[Federal Register Volume 66, Number 58 (Monday, March 26, 2001)]
[Rules and Regulations]
[Pages 16392-16400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7325]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 4, 159, 178

[T.D. 01-24]
RIN 1515-AC30


Foreign Repairs to American Vessels

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: 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.

EFFECTIVE DATE: April 25, 2001.

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.

SUPPLEMENTARY INFORMATION:

Background

    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

[[Page 16393]]

parts 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 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, 
Sec. 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 Sec. 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 Sec. 4.14(a) that all foreign repairs and purchases be 
declared regardless of their dutiable status.

[[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 Sec. 4.14(a) of this final 
rule.
    Comment: One commenter stated that paragraphs (b)(1) and (b)(2) of 
proposed Sec. 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 Sec. 4.14(b)(1). The general 
requirements for filing a vessel repair declaration and entry are 
comprehensively covered in Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 4.14(b)(3).
    Customs Response: Customs agrees. Section 4.14(b)(3) is revised as 
requested. Further, it is noted that Sec. 4.14(b)(3) has been generally 
revised and restructured for editorial clarity.
    Comment: One commenter recommended changing proposed Sec. 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 Sec. 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 Sec. 4.14(c).
    Comment: In proposed Sec. 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 Sec. 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).

[[Page 16395]]

    Comment: Two commenters disagreed with the provision in proposed 
Sec. 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, Sec. 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 Sec. 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 Secs. 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 Sec. 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 Sec. 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 Sec. 4.14 are 
similarly revised.
    Also, a new paragraph (h)(3) is added to Sec. 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 Sec. 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 Sec. 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 Sec. 4.14(i)(1)(v).
    Comment: Some commenters opposed the elimination, in connection 
with proposed Sec. 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 Sec. 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 
Sec. 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 Sec. 4.14(i)(1) 
consistent with Sec. 4.14(f); and Sec. 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 Sec. 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 Sec. 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 Sec. 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

[[Page 16396]]

single 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 Sec. 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 Sec. 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, Sec. 4.14(i)(1)(v) is revised consistent with the 
change made in Sec. 4.14(h)(2)(i).
    Comment: One commenter wanted to delete the requirement in proposed 
Sec. 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 Sec. 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 
Sec. 4.14(i)(1)(vi).
    Comment: One commenter suggested that proposed Sec. 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 
Sec. 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 Sec. 162.78 is needed. Section 4.14(j)(1) already contains a cross 
reference to Sec. 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 Sec. 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 Secs. 159.1 and 159.2 to 
reflect that vessel repair entries and related duties are not subject 
to liquidation under 19 CFR part 159.

Conclusion

    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.

Additional Change

    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

[[Page 16397]]

collection of information displays a valid control number.

Drafting Information

    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.

List of Subjects

19 CFR Part 4

    Customs duties and inspection, Declarations, Entry, Repairs, 
Reporting and recordkeeping requirements, Vessels.

19 CFR Part 159

    Customs duties and inspection, Entry procedures.

19 CFR Part 178

    Administrative practice and procedure, Collections of information, 
Paperwork requirements, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Parts 4, 159, and 178, Customs Regulations (19 CFR parts 4, 159, 
and 178), are amended as set forth below.

PART 4--VESSELS IN FOREIGN AND DOMESTIC TRADES

    1. The general authority citation for part 4, and the specific 
authority citation for Sec. 4.14, continue to read as follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1431, 1433, 1434, 1624; 
46 U.S.C. App. 3, 91;
* * * * *
    Section 4.14 also issued under 19 U.S.C. 1466, 1498;
* * * * *


    2. Section 4.14 is revised to read as follows:


Sec. 4.14  Equipment purchases by, and repairs to, American vessels.

    (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 Sec. 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

[[Page 16398]]

event 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.
    (2) Relief from duty under 19 U.S.C. 1466(d). Requests for relief 
from duty under 19 U.S.C. 1466(d) consist of claims that a foreign 
shipyard operation or expenditure involves any of the following:
    (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:

[[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 
Sec. 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 DUTIES

    1. The authority citation for part 159 is revised to read as 
follows:

    Authority: 19 U.S.C. 66, 1500, 1504, 1624. Subpart C also issued 
under 31 U.S.C. 5151.

    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.


[[Page 16400]]



PART 159--[AMENDED]

    2. Part 159 is amended by removing the statutory authority 
citations that appear in parentheses immediately below the texts of 
Secs. 159.4-159.7, 159.21-159.22, 159.44, 159.46, 159.55, and 159.57.

    3. Section 159.1 is revised to read as follows:


Sec. 159.1  Definition of liquidation.

    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:


Sec. 159.2   Liquidation required.

     * * * Vessel repair entries are not subject to liquidation under 
this part (see Sec. 4.14(i)(3) of this chapter).

    5. Section 159.11(b) is amended by removing the phrase, ``vessel 
repair entries or''.

PART 178--APPROVAL OF INFORMATION COLLECTION REQUIREMENTS

    1. The authority citation for part 178 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 1624; 44 U.S.C. 3501 et seq.

    2. Section 178.2 is amended by adding a new listing in the table in 
appropriate numerical order to read as follows:


Sec. 178.2  Listing of OMB control numbers.

------------------------------------------------------------------------
                                                            OMB control
         19 CFR section                Description              No.
------------------------------------------------------------------------
 
      *                   *                   *                   *
                    *                   *                  *
Sec.  4.14.....................  Vessel repair                 1515-0082
                                  declaration and entry.
 
      *                   *                   *                   *
                    *                   *                  *
------------------------------------------------------------------------


    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