HQ 0111065 - Vessel repair; Petition for review; U.S.-made parts and materials; Vessel repair entry no. C31-0005009-6; Vessel MOBIL ARCTIC - United States International Trade Commision Rulings

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HQ 111065
February 4, 1991

VES-13-18-CO:R:IT:C 111065 LLB

CATEGORY: CARRIER

Chief, Technical Branch
Commercial Operations
Pacific Region
One World Trade Center
Long Beach, California 90731

RE: Vessel repair; Petition for review; U.S.-made parts and materials; Vessel repair entry no. C31-0005009-6; Vessel MOBIL ARCTIC

Dear Sir:

Reference is made to your memorandum of May 21, 1990, which forwards for our consideration the Petition for Review submitted by counsel on behalf of Mobil Oil Corporation in regard to the above-captioned vessel repair entry. The submission appeals the Customs Headquarters opinion rendered on December 26, 1989, concerning an Application for Relief from vessel repair duties (Ruling Letter 110566).

FACTS:

The MOBIL ARCTIC is a U.S.-flag vessel owned by Mobil Oil Corporation ("Mobil") of New York, N.Y. The subject vessel had shipyard work performed on her by Sembawang Shipyard in Singapore during the period of July 21, 1988, through August 30, 1988. Subsequent to the completion of this work the subject vessel arrived in the United States at Valdez, Alaska on September 17, 1988.

A vessel repair entry was filed on the date of arrival. By letter dated October 26, 1988, counsel for Mobil requested an extension of time to submit further cost evidence and an application for relief. In a letter from the Chief, Liquidation Branch, dated November 1, 1988, an extension was granted until December 16, 1988. An application dated December 15, 1988, was subsequently submitted with cost evidence of the work completed.

ISSUE:

Whether the work performed on the subject vessel for which the applicant seeks relief 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 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 engage in such trade.

In the previous ruling it was proven to the satisfaction of the Customs Service that the items covered by all nine of the invoices presently under consideration were manufactured and purchased in the United States. Relief was denied for these items because they were installed with the use of foreign labor.

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 or domestic invoice. If an article is claimed to have been 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 from third parties in the United States, a domestic bill of sale to the vessel operator must be presented. 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, 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. Modifications will of course continue to be treated as duty-free, both materials and labor.

Given the amendments to the vessel repair statute during the pendency of this matter, and the taking into consideration the extension of the benefits of the new law to U.S.-made materials by the Customs Service, we have determined that this Petition for Review should be granted.

HOLDING:

Following a thorough review of the facts as presented as well as an analysis of the applicable law and precedents, we have determined to grant the Petition for Review submitted in this matter in its entirety.

Sincerely,

B. James Fritz

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