HQ 0112389 - Vessel Repair; Application for Relief; 19 U.S.C. 1466(h); Israel Repairs; U.S. Origin Materials; ABS Surveys; Vessel Repair Entry No. C53-0012183-3; M/V OMI SACRAMENTO - United States International Trade Commision Rulings

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HQ 112389

October 13, 1992

VES-13-18-CO:R:IT:C 112389 MLR

CATEGORY: CARRIER

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

RE: Vessel Repair; Application for Relief; 19 U.S.C. 1466(h); Israel Repairs; U.S. Origin Materials; ABS Surveys; Vessel Repair Entry No. C53-0012183-3; M/V OMI SACRAMENTO

Dear Sir:

This is in response to your memorandum of June 29, 1992, regarding the petition for review submitted by OMI Bulk Management Company.

FACTS:

The record reflects that the subject vessel, the M/V OMI SACRAMENTO, arrived at Houston, Texas, on December 20, 1991. Vessel repair entry number C53-0012183-3 was filed December 26, 1991, indicating work performed on the vessel in Haifa, Israel. Evidently, two applications for relief were submitted, one untimely filed on February 21, 1992, in New Orleans, Louisiana, and another timely filed by OMI's agent, Moran-Gulf Shipping, on February 18, 1992, in Houston, Texas. A petition for review was filed April 29, 1992. Since the application for relief was timely filed in Houston and was never considered on the merits, the petition for review will be treated as an application for relief and any further requests for relief from the assessment of vessel repair duties should be filed in the form of a petition for review.

Relief is sought for all items listed in Israel Shipyard Ltd. invoice 14877, except on those costs detailed in some of the items for materials taken from the vessel's spares. The applicant states that the records showing the origin of the materials are not available, except for the materials used in item 41. Relief is also sought on the American Bureau of Shipping (ABS) surveys performed. Relief is not sought for Triton Marine Service invoice E091/91, and International Paint Co. invoice 848038.

ISSUE:

Whether the claim for relief can be justified under the terms of the United States-Israel Free Trade Area Implementation Act of 1985, as partially implemented by Presidential Proclamation 5924 of December 21, 1988, or otherwise allowed.

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 foreign or coastwise trade, or vessels intended to engage in such trade.

ISRAEL SHIPYARDS INVOICE 14877
ITEM 9 TAILSHAFT & PROPELLER

The invoice indicates that as part of the tailshaft and propeller maintenance work, new seals were installed. The applicant states that the stern tube seals used on the OMI SACRAMENTO were supplied by Eagle Industry Co., Ltd. of Tokyo, Japan, at no cost to replace a set that failed on the OMI MISSOURI. Enclosed in the record is a facsimile message from OMI Corporation (hereinafter OMI) to Eagle Industry stating that the replacement stern tube seals had not been received, and a facsimile message from Eagle Industry to OMI stating that the spare parts will be delivered. There is no other evidence, except a statement by OMI, to prove the stern tube seals were provided at no cost. Therefore, absent further evidence, the value of the stern tube seals installed on the vessel should be determined and duty thereon assessed.

ISRAEL SHIPYARDS INVOICE 14877
Item No. Description Installation Cost

11 Hatch Cover Wheel $300
12 M/E Turbocharger spares 4,000
25(A14) 150 mm Gate Valve 490
26(#2) M/E Bottom End Bearing 1,000
33 Hatch Cover Piston Seal 2,200
35 Grab Hyd. Cyl. Oil Seal 4,500
46 Piston Crown, etc. 3,350
54 Port Aux. Turbocharger 1,500
65 Lifeboat Steel Wire 750
67 M/E Piston Crown, etc. 7,500
69 Pt. Aux. Engine Exh. Valve 1,100

The applicant states that these materials were taken from the vessel's spares.

On August 20, 1990, the President signed into law Pub. L. 101-382, section 484E of which amends section 466, Tariff Act of 1930, as amended (19 U.S.C. 1466), by adding a new paragraph (h) to the statute {19 U.S.C. 1466(h)}.

The new section provides in part that:

(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.

While section 1466(h) 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 section 1466(d)(2) with the assessment provisions of section 1466(a) would obligate operators to pay duty on such materials unless they were installed by crew or U.S. 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 a foreign manufactured 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 in the United States from a party unrelated to the vessel operator, a domestic bill of sale to the vessel operator must be presented.

