Vessel repair; Petition for Review; Vessel PFC EUGENE OBREGON, V-56; Vessel repair entry number C15-0001260-6; Port of arrival, Panama City, Florida, October 29, 1993; 19 U.S.C. 1466

HQ 113651 September 3, 1997 VES-13-18-RR:IT:EC 113651 LLB CATEGORY: Carriers Customs Port Director ATTN: Vessel Repair Liquidation Unit 423 Canal Street New Orleans, Louisiana 70130-2341 RE: Vessel repair; Petition for Review; Vessel PFC EUGENE OBREGON, V-56; Vessel repair entry number C15-0001260-6; Port of arrival, Panama City, Florida, October 29, 1993; 19 U.S.C. 1466 Dear Sir: Reference is made to your memorandum of August 29, 1996, which forwards for our consideration and appropriate action a vessel repair Petition for Review submitted by Lash Marine Services, Incorporated, in connection with the above-captioned matter. Your office previously considered an Application for Relief concerning this entry and issued a ruling. Certain elements of that earlier review are the subject of the present appeal. FACTS: The vessel PFC EUGENE OBREGON arrived in the United States after having undergone foreign shipyard operations. The operator submitted an Application for Relief from the assessment of vessel repair duties covering numerous invoice items. That submission was considered by the Vessel Repair Liquidation Unit in New Orleans, Louisiana, and partial relief was granted. An appeal from the earlier partial denial of relief in the form of a Petition for Review is presently under consideration. The submission seeks relief with respect to items claimed to be duty-free as either United States-manufactured and purchased parts, or duty-paid imported parts. ISSUE: Whether duty under the vessel repair statute should be assessed on the cost of parts manufactured and purchased in the United States for foreign installation, as well as on the cost of foreign-made duty-paid parts sent abroad for installation on the vessel in question. 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 the foreign or coastwise trade, or vessels intended to be employed in such trade. Subsection (d)(2) of 19 U.S.C. 1466 provides that duty is to be remitted or refunded if the owner or master of a vessel provides evidence regarding vessel-related expenditures showing that: ...such equipments or parts thereof or repair parts or materials, were manufactured or produced in the United States, and the labor necessary to install such equipments or to make such repairs was performed by residents of the United States, or by members of the regular crew of such vessel . . . The Customs regulation which implements this subsection, 19 CFR 4.14(c)(3), specifies the same elements and, in addition, requires that the qualifying items must be purchased by the vessel owner in the United States. The statutory and regulatory requirements concerning the use of United States-manufactured items in foreign vessel repair operations have been the subject of administrative interpretations. Prominent among these is Treasury Decision 75-257 (T.D. 75-257), which holds as follows: The cost of labor used in a foreign shipyard to install materials of United States origin, even though the materials were purchased by the vessel owner in the United States, is also subject to duty under 19 U.S.C. 1466. However, the cost of materials of United States origin which are purchased by the vessel owner in the United States is not subject to duty under 19 U.S.C. 1466, when installed on the vessel in a foreign country. (Emphasis added) Thus, while it might be presumed from reading the statute alone that both the presence of qualified parts and qualified labor is required in order to invoke the benefits of subsection (d)(2), the terms of T.D. 75-257 establish that the cost of qualified parts may be considered for refund or remission even in the absence of the domestic labor element. On August 20, 1990, the President signed into law the Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of which amended the vessel repair statute by adding a new subsection (h). Subsection (h) included two elements, the relevant one of which provides as follows: (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 amendment was made applicable 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, and (2) any entry made-- (A) on or after the date of enactment of this Act, and (B) on or before December 31, 1992. Section 112 (b) of Pub. L. 103-382, effective on January 1, 1995, amended the vessel repair statute by reenacting 19 U.S.C. 1466 (h)(1) and (2) which had expired and no longer existed as of January 1, 1993. The law also added for the first time a subsection (h)(3) which is not an element of this entry and ruling. As previously described, the Congress of the United States enacted and then reenacted section (h)(2) of the vessel repair statute. The plain wording of the statutory language exempts from vessel repair duty the cost of foreign-made parts and materials which are imported into this country with duty being paid under appropriate tariff provisions prior to their use in repairs to American vessels in foreign shipyards. There existed between enactment and reenactment a two-year period when the provision was not in effect, it having expired by its own terms beginning on January 1, 1993. The vessel repair entry under consideration clearly falls within the period when the statutory exemption did not exist. Surely if the cost of some of the parts such as are at issue in this entry was never properly subject to duty under the statute, it would not have been necessary for the Congress to have acted at all, let alone on two occasions, to provide for duty-free treatment of such purchases. With respect to the items for which relief is claimed, we find that the operator has supplied sufficient evidence to justify duty-free treatment for some of them. The invoices from Long Electrical Supply Company, Universal Supply and Equipment, Inc., Saft Nife, Inc., and Deselle-Maggard Corporation are now accompanied by evidence sufficient to establish that the parts sold by those companies were manufactured in the United States. We now find statements attesting to the production of the parts in this country. Evidence of this sort was absent from the file during consideration of the earlier Application for Relief, the evidence having consisted solely of invoices establishing domestic purchase. Based upon the evidence now presented, we find that the claims for duty-free treatment of these items should be granted. The remainder of the items under consideration must be considered foreign-made parts which were purchased in the United States subsequent to their importation and then sent abroad for installation on the vessel. These items include those for which our review was requested and which were supplied by Bartolo Supply and Hardware Company. HOLDING: Following a thorough review of the evidence presented as well as analysis of the law and relevant judicial and administrative precedents, we have determined that this Petition for Review should be granted in part and denied in part, as specified in the Law and Analysis portion of this ruling. Sincerely, Jerry Laderberg Chief Entry and Carrier Rulings Branch