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HQ 111534


February 10, 1992

VES-13-18-CO:R:IT:C 111534 LLB

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341

RE: Vessel Repair; Petition for Review; S/S CHELSEA; Vessel repair entry number C17-0001395-1

Dear Madam:

Reference is made to your memorandum of February 21, 1991, which forwarded for our consideration the Petition for Review filed by the vessel operator in connection with the partial denial of an Application for Relief from vessel repair duties regarding the above-captioned entry.

FACTS:

An Application for Relief filed in connection with the above-captioned vessel repair entry was denied except for classifiably free items, due to the insufficiency of documentation submitted.

The present Petition for Review provides detail concerning problems experienced with the vessel's boilers both in and while travelling between, various United States ports prior to the commencement of a foreign voyage. Finally, at the port of Guayanilla, Puerto Rico, the main condenser was opened and six tubes which were found to be leaking were plugged-up. The main condenser was closed, and it was noticed that the water level in the starboard boiler was much lower than that in the port side boiler. A boiler tube leak was suspected. The starboard boiler was entered and the failure of two superheater tubes was noted. No repairs were made at that time, although saw dust was injected into the main condenser in an attempt to lower chloride levels. It is stated that the chloride levels were then considered acceptable to permit the vessel, "...to sail under emergency conditions." It is reported that the vessel then proceeded to Curacao, Netherlands Antilles, which had, "...the nearest available repair facility while also taking into consideration the repair facility with the least amount of deviation from our intended destination port of Buenos Aires."

ISSUE:

Whether, under the facts as stated, refund or remission of vessel repair duties is warranted.

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.

On August 20, 1990, the President signed into law the Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of which amends the vessel repair statute by adding a new subsection (h). Subsection (h) has two elements, which are as follows:

(h) The duty imposed by subsection (a) of this section shall not apply to--

(1) the cost of any equipment, or any part of equipment, purchased for, or the repair parts or materials to be used, or the expense of repairs made in a foreign country with respect to, LASH (Lighter Aboard Ship) barges documented under the laws of the United
States and utilized as cargo containers, or

(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 effective date of the amendment is stated as follows:

Effective Date.--The amendment made by this section shall apply 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.

Subsection (d)(2) of section 1466 provides that:

(d) If the owner or master of such vessel furnishes good and sufficient evidence that...

(2) 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...
then the Secretary of the Treasury is authorized to remit or refund such duties...

Customs has in the past linked this duty remission provision to the duty assessment provision in subsection (a) of the statute. We have held that a two-part test must be met in order for remission of duty to be granted: first, that the article must be of U.S. manufacture; and, second, it must be installed by U.S.-resident or regular vessel crew labor. The reason for this position is that (d)(2) refers to "such equipments or parts...", etc., without any logical association for the word "such" occurring in that subsection. We inferred that "such" articles must refer to those installed under subsection (a), absent any other reasonable predication. The new amendment puts this issue to rest by making it clear that as concerns foreign-made parts imported for consumption and then installed on U.S. vessels abroad, the labor required for their installation is separately dutiable. A part may now be considered exempt from vessel repair duty albeit the foreign labor cost is dutiable.

In all cases which meet the conditions imposed by the statutory amendment, uniform treatment will be accorded to parts sent from the United States for use in vessel repairs abroad. This will be so regardless of whether they are proven to have been produced in the U.S., or to have been imported and entered for consumption with duty paid. In both cases, the cost of the materials is duty exempt and only the cost of foreign labor necessary to install them is subject to duty. Crew member or U.S.-resident labor continues to be free of duty when warranted, in cases which qualify under the new law.

In this case, the vessel departed the United States (Puerto Rico) under emergency conditions, the operators being fully aware of deficiencies which required attention in a repair facility. Information provided by Customs officials in San Juan, Puerto Rico, establishes that a commercial ship repair facility with drydock is located at Pier 15 in San Juan. The presence of this facility establishes that resort to a foreign repair yard possibly was unnecessary. The fact that the yard in Curacao may have been preferable due to its proximity to the intended final destination of the vessel is not a relevant factor as commercial expediency is not a justification for selecting foreign repair facilities over domestic. (Customs Ruling Letter 110027 of September 29, 1989).

In reviewing the evidence, we note the presence of invoices detailing both labor and materials having been supplied from the United States. In regard to these invoices, we find that those from Dunlap Marine, Aalborg Ciserv, and CTI cover the provision of resident labor, and those from Trojan Tube, Ain Plastics and Aroy Manufacturing cover the cost of materials from the United States. As such, the costs reflected in these cited invoices are considered duty-free under the provisions of subsections (d)(2) and (h) of the vessel repair statute, as discussed above.

HOLDING:

After a thorough examination of the evidence and analysis of the law and relevant precedents, we have determined to allow in part and deny in part the Petition for Review in this matter as specified in the Law and Analysis portion of this ruling.

Sincerely,

B. James Fritz

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