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Customs Service, Department of the Treasury.
This document amends the Customs Regulations regarding the declaration, entry, assessment of duty and processing of petitions for relief from duty for vessels of the United States which undergo foreign shipyard operations. These changes are implemented in order that the Customs Regulations regarding vessel repair accurately reflect the amended underlying statutory authority, as well as legal and policy determinations made as a result of judicial decisions and administrative enforcement experience.
April 25, 2001.Start Further Info
FOR FURTHER INFORMATION CONTACT:
Operational aspects: Glenn Seale, Supervisory Customs Liquidator, 504-670-2137.
Legal aspects: Larry L. Burton, Office of Regulations and Rulings, 202-927-1287.End Further Info End Preamble Start Supplemental Information
The genesis of the modern vessel repair statute, 19 U.S.C. 1466, is found in the Act of July 18, 1866, Chapter 24, section 23 (14 Stat. 183). A 50 percent ad valorem duty was imposed on the foreign cost of repairs to United States vessels documented to engage in the foreign or coastwise trade on the northern, northeastern, and northwestern frontiers (practically speaking, Great Lakes, Atlantic, and Pacific Coast trade with Canada). The statute also provided for remission or refund of duties where it was established by sufficient evidence that the vessel had been compelled to seek foreign repairs due to a weather-related or other casualty. The statute was recodified in the Revised Statutes of the United States in 1874 (R.S. 3114 and 3115), but was left largely unamended until the Act of September 21, 1922, at which time the area of consideration for dutiable repairs was expanded to include repairs to all vessels documented under U.S. law to engage in the foreign or coastwise trade, as well as those intended to be so employed.
The statute has undergone amendment several times since 1922 and has been the subject of considerable judicial interpretation over the years as well. Most recently, the statute has been amended in significant ways and a court case with broad impact on the administration of the law has also been decided.
On August 20, 1990, the President signed into law the Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of which amended the vessel repair statute by adding a new subsection (h). Subsection (h), which by its terms expired on December 31, 1992, included two elements. These concerned the exclusion from vessel repair duty of Lighter Aboard Ship (LASH) barges, and of spare parts and materials for use in vessel repairs abroad which had previously been imported and duty paid at the appropriate rate under the Harmonized Tariff Schedule of the United States (HTSUS).
Two years after the expiration of that legislation, the Congress enacted section 112 of Pub. L. 103-465 which became effective on January 1, 1995. That provision permanently reenacted the previously expired 19 U.S.C. 1466(h)(1) and (2), as discussed above, and also added a new subsection (h)(3) which, as administered by Customs, provides that vessel repair duties will be assessed at the applicable HTSUS rate for spare parts which are necessarily installed on vessels overseas prior to those spare Start Printed Page 16393parts ever having been entered into the United States for entry and consumption, such as is necessary under the (h)(2) provision.
The most basic issue to be determined in applying the vessel repair statute to a factual situation is, of course, whether a repair has taken place within the meaning of 19 U.S.C. 1466(a). Courts have ruled extensively on the “repair” cost issue and the result is a continually narrowing field of dutiable repair. One early case (United States v. George Hall Coal Co., 134 F. 1003 (1905)), was the first to find any of various types of expenses associated with repairs to be classifiable as not subject to the assessment of vessel repair duties. The case established that the expense of drydocking a vessel (regardless of the underlying need to drydock) is not an element of dutiable value in foreign repair costs. Drydocking is a major, but not isolated, expense in general ship repair operations. Many other associated expenses and services are necessary adjuncts to drydocking and are logically inseparable from the drydocking rule. These include such items as drydock block arrangement, sea water supply (for firefighting equipment), hose hook-up and disconnection charges, fire watch services, the services of a crane for drydocking-related operations, the provision of compressed air, cleaning of the drydock following repairs, among numerous others. These necessary services are costly, are supplied at nearly each drydocking, and had until recently been considered to be classifiable as duty-free.
On December 29, 1994, the United States Court of Appeals for the Federal Circuit decided the case of Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539, in which the court considered the propriety of several long-standing court cases, including the opinion in George Hall, supra. The court decided that a whole range of charges are subjected to duty consideration which had been insulated from such treatment since 1905.
The significant changes, as described above, in terms of both statutory amendment and judicial interpretation have dictated the need to update the regulatory provisions in § 4.14 of the Customs Regulations (19 CFR 4.14), which implement the vessel repair statute.
Accordingly, by a document published in the Federal Register (64 FR 19508) on April 21, 1999, Customs proposed necessary amendments to § 4.14 to conform with the described statutory and judicial changes, and to set forth these regulatory provisions in a more streamlined and simpler format.
To streamline the process for seeking relief from vessel repair duties, most significantly, Customs proposed to eliminate the Petition for Review process; this process is currently the second of two pre-protest appeals for relief from duty. Also, Customs proposed to vest the Customs field Vessel Repair Units with full authority to process and decide Applications for Relief without restrictions as to the amount of potential duty involved.
Additionally, it was proposed to amend the Customs Regulations in part 159 (19 CFR part 159) to recognize that vessel repair entries are not considered to be subject to liquidation, and to provide that any duties paid pursuant to a vessel repair entry would be considered to be charges or exactions within the meaning of paragraph (a)(3) of section 514, Tariff Act of 1930, as amended (19 U.S.C. 1514), the statute under which decisions of the Customs Service are protested. As charges or exactions, duty determinations on vessel repair entries would be protestable under 19 U.S.C. 1514(a)(3), and would not be subject to voluntary reliquidation or deemed liquidation procedures. This distinction recognizes elements which are unique to the vessel repair entry process such as potential protracted delays in supplying cost information due to difficulty in obtaining proof of foreign expenses from shipyards in a timely fashion.
