HQ 113533: Protest No. 2704-95-101867; Vessel Repair Entry No. C27-0097081-0; PRESIDENT EISENHOWER; V-105; 19 U.S.C. 1466

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 113533

September 18, 1995               

VES-13-18-R:IT:C 113533 GEV

CATEGORY: Carriers

Chief, Liquidation Section
U.S. Customs Service
630 Sansome Street (Alley Way)
Loading Dock #07
San Francisco, California 94111

RE: Protest No. 2704-95-101867; Vessel Repair Entry No. C27-0097081-0; 
       PRESIDENT EISENHOWER; V-105; 19 U.S.C.  1466

Dear Sir:

     This is in response to your memorandum dated August 7, 1995,
forwarding the above-referenced protest with supporting
documentation for our review.  Our ruling is set forth below.

FACTS:

     The PRESIDENT EISENHOWER is a U.S.-flag vessel owned and
operated by American President Lines, Inc.  (APL).  The vessel
incurred costs for foreign repair work during January and
February of 1995.  Subsequent to the completion of this work the
vessel arrived in the United States at San Pedro, California on
February 14, 1995.  A vessel repair entry was timely filed on
February 15, 1995.

     The subject entry was liquidated on May 19, 1995.  A protest
requesting further review, dated June 8, 1995, was timely filed. 
The basis of the protest is Customs implementation of the opinion
of the U.S. Court of Appeals for the Federal Circuit (CAFC) in
Texaco Marine Services, Inc., and Texaco Refining and Marketing,
Inc. v. United States, 44 F.3d 1539 (1994) resulting in the
assessment of duty pursuant to 19 U.S.C.  1466 on various
foreign expenses contained within the subject entry that would
otherwise be non-dutiable.
                              - 2 -

     Specifically, the protestant contends that Customs
implementation of the CAFC decision  pursuant to Headquarters
memorandum 113308, dated January 18, 1995, as amended by
Headquarters memorandum 113350, dated March 3, 1995, both of
which were published in the Customs Bulletin on February 8, 1995
and April 5, 1995, respectively, violated 19 U.S.C.
 1625 and 19 CFR Part 177 in that they collectively changed an
established and uniform practice of the Customs Service without
giving interested parties an opportunity to comment beforehand. 
Furthermore, it is requested that the effective date of Customs
implementation of the CAFC decision as set forth in the
aforementioned memoranda be delayed at least 90 days pursuant to
19 CFR  177.9(d)(3).

ISSUE:

     Whether Customs implementation of the CAFC decision in
Texaco Marine Services, Inc., and Texaco Refining and Marketing,
Inc. v. United States, 44 F.3d 1539 (1994), set forth in
Headquarters memorandum 113308, as amended by Headquarters
memorandum 113350, is violative of 19 U.S.C.  1625 and 19 CFR
Part 177.

LAW AND ANALYSIS: 

     Title 19, United States Code,  1466 (19 U.S.C.  1466),
provides in pertinent part for the payment of an ad valorem duty
of 50 percent of the cost of "...equipments, or any part thereof,
including boats, purchased for, or the repair parts or materials
to be used, or the expenses of repairs made in a foreign country
upon a vessel documented under the laws of the United States..." 
(Emphasis added)

     In Texaco Marine Services, Inc., and Texaco Refining and
Marketing, Inc. v. United States, 815 F.Supp. 1484 (1993), the
issue before the U.S. Court of International Trade (CIT) was
whether costs for post-repair cleaning and protective coverings
incurred pursuant to dutiable repairs constituted "expenses of
repairs" as that term is used in 19 U.S.C.  1466.  In holding
that the costs at issue were dutiable as "expenses of repairs"
the court adopted the "but for" test proffered by Customs; that
is, these costs were an integral part of the dutiable repair
process and would not have been necessary "but for" the dutiable
repairs.

     On appeal, the CAFC issued a watershed decision which not
only affirmed the opinion of the CIT regarding the specific
expenses at issue, but also provided clear guidance with respect
to the interpretation of 19 U.S.C.  1466, hence, Customs
administration of that statute.  In upholding the "but for" test
adopted by the CIT, the CAFC stated:

          "...the language  expenses of repairs' is broad and
unqualified.
          As such, we interpret  expenses of repairs' as covering
all
          expenses (not specifically excepted in the statute)
which, 
          but for dutiable repair work, would not have been
incurred.
          Conversely,  expenses of repairs' does not cover
expenses

                              - 3 -

          that would have been incurred even without the
occurrence
          of dutiable repair work.  As will be more clearly
illustrated
          below...the  but for' interpretation accords with what
is 
          commonly understood to be an expense of repair." 
          44 F.3d 1539, 1544.  
        
     In reaching the above determination, the CAFC steadfastly
rejected the non-binding judicial authority relied upon by the
plaintiff/appellant.  Specifically, the court addressed the
following:  Mount Washington Tanker Co. v. United States, 505
F.Supp. 209 (CIT 1980) which held that transportation
compensation for members of a foreign repair crew performing
dutiable repairs was not dutiable as an expense of repairs;
American Viking Corp. v. United States, 150 F.Supp. 746 (Cust.Ct.
1956) which held that the expense of providing lighting needed to
perform a dutiable repair was not dutiable as an expense of the
repair; and International Navigation Co. v. United States, 148
F.Supp. 448 (Cust.Ct. 1957) which held that transportation
expenses for a foreign repair crew to travel to and from an
anchored vessel being repaired was not dutiable as expenses of
repairs.  With regard to these three cases, the CAFC stated,
"Seemingly, these expenses too would have been viewed as coming
within the [vessel repair] statute if the court had used a "but
for" approach."  44 F.3d 1539, 1547.  The CAFC concluded, "Thus
Mount Washington Tanker, like American Viking and International
Navigation, was incorrectly decided." Id.

     In addition to the above judicial authority, the CAFC
discussed at length the case of United States v. George Hall Coal
Co., 142 F. 1039 (1939), heavily relied upon by the plaintiff/
appellant, which held dry-docking expenses were not an expense of
repair and therefore were not dutiable.  Although this decision
seemingly supported the position that the expenses at issue were
dutiable, the CAFC examined the rationale provided in a December
31, 1903, unpublished decision of the Department of Treasury
Board of General Appraisers (Board) upon which the court's
decision was based.  It noted that, "...the Board held the dry-docking expense was not subject to the vessel repair duty because
the Board found that the expense would have been incurred
irrespective of whether or not dutiable repairs were performed."
44 F.3d 1539, 1546  The CAFC went on to state, "George Hall Coal
simply stands for the proposition that expenses that would have
been incurred irrespective of whether or not dutiable repairs are
performed are not dutiable as an expense of repairs." Id.  It
therefore concluded, "...George Hall Coal is entirely consistent
with the  but for' interpretation of the statute." Id.

     Recognizing that the decision of the CAFC was not only
dispositive of the expenses at issue, but also instructive as to
Customs administration of the vessel repair statute with respect
to the interpretation of the term "expenses of repairs" contained
therein, the Assistant Commissioner, Office of Regulations and
Rulings, issued a memorandum to the Regional Director, Commercial
Operations, New Orleans (file no. 113308) dated January 18, 1995,
published in the Customs Bulletin on February 8, 1995 (Customs
Bulletin and Decisions, vol. 29, no. 6, at p. 59)  In that
memorandum, copies of which were disseminated to two other
Customs field offices charged with the liquidation of vessel
repair entries, it was stated that pursuant to the 

                              - 4 -

decision of the CAFC, a myriad of foreign repair expenses
previously accorded duty-free treatment would, under certain
circumstances, no longer receive such treatment.  The memorandum
further provided that any such affected costs contained in vessel
repair entries not finally liquidated as of the date of the CAFC
decision (December 29, 1994) should be liquidated as dutiable
"expenses of repairs" provided they pass the "but for" test
discussed above.

     Subsequent to the publication of the above memorandum, on
February 22, 1995, various representatives of U.S.-flag vessel
owners/operators, including the protestant, met with the
Assistant Commissioner, Office of Regulations and Rulings, and
members of the Carrier Rulings Branch.  It was the collective
opinion of the vessel owners/operators that the memorandum be
rescinded, contending, inter alia, that it was violative of 19
U.S.C.  1625(c)(1) and 19 CFR Part 177.  Upon further review of
this matter, the Assistant Commissioner, Office of Regulations
and Rulings, again issued a memorandum to the Regional Director,
Commercial Operations Division, New Orleans (file no. 113350),
dated March 3, 1995, published in the Customs Bulletin on April
5, 1995 (see Customs Bulletin and Decisions, vol. 29, no. 14, at
p. 24) clarifying the January 18 memorandum with respect to
Customs implementation of the CAFC decision.  It provided that
all vessel repair entries filed with Customs on or after the date
of that decision are to be liquidated in accordance with the full
weight and effect of the decision (i.e., costs of post-repair
cleaning and protective coverings incurred pursuant to dutiable
repairs are dutiable and all other foreign expenses contained
within such entries are subject to the "but for" test).  With
respect to vessel repair entries filed prior to December 29,
1994, all costs for post-repair cleaning and protective coverings
incurred pursuant to dutiable repairs are dutiable.   It further
provided that in view of the fact that carriers have relied on
Customs rulings (some of which were based on court cases which
the CAFC in Texaco held were incorrectly decided), and
retroactive application would cause both the Government and the
carriers a major administrative burden, Customs will not apply
Texaco retroactively except as to the two issues directly decided
by the court.  All other costs contained within such entries are
to be accorded that treatment previously accorded them by Customs
prior to the decision of the CAFC in the Texaco case.

     Parenthetically, we note that the CAFC decision was
published in its entirety in the Customs Bulletin on March 8,
1995 (See Customs Bulletin and Decisions, vol. 29, no. 10, at p.
19).

     The protestant contends that the CAFC decision should not be
applicable to the subject vessel repair entry and by doing so
Customs has violated 19 U.S.C.  1625(c) as amended by 
 623 of Title VI of the North American Free Trade Agreement
Implementation Act (Pub.L. 103-182, 107 Stat. 2057 (the "Mod
Act").  Title 19,  United States Code,  1625(c) provides, in
pertinent part, as follows:

     A proposed interpretive ruling or decision which would--

          (1) modify...or revoke a prior interpretive ruling or
decision which
          has been in effect for at least 60 days; or

                              - 5 -

          (2) have the effect of modifying the treatment
previously accorded
          by the Customs Service to substantially identical
transactions;

     shall be published in the Customs Bulletin.  The Secretary
shall give interested
     parties an opportunity to submit...comments on the
correctness of the proposed
     ruling or decision.

     Specifically, the protestant contends that the publication
in the Customs Bulletin of memorandum 113308, subsequently
clarified by memorandum 113350, without the solicitation of
public comments, constitutes a violation of 19 U.S.C.  1625(c). 
The underlying rationale of the protestant's position is that,
"The letter by the Customs Service was clearly an  interpretive
ruling' within the meaning of the Mod Act."  (See p. 1 of the
attachment to the protest)   It is further contended that this
"interpretive ruling" modified or revoked "a host of interpretive
rulings or decisions that have been in effect for more than sixty
days."  (See p. 1 of the attachment to the protest)  We do not
agree.  

     At the outset, notwithstanding the protestant's claim that
the aforementioned memoranda published in the Customs Bulletin
constitute an "interpretive ruling", we note that the protestant
readily acknowledges, "...the Mod Act does not define the term
 interpretive ruling,' and to date no court has interpreted the
term in the context of the Mod Act..."  (See p. 1 of the
attachment to the protest).    Consequently, by his own admission
the protestant's contention with respect to an "interpretive
ruling" within the meaning of 19 U.S.C.  1625 is without
legislative or judicial support.

     The protestant, citing Flagstaff Medical Center, Inc., v.
Sullivan, 962 F.2d 879, 886 (1992), Linoz v. Heckler, 800 F.2d
871, 877 (1986), and Powderly v. Schweiker, 704 F.2d 1092, 1098
(1983), nonetheless argues that although the term "interpretive
ruling" has not been defined for purposes of the 19 U.S.C. 
1625(c), it has been defined for purposes of the Administrative
Procedures Act ("APA" 5 U.S.C.  553(b)-(c)).  The protestant's
rationale, however, is antithetic.  Assuming, arguendo, the
Customs memoranda in question collectively constitute an
interpretive ruling for purposes of the APA, such rulings are
exempt from the notice and comment provisions of the APA pursuant
to 5 U.S.C.  553(b)(A).

