HQ 110905: Warranty; original construction Vessel: PRESIDENT POLK V-7 Vessel Repair Entry No. C27-0012588-6 Protest No. 27049-002307

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 110905

                          July 20, 1990



VES-13-18-CO:R:P:C  110905 KVS

CATEGORY:  Carriers

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

RE:  Warranty; original construction
     Vessel:  PRESIDENT POLK V-7
     Vessel Repair Entry No. C27-0012588-6
     Protest No. 27049-002307

Dear Sir:

     This is in response to your memorandum of February 26, 1990,
which forwards for our consideration protest no. 27049-002307,
filed in connection with the PRESIDENT POLK V-7, vessel repair
entry no. C27-0012588-6.  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
March, 1989, the vessel underwent foreign shipyard operations.
Specifically, repair kits were provided for leaking main engine
cylinder indicator valves, aluminum gratings for the main engine
scaffolding was provided, a leaking air cooler was repaired, two
missing trap doors and handrail drop bars on the lashing bridge
were provided, the servo-gear train for the combustion control
system was replaced, and the end caps for both the No. 2 and No.
3 diesel generator fuel supply headers were re-welded.
Subsequent to the completion of the aforementioned work, the
subject vessel arrived in the United States at San Pedro,
California, on March 27, 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
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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
failure to submit an application for relief, the entry was
forwarded for liquidation which took place on June 2, 1989.

     A protest (with copies of several invoices and job control
forms) was timely filed on June 28, 1989, in conjunction with
vessel repair entry C27-0012588-6 claiming that the following
items were covered by the warranty clause of the construction
contract:  Item 1 (JCF no. 7-143, repair kits),  Item 2 (JCF no.
1-236, aluminum gratings), Item 3 (JCF no. 7-146, air cooler
repairs), Item 6 (JCF no. 7-142, trap door and railing repair),
Item 7 (JCF no. 7-157, servo-gear train replacement), Item 8 (JCF
no. 7-139, end cap welding for No.2 diesel generator fuel supply
header) and Item 9 (JCF no. 7-147, end cap welding for No. 3
diesel generator fuel supply header).

     We note, however, that of the items listed above that are
claimed to be duty-free, invoices were not submitted as to the
following items:  Item 1 (JCF no. 7-143, repair kits), and Item 3
(JCF no. 7-146, air cooler repairs).

     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 items 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 for the
following items is non-dutiable pursuant to the warranty
provisions of the original contract for construction:  Items 2,
6, 7, 8, and 9.  However, in the absence of cost documentation
relating to Items 1 and 3, we find these items to be dutiable.

HOLDING:

     The foreign shipyard operations performed on the subject
vessel for which the protestant has submitted evidence of cost,
coverage under the warranty provisions of the original
construction contract and subsequent reimbursement of the expense
by the builder is non-dutiable.

     Accordingly, the protest is granted in part and denied in
part.

                                     Sincerely,




                                     Stuart P. Seidel
                                     Director
                                     Regulatory Procedures
                                     and Penalties Division