The period during which public comments could be submitted concerning the proposed rule was extended an additional 30 days by a document published in the Federal Register (64 FR 29975) on June 4, 1999.
A total of six comments were received in response to the proposed rule. Two of these comments were generally supportive of the proposal, four were critical of it, and five of the six comments received suggested that the proposed regulations be changed in various ways. A description, together with Customs analysis, of the issues raised in the comments, is set forth below.
Discussion of Comments
Comment: One commenter generally recommended that the fifty percent vessel repair duty rate be doubled to one-hundred percent.
Customs Response: The duty rate is set by statute and may be amended only by legislative action.
Comment: With reference to proposed § 4.14(a), two commenters objected to the requirement that repairs performed “on the high seas” were subject to vessel repair duty. One commenter asserted that 19 U.S.C. 1466(a) neither required nor contemplated that repairs made on the high seas fall within the scope of the vessel repair statute, and that proposed § 4.14(a) was in conflict with the law. The other commenter found this requirement to be misleading in that it could be misinterpreted to include repairs made by members of a vessel's regular crew while the ship was at sea.
Customs Response: Case law clearly establishes liability for duty under the vessel repair statute (19 U.S.C. 1466) for repairs performed on the high seas (see Mount Washington Tanker Company v. United States, 1 CIT 32, 505 F. Supp. 209 (1980), aff'd 69 CCPA 23, 665 F.2d 340.
However, since the statute does provide an exception for the cost of labor performed by members of the regular crew of a vessel, § 4.14(a) is revised to state that compensation paid to members of the regular crew for repairs made on the high seas is not includable in any reported parts, materials, or equipment costs.
Comment: One commenter suggested that the third sentence of proposed § 4.14(a) be changed so as to avoid any misinterpretation that the vessel repair statute applies to foreign-documented vessels.
Customs Response: We are grateful to the commenter for pointing out the need for clarification with respect to the application of the statute to vessels which are considered to be “intended to be employed” in foreign or coastwise trade within the meaning of the law. On March 18, 1998, Customs published a notice in the weekly Customs Bulletin notifying interested parties that certain prior Customs rulings interpreting the “intended to be employed” language were being revoked and replaced by a new interpretation. The position of Customs since the date of that notice has been that the law is intended to apply as well to vessels which are either undocumented or are foreign-documented at the time of foreign repairs, so long as they are documented under U.S. law at the time of their first arrival in this country following those repairs. Thus, while the law does not apply to foreign-flag vessels arriving in the United States after repairs abroad, it does apply to arriving U.S.-flag vessels which were repaired while they were under foreign documentation.
Comment: Two commenters were concerned about the requirement in proposed § 4.14(a) that all foreign repairs and purchases be declared regardless of their dutiable status. Start Printed Page 16394
Customs Response: This requirement has long appeared in the vessel repair regulations (currently, see 19 CFR 4.14(b)(1) (1999)). Customs has decided that it should be retained in § 4.14(a) of this final rule.
Comment: One commenter stated that paragraphs (b)(1) and (b)(2) of proposed § 4.14 were inconsistent, in that the former expressly provided for the submission of the electronic equivalent of declaration and entry forms, whereas the latter made no such provision.
Customs Response: Customs has determined that there is no need to provide for the declaration and entry filing requirements, electronic or otherwise, in either of these provisions since the purpose of these provisions is to merely address the particular types of vessels to which the vessel repair statute applies. Thus, the reference to these filing requirements is removed from § 4.14(b)(1). The general requirements for filing a vessel repair declaration and entry are comprehensively covered in § 4.14(d) and (e). These provisions provide for the filing of electronic equivalents of a vessel repair declaration and entry.
Comment: One commenter urged that proposed § 4.14(b)(2), relating to the applicability of the vessel repair statute to government-owned or chartered vessels, be amended to expressly provide that all such vessels which were not under the jurisdictional control of the Secretary of the Navy would be required to comply fully with all vessel repair regulatory provisions.
Customs Response: Customs disagrees. Section 4.14(b)(2) is applicable to numerous vessels including those under U.S. Navy control, vessels of the Coast Guard, the National Marine Fisheries Service, and the National Oceanographic and Atmospheric Administration, among others.
Comment: One commenter suggested that proposed § 4.14(b)(3) be changed to require, in the case of a vessel which has remained continuously outside the United States for two years or longer, that repairs to such a vessel that are scheduled for completion within fifteen months before the vessel's return to the United States also be made subject to the assessment of duty.
Customs Response: The potential duty liability for applicable repair operations under 19 U.S.C. 1466(e)(1)(B) is expressly limited to those operations that occur during the first six months after the last departure of the vessel from the United States. This six-month rule is statutory and cannot be expanded without amendatory legislation.
Comment: Two commenters were opposed to the use of the phrase “specifically depart” appearing in proposed § 4.14(b)(3), where duty liability would arise in connection with certain vessels that departed from the U.S. specifically to make foreign repairs and purchases. Under 19 U.S.C. 1466(e)(2), duty liability would arise in this context where the vessels departed for the “sole purpose” of making foreign repairs and purchases. The commenters asked that this phrase likewise be used in proposed § 4.14(b)(3).
Customs Response: Customs agrees. Section 4.14(b)(3) is revised as requested. Further, it is noted that § 4.14(b)(3) has been generally revised and restructured for editorial clarity.
