Vessel Repair; 19 U.S.C. 1466; Petition for Review; Spare Parts Vessel Repair Entry No. 514-3004727-7 Date of Arrival: May 11, 1992 Port of Arrival: Newark, N.J. Vessel: S.S. LESLIE LYKES

HQ 112632 April 20, 1993 VES-13-18-CO:R:IT:C 112632 DEC CATEGORY: Carriers Deputy Assistant Regional Commissioner Classification and Value Division ATTN: Regional Vessel Repair Liquidation Unit New York, NY 10048-0945 RE: Vessel Repair; 19 U.S.C. 1466; Petition for Review; Spare Parts Vessel Repair Entry No. 514-3004727-7 Date of Arrival: May 11, 1992 Port of Arrival: Newark, N.J. Vessel: S.S. LESLIE LYKES Dear Sir: This letter is in response to your memorandum dated March 12, 1993, which forwards for our consideration a petition for review filed in connection with the assessment of vessel repair duties on the above-referenced vessel. FACTS: The S.S. LESLIE LYKES, an American-flag vessel, underwent various foreign shipyard operations while in Damman, Saudi Arabia, during March, 1992, as a result of an unidentified vessel's fishing net becoming entangled in the subject vessel's propeller. An application for relief from vessel repair duties was timely filed. Subsequently, a petition challenging our determination holding certain replacement parts dutiable was, also, timely filed. ISSUE: Whether the purchase of U.S. manufactured replacement parts purchased in the U.S. via a foreign representative and installed with foreign labor is dutiable. -2- LAW AND ANALYSIS: Title 19, United States Code, section 1466, provides, in pertinent part, for payment of an ad valorem duty of 50 percent on the cost of foreign repairs to a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade. The petitioner claims that relief from vessel repair duties should be granted with respect to the invoice representing the purchase of various spare parts because they are U.S. made. 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). Section 1466(h) provides in pertinent 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. 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 subsection (d)(2) with the assessment provisions of subsection (a) of section 1466 would obligate operators to pay duty on such materials unless they were installed by crew or 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. If a foreign manufactured article is claimed to have been -3- previously entered for consumption, duty paid by the vessel operator, there must be proof of this fact in the form of a reference to the consumption entry number for that previous importation, as well as to the U.S. port of importation. If imported articles are purchased in the United States from a party unrelated to the vessel operator, a domestic bill of sale to the vessel operator must be presented. Further, with regard to imported articles, there must be presented a certification on the CF 226 or an accompanying document by a person with direct knowledge of the fact that an article was imported or purchased for the purpose of either then-existing or intended future installation on a company vessel. Ordinarily, the vessel's master would not have direct knowledge of that fact, and an agent may also be without such knowledge. The second certification required by 19 U.S.C. 1466(h)(2) as to the vessel's documentation (foreign or coasting trades) and service (cargo vessel), will be made by the master on the vessel repair entry (CF 226) at the time of arrival. If the elements stated above are proven to the satisfaction of Customs, the cost of foreign labor utilized for installation of U.S.-made or previously imported articles will be subject to duty under section 1466 in matters concerning repairs, and only the cost of qualifying materials used in repairs will be free of duty. A U.S. bill of sale has been submitted combined with supporting documentation from the parts manufacturer that the parts are U.S. made. Therefore, the costs associated with this invoice pertaining to the spare parts are not subject to duty. However, the itemized cost of the foreign labor ($5284) contained in the invoice shall remain dutiable. HOLDING: After thorough review of the record and the additional evidence presented, and as detailed in the Law and Analysis portion of this ruling, this petition for relief is granted. Sincerely, Acting Chief Carrier Rulings Branch