VES-13-18 CO:R:IT:C 112009 MLR
Deputy Regional Director
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831
RE: Vessel Repair; Entry No. C27-0061018-4; SEA-LAND ENDURANCE
V-112/115; Casualty; Seaworthiness
Dear Sir:
This is in response to your memorandum dated November 26,
1991, forwarding an application for relief from Ms. Carol Berger,
for SEA-LAND SERVICE, Inc. Our findings are set forth below.
FACTS:
The record reflects that the SEA-LAND ENDURANCE arrived at
the port of Long Beach, California, on September 1, 1991. Vessel
repair entry, number C27-0061018-4, was filed on September 9,
1991. The subject vessel had foreign shipyard work performed in
Nagasaki, Japan, during the period of July 5-31, 1991.
An application for relief, dated October 29, 1991, was filed
requesting remission pursuant to 19 U.S.C. 1466(d)(1). The
applicant states that on July 2, 1991, as the SEA-LAND ENDURANCE
proceeded to berth at the Port of Busan, South Korea, the Chief
Engineer, Freddie M. Toedtemeier, and the First Assistant
Engineer, Robert M. Mitchell, felt the vessel surge starboard,
and heard rumbling sounds. They inspected the machinery spaces
and found no apparent damage, and reported the incident to the
Master, Robert J. Ramsey. The Chief Mate, Robert B. Allen,
reported that the vessel struck an underwater object. After the
vessel was secured at the dock, water was found to be slowly
rising in the #3 port double bottom tank.
Divers found damage to the hull in the bilge strake #2 and
#3 double port ballast tanks. Specifically, six cracks and a
variety of dents were found in the bottom plates from frame no.
128 to frame no. 164., and dents were found from the port frame
no. 128 bottom plates to the stern. The divers cut the port side
bilge keel which was torn approximately 3 meters long.
The American Bureau of Shipping (ABS) survey and the Posa
Marine Services, Ltd. (Posa) survey (conducted on behalf of Sea-
Land Service, Yokohama, Japan) indicate that the owners elected
permanent repairs be made at the first available shipyard at
Nagasaki, Japan. Both the ABS and Posa surveyor recommended that
the vessel be offloaded and drydocked to ascertain the amount of
damages and extent of necessary repairs. The record also
contains the vessel log and U.S. Coast Guard (USCG) Report of
Marine Accident. The Posa survey indicates that William D.
Crawford, the vessel owner's representative, and Larry McBee,
USCG, also carried out a preliminary survey of the damages.
Because the record neither contains a certification that the
repairs conducted were necessary for the safety and seaworthiness
of the vessel, nor any USCG documentation permitting the vessel
to proceed to Nagasaki, this office contacted the USCG. The USCG
indicated that a casualty had occurred, and that the vessel was
allowed to proceed to Nagasaki because that was where the vessel
was built and the shipyard there was most familiar with the
vessel.
At Nagasaki, the ABS and Posa conducted further surveys and
recommended that various repairs be made from frame no. 15 to
frame no. 171. The ABS also conducted a Continuous Survey of the
Machinery and Electrical Equipment and found damage to the engine
room void space, which was considered not to affect the fitness
of the vessel. The ABS Survey-Damage (items 3 and 18), Posa
Marine Survey (item 4), paint (item 10), and repairs to hull
(item 11) are referred for our review.
The vessel was also painted under warranty by Mitsubishi
Heavy Industries, Ltd. (MHI) with locally manufactured paint
supplied by International Paint Company from local stocks.
Because Sea-Land was not charged for this work, it seeks
remission of the duty related to this repair (item 15 and 16).
ISSUES:
(1) Whether the evidence presented is sufficient to prove
that the foreign repairs performed on the vessel for which relief
is sought, were necessary for its safety and seaworthiness thus
warranting remission pursuant to 19 U.S.C. 1466(d)(1).
(2) Whether the foreign paint job performed under warranty
with the use of foreign manufactured paint is dutiable under 19
U.S.C. 1466.
LAW AND ANALYSIS:
(1) Title 19, United States Code, section 1466, provides in
part for payment of an ad valorem duty of 50 percent of the cost
of foreign repairs to vessels documented under the laws of the
United States to engage in the foreign or coastwise trade, or
vessels intended to engage in such trade. Section 1466(d)(1)
provides that the Secretary of the Treasury is authorized to
remit or refund such duties if the owner or master of the vessel
was compelled by stress of weather or other casualty to put into
such foreign port to make repairs to secure the safety and
seaworthiness of the vessel to enable her to reach her port of
destination.
A three-part test must be met in order to qualify for
remission:
1. The establishment of a casualty occurrence.
2. The establishment of unsafe and unseaworthy conditions.
3. The inability to reach the port of destination without
obtaining foreign repairs.
Section 4.14(d)(1)(iii)(A-G), Customs Regulations [19 CFR
4.14(d)(1)(iii)(A-G)], sets forth the evidence which shall be
included for relief from duties under 19 U.S.C. 1466(d). That
evidence includes all itemized invoices, relevant parts of the
vessel's logs, a certification by the master of the facts
relating to the relief sought, including details of the claimed
stress of weather or other casualty, and a certification by the
master that the repairs were necessary for the safety and
seaworthiness of the vessel.
In addition, if the above requirements are satisfied by
evidence, the remission is restricted to the cost of the minimal
repairs necessary to enable the vessel to reach her port of
destination. Repair costs beyond that minimal amount are not
subject to remission. In the case under consideration, the
vessel log, statements by the crew, and surveys support the
claim that the subject vessel suffered a marine casualty.
Whether the repairs conducted were necessary for the safety and
seaworthiness of the vessel, is the critical issue.
Based on the record before us, there is no certification by
the master that the repairs performed were necessary for the
seaworthiness of the vessel. Further, the record does not
contain a "Certificate of Fitness to Proceed." Pursuant to
2.01-15, USCG Regulations (46 CFR 2.01-15) a vessel may not
proceed from one port to another for repairs unless prior
authorization is obtained from the USCG Officer in Charge, Marine
Inspection (OCMI) either through the issuance of a USCG "Permit
to Proceed to Another Port for Repairs" (CG-948) or a CG-835
which would specify the restrictions on, and duration of, any
voyage undertaken prior to obtaining permanent repairs. (See
also 46 CFR 91.45-1 regarding cargo vessels which provides, inter
alia, that "No repairs or alterations affecting the safety of the
vessel with regard to the hull, machinery, or equipment, shall be
made without the knowledge of the Officer in Charge, Marine
Inspection.") Other than the USCG Report of Accident, the record
contains no USCG documentation of any kind. In a telephone
conversation, the USCG indicated to this office that it
permitted the vessel to proceed to Nagasaki because the vessel
was built there, and therefore the shipyard was more familiar
with the vessel and could repair it more easily.
The ABS documentation indicates that the vessel was fit to
proceed to Nagasaki, the "first available shipyard", for
repairs, but this statement is made after the owners elected to
drydock the vessel at that location. We are of the opinion that,
as a general proposition, there do not exist degrees of
seaworthiness. It is our position that a vessel is either
considered seaworthy or not, and may not be considered seaworthy
for one purpose within the scope of its trade, and not so for
another within the scope of its trade. (See Headquarters Ruling
110879). It has been our longstanding and present policy that
commercial feasibility is an irrelevant consideration.
Accordingly, because a certification is lacking that the
repairs were necessary for the safety and seaworthiness of the
vessel (see Headquarters Ruling 110931); the owners elected not
to repair the vessel in Busan, but to proceed to Nagasaki for
commercial reasons despite the casualty occurrence, and the USCG
indicated that the vessel was allowed to proceed to Japan because
it was built there, the applicant has failed to substantiate its
claim for remission under 1466(d)(1). Therefore, items 3, 4,
7, 8, 10, 11, and 18 are dutiable.
(2) Section 1466 assesses liability for duty on the cost of
repairs made in a foreign country. Exempted from duty under
section 1466(h) is the cost of spare repair parts or materials
which have been previously imported into the United States as
commodities with applicable duty paid under the Harmonized Tariff
Schedule of the United States. Customs has long held that
repairs covered by a service agreement contract are dutiable
under section 1466 even though the vessel owner was not charged
for the repairs.
Further, in Sea-Land Service, Inc. v. United States, 683 F.
Supp. 1404 (1988), the Court addressed whether repair work
performed on a newly constructed vessel subsequent to its
delivery to the owner might be considered to be part of the new
construction contract. Simply put, the Court considered whether
"completion of construction" is a viable concept so as to render
the duty provisions of 19 U.S.C. 1466(a) inapplicable if proven.
The Court found completion of new construction to be a valid
concept, subject to specific conditions, which are:
1. "All work done and equipment added [must be] pursuant
to the original specifications of the contract for the
construction of the vessel ...."
2. "This basic standard is limited to work and equipment
provided within a reasonable period of time after
delivery of the vessel."
Absent evidence indicating that the warranty repairs are
considered to be part of a new construction contract, work done
under a warranty agreement is considered a repair under the
vessel repair statute and the cost thereof is dutiable. (See
C.S.D. 81-50). Because the record clearly indicates that the
paint was manufactured in Japan and had not been previously
imported into the United States with applicable duty paid, the
cost of the paint is also dutiable. Accordingly, we find that
the costs associated with the labor and repairs listed (item 15
and 16) are dutiable.
HOLDING:
(1) The evidence presented is not sufficient to prove that
the foreign repairs performed on the subject vessel for which
relief is sought were necessary for its safety and seaworthiness
therefore remission pursuant to 19 U.S.C. 1466(d)(1) is denied.
(2) Absent evidence indicating that the warranty repairs
are considered to be part of the new construction contract, work
done under a warranty agreement is considered a repair under the
vessel repair statute and the cost thereof is dutiable.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch