CIT Considers Whether Anti-Fouling Paint Work is Dutiable as a Foreign Repair
In Horizon Lines, LLC v. U.S., Horizon challenged a determination by U.S. Customs and Border Protection that certain coatings work performed on its vessel below the waterline is subject to a 50 percent ad valorem duty as a foreign repair under 19 USC 1466(a).1
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Horizon Charged Duties on Anti-Fouling Paint Work Done in China
In 2006, the Crusader, a U.S.-flagged vessel owned by Horizon, dry-docked at a shipyard in China for certain inspections and operations, including work, which was performed below the waterline, consisting of (1) the removal of all existing coatings such that bare steel was exposed, (2) application of “wholly tin-free regular paint,” and (3) application of “wholly tin-free antifouling coatings.”
On the Crusader’s return the U.S., Horizon submitted a form that identified the work performed, which CBP reviewed. CBP determined that Horizon owed $251,077.63 on the entire entry, which included duties on the charges associated with the application of tin-free antifouling paint.
Horizon Claimed Work as IMO Compliance
Horizon protested portions of this determination, which CBP denied in part. Horizon then commenced instant action and challenged portions of CBP’s denial, arguing that compliance with the IMO AFS Convention2 was the sole purpose of this work, rather than repair or maintenance.
CBP Said the Work Was Maintenance Painting
CBP argued that (1) the work at issue constituted maintenance painting, (2) any work that ameliorates a state of disrepair, however incidentally, is necessarily a repair, and(3) at least a portion of the work at issue constitutes a repair and because Horizon failed to segregate that portion of the invoice from the other portions, the entire anti-fouling replacement charge is still dutiable as a repair..
CIT Rules Facts Remain in Dispute, Summary Judgment Denied
CIT states that issues regarding the nature, purpose, prior condition, and effect of the work performed are material to the classification of the work. Therefore, CBP’s motion for a summary judgment3 was denied to Horizon’s claims of work performed below the waterline because material facts regarding its claims remain in dispute.
1Equipment and vessel materials purchased in foreign countries, and vessel repairs occurring in foreign countries, for vessels documented under the laws of the U.S., are dutiable at 50% ad valorem of the cost thereof in such foreign country.
2The American Bureau of Shipping certified that the new wholly tin-free antifouling system (AFS) complied with the International Maritime Organization (IMO) AFS Convention. Under the auspices of IMO, a number of states (including the U.S.) agreed that the organotin compounds performing biocidal functions in some AF paint “pose a substantial risk of toxicity and other chronic impacts to ecologically and economically important marine organisms” and may harm the health of humans who consume affected seafood. These states agreed that as of January 1, 2008, certain vessels subject to their authority either: (1) shall not bear [organotin compounds which act as biocides in antifouling systems] on their hulls or external parts or surfaces; or (2) shall bear a coating that forms a barrier to such compounds leaching from the underlying non-compliant coatings applied as part of antifouling systems.
3 Summary judgment is a request for a decision by a court based upon legal arguments only, where no material facts are in dispute. The next step in this case is expected to be a trial. Note that as Horizon abandoned its claims for work performed above the waterline; CBP’s motion for summary judgment was granted on that issue.