Comment: One commenter recommended changing proposed § 4.14(c) to require that the vessel operator file the bond needed to cover potential duty liability under a vessel repair entry directly with the Vessel Repair Unit (VRU) at the time that the operator also files the entry with the VRU, instead of the operator having to submit the bond to Customs at the port of arrival which would then forward it to the VRU. Since Customs at the port of arrival has authority to set bond amounts, the bond being obligated could simply be identified by number, amount and transaction type on the vessel repair declaration that must initially be made to Customs at the port of arrival.
Customs Response: While the Customs officials at the port of arrival retain authority to set bond amounts, the reality is that the vast majority of the bonds utilized in vessel repair entries are of the continuous type. The requirement and practice is that the operator when making an initial declaration at a port of arrival, indicates the name of the surety, the continuous bond number, and the amount of the bond on its Customs Form 226 vessel repair declaration. Based upon this information, Customs at the entry port is able to determine whether an additional single transaction bond will be required. Since in the vast majority of cases no additional bond is needed, the operator would simply list the same information on its Customs Form 226 when it is submitted as a vessel repair entry to the VRU. In those cases in which a single transaction bond is required by Customs to be submitted at an arrival port, the operator would place the identifying information for that bond on both the Customs Form 226 declaration and the subsequent entry. The responsible VRU would contact the arrival port should a copy of that bond form be needed.
Comment: With respect to proposed § 4.14(c), one commenter questioned the need for a deposit of estimated duties or the filing of a bond where a private party operated a vessel owned or chartered by a Federal agency under a contract that obligated the agency for the payment of any duty. The commenter stated that the provision should provide for a deposit or bond only if the contract placed duty liability on the private party.
Customs Response: Customs agrees and has so changed § 4.14(c).
Comment: In proposed § 4.14(d) and (e) addressing the presentation of a vessel repair declaration and entry, respectively, two commenters disagreed with the requirement that the declaration be submitted to Customs at the port of arrival, while the entry had to be filed with Customs at the port where the Vessel Repair Unit (VRU) was located.
Customs Response: The declaration and entry forms are processed in different locations. By requiring the vessel owner, master, or authorized agent to submit the forms directly to the locations in which they will be processed, Customs avoids the additional, internal step of forwarding the entry to the Vessel Repair Unit (VRU), thereby expediting the entire process. VRUs which process vessel repair entries are consolidated in just three locations (San Francisco, New York and New Orleans), in order to enhance administrative efficiency in, and expedite, processing of these entries. Under the amendment, instead of Customs forwarding the entry from the port of arrival to the VRU, as is currently the case, the vessel operator himself will simply send the entry directly to the VRU. However, vessel repair declarations covering foreign repair costs of a vessel must still be made to Customs initially at the first U.S. port of arrival following a foreign voyage. Accordingly, this will necessitate the direct and separate submission by vessel operators of declarations and entries, except, of course, to the extent the port of arrival and the VRU entry port are the same.
Comment: With respect to proposed § 4.14(e), one commenter asked that the time within which a vessel repair entry could be filed be extended to ten working days, as opposed to ten calendar days.
Customs Response: Customs has determined that reliance on calendar days is the most clear-cut means by which to track the entry filing period, and has retained this requirement in 4.14(e). Start Printed Page 16395
Comment: Two commenters disagreed with the provision in proposed § 4.14(e), with respect to the filing of a vessel repair entry, that a failure on the part of the vessel operator to submit full supporting evidence of foreign repair costs within the applicable time limits would be considered to be a failure to enter.
Customs Response: Customs has concluded that the requirement to make entry for foreign repairs and purchases under 19 U.S.C. 1466(a) reasonably and responsibly contemplates the filing of an entry which is properly completed within the authorized time limits. In this latter regard, quite significantly, § 4.14(f) provides that evidence to complete a vessel repair entry must be received by the appropriate VRU port within 90 calendar days from the date of the vessel's arrival. Section 4.14(f) also provides for a 30-day extension of this period if a written explanation of need is submitted prior to the expiration of the original 90-day submission period. Furthermore, a request for an extension beyond the 30-day grant issued by a VRU may be made as well, but must be submitted through the VRU to the Entry Procedures and Carriers Branch in Customs Headquarters. Customs believes that these time frames provide a satisfactory and fully adequate opportunity within which to file a complete vessel repair entry.
Comment: One commenter observed that there could be a gap in the jurisdictional coverage of the VRU ports as described in the proposal, which could create uncertainty as to which VRU covered the Customs ports of Newport News and Richmond, Virginia. To eliminate this potential uncertainty, it was suggested that proposed § 4.14(g) be changed to provide that all ports in the State of Virginia would fall within the jurisdiction of the VRU in New Orleans, Louisiana.
Customs Response: Customs agrees. Section 4.14(g) is revised accordingly.
Comment: Several commenters disagreed with the reference to the terms “remission” and “refund” regarding determinations for relief from duty under the proposed regulation (proposed §§ 4.14(h) and (i), in particular). They stated that in the vast majority of cases, Customs would not have received a deposit of any estimated duties which could be remitted or refunded. It was recommended that the proposed rule be revised to eliminate reference to these terms.
Customs Response: The terms in question appear in the current vessel repair statute (19 U.S.C. 1466), as well as its predecessor provisions, the first of which was enacted in 1866. At that time, actual monetary deposits were received and the terms thus had full effect and meaning. However, Customs agrees that the vast majority of vessel repair entries made today are secured by the posting of surety bonds to cover potential liability.
