HQ 110673: Protest No. 27049 002309, PRESIDENT KENNEDY V-7

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 110673

                        February 13, 1990

VES-13-18-CO:R:P:C  110673 KVS

CATEGORY:  Carriers

Chief, Technical Branch
Pacific Region
1 World Trade Center
Suite 705
Long Beach, CA  90831

Re:  Protest No. 27049 002309, PRESIDENT KENNEDY V-7

Dear Sir:

     Your memorandum dated November 21, 1989, forwarded a protest
regarding vessel repair entry no. C27-0012584-5.  Our findings
are set forth below.

FACTS:

     The PRESIDENT KENNEDY is one of three C-10 or "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 Howaldstwerke-Deutsche Werft AG (HDW) in
Kiel, West Germany.  The subject vessel was delivered to APL on
July 15, 1988, and had work performed shortly thereafter in
foreign shipyards.  Specifically, the boiler forced draft fan
motor that had burned out was removed, rewound, and replaced
aboard the vessel. Subsequent to the completion of the
aforementioned work, the subject vessel arrived in the United
States at San Pedro, California, on March 20, 1989.

     A vessel repair entry covering the voyage in question was
filed on March 22, 1989.  In your letter of June 23, 1989, you
incorporate by reference 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,
which advances the argument that certain foreign work performed
on the PRESIDENT KENNEDY 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
                               -2-

warranty provision) was submitted.  However, no application for
relief was filed to cover the particular entry in question.  In
view of the failure to submit an application, the entry was
forwarded for liquidation, which took place on May 26, 1989.

     A protest (with copies of the invoice and job control form)
was timely filed on June 28, 1989, covering entry no. C27-
0012584-5.  Your letter of June 23, 1989, which was attached to
the protest, claims that the following item was covered by the
warranty clause of the construction contract:  Item 2 (JCF no.7-
142, forced draft fan, Yokohama Engineering Works, Ltd.).  Also
attached is the letter dated December 13, 1988, which was
submitted in connection with other APL protests also based upon
warranty.

     In letters to Mr. Weeks dated July 17, 1989, 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, 1989 and November 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
                               -3-

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. 37 (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 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 is dutiable 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, the protestan-4-

sufficient to substantiate the claim that the work in question
(i.e., Item 2, forced draft fan) is non-dutiable 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 non-dutiable.

     Accordingly, the protest is granted.

                                     Sincerely,




                                     B. James Fritz
                                     Chief
                                     Carrier Rulings Branch