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HQ 111055

January 29, 1991

VES-13-18-CO:R:IT:C LLB

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations
ATTN: Regional Vessel Repair Liquidation Unit New York, New York 10048-0945

RE: Vessel repair; Supplemental petition (Protest); U.S.-origin materials; Entry No. C10-4903681-2, arrival on April 5, 1987; Vessel S.S. ST. EMILION, V-67

Dear Sir:

Reference is made to your memorandum of May 16, 1990, which forwarded for our consideration the submission from B.A. McKenzie and Co., Inc., agents for the vessel ST. EMILION, concerning the above-captioned entry.

FACTS:

Agents for the vessel ST. EMILION submitted an appeal from earlier decisions of the Customs Service regarding the vessel repair entry under consideration (cases 109996 and 110330). The April 19, 1990, submission is denominated a "Supplemental Review Petition" and is submitted as a post-liquidation appeal as provided under section 4.14(d)(2)(iii), Customs Regulations (19 CFR 4.14(d)(2)(iii)). The decision directly being appealed (110330), found to be dutiable several items which are claimed to be of United States origin.

ISSUE:

The duty status under 19 U.S.C. 1466 of U.S.-origin parts and materials which are installed in foreign shipyards.

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.

Customs administration of duty assessment issues under section 1466 regarding U.S.-made materials purchased in the U.S. had for some time been guided by the terms of Treasury Decision 75-257 (T.D. 75-257). That decision provides that when materials of U.S. manufacture are purchased by the vessel owner in the U.S. for installation abroad by foreign labor, the labor cost alone is subject to duty under section 1466. When those same materials are purchased by the owner overseas or purchased in the U.S. by parties other than the owner, the cost of the materials themselves (even though of U.S.-manufacture) was also subject to vessel repair duty.

The climate with regard to spare parts shipped abroad from the United States for foreign installation was transformed on August 20, 1990, when the President signed Public Law 101-382 which added a new subsection (h) to section 1466. While this provision 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. If an article is claimed to have been previously entered for consumption, duty paid by the vessel owner, 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 by other than the owner of the vessel and purchased from that party in the U.S., there must be presented a bill of sale executed in the United States. Further, with regard to imported articles, there must be presented a certification from the owner or master that the vessel at issue is a cargo vessel and that the imported articles were purchased for installation aboard the company's vessels.

If the elements stated above are proven to the satisfaction of Customs, only 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. Modifications will of course continue to be treated as duty-free, both materials and labor.

We find that the claims of U.S. origin materials made in this case are substantiated by the presence of U.S.-executed invoices. Of course, this result is only possible since the passage of the new legislation cited above, and only became effective as of August 20, 1990.

HOLDING:

The materials in dispute are considered duty-free since proven to be of U.S. origin, and accompanied by U.S.-executed documentation. Labor costs are, of course, dutiable.

Sincerely,

B. James Fritz
Chief

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