Accordingly, because the use of the terms has been traditionally linked to claims for relief from duty collection under either 19 U.S.C. 1466(a) (refund claims), or 19 U.S.C. 1466(d) (remission claims), Customs has determined to revise § 4.14 to simply reference the applicable statutory provision under which a claim for relief is made, and to eliminate any reference to the terms in question. Specifically, the provisions of § 4.14(h), which include the justifications for obtaining relief from vessel repair duty, are recast as necessary. Also, paragraphs (e), (i), (i)(1), and (i)(1)(i) of § 4.14 are similarly revised.
Also, a new paragraph (h)(3) is added to § 4.14 to include the conditions under which a vessel remaining continuously outside the U.S. for two years or longer may be subject to relief from duty under 19 U.S.C. 1466(e). Further, a new paragraph (h)(4) is added to § 4.14 concerning claims for relief made under 19 U.S.C. 1466(h) in connection with Lighter Aboard Ship (LASH) barges and certain spare repair parts and materials.
Comment: Two commenters were confused by the requirement in proposed § 4.14(h)(2)(i) that any foreign repairs necessitated on a vessel due to stress of weather or other casualty be limited to the cost of the “minimal repairs” needed to secure the safety and seaworthiness of the vessel.
Customs Response: Customs agrees that the provision is unduly vague. Section 4.14(h)(2)(i) is revised by removing this requirement. Also, a corresponding change is made in § 4.14(i)(1)(v).
Comment: Some commenters opposed the elimination, in connection with proposed § 4.14(i), of the Petition for Review, as the last of two appeals for relief from duty (the first being the Application for Relief) that could be made prior to the filing of an administrative protest under 19 U.S.C. 1514. One commenter asserted that over the past three years, approximately two-thirds of the petitions considered resulted in at least partial relief.
Customs Response: It is Customs experience that the procedure for a Petition for Review has not provided benefits sufficient to overcome the significant delays it causes in bringing final resolution to vessel repair entry relief claims.
Most commonly, vessel repair operators do not advance all valid claims for relief initially in their Applications for Relief, which is why some additional relief is later granted when such claims are included in Petitions for Review.
However, notwithstanding the elimination of the Petition for Review, vessel operators may still avail themselves of a full Customs Headquarters review of their duty relief claims through the administrative protest procedure. In this way, claims for relief will be processed and finalized much more expeditiously with regard to future vessel repair entries.
Comment: Several commenters urged that language be added to proposed § 4.14(i)(1) to clearly establish that an extension of time for filing an Application for Relief from vessel repair duty may be allowed, in the same way that additional time is allowed under proposed § 4.14(f) to file necessary evidence that supports the cost of each item covered in a vessel repair entry.
Customs Response: Customs agrees and has so changed § 4.14(i)(1) consistent with § 4.14(f); and § 4.14(f) is changed to state that granting an extension of time within which necessary evidence may be filed will likewise extend the time within which an Application for Relief may be filed.
A provision is also added to § 4.14(i)(1) to note explicitly that there is no requirement that an Application for Relief be filed in relation to a vessel repair entry. However, if no Application is filed, the duty amount on the entry will be determined without regard to any potential claim for relief from duty.
Comment: Two commenters did not know what was meant by the requirement in proposed § 4.14(i)(1)(i) that, in an Application for Relief, the cost of items for which relief from duty was being sought had to be segregated from the cost of other items included in a vessel repair entry for which relief was not being sought.
Customs Response: In § 4.14(i)(1)(i), an Application for Relief must include copies of itemized bills, receipts and invoices covering all foreign voyage expenditures for equipment, parts of equipment, repair parts, materials and labor properly included in the vessel repair entry. In requiring that the cost of items for which relief from duty is sought be segregated in the Application from those items for which relief is not requested, Customs is merely reiterating the position consistently articulated over many years in rulings on vessel repair relief requests. It continues to be the case that if dutiable and non-dutiable purchases are included on a Start Printed Page 16396single invoice, the costs attributable to each must be segregated in order that appropriate relief might be correctly and effectively granted.
Comment: Two commenters objected to the certification requirements set forth in proposed § 4.14(i)(1)(iii), (iv) and (v), essentially viewing these provisions as being unnecessary, burdensome, and inconsistent.
Customs Response: Customs disagrees that the certification requirements contained in § 4.14(i)(1)(iii)-(v) pose any problem, as described. Respectively, these certifications quite reasonably provide, as part of an Application for Relief, that the appropriate senior officer must attest to all relevant circumstances relating to any casualty damage and any foreign repair expenditures that are enumerated in the vessel repair entry; and that the master of the vessel must attest that any casualty-related expenditures were necessary to ensure the safety and seaworthiness of the vessel in reaching its U.S. port of destination. These certification requirements have in substance long appeared in the vessel repair regulations (currently, see 19 CFR 4.14(d)(1)(iii)(D) and (E) (1999)). Customs has determined that they should be retained in these regulations.
As already noted, § 4.14(i)(1)(v) is revised consistent with the change made in § 4.14(h)(2)(i).
Comment: One commenter wanted to delete the requirement in proposed § 4.14(i)(1)(vi) that there be included, as part of an Application for Relief, copies of any permits or other documents filed with, or issued to the vessel operator by, other agencies of the United States Government relating to the operation of the vessel. The commenter stated that there could be hundreds of permits variously issued to vessel operators.
Customs Response: The permits or documents that fall within the scope of § 4.14(i)(1)(vi) would, of course, encompass only those that are attendant upon the Application for Relief process. To this end, any submitted permits or documents from other agencies would be expected to bear some relevance to the claim for relief being sought. Consequently, Customs would have no interest in a vessel operator's tax or financing documents in the course of considering repair claims involving, for example, a vessel collision at sea or a grounding incident. A clarifying change is made in this regard to § 4.14(i)(1)(vi).