     Furthermore, the aforementioned memoranda did not modify or
revoke any prior interpretive ruling or decision or have the
effect of modifying the treatment Customs previously accorded
certain foreign expenses under 19 U.S.C.  1466.  Rather, the
memoranda, in conjunction with the publication of the CAFC
decision in the Customs Bulletin, merely provided notice to the
public that the impetus behind any change in Customs
interpretation of the term "expenses of repairs" within the
meaning of the vessel repair statute is the CAFC itself, not
Customs.
                              - 6 -

     The protestant further alleges that Customs did not comply
with its own regulations set forth in 19 CFR Part 177, entitled
"Administrative Rulings."  The protestant cites to numerous
Customs vessel repair rulings issued prior to the CAFC decision
(again, based in large measure on the court cases stated to have
been incorrectly decided by the CAFC, and George Hall Coal which
is in accord with the CAFC decision), some of which were
published in the Customs Bulletin, stating that pursuant to 19
CFR  177.10(b) they established a uniform practice that certain
foreign expenses are not dutiable under the vessel repair
statute.  Consequently, the Customs memoranda in question are
alleged to have constituted a "ruling" which has the effect of
changing a practice thereby necessitating its publication in the
Federal Register giving interested parties an opportunity to
submit written comments with respect to the correctness of the
contemplated change (19 CFR  177.10(c)(1)). 

     With respect to the applicability of 19 CFR Part 177, we
note that neither of the two Headquarters memoranda published in
the Custom Bulletin are "rulings" within the meaning of that
part.  Pursuant to  177.1(d)(1), Customs Regulations, a "ruling"
is defined as a "...written statement issued by the Headquarters
Office or the appropriate office of Customs as provided in this
part that interprets and applies the provisions of the Customs
and related laws to a specific set of facts."  (Emphasis added) 
Neither memorandum applied 19 U.S.C.  1466 or 19 CFR  4.14 (the
applicable Customs regulations promulgated pursuant to  1466) to
a specific set of facts (i.e., no single vessel repair entry
containing foreign expenses was discussed).  Rather, they
provided notice to the public that Customs will administer 19
U.S.C.  1466 in accordance with the explicit guidelines set by
the CAFC in interpreting the term "expenses of repairs" within
the meaning of the statute as determined by the "but for" test. 
Such guidelines, prior to the date of that decision, were non-existent.  

     Further in regard to the applicability of 19 CFR Part 177,
it is noteworthy that since neither memorandum was a "ruling" as
defined in 19 CFR  177.1(d), the mere fact that they were
published in the Customs Bulletin does not, as the protestant
suggests, render either a "published ruling" within the meaning
of 19 CFR  177.1(d).  Furthermore, in view of the fact that 19
CFR  177.1(d) also defines a "ruling letter" as "a ruling issued
in response to a written request therefor and set forth in a
letter addressed to the person making the request or his
designee", neither memoranda, which were issued at the behest of 
the Assistant Commissioner, Office of Regulations and Rulings  to
the Regional Director, Commercial Operations Division, New
Orleans, constituted a "ruling letter" for purposes of 19 CFR
Part 177.   The delayed effective date provisions of 19 CFR 
177.9(d)(3), applicable to a "ruling letter" are therefore of no
consequence.

     Accordingly, the provisions of 19 U.S.C.  1625 and 19 CFR
Part 177 are inapplicable to the subject protest.
                              - 7 -

HOLDING:

     Customs implementation of the CAFC decision in Texaco Marine
Services, Inc., and Texaco Refining and Marketing, Inc. v. United
States, 44 F.3d 1539 (1994), set forth in Headquarters Memorandum
113308, as amended by Headquarters Memorandum 113350, is not
violative of 19 U.S.C.  1625 and 19 CFR Part 177.

     Accordingly, the protest is denied in its entirety.

     In accordance with  3A(11)(b) of Customs Directive 099
3550-065, dated August 4, 1993, Subject:  Revised Protest
Directive, this decision should be mailed by your office no later
than 60 days from the date of this letter.  Any reliquidation of
the entry in accordance with this
decision must be accomplished prior to mailing the decision. 
Sixty days from the date of the
decision the Office of Regulations and Rulings will take steps to
make the decision available to customs personnel via the Customs
Ruling Module in ACS and the public via the Diskette Subscription
Service, Freedom of Information Act and other public access
channels.  

                              Sincerely,




                              Harvey B. Fox
                              Director
                              Office of Regulations and Rulings