Here is a brief FAQ for shipowners regarding types of work exempt or excluded from Vessel Repair Duties (VRD):
Frequently Asked Questions for Shipowners: Understanding Vessel Repair Duty Exemptions
What is the general rule for vessel repair duties?
Generally, a 50% ad valorem duty is imposed on the cost of foreign repairs to and equipment for vessels documented under U.S. laws and engaged in foreign or coastwise trade, or vessels intended for such trade. For broader insight into customs and compliance for offshore operations, see our guide on Jones Act compliance for offshore operations.
What types of work are not subject to these duties?
Work that constitutes modifications, alterations, or additions to the hull or superstructure of a vessel is generally not subject to vessel repair duties. In addition, duties may be remitted (refunded or waived) under specific circumstances, such as repairs necessitated by a marine casualty or certain installations of U.S.-origin parts by the vessel’s crew. Some Free Trade Agreements also offer duty-free treatment.
Section A: Non-Dutiable Modifications
How does U.S. Customs and Border Protection (CBP) determine if work is a non-dutiable modification rather than a dutiable repair?
CBP considers several factors, although no single factor is necessarily determinative. For work to qualify as a modification, the documentation must also reflect that any element replaced was in good and full working order at the time the work was performed.
The key factors are:
• Permanent Incorporation: Whether the item is permanently incorporated into the vessel’s hull or superstructure, either structurally or through attachment. Note that permanent incorporation alone doesn’t guarantee non-dutiability, as it could still be a dutiable repair or equipment.
• Extended Lay-up: Whether the item would, in all likelihood, remain aboard the vessel during an extended lay-up.
• New Design Feature: Whether the item constitutes a new design feature and does not merely replace a part, fitting, or structure that performs a similar function.
• Improvement/Enhancement:Whether the item provides an improvement or enhancement in the vessel’s operation or efficiency
Q4: Can you provide examples of modifications that have been deemed non-dutiable?
Yes, examples of work considered non-dutiable modifications include:
• Redesign and repositioning of turtleboxes to improve the system’s handling of finer spoils and overall vessel stability/operation, especially when existing turtleboxes were functioning properly despite rust and corrosion.
• Replacement of existing inboard longitudinal bulkheads with thicker, higher-grade steel to increase structural strength, reduce stress levels, enhance operational safety, and extend service life, when the existing plating was structurally sound and not in need of repair.
• Installation of Exhaust Gas Cleaning Systems (EGCS or “scrubbers”) and related modifications (e.g., removal/reinstallation of exhaust piping, removal of existing economizers, enlargement of engine casing, new seawater systems, NaOH storage/circulation systems, monitoring systems) to comply with air pollution standards and improve environmental impact, provided existing systems were fully operational.
• Capacity Increase Measures such as:
◦ Elevation of lashing bridges by adding an additional tier to increase container carrying capacity.
◦ Reinforcement of hatch covers and coamings to increase deck stack weight capacity.
◦ Reinforcement of the hull to increase scantling draught and deadweight for greater container capacity.
◦ Elevation of the wheelhouse by installing a spacer block to meet visibility requirements for higher container stacks.
• Fuel Consumption Reduction Measures for lower operational speeds:
◦ Replacement of bulbous bows with a smaller design more efficient for reduced speeds.
◦ Replacement of propellers with a smaller design for higher efficiency at reduced top speeds.
◦ Installation of Becker Twisted Fins (BTF) energy saving devices to improve fuel efficiency and reduce emissions.
◦ Engine Power Limitation Software Installation to protect propellers and improve fuel efficiency.
• Installation of Liquified Natural Gas (LNG) fuel burning capability and related systems (processing, bunkering, control, storage tanks, fuel gas preparation room, electrical components) when the vessel was “LNG Ready” and the work fills space reserved for this system, not replacing an existing one.
Section B: Remission of Duties Due to Casualty
When can duties be remitted due to a casualty?
Duties may be remitted if the vessel, while in the regular course of her voyage, was compelled by stress of weather or other casualty to enter a foreign port to purchase equipment or make repairs. These repairs must be necessary to secure the vessel’s safety and seaworthiness to enable it to reach its U.S. port of destination. This involves a three-part test:
1. Establishment of a casualty occurrence
2. Establishment of unsafe and unseaworthy conditions
3. Inability to reach the U.S. port of destination without obtaining foreign repairs
What specifically qualifies as a “casualty”?
“Casualty” is narrowly defined. It means an accidental destruction by a cause of like character and operation as fire, such as lightning, floods, cyclones, storms, or other uncontrollable force that ordinary foresight and prudence could not guard against or prevent. It must be a happening that comes with the violence of the turbulent forces of nature, such as fire, collision, or an explosion. It is important to note that a “casualty” does not include any purchase or repair made necessary by ordinary wear and tear.
Is there an exception for parts that fail due to wear and tear?
Yes. If a part was repaired, serviced, or replaced in the United States immediately before the start of the voyage in question, and then it failed within six months of that date, the failure may be considered a casualty for remission purposes. However, this is limited to the essential, minimum foreign repairs to that specific part. Lengthy periods between the U.S. service and the foreign failure (e.g., 23 months) would exceed this six-month window and typically lead to a finding of ordinary wear and tear.
Can you provide examples of incidents that were not considered casualties for duty remission?
Yes, CBP has consistently denied remission for:
• Machinery failure without evidence of an outside force: If generators or turbo-generators fail due to spontaneous disintegration, internal issues, or unknown causes without proof of an extrinsic force, it’s considered wear and tear.
• Piston cracking and subsequent explosion due to internal failure: A main engine piston cracking and causing an explosion or oil leak, if not attributed to an external force, is considered normal wear and tear.
• Fuel contamination: Engine damage caused by impurities, sludge, or catalytic fines in bunker fuel, even if leading to pump seizure or other failures, is generally not considered a casualty.
• Structural failure due to fatigue or improper maintenance: For instance, a barge’s connecting tongue failing due to tensile fracture, with underlying causes identified as fatigue or improper maintenance (e.g., unauthorized welding), is not a casualty but rather normal wear and tear or poor upkeep.
• Propeller shaft stern tube bearing failure: If the cause, such as alleged “unexpected and sudden rush of water,” is not supported by good and substantial evidence, and the failure occurs significantly after the last inspection (e.g., 23 months), it’s deemed ordinary wear and tear.
• Engine issues not previously serviced/repaired in the U.S. within six months: If a power take-off (PTO) shaft and housing required repairs in a foreign port but there’s insufficient evidence that the specific part was repaired or serviced in the U.S. prior to departure as contemplated by the “one round voyage” rule, it is considered normal wear and tear.
Do U.S. Coast Guard (USCG) “marine casualty” definitions apply to CBP vessel repair duties?
No. CBP’s definition of “casualty” for vessel repair duty purposes is distinct from USCG regulatory definitions used for casualty reporting. CBP references USCG provisions solely to determine the adequacy of documentation regarding a casualty occurrence, not to adopt the USCG’s broader definition of “casualty” for duty assessment.
Section C: U.S. Origin Goods and Crew Labor
Are parts manufactured or produced in the U.S. exempt from duties?
Yes, relief can be granted if equipment, parts, repair parts, or materials were manufactured or produced in the United States and purchased in the United States by the vessel owner. Crucially, any necessary labor for their installation must be performed by residents of the United States or members of the regular crew of the vessel. This is a two-prong test.
What documentation is needed to support claims for U.S. origin goods and crew labor?
Applications for relief must include itemized bills, receipts, and invoices. CBP consistently requires corroborating evidence beyond self-serving, internally generated documents like purchase orders or notarized statements from corporate officers alone. Independent third-party documentation is preferred. For example, company letterhead affidavits signed by officers of the selling companies (not just the vessel owner’s affiliates) can be sufficient if they attest to U.S. origin or prior duty payment.
Section D: Regulatory Inspections
Are the costs of regulatory inspections dutiable?
No, periodic surveys undertaken to meet specific requirements of a classification society or insurance carrier are generally not dutiable, even if dutiable repairs are performed as a result of the survey. However, inspections or surveys conducted merely to ascertain the extent of damages or whether repairs are necessary are dutiable as part of any resulting repairs.
Section E: Free Trade Agreements
Can Free Trade Agreements (FTAs) reduce or eliminate vessel repair duties?
Yes, certain FTAs between the U.S. and other countries may reduce or eliminate duties on vessel repair expenditures made in those countries . Specifically, costs of labor, parts, and materials from Israel, Canada, and Mexico are not subject to vessel repair duties. Other nations with potential duty-free treatment under HTSUS Subheading 9818.00.07 include Australia, Bahrain, Chile, Colombia, Jordan, Korea, Morocco, Oman, Dominican Republic, Panama, Peru, and Singapore. The final duty amount depends on the specific agreement and its phase-in schedule.
Section F: Documentation Deadlines
Are there deadlines for submitting evidence for vessel repair entries?
Yes. A complete vessel repair entry must be supported by evidence showing the cost of each item, and this evidence must be received by the appropriate Vessel Repair Unit (VRU) within 90 calendar days from the date of vessel arrival. The port may grant one 30-day extension, with further requests needing approval from CBP headquarters. Failure to submit required cost information by the deadline means CBP is not required to consider it, and those costs will be dutiable.