Comment: One commenter suggested that proposed § 4.14(j)(1) concerning penalties for failure to report, enter or pay duty as required under the vessel repair statute should include a reference to § 162.78 of the Customs Regulations (19 CFR 162.78) (presentations responding to prepenalty notice).
Customs Response: Customs does not believe that a cross reference to § 162.78 is needed. Section 4.14(j)(1) already contains a cross reference to § 162.72 of the Customs Regulations (19 CFR 162.72) which addresses penalty and forfeiture actions under 19 U.S.C. 1466. Customs believes that this is sufficient under the circumstances.
Comment: Several commenters took exception to the proposed amendment of § 159.11(b) (19 CFR 159.11(b)) under which assessments made in connection with vessel repair entries would no longer be subject to liquidation procedures under part 159 (19 CFR part 159), and that such assessments would instead be treated as “charges or exactions” protestable under 19 U.S.C. 1514(a)(3)). The commenters essentially believed that this change was unnecessary.
Customs Response: Customs has concluded that vessel repair entries are distinct from the liquidation criteria as specified in 19 U.S.C. 1500, which is the controlling statute that establishes appraisement, classification, and liquidation procedures for purposes of the duty assessment of imported merchandise. In this regard, Customs believes that vessel repair entries do not involve entries of imported merchandise, as provided in 19 U.S.C. 1500(d). Rather, a vessel repair entry involves the assessment of duties in connection with the cost of repairs that are the result of foreign shipyard operations. The statute, 19 U.S.C. 1466, is self-contained and sets a parallel procedure for making a final determination of the duty due on such repairs. That statute provides for procedures which are unique to the vessel repair entry process.
Consequently, while Customs has also concluded that any assessments determined to be due on a vessel repair entry for the cost of foreign repairs constitute duties, neither the vessel repair entry nor any duties assessed on the entry would be subject to liquidation under 19 U.S.C. 1500 or 19 CFR part 159.
Although vessel repair entries will not be liquidated, any duties assessed on such entries will still be subject to protest under 19 U.S.C. 1514(a)(2). Section 4.14(i)(3) is revised to make this clear and to make clear that the applicable protest period will begin on the date of the issuance of the decision by the VRU giving rise to the protest as indicated on the relevant correspondence from the appropriate Vessel Repair Unit. Also, related changes are made to §§ 159.1 and 159.2 to reflect that vessel repair entries and related duties are not subject to liquidation under 19 CFR part 159.
In view of the foregoing, and following careful consideration of the issues raised by the commenters and further review of the matter, Customs has concluded that the proposed amendments with the modifications discussed above should be adopted.
Part 178, Customs Regulations (19 CFR part 178), which lists the information collection approvals under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), is revised to make provision for the information collection approval which covers this vessel repair regulation.
Regulatory Flexibility Act and Executive Order 12866
This final rule revises the Customs Regulations concerning the declaration, entry, assessment of duty and processing of petitions for relief from duty, for subject vessels under the vessel repair statute. The amendments are intended to accurately reflect the existing statutory authority, as well as legal and policy determinations made in this regard as the result of judicial decisions and administrative enforcement experience. As such, pursuant to the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), it is certified that the amendments will not have a significant economic impact on a substantial number of small entities. Accordingly, they are not subject to the regulatory analysis or other requirements of 5 U.S.C. 603 and 604. Nor does this document meet the criteria for a “significant regulatory action” as specified in E.O. 12866.
Paperwork Reduction Act
The collection of information contained in this final rule has previously been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) under OMB control number 1515-0082. This rule does not make any substantive changes to the existing approved information collection. Part 178, Customs Regulations (19 CFR part 178), is amended to make provision for this information collection approval. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the Start Printed Page 16397collection of information displays a valid control number.
The principal author of this document was Larry L. Burton, Office of Regulations and Rulings, U.S. Customs Service. However, personnel from other offices participated in its development.Start List of Subjects
List of Subjects
- Customs duties and inspection
- Reporting and recordkeeping requirements
- Customs duties and inspection
- Entry procedures
- Administrative practice and procedure
- Collections of information
- Paperwork requirements
- Reporting and recordkeeping requirements
Amendments to the RegulationsStart Amendment Part
Parts 4, 159, and 178, Customs Regulations (19 CFR parts 4, 159, and 178), are amended as set forth below.End Amendment Part Start Part
PART 4—VESSELS IN FOREIGN AND DOMESTIC TRADESEnd Part Start Amendment Part
1. The general authority citation for part 4, and the specific authority citation for § 4.14, continue to read as follows:End Amendment Part
Section 4.14 also issued under 19 U.S.C. 1466, 1498;
2. Section 4.14 is revised to read as follows:End Amendment Part
(a) General provisions and applicability. Under section 466, Tariff Act of 1930, as amended (19 U.S.C. 1466), purchases for or repairs made to certain vessels while they are outside the United States, including repairs made while those vessels are on the high seas, are subject to declaration, entry and payment of ad valorem duty. This does not apply to reimbursement paid to members of the regular crew of a vessel for labor expended in making repairs to the vessel. These requirements are effective upon the first arrival of affected vessels in the United States or Puerto Rico. The vessels subject to these requirements include those documented under U.S. law for the foreign or coastwise trades, as well as those which were previously documented under the laws of some foreign nation or are undocumented at the time that foreign shipyard repairs are performed, but which exhibit an intent to engage in those trades under Customs interpretations. Duty is based on actual foreign cost. This includes the original foreign purchase price of articles which have been imported into the United States and are later sent abroad for use. For the purposes of this section, expenditures made in American Samoa, the Guantanamo Bay Naval Station, Guam, Puerto Rico, or the U.S. Virgin Islands are considered to have been made in the United States, and are not subject to declaration, entry or duty. Under separate provisions of law, the cost of labor performed, and of parts and materials produced and purchased in Israel are not subject to duty under the vessel repair statute. Additionally, expenditures made in Canada or in Mexico are not subject to any vessel repair duties. Even in the absence of any liability for duty, it is still required that all repairs and purchases, including those made in Canada, Mexico, and Israel, be declared and entered.
(b) Applicability to specific types of vessels.
(1) Fishing vessels. As provided in § 4.15, vessels documented under U.S. law with a fishery endorsement are subject to vessel repair duties for covered foreign expenditures. Undocumented American fishing vessels which are repaired, or for which parts, nets or equipment are purchased outside the U.S. are also liable for duty.
(2) Government-owned or chartered vessels. Vessels normally subject to the vessel repair statute because of documentation or intended use are not excused from duty liability merely because they are either owned or chartered by the U.S. Government.
(3) Vessels continuously away for two years or longer.
(i) Liability for expenditures throughout entire absence from U.S. Vessels that continuously remain outside the United States for two years or longer are liable for duty on any fish nets and netting purchased at any time during the entire absence. Vessels designed and used primarily for transporting passengers or merchandise, which depart the United States for the sole purpose of obtaining equipment, parts, materials or repairs remain fully liable for duty regardless of the duration of their absence from the United States.
(ii) Liability for expenditures made during first six months of absence. Except as provided in paragraph (b)(3)(i) of this section, vessels that continuously remain outside the United States for two years or longer are liable for duty only on those expenditures which are made during the first six months of their absence. See paragraph (h)(3) of this section. However, even though some costs might not be dutiable because of the six-month rule, all repairs, materials, parts and equipment-related expenditures must be declared and entered.
(c) Estimated duty deposit and bond requirements. Generally, the person authorized to submit a vessel repair declaration and entry must either deposit or transmit estimated duties or produce evidence of a bond on Customs Form 301 at the first United States port of arrival before the vessel will be permitted to depart from that port. A continuous or single entry bond of sufficient value to cover all potential duty on the foreign repairs and purchases must be identified by surety, number and amount on the vessel repair declaration which is submitted at the port of first arrival. At the time the vessel repair entry is submitted by the vessel operator to the appropriate VRU port of entry as defined in paragraph (g) of this section, that same identifying information must be identified on the entry form. Sufficiency of the amount of the bond is within the discretion of Customs at the arrival port with claims for reduction in duty liability necessarily being subject to full consideration of evidence by Customs. Customs officials at the port of arrival may consult the appropriate Vessel Repair Unit (VRU) port of entry as identified in paragraph (g) of this section or the staff of the Entry Procedures and Carriers Branch in Customs Headquarters in setting sufficient bond amounts. These duty, deposit, and bond requirements do not apply to vessels which are owned or chartered by the United States Government and are actually being operated by employees of an agency of the Government. If operated by a private party for a Federal agency under terms whereby that private party is liable under the contract for payment of the duty, there must be a deposit or a bond filed in an amount adequate to cover the estimated duty.
(d) Declaration required. When a vessel subject to this section first arrives in the United States following a foreign voyage, the owner, master, or authorized agent must submit a vessel repair declaration on Customs Form 226, a dual-use form used both for declaration and entry purposes, or must transmit its electronic equivalent. The declaration must be ready for presentation in the Start Printed Page 16398event that a Customs officer boards the vessel. If no foreign repair-related expenses were incurred, that fact must be reported either on the declaration form or by approved electronic means. The Customs port of arrival receiving either a positive or negative vessel repair declaration or electronic equivalent will immediately forward it to the appropriate VRU port of entry as identified in paragraph (g) of this section.
(e) Entry required. The owner, master, or authorized representative of the owner of any vessel subject to this section for which a positive declaration has been filed must submit a vessel repair entry on Customs Form 226 or transmit its electronic equivalent. The entry must show all foreign voyage expenditures for equipment, parts of equipment, repair parts, materials and labor. The entry submission must indicate whether it provides a complete or incomplete account of covered expenditures. The entry must be presented or electronically transmitted by the vessel operator to the appropriate VRU port of entry as identified in paragraph (g) of this section, so that it is received within ten calendar days after arrival of the vessel. Claims for relief from duty should be made generally as part of the initial submission, and evidence must later be provided to support those claims. Failure to submit full supporting evidence of cost within stated time limits, including any extensions granted under this section, is considered to be a failure to enter.
(f) Time limit for submitting evidence of cost. A complete vessel repair entry must be supported by evidence showing the cost of each item entered. If the entry is incomplete when submitted, evidence to make it complete must be received by the appropriate VRU port of entry as identified in paragraph (g) of this section within 90 calendar days from the date of vessel arrival. That evidence must include either the final cost of repairs or, if the operator submits acceptable evidence that final cost information is not yet available, initial or interim cost estimates given prior to or after the work was authorized by the operator. The proper VRU port of entry may grant one 30-day extension of time to submit final cost evidence if a satisfactory written explanation of the need for an extension is received before the expiration of the original 90-day submission period. All extensions will be issued in writing. Inadequate, vague, or open-ended requests will not be granted. Questions as to whether an extension should be granted may be referred to the Entry Procedures and Carriers Branch in Customs Headquarters by the VRU ports of entry. Any request for an extension beyond a 30-day grant issued by a VRU must be submitted through that unit to the Entry Procedures and Carriers Branch, Customs Headquarters. In the event that all cost evidence is not furnished within the specified time limit, or is of doubtful authenticity, the VRU may refer the matter to the Customs Office of Investigations to begin procedures to obtain the needed evidence. That office may also investigate the reason for a failure to file or for an untimely submission. Unexplained or unjustified delays in providing Customs with sufficient information to properly determine duty may result in penalty action as specified in paragraph (j) of this section. Extensions granted for the filing of necessary evidence may also extend the time for filing Applications for Relief (see paragraph (i)(1) of this section).
(g) Location and jurisdiction of vessel repair unit ports of entry. Vessel Repair Units (VRUs) are responsible for processing vessel repair entries. VRUs are located in New York, New York; New Orleans, Louisiana; and San Francisco, California. The New York unit processes vessel repair entries received from ports of arrival on the Great Lakes and the Atlantic Coast of the United States north of, but not including, those located in the State of Virginia. The New Orleans unit processes vessel repair entries received from ports of arrival on the Atlantic Coast from and including those in the State of Virginia, southward, and from all United States ports of arrival on the Gulf of Mexico including ports in Puerto Rico. The San Francisco unit processes vessel repair entries received from all ports of entry on the Pacific Coast including those in Alaska and Hawaii.
(h) Justifications for relief from duty. Claims for relief from the assessment of vessel repair duties may be submitted to Customs. Relief may be sought under paragraphs (a), (d), (e), or (h) of the vessel repair statute (19 U.S.C. 1466(a), (d), (e), or (h)), each paragraph of which relates to a different type of claim as further specified in paragraphs (h)(1)-(h)(4) of this section.
(1) Relief under 19 U.S.C. 1466(a). Requests for relief from duty under 19 U.S.C. 1466(a) consist of claims that a foreign shipyard operation or expenditure is not considered to be a repair or purchase within the terms of the vessel repair statute or as determined under judicial or administrative interpretations. Example: a claim that the shipyard operation is a vessel modification.
(i) Stress of weather or other casualty. Relief will be granted if good and sufficient evidence supports a finding that the vessel, while in the regular course of its voyage, was forced by stress of weather or other casualty, while outside the United States, to purchase such equipment or make those repairs as are necessary to secure the safety and seaworthiness of the vessel in order to enable it to reach its port of destination in the United States. For the purposes of this paragraph, a “casualty” does not include any purchase or repair made necessary by ordinary wear and tear, but does include the failure of a part to function if it is proven that the specific part was repaired, serviced, or replaced in the United States immediately before the start of the voyage in question, and then failed within six months of that date.
(ii) U.S. parts installed by regular crew or residents. Relief will be granted if equipment, parts of equipment, repair parts, or materials used on a vessel were manufactured or produced in the United States and were purchased in the United States by the owner of the vessel. It is required under the statute that residents of the United States or members of the regular crew of the vessel perform any necessary labor in connection with such installations.
(iii) Dunnage. Relief will be granted if any equipment, equipment parts, materials, or labor were used for the purpose of providing dunnage for the packing or shoring of cargo, for erecting temporary bulkheads or other similar devices for the control of bulk cargo, or for temporarily preparing tanks for carrying liquid cargoes.
(3) Relief under 19 U.S.C. 1466(e). Requests for relief from duty under 19 U.S.C. 1466(e) relate in pertinent part to matters involving vessels normally subject to the vessel repair statute, but that continuously remain outside the United States for two years or longer. Vessels that continuously remain outside the United States for two years or longer may qualify for relief from duty on expenditures made later than the first six months of their absence. See paragraph (b)(3)(ii) of this section.
(4) Relief under 19 U.S.C. 1466(h). Requests for relief from duty under 19 U.S.C. 1466(h) consist of claims that a foreign shipyard operation or expenditure involves any of the following: Start Printed Page 16399
(i) Expenditures on LASH barges. Relief will be granted with respect to the cost of equipment, parts, materials, or repair labor for Lighter Aboard Ship (LASH) operations accomplished abroad.
(ii) Certain spare repair parts or materials. Relief will be granted with respect to the cost of spare repair parts or materials which are certified by the vessel owner or master to be for use on a cargo vessel, but only if duty was previously paid under the appropriate commodity classification(s) as found in the Harmonized Tariff Schedule of the United States when the article first entered the United States.
(iii) Certain spare parts necessarily installed on a vessel prior to their first entry into the United States. Relief will be granted with respect to the cost of spare parts only, which have been necessarily installed prior to their first entry into the United States with duty payment under the appropriate commodity classification(s) as found in the Harmonized Tariff Schedule of the United States.
(i) General procedures for seeking relief.
