Vessel Repair; Petition for Review; 19 U.S.C. 1466(h); Repairs in Israel; Israeli Labor; U.S. Manufactured Materials; ABS Surveys; Vessel Repair Entry No. 514- 3003884-7; ALMERIA LYKES V-18

HQ 111492 August 5, 1992 VES 13-18 CO:R:IT:C 111492 MLR CATEGORY: Carriers Deputy Assistant Regional Commissioner Classification and Value Division ATTN: Residual Liquidation and Protest Branch New York, New York 10048-0945 RE: Vessel Repair; Petition for Review; 19 U.S.C. 1466(h); Repairs in Israel; Israeli Labor; U.S. Manufactured Materials; ABS Surveys; Vessel Repair Entry No. 514- 3003884-7; ALMERIA LYKES V-18 Dear Sir: This is in response to your memorandum of January 15, 1991, regarding the petition for review submitted by Lykes Bros. Steamship Co., Inc. FACTS: The record reflects that the subject vessel, the ALMERIA LYKES, arrived at Port Elizabeth, New Jersey, on September 21, 1989. Vessel repair entry, number 514-3003884-7, was timely filed indicating work performed on the vessel in Haifa, Israel. The vessel underwent hull and engine repairs, and United States Coast Guard and various American Bureau of Shipping (ABS) inspections were conducted. Israeli or U.S.-residents or members of the regular crew allegedly performed the necessary labor for certain repair work. Certain materials used in the process were of foreign origin, other than Israeli, and some materials were supplied by companies in the United States, although their country of manufacture was not established. Accordingly, the application for relief (HQ 110909) which was filed on November 9, 1989, was denied. An extension was granted until December 21, 1990, to file a petition for review which was filed on that day. The petitioner requests relief on ABS Surveys #836117, #836115, and #836119; and on the items listed in the following invoices: Exhibit Manufacturer Invoice Amount B International No. 756568 $20,814.20 Paint C A-H Refractories No. 1822 5,158.72 Inc. D Waukesha Bearings No. 325003 6,991.00 No. 328483 6,630.88 E Drew Chemical No. 032586 469.84 Corporation (Supplier: Lee Engineering) F Peck & Hale Co. No. 2529 1,104.54 (Supplier: Bridon Elm, Inc.) G Mercer Rubber Co. No. 101649 780.00 (Supplier: C.V. Harold) H General Rubber No. 100999 295.00 (Supplier: C.V. Harold) Note: C.V. Harold Invoice 100395 $555.00 is not of U.S. manufacture (See Exhibit I) J Standard Supply No. 0129912 871.60 $43,115.78 Petitioner submits sworn statements by the manufacturers listed above attesting to the United States origin of the materials in question. Petitioner does not seek relief for C.V. Harold/ General Rubber Corp. invoice #100395 in the amount of $555, and De Jong & Lavino B.V. (De Jong) invoice #18919 in the amount of $5518. As to the ABS Surveys, the petitioner claims that because no duty was assessed on repairs made in Israel under Presidential Proclamation 5924, then no duty shall be assessed on a survey conducted as an "integral part" of that repair. Alternatively, the petitioner claims that the surveys were required and should be non-dutiable. ISSUE: Whether the claim for relief can be justified under the terms of the United States-Israel Free Trade Area Implementation Act of 1985, as partially implemented by Presidential Proclamation 5924 of December 21, 1988, or otherwise allowed. LAW AND ANALYSIS: Title 19, United States Code, section 1466(a), provides in pertinent part for payment of duty in the amount of 50 percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to engage in such trade. On December 21, 1988, the President issued Proclamation number 5924 under authority of section 4(a) of the United States- Israel Free Trade Area Implementation Act of 1985, which Proclamation provides that vessel repair duties shall not be assessed on the cost of parts, equipment or materials for, or repairs to U.S. vessels if the subject expenditures are for products of Israel or work done in Israel. Customs interprets this to mean that articles must be made in and installed on vessels in Israel. Articles imported into Israel from elsewhere do not qualify for the automatic duty exemption. On August 20, 1990, the President signed into law Pub. L. 101-382, section 484E of which amends section 466, Tariff Act of 1930, as amended (19 U.S.C. 1466), by adding a new paragraph (h) to the statute {19 U.S.C. 1466(h)}. The new section provides in part that: (h) The duty imposed by subsection (a) of this section shall not apply to-- (2) the cost of spare repair parts or materials (other than nets or nettings) which the owner or master of the vessel certifies are intended for use aboard a cargo vessel, documented under the laws of the United States and engaged in the foreign or coasting trade, for installation or use on such vessel, as needed, in the United States, at sea, or in a foreign country, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedule of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country. The effective date of the amendment is stated as follows: Effective Date.--The amendment made by this section shall apply to-- (1) any entry made before the date of enactment of this Act that is not liquidated on the date of enactment of this Act.... Therefore, the provision is applicable in this instance. While section 1466(h) applies by its terms only to foreign- made imported parts, there is ample reason to extend its effect to U.S.-made materials as well. To fail to do so would act to discourage the use of U.S.