Vessel repair; Application for Relief; Vessel FRANCES HAMMER, V-045; Vessel repair entry number 514-3005080-0; Port of arrival, New York, New York, February 21, 1994

HQ 113708 July 10, 1997 VES-13-18-RR:IT:EC 113708 LLB CATEGORY: Carriers Chief, Residual Liquidation and Protest Branch 6 World Trade Center ATTN: Vessel Repair Liquidation Unit New York, New York 10048-0945 RE: Vessel repair; Application for Relief; Vessel FRANCES HAMMER, V-045; Vessel repair entry number 514-3005080-0; Port of arrival, New York, New York, February 21, 1994 Dear Sir: Reference is made to your memorandum of October 6, 1995, which forwards for our consideration and appropriate action a vessel repair Application for Relief submitted by counsel for Ocean Chemical Carriers, Incorporated, in connection with the above-captioned matter. FACTS: The vessel FRANCES HAMMER arrived in the United States after having undergone shipyard operations in Indonesia, Panama, Saudi Arabia, the Netherlands, and the Suez Canal. The operator, through counsel, submitted an Application for Relief from the assessment of vessel repair duties covering 52 invoice items. That submission was reviewed by the Vessel Repair Liquidation Unit in New York and advice has been sought concerning 8 items, identified as numbers 3, 5, 6, 7, 8, 18, 31, and 51. With the exception of item 51, all of the listed items are claimed to be duty-free under subsection (d) of the statute (19 U.S.C. 1466(d)), as United States-purchased duty-paid imported parts. Item 51 claims duty-free survey expenses. A general statement appears in the Application for Relief regarding crew labor, without attribution to any particular item. Further, we note that numerous of the items on the vessel repair entry document itself (Customs Form 226) show charges for labor, thus indicating the use of non-crew labor. This being the case, we cannot attribute the use of crew labor to any of the items under consideration. ISSUE: Whether duty under the vessel repair statute should be assessed on the cost of foreign-made duty-paid parts sent abroad for installation on the vessel in question, and on the cost of certain survey work. 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. The evidence indicates that the items under consideration are foreign-made parts which were purchased in the United States subsequent to their importation. Thus, they are not qualified for consideration under subsection (d) of the statute. 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 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. We find the cost of purchases represented on items 3, 5, 6, 7, 8, 18 and 31 to be subject to vessel repair duty. The claims of the applicant with respect to these items are denied. As previously discussed, the charges represented on item 51 are for a survey conducted by the American Bureau of shipping (in this case, a boiler survey). In regard to the dutiability of surveys, Customs has held pursuant to C.S.D. 79-277 that where periodic surveys are undertaken to meet the specific requirements of a classification society, insurance carrier, etc., the cost of the survey is not dutiable even when dutiable repairs are effected as a result thereof. This result is to be distinguished from a survey whose source is carrier-initiated maintenance and repair, scheduled or otherwise. The present matter involved a survey carried out by the American Bureau of Shipping in order to check on the sufficiency of repair recommendations made on a previous survey. The repairs had been satisfactorily carried out, but we are not made aware of the character of the underlying initial survey. If it was a repair or damage survey, it is subject to duty. Since no evidence is presented to support a finding of non-dutiability under the statute, the cost must be held to be subject to duty. 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 relief from duty on the elements of this Application for Relief which have been forwarded for our determination must be denied, as specified in the Law and Analysis portion of this ruling. Sincerely, Jerry Laderberg Chief Entry and Carrier Rulings Branch