(1) Applications for Relief. Relief from the assessment of vessel repair duty will not be granted unless an Application for Relief is filed with Customs. Relief will not be granted based merely upon a claim for relief made at the time of entry under paragraph (e) of this section. The filing of an Application for Relief is not required, nor is one required to be presented in any particular format, but if filed it must clearly present the legal basis for granting relief, as specified in paragraph (h) of this section. An Application must also state that all repair operations performed aboard a vessel during the one-year period prior to the current submission have been declared and entered. A valid Application is required to be supported by complete evidence as detailed in paragraphs (i)(1)(i)-(vi) and (i)(2) of this section. Except as further provided in this paragraph, the deadline for receipt of an Application and supporting evidence is 90 calendar days from the date that the vessel first arrived in the United States following foreign operations. The provisions for extension of the period for filing required evidence in support of an entry, as set forth in paragraph (f) of this section, are applicable to extension of the time period for filing Applications for Relief as well. Applications must be addressed and submitted by the vessel operator to the appropriate VRU port of entry and will be decided in that unit. The VRUs may seek the advice of the Entry Procedures and Carriers Branch in Customs Headquarters with regard to any specific item or issue which has not been addressed by clear precedent. If no Application is filed or if a submission which does not meet the minimal standards of an Application for Relief is received, the duty amount will be determined without regard to any potential claims for relief from duty (see paragraph (h) of this section). Each Application for Relief must include copies of:
(i) Itemized bills, receipts, and invoices for items shown in paragraph (e) of this section. The cost of items for which a request for relief is made must be segregated from the cost of the other items listed in the vessel repair entry;
(ii) Photocopies of relevant parts of vessel logs, as well as of any classification society reports which detail damage and remedies;
(iii) A certification by the senior officer with personal knowledge of all relevant circumstances relating to casualty damage (time, place, cause, and nature of damage);
(iv) A certification by the senior officer with personal knowledge of all relevant circumstances relating to foreign repair expenditures (time, place, and nature of purchases and work performed);
(v) A certification by the master that casualty-related expenditures were necessary to ensure the safety and seaworthiness of the vessel in reaching its United States port of destination; and
(vi) Any permits or other documents filed with or issued by any United States Government agency other than Customs regarding the operation of the vessel that are relevant to the request for relief.
(2) Additional evidence. In addition, copies of any other evidence and documents the applicant may wish to provide as evidentiary support may be submitted. Elements of applications which are not supported by required evidentiary elements will be considered fully dutiable. All documents submitted must be certified by the master, owner, or authorized corporate officer to be originals or copies of originals, and if in a foreign language, they must be accompanied by an English translation, certified by the translator to be accurate. Upon receipt of an Application for Relief by the VRU within the prescribed time limits, a determination of duties owed will be made. After a decision is made on an Application for Relief by a VRU, the applicant will be notified of the right to protest any adverse decision.
(3) Administrative protest. Following the determination of duty owing on a vessel repair entry, a protest may be filed under 19 U.S.C. 1514(a)(2) as the only and final administrative appeal. The procedures and time limits applicable to protests filed in connection with vessel repair entries are the same as those provided in part 174 of this chapter. In particular, the applicable protest period will begin on the date of the issuance of the decision giving rise to the protest as reflected on the relevant correspondence from the appropriate VRU.
(j) Penalties.—(1) Failure to report, enter, or pay duty. It is a violation of the vessel repair statute if the owner or master of a vessel subject to this section willfully or knowingly neglects or fails to report, make entry, and pay duties as required; makes any false statements regarding purchases or repairs described in this section without reasonable cause to believe the truth of the statements; or aids or procures any false statements regarding any material matter without reasonable cause to believe the truth of the statement. If a violation occurs, the vessel, its tackle, apparel, and furniture, or a monetary amount up to their value as determined by Customs, is subject to seizure and forfeiture and is recoverable from the owner (see § 162.72 of this chapter).
(2) False declaration. If any person required to file a vessel repair declaration or entry under this section, knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any materially false, fictitious or fraudulent statement or representation, or makes or uses any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement, that person will be subject to the criminal penalties provided for in 18 U.S.C. 1001.
PART 159—LIQUIDATION OF DUTIESEnd Part Start Amendment Part
1. The authority citation for part 159 is revised to read as follows:End Amendment Part
Sections 159.4, 159.5, and 159.21 also issued under 19 U.S.C. 1315;
Section 159.6 also issued under 19 U.S.C. 1321, 1505;
Section 159.7 also issued under 19 U.S.C. 1557;
Section 159.22 also issued under 19 U.S.C. 1507;
Section 159.44 also issued under 15 U.S.C. 73, 74;
Section 159.46 also issued under 19 U.S.C. 1304;
Section 159.55 also issued under 19 U.S.C. 1558;
Section 159.57 also issued under 19 U.S.C. 1516.Start Part Start Printed Page 16400
PART 159—[AMENDED]End Part Start Amendment Part
2. Part 159 is amended by removing the statutory authority citations that appear in parentheses immediately below the texts of §§ 159.4-159.7, 159.21-159.22, 159.44, 159.46, 159.55, and 159.57.End Amendment Part Start Amendment Part
3. Section 159.1 is revised to read as follows:End Amendment Part
Liquidation means the final computation or ascertainment of the duties (not including vessel repair duties) or drawback accruing on an entry.
4. Section 159.2 is amended by adding a sentence to read as follows:End Amendment Part
* * * Vessel repair entries are not subject to liquidation under this part (see § 4.14(i)(3) of this chapter).
5. Section 159.11(b) is amended by removing the phrase, “vessel repair entries or”.End Amendment Part Start Part
PART 178—APPROVAL OF INFORMATION COLLECTION REQUIREMENTSEnd Part Start Amendment Part
1. The authority citation for part 178 continues to read as follows:End Amendment Part Start Amendment Part
2. Section 178.2 is amended by adding a new listing in the table in appropriate numerical order to read as follows:End Amendment Part
|19 CFR section||Description||OMB control No.|
|* * * * * * *|
|§ 4.14||Vessel repair declaration and entry||1515-0082|
|* * * * * * *|
Approved: March 6, 2001.
Raymond W. Kelly,
Commissioner of Customs.
Timothy E. Skud,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 01-7325 Filed 3-23-01; 8:45 am]
BILLING CODE 4920-02-P