-made materials in effecting foreign repairs since continued linkage of remission provisions of section 1466(d)(2) with the assessment provisions of section 1466(a) would obligate operators to pay duty on such materials unless they were installed by crew or U.S. resident labor. If an article is claimed to be of U.S. manufacture, there must be proof of its origin in the form of a bill of sale or domestic invoice. U.S. Manufactured Materials The record is well organized and clearly proves that the items described above in Exhibits B, C, D, E, F, G, H, and J, were manufactured in the United States. Accordingly, the petitioner is entitled to relief as to those items. De Jong & Lavino Invoice: In the application for relief, the steel listed in the De Jong invoice was held to be dutiable as it was not of U.S. or Israeli origin. Further, the De Jong invoice did not show a cost amount; Israel Shipyards Ltd. billed Lykes a total of $429,876 for various repair work which included the steel listed on the De Jong invoice. Petitioner now submits an affidavit (Exhibit K) from M. Cohen, of Israel Shipyards Ltd., stating that the steel listed on the De Jong invoice was for repairs to the ALMERIA LYKES, and for two other vessels, the HOWELL LYKES and MASON LYKES. Israel Shipyards allocates $5,518 of this steel for repairs made to the ALMERIA LYKES. Lykes acknowledges that this $5,518 is subject to duty. Accordingly, for purposes of liquidating the entry for the ALMERIA LYKES, the cost amount for the De Jong invoice is $5,518 which is subject to duty. Petitioner states that the duty on the steel for the other vessels will be paid under separate entries. ABS Surveys #836115, #836116, #836117, and #836119 The application for relief denied relief with respect to ABS Surveys #836115 (excluding Annual Survey, Drydocking), #836116, and #836117. The petitioner alleges that the ABS surveys in question should be non-dutiable as integral parts of repairs held non-dutiable under Presidential Proclamation 5924. As to #836119 (Mandatory Annual Survey), this survey was held to be non-dutiable in the application for relief; however, a memo from Customs to Lykes, dated October 17, 1990, erroneously indicates that this survey was denied. We affirm this as a non-dutiable survey. Petitioner cites C.I.E. 429/61 as authority for explaining how Customs distinguishes between dutiable and non-dutiable surveys: ....Expenses which are incurred in conducting inspections made subsequent to the repairs, so as to ascertain whether the work has been properly performed, are dutiable as integral parts of the expenses of repairs although separately itemized. Moreover, testing which is effected for the purposes of ascertaining whether repairs to certain machinery or parts of the vessel are required, or are performed in order to ascertain if the work is adequately completed, are also integral parts of the repairs and are accordingly dutiable. Petitioner states that the rationale of C.I.E. 429/61, is that some surveys and inspections are so closely related to the repair work that they are in fact part of the repairs; therefore, if the repairs are dutiable, the survey or inspection should also be dutiable. Further, if the repairs are not dutiable, there is nothing in C.I.E. 429/61 or in its rationale which makes surveys of them dutiable. Petitioner states that "...if the repair had been carried out in the United States the survey of that repair would not be dutiable. Precisely the same reasoning applies here. By Presidential Proclamation the United States has exempted from duty repairs made in Israel upon U.S.-documented vessels. If there is no duty on the repair, then the survey, as an 'integral part' of that repair, cannot be dutiable." In the alternative, petitioner claims that #836115 is a non-dutiable required survey to meet the specific requirements of a governmental entity, classification society, or insurance carrier. C.S.D. 79-277. In this instance, petitioner's argument as to the relationship between a repair held non-dutiable under Proclamation 5924 and the dutiability of a survey is correct. First, we must determine whether a survey conducted by Israeli laborers is non-dutiable because the repairs surveyed were non- dutiable under Presidential Proclamation 5924. If not, the survey must be a required survey conducted to meet the specific requirements of a classification society to be non-dutiable. To prove that certain surveys were required, petitioner submits relevant parts of the ABS Rules. In survey #836116, the surveyor examined and reported upon hull damage repairs made to the starboard shell plating and internals which were necessary because of damage to the vessel when it struck the dock in Leghorn, Italy, on December 14, 1988. The outstanding recommendations of Survey Report No. HS 8302, conducted at Houston, Texas, on January 1, 1989, were deleted. Survey #836117 involved examining hull damage repairs made to the bulbous bow outer shell plating which were necessary to satisfy the outstanding recommendations of Survey Report No. L201091, conducted at La Spezia, Italy, on October 24, 1987. The ABS report states that after the repairs were completed, the forepeak tank was hydrostatically tested and the outstanding recommendations are to be deleted. As to surveys #836116 and #836117, they correlate to repair work detailed in Lykes' Repair Specifications nos. 9 (bulbous bow plating) and 10 (stbd. side shell plating). These repairs were performed by Israeli laborers and therefore were held non- dutiable. However, the repairs involved the use of steel not of U.S. or Israeli origin (see De Jong invoice discussion above) which we have now determined to be dutiable. Therefore, the damage repair work involved a non-dutiable aspect (the labor) and a dutiable aspect (the foreign steel). The surveys clearly involve examining the effectiveness of repairs which normally are dutiable; here, however, the repair work is properly segregated. Therefore, since the surveys are related to repair costs that fall within Proclamation 5924, the surveys are non- dutiable. Survey #836115 (we do not address those segments previously held non-dutiable) consisted of (1) a special survey of the hull, (2) a special survey of machinery, (3) a year of grace survey, and (4) a periodical boiler survey. The report indicates that many items were examined some of which were repaired. Again, because the surveys are related to repair work that was held non- dutiable under Proclamation 5924, the survey is non-dutiable; therefore, we do not need to address whether these surveys were required for the vessel to be retained as classed. HOLDING: After reviewing the additional evidence submitted, we find that the petition for review should be allowed as set forth in the Law and Analysis section of this ruling. Sincerely, B. James Fritz Chief Carrier Rulings Branch