HQ 110362: Protest No. 2704-89-001516, PRESIDENT JACKSON V-02

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 110362

                        November 24, 1989

VES-13-18-CO:R:P:C 110362 GV

CATEGORY:  Carriers

Chief, Technical Branch
Pacific Region
300 North Los Angeles Street
Post Office Box 2071
Los Angeles, California 90053-3379

RE: Protest No. 2704-89-001516, PRESIDENT JACKSON V-02

Dear Sir:

     Your memorandum dated July 14, 1989, forwarded a protest
regarding vessel repair entry no. C27-0012511-8. Our findings are
set forth below.

FACTS:

     The PRESIDENT JACKSON 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 Howaldtwerke-Deutsche Werft AG
(HDW) in Kiel, Germany.  The subject vessel was delivered to APL
on September 8, 1988, and had work performed shortly thereafter
by HDW 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 November 21, 1988.

     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 JACKSON 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 March 31, 1989.

     A protest (with copies of invoices and job control forms)
was timely filed on April 12, 1989, covering entry no. C27-
0012511-8 claiming that the following items were covered by the
warranty clause of the construction contract: Item 2 (Hong Long
Marine Service & Engineering Co., Ltd., JCF no. JAC2-112); Item 3
(Sulzer Bros., JCF no. JAC2-122); Items 4/5 (Shinwa Industrial
Co., Ltd. JCF no. JAC2-501/502); Item 6 (Anschuetz Japan Co.,
Ltd. JCF no. JAC2-107); Items 8/9 (Misuzu Machineries &
Engineering Ltd. JCF no. JAC2-109/111); and Item 11 (The Yokohama
Engineering Works, Ltd. JCF no JAC2-106).

     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
following additional documentation in support of duty-free
treatment of certain identified warranty items: affidavits from
the Head Manager, Guarantee, HDW, 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; letters of agreement signed
by officials of both APL and HDW setting forth warranty items
that have been agreed and paid with respect to the subject
vessels and items that have been agreed in principle; copies of
wire transfer receipts by APL of sums of money from HDW
evidencing proof of payment of warranty claims; and a
certification of an APL officer stating that the protested items
for which a refund is requested were included in the agreements
reached with HDW and that payment was received for these items by
APL.

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.
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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), the yard which constructed the vessel
acknowledged coverage of the work under the warranty, and said
yard refunded APL the full amount of the expenses covering the
work.

     Accordingly, despite the failure to submit specific invoices
regarding Items 3 and 6, it is our determination that the
protestant has submitted evidence sufficient to substantiate

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their claim that the work in question (i.e., Items 2, 3, 4/5, 6,
8/9 and 11) 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