CIT Rules Horizon's Overseas Anti-Fouling Paint Work Is Not Dutiable

The Court of International Trade has ruled in Horizon Lines, LLC v. U.S. that Horizon Line’s replacement of new anti-fouling coatings on a vessel's underwater hull that was performed overseas is not a dutiable foreign repair. The CIT found that such work is non-dutiable because the hull's paint system prior to replacement was in good order and was performed solely in order to comply with international anti-fouling rules. Therefore, the CIT stated that any repair was incidental to Horizon's intent for compliance.

(In 2001, the International Maritime Organization (IMO) adopted the International Convention of the Control of Harmful Anti-Fouling Systems on Ships which banned tin-based anti-fouling coatings after January 1, 2003 and required that the tin-based anti-fouling coatings on existing vessels be removed or sealed by January 1, 2008.)

Horizon Removed & Applied Anti-Fouling Paint on Vessel at a Chinese Shipyard

Horizon Lines, LLC owns the Horizon Crusader, a U.S.-flagged vessel. In 2006 the Crusader was dry-docked at Guangzhou Wenchong Shipyard (GWS) in China where work was performed on the vessel's underwater hull to remove all existing anti-fouling coatings and apply wholly tin-free regular paint and anti-fouling coatings.

Following the Crusader's return to the U.S., Horizon submitted Customs Form 226 (Record of Vessel Foreign Repair or Equipment Purchase) that identified the work performed on the Crusader. CBP determined that Horizon would owe $251,077 on the entire entry, which included duties on the charges associated with the application of tin-free anti-fouling paint. Horizon protested portions of this determination, which CBP denied.

In 2010, Horizon challenged CBP's determination in the CIT, which denied summary judgment because material facts regarding the nature, purpose, prior condition, and effect of the work performed on the Crusader remained in dispute. (See ITT's Online Archives 10121522 for summary).

CIT Ruled Work is Non-Dutiable, Any Repair Was Incidental to IMO Compliance

The CIT found that the expenses incurred by Horizon in connection with replacement of its anti-fouling system are non-dutiable. The CIT stated that any "repair" of blisters or corrosion on the Crusader was minimal and solely incidental to Horizon's purpose to comply with the IMO Convention and was irrelevant to the nature of the work.

First, the CIT explained that the paint system in place on the underwater hull of the Crusader was in good order prior to replacement of the anti-fouling coating and would have lasted for an indefinite time past the dry-docking date. Additionally, the decision by Horizon to dry-dock the Crusader and to remove the anti-fouling coatings was made without knowledge whether there was any blistering or corrosion on the vessel's underwater hull. The decision, at the time it was made, was part of a "fleet-wide concept" solely based on Horizon's intention to comply with the IMO Convention. The CIT explained that if the work performed had been intended to repair underwater hull damage, or if it had actually repaired more than minimal and inconsequential underwater hull damage, then the amounts expended would have to be allocated to repair and non-repair categories.

Ordered CBP to Reassess Horizon's Duties & Refund Excess Duties w/ Interest

The CIT entered judgment in favor of Horizon and ordered CBP to reassess the duties at issue in accordance with the judgment. CBP was also ordered to refund Horizon all excess duties together with interest as provided by law.

(See ITT's Online Archives 10121418 for summary of the Court of Appeals for the Federal Circuit's ruling that the government owed Horizon Lines a refund for duties imposed for its replacement of a ship's entry guides while the ship was overseas.

See ITT's Online Archives 10090814 for summary of the CIT ruling that Horizon's decision to lay-up the Crusader in Indonesia was not dutiable as part of certain repairs that were later performed in Singapore.)

(Slip Op. 11-141, dated 11/18/11)