS) as well
as vessel repair duties arising under a separate statute.
FACTS:
Wartsila Diesel, Inc., a Finnish firm with U.S. subsidiary
corporations, intends to re-power 36 vessels currently operated
by a U.S.-flag carrier. The vessels currently operate with
Japanese power plants, and the Japanese alternators will continue
in use with the new engines following their refurbishment in the
United States.
The refurbished alternators will be sent to Finland after
being registered in the U.S. on a Customs Form 4455 (Certificate
of Registration), and will there be coupled to new Wartsila
diesel power plants. The coupled units will then be imported into
the United States for installation in this country by engineers
from your firm. It may also be necessary for certain work to be
performed by Wartsila engineers while the vessels are on their
first voyages from the U.S. with their newly installed engines.
The questions posed by Wartsila in regard to the proposed
transaction concern whether the use of the CF 4455 is proper, the
HTSUS duties which may be owed on the new engines and the foreign
labor necessary to couple them to the registered alternators, and
the vessel repair duties which may be due on the labor to install
the new units in the United States and on the high seas.
Questions regarding the application of the HTSUS are not within
the ken of this branch and will be referred to the proper office
in Customs for direct reply to you. Vessel repair duty issues
will be addressed in this ruling letter.
ISSUE:
Whether the U.S. or high seas installation of imported
diesel engines on U.S.-flag vessels may be subject to duty under
the vessel repair statute.
LAW AND ANALYSIS:
Section 466, Tariff Act of 1930, as amended (19 U.S.C.
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.
Work performed in the United States will not be subject to
duty under section 1466. Follow-up work performed outside U.S.
territorial waters (on the high seas) may or may not be subject
to vessel repair duties, depending upon the particular
circumstances involved. It is not clear whether the work to be
performed will be accomplished by company engineers from Finland
or from the U.S. subsidiary corporations. If Finnish labor is
provided, duties may be owing under section 1466 on the portion
of that labor which is provided outside of U.S. jurisdiction.
If, however, labor is provided by U.S. residents, there would not
be duty consequences under section 1466.
Even if Finnish labor is used, however, it may be possible
that no duty would be assessed under the vessel repair statute.
A determination on this point would depend upon whether the
installation of the new power plants constitutes a modification
rather than a repair under the statute. The work would be
characterized as a non-dutiable modification if the new engines
replace engines which were in good working order at the time of
their replacement, but only if the new engines are determined to
provide an improvement in the operating efficiency of the
vessels. If they merely replace defective engines which would
have had to be repaired or replaced in any case, the work
performed outside the United States would be dutiable, even if an
improvement in operating efficiency results.
HOLDING:
Vessel repair duty liability is limited to those areas
discussed in the LAW AND ANALYSIS section of this ruling. Issues
regarding potential consumption entry duty liability and use of
the Customs Form 4455 are being referred to the proper office
within Customs for direct reply.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch