HQ 110901: Protest No. 27049-003109; PRESIDENT ADAMS V-07

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 110901
                          July 31, 1990

VES-13-18-CO:R:P:C: 110901 LLB

CATEGORY:  Carriers

Chief, Technical Branch
Pacific Region
One World Trade Center
Long Beach, California 90831

RE:  Protest No. 27049-003109; PRESIDENT ADAMS V-07

Dear Sir:

     Your memorandum dated February 26, 1990, forwarded a protest
regarding vessel repair entry no. C27-0075231-7.  Our findings
are set forth below.

FACTS:

     The PRESIDENT ADAMS is one of three C-10 or "non-Panamax"
vessels (so named because their configurations include a beam too
wide to transit the Panama Canal) built for American President
Lines, Ltd. (APL) by Bremer Vulkan AG (BV) in Bremen, Germany.
The subject vessel was delivered to APL on September 30, 1988,
and had work performed shortly thereafter by BV and other
foreign yards.  Subsequent to the completion of the
aforementioned work, the subject vessel arrived in the United
States at San Pedro, California, on June 10, 1989.

     A vessel repair entry covering the voyage in question was
filed on the date of arrival.  In a letter dated December 13,
1988, from Mr. Robert E. Weeks, Marine Customs Coordinator, APL,
to the Chief, Liquidation Branch, U.S. Customs Service, San
Francisco, it was stated that certain foreign work performed on
the PRESIDENT ADAMS was pursuant to a new vessel construction
warranty which extended one year from the date of delivery and
therefore was not subject to duty.  In support of this claim a
copy of the construction contract (including the warranty
provision) was submitted. However, no application for relief was
filed to cover the particular entry in question.  Furthermore,

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the items claimed to be subject to warranty were not identified
on the December 13 letter but rather were marked as such on the
entry.  In view of the failure to submit an application the entry
was forwarded for liquidation which took place on July 21, 1989.


     A protest (with copies of invoices and job control forms)
was timely filed on October 6, 1989, covering entry no. C27-
0075231-7 claiming that the following items were covered by the
warranty clause of the construction contract: Items 1, 2, and
17.

     In letters to Mr. Weeks, dated July 17 and August 9, 1989,
we stated that APL failed to submit the requisite evidence
necessary to substantiate the warranty claims of this and other
pending APL protests regarding the C-10 vessels.  We therefore
allotted APL a period of time until November 7, 1989, to submit
evidence that the contractors either paid the invoices in
question or refunded APL the costs involved pursuant to the terms
of the warranty.  Furthermore, we emphasized that the requested
evidence must indicate not only that a particular item in
question was covered by the warranty but that the entire cost was
reimbursed.

     By letters dated November 2 and 6, 1989, APL provided the
additional documentation in support of duty-free treatment of
certain identified warranty items for the PRESIDENTS KENNEDY,
JACKSON, AND TRUMAN.  As to the PRESIDENTS ADAMS and POLK,
however, APL requested an extension of time until March 30, 1990,
within which to submit additional documentation in support duty-
free status of warranty items which were under deliberation with
BV.  In response to a letter from APL, dated March 29, 1990,
requesting an extension of time until June 30, 1990, to submit
the requisite documentation, Customs, by letter dated April 4,
1990, denied any additional extension of time.  In the
alternative, APL, by letter dated May 4, 1990, proposed a shorter
extension until May 30, 1990, and agreed that no further
extension would be sought.  Customs granted this latter request
in a letter to APL dated May 10, 1990.

     By letters dated May 22 and 25, 1990, APL provided the
following additional documentation in support of duty-free
treatment of certain identified warranty items:  affidavits from
the Head of the Guarantee Department, BV, that the work in
question was performed pursuant to the contract warranty
provisions and was necessary to satisfy the original
specifications of the contract for the construction of the
vessel; and a letter signed by an official of BV enclosing a
guarantee settlement agreement signed by officials of both APL
and BV, and referencing the above affidavits and a wire transfer
for the amount in question.
                              - 3 -

ISSUE:

     Whether the foreign work performed on the subject vessel for
which the protestant seeks relief is part of the original
construction pursuant to a warranty clause, or dutiable repairs
within the meaning of 19 U.S.C. 1466.

LAW AND ANALYSIS:

     Title 19, United States Code, section 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.

     The Supreme Court has determined that although a vessel is a
vehicle of dutiable articles, the vessel itself is not a dutiable
article and thus the cost of foreign construction of a vessel is
not dutiable.  The Conqueror, 166 U.S. 110, 17 S.Ct. 510, 41
L.Ed. 937 (1897).  Furthermore, the vessel's original equipment
is not dutiable since it is part of the construction cost of the
vessel. (See 22 Op. Atty. Gen. 360 (1899)).

     In Sea-Land Service, Inc. v. United States, 638 F.Supp. 1404
(CIT; March 31, 1988), the court set forth criteria to be used in
determining whether a specific item is part of the original
construction of the vessel or is a dutiable repair under 19
U.S.C. 1466.  Some of the salient factors to be considered
include the terms and nature of the guarantee or warranty clause
(under the terms of the original contract), when the work was
actually performed, and the nature and purpose of the work and
the equipment provided.  It is important to determine whether the
"guarantee clause" is indeed a warranty of fitness for use and
quality, and is limited in time to what may properly be deemed
part of the original construction. Id. at 1407.

     Finally, the court stated that the duration of the warranty
clause must be reasonable, and only long enough to permit the
owner of the vessel to determine whether there has been
compliance with the construction specifications, and to ascertain
whether the work performed pursuant to the warranty clause is
related to compliance with the specifications set forth in the
original contract for the construction of the vessel.  Hence, all
work performed and equipment added which is not encompassed by
the contract are dutiable items under the foreign repair statute.
Id. at 1407.

     In the instant case, the work in question was performed
shortly after delivery of the vessel (i.e., within the one year
duration of the warranty), and the yard which constructed the
vessel acknowledged coverage of the work under the warranty.

                              - 4 -

     Accordingly, the protestant has submitted evidence
sufficient to substantiate the claim that the work in question
(i.e., Items 1, 2, and 17) is nondutiable pursuant to the
warranty provisions of the original contract for construction.

HOLDING:

     The foreign work performed on the subject vessel for which
the protestant seeks relief is part of the original construction
pursuant to the warranty clause and therefore is nondutiable.

     Accordingly, the protest is granted.

                                   Sincerely,




                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch