HQ 0111339 - Vessel Repair; United States Parts; Modification; Spare Parts; Life Raft; GOLDEN ALASKA; Entry No. C31-0004898-3; 19 U.S.C. 1466. - United States International Trade Commision Rulings

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HQ 111339

February 27, 1991

VES-13-18 CO:R:IT:C 111339 JBW

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations
Pacific Region
1 World Trade Center
Long Beach, CA 90831

RE: Vessel Repair; United States Parts; Modification; Spare Parts; Life Raft; GOLDEN ALASKA; Entry No. C31-0004898-3; 19 U.S.C. 1466.

Dear Sir:

This letter is in response to your memorandum of September 28, 1990, which forwards for our review and ruling the above- referenced petition for review of the assessment of vessel repair duties.

FACTS:

The record reflects that the subject vessel, the GOLDEN ALASKA, arrived at the port of Anchorage, Alaska, on July 18, 1988. Vessel repair entry, number C31-0004898-3, was filed on the same day as arrival. The entry and subsequent application for relief showed that the vessel underwent foreign shipyard work in Sumitomo Shipyard, Tokyo, Japan, for the purpose of converting the vessel to a surimi factory processing vessel. This office first addressed the dutiability of this work in Headquarters Ruling Letter 110860, dated June 22, 1990. The vessel owner contests certain of our previous holdings.

ISSUES:

(1) Whether a surimi factory processing vessel is a cargo vessel for purposes of excepting parts from vessel repair duty under section 484E of the Customs and Trade Act of 1990.

(2) Whether the cost of material and labor that the petitioner contends were integral to modifications to the vessel, which were previously held to be non-dutiable, is dutiable under 19 U.S.C. 1466.

(3) Whether the cost of parts and materials that were purchased for a vessel, but were never installed is dutiable under 19 U.S.C. 1466.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount of fifty 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.

The petitioner states that many of the materials used in the work performed on the vessel were either manufactured in the United States or were imported into the United States duty-paid. The petitioner claims that, under the recent amendments to the vessel repair statute, the cost of this material is not dutiable.

Section 484E of the Customs and Trade Act of 1990, Pub. L. No. 101-382, 104 Stat. 629, 709-10 (1990)(to be codified at 19 U.S.C. 1466(h)(2)), amended the vessel repair statute to except from duty spare repair parts or materials that have been manufactured in the United States or entered the United States duty-paid and are used aboard a cargo vessel engaged in foreign or coasting trade. The Customs Service interprets the use of the term cargo to limit the exception contained in the amendment to vessels whose sole service is the transportation of cargo and which are actually engaged in that service while documented for the foreign or coasting trade. Headquarters Ruling Letter 110953, dated September 19, 1990. This interpretation excludes vessels such as factory processors that process, store, and transport as cargo marine products, but does not exclude those bona fide cargo vessels that may incidentally carry that number of passengers allowed under Coast Guard guidelines. The GOLDEN ALASKA is a factory processor and consequently does not qualify for the exceptions contained in the amendment.

Failing qualification for the exceptions accorded to cargo vessels, we must evaluate the petitioner's claims regarding duty treatment of parts under the previously established statutory rules. Customs administration of duty assessment issues under section 1466 regarding United States manufactured materials purchased in the United States has been guided by the terms of Treasury Decision 75-257. T.D. 75-257, 9 Cust. B. & Dec. 576 (1975). That decision provides that when materials of United States manufacture are purchased by the vessel owner in the United States for installation abroad by foreign labor, the labor cost alone is subject to duty under 19 U.S.C. 1466. Id.; Headquarters Ruling Letter 111065, dated February 4, 1991. The owner or master must submit written documentation or other physical evidence, such as an affidavit by the equipment manufacturer, that the equipment was manufactured in the United States. See Headquarters Ruling Letter 110953, dated September 19, 1990. Absent such documentation, the material is deemed foreign and consequently is dutiable.

In an effort to establish duty-exemption, the petitioner sent to its United States suppliers a form affidavit. These affidavits all state that the parts are "either U.S. manufactured goods or, that, if they were imported into the U.S, [the supplier had] already paid all related duty on the goods." With two exceptions relating to importation of the parts, the suppliers all signed the affidavits without further elaboration or documentation. The origin of these parts is indeterminate. The petitioner thus has not established United States manufacture of the materials. The cost of the materials that the petitioner contends are of United States manufacture is therefore dutiable.

The petitioner makes two specific arguments regarding United States manufactured parts, both of which we reject for the above- described reasons. First, invoice reference items 0066 to 0069 are claimed to be United States parts installed by United States labor. Failing to establish United States origin of the parts is fatal to this claim. 19 U.S.C 1466(d)(2) (1988). Second, invoice reference item 0072 states that the materials contained in this invoice were imported "C & F Seattle." The petitioner acknowledges that this material is not of United States manufacture, and we conclude that this material is dutiable.

In our ruling on the application, we concluded that a number of invoice items constituted nondutiable modifications to the vessel. Certain invoice items were not clearly associated with the modifications at the time of our initial ruling that the petitioner now claims were in fact related to the modification. We have reviewed the record and determine that the following items were integral to the non-dutiable modifications and are not repair related:

Invoice No. 0021: Crane Hydraulic Parts

Invoice No. 0301: Testing to determine whether modified surimi plant performs properly

Invoice No. 0543: Belly Flap Pumps

Invoice No. 0546: Glassmaster

Invoice No. 0633: Representing Equipment supplied by Nichiro that also appears on the
Sumitomo invoice for the surimi factory modification (Petitioner's Exhibit B)

The petitioner claims that contained on invoice number 0076 are items that "were part of the modification." This claim is vague, however, for the petitioner does not explain the relationship between these parts and the modifications. Absent an explanation for what function these products played in the modification, we find the cost to be dutiable.

Finally, the petitioner argues that various invoiced parts and equipment were never installed while the vessel was in Japan. Invoice Number 0080, duplicated as invoice number 0560, is for an inflatable life raft and signal, which appears to be part of the life raft. The vessel repair statute explicitly states that "boats" are subject to duty; the cost of the life raft and the signal are therefore dutiable.

Invoices 0111 and 0112 are for incinerator parts that the petitioner claims was never installed. Invoices 0130 and 0131 are for spare parts to be carried with the vessel. The dutiability of these items depends in part on their disposition in the United States. If the parts are taken off the ship upon arrival, then a consumption entry must be filed and duty must be paid under the Harmonized Tariff Schedule of the United States. However, if the parts remain with the vessel as spares, that is the parts are not required to enable the vessel to reach its port of destination, then the determination of duty depends on where those parts were loaded. If spare parts are loaded outside of the United States, then the cost of the parts is dutiable. Headquarters Ruling 103364, dated August 14, 1978. Alternatively, if the spare parts are loaded on the vessel in the United States, then the cost of the parts, assuming duty was paid, is not subject to duty.

HOLDINGS:

(1) A surimi factory processing vessel is not a cargo vessel for purposes of excepting parts from vessel repair duties under section 484E of the Customs and Trade Act of 1990.

(2) The cost of labor and material integrally related to the modifications of the vessel and not repair related are not dutiable.

(3) The dutiability of the cost of parts and material purchased for the vessel, but never installed depends on specific circumstances as outlined in the body of this ruling.

Sincerely,

B. James Fritz
Chief

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