HQ 110900: Warranty Vessel: PRESIDENT POLK V-8 Vessel Repair Entry No. C27-0075204-4 Protest No. 27049-003041

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 110900

                          July 18, 1990

VES-13-18-CO:R:P:C  110900 KVS

CATEGORY:  Carriers

Chief, Technical Branch
Commercial Operations Division
1 World Trade Center
Long Beach, CA  90831

RE:  Warranty
     Vessel:  PRESIDENT POLK V-8
     Vessel Repair Entry No. C27-0075204-4
     Protest No. 27049-003041

Dear Sir:

     This is in response to your memorandum of February 26, 1990,
which forwards for our consideration protest no. 27049-003041,
filed in connection with the PRESIDENT POLK V-8, vessel repair
entry no. C27-0075204-4.  Our findings are set forth below.

FACTS:

     The PRESIDENT POLK is one of two 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 July 17, 1988.  In
April, 1989, the vessel underwent foreign shipyard operations.
Specifically, deckhead insulation was installed in the emergency
generator room, a reefer access platform was fabricated and
installed and a damaged handrail was repaired.  Subsequent to the
completion of the aforementioned work, the subject vessel arrived
in the United States at San Pedro, California, on April 29, 1989,
and made entry.

     In a letter dated December 13, 1988, from the Marine Customs
Coordinator at APL, to the Chief of the Liquidation Branch in San
Francisco, it was stated that certain foreign work performed on
the PRESIDENT POLK 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.  In view of the
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failure to submit an application for relief, the entry was
forwarded for liquidation which took place on July 7, 1989.

     A protest (with copies of the invoices and job control
forms) was timely filed on October 3, 1989, in conjunction with
vessel repair entry C27-0075204-4 claiming that the following
items were covered by the warranty clause of the construction
contract:  Item 3 (JCF no. 7-144, deckhead insulation), Item 4
(JCF no. 8-134, reefer access platform), and Item 6 (JCF no. 8-
136, handrail).

     Parenthetically, we note that two additional items (Items 1
and 2) are referenced in documents submitted after the filing of
the protest (i.e. a separate affidavit was submitted for these
items and they appear in a summary sheet dated May 25, 1990).
However, these two items were not included in a letter dated
September 21, 1989, in which APL identified the warranty items
for voyage 8, nor were the items included in the protest filed by
APL.  Further, no invoices or job control forms have been
submitted by APL in conjunction with these items.  Therefore, we
decline to consider these items as part of the protest, as no
amendment to the protest was made.

     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 to support a
finding of duty-free status for warranty item which were still
under deliberation with BV.  In response to a letter from APL
dated March 29, 1990. which requested an extension of time until
June 30, 1990, to submit the requisite documentation, Customs, by
letter of April 4, 1990, denied any additional extension of time.
In the alternative, APL, by letter of 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.

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     By letters dated May 22 and May 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.

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(a) provides,
in pertinent part, for payment of duty in the amount of 50
percent ad valorem on the cost of foreign repairs to vessels
engaged, intended to engage, or documented under the laws of the
United States to engage in the foreign or coastwise 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 v. United States, 638 F.Supp. 1404 (CIT,
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 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 be properly 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
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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 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.

     Accordingly, the protestant has submitted evidence
sufficient to substantiate its claim that the work in question
(i.e., Items 3, 4, and 6) is non-dutiable pursuant to the
warranty provisions of the original contract for construction.

HOLDING:

     The foreign shipyard operations performed on the subject
vessel for which the protestant seeks relief is part of the
original construction of the vessel pursuant to the warranty
clause and therefore is non-dutiable.

     Accordingly, the protest is granted.

                                     Sincerely,




                                     B. James Fritz
                                     Chief
                                     Carrier Rulings Branch