Further, with regard to imported articles, there must be presented a certification on the CF 226 or an accompanying document by a person with direct knowledge of the fact that an article was imported or purchased for the purpose of either then- existing or intended future installation on a company vessel. Ordinarily, the vessel's master would not have direct knowledge of that fact, and an agent may also be without such knowledge. The second certification required by 19 U.S.C. 1466(h)(2) as to the vessel's documentation (foreign or coasting trades) and service (cargo vessel), will be made by the master on the vessel repair entry (CF 226) at the time of arrival.

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.

Returning to the materials taken from the vessel's spares, the records showing their origin are not available; accordingly, the applicant acknowledges that duty on these materials is payable, and we agree. The installation operations, if performed by Israeli labor, are not subject to duty.

ISRAEL SHIPYARDS INVOICE 14877
ITEM 41 HEAT EXCHANGER

The applicant states that the heat exchanger was furnished from the vessel's spares and an invoice from Advanced Fluid Power, a company in the United States, is presented to prove its origin. This invoice presented meets the requisite requirements of 19 U.S.C. 1466(h); consequently, this item is non-dutiable.

ISRAEL SHIPYARDS INVOICE 14877
ALL OTHER COSTS

Next, we consider the applicant's request for relief on all other costs, not discussed above, listed on the Israel Shipyards Ltd. invoice. On December 21, 1988, the President issued Proclamation number 5924 under authority of section 4(a) of the United States-Israel Free Trade Area Implementation Act of 1985, which Proclamation provides that vessel repair duties shall not be assessed on the cost of parts, equipment or materials for, or repairs to U.S. vessels if the subject expenditures are for products of Israel or work done in Israel. Customs interprets this to mean that articles must be made in and installed on vessels in Israel. Articles imported into Israel from elsewhere do not qualify for the automatic duty exemption.

Upon reviewing the Israel Shipyards Ltd. invoice, it sufficiently segregates the costs of Israeli labor and Israeli materials from the costs of materials taken from the vessel's spares. Accordingly, all items listed on the Israel Shipyards Ltd. invoice are non-dutiable pursuant to Proclamation 5924, unless determined to the contrary in the LAW AND ANALYSIS portion of this ruling.

ISRAEL SHIPYARDS INVOICE 14877
ITEM H.1 CLEANING & PAINTING

This items indicates that the top side, upper sides, and bottom of the vessel were washed, sandblasted, rinsed and painted. The draft marks, and ship's name were also repainted. The applicant states that the hull paint was imported from Greece (see International Paint Co. invoice 848038, dated 18 November 1991) and that this voids the exemption for the cost of painting the hull. We agree with the applicant that the use of non- Israeli or non-U.S. materials renders those costs dutiable; however, if the applicant can establish that the costs for washing, sandblasting, and rinsing strictly represent Israeli labor charges, these costs would be non-dutiable under the Presidential Proclamation; otherwise, this item is dutiable.

AMERICAN BUREAU OF SHIPPING SURVEYS

The applicant seeks relief for various ABS surveys conducted. By Presidential Proclamation the United States has exempted from duty, repairs made in Israel upon U.S.-documented vessels. Therefore, by analogy, if there is no duty on Israeli repairs, then the survey, as an integral part of that repair and if performed by Israeli labor, is non-dutiable. In the alternative, a survey may be non-dutiable if it is a required survey done to meet the specific requirements of a governmental entity, classification society, or insurance carrier. C.S.D. 79-277.

After a thorough review of the ABS survey report, some of the surveys relate to repair work detailed in the Israel Shipyard Ltd. invoice, and some of the surveys were conducted to fulfill ABS requirements. The repairs, as discussed above, involved a non-dutiable aspect in that they were performed by Israeli labor, and a dutiable aspect in that dutiable non-Israeli or non-U.S. materials were used; however, the non-dutiable costs are properly segregated from the dutiable costs. Normally surveys that examine the effectiveness of repairs are considered dutiable. In this instance, however, since the surveys are related to repair costs that fall within Proclamation 5924 and they were performed by Israeli labor, the surveys are non-dutiable; consequently, we do not address whether the surveys were required.

HOLDING:

The application for relief is denied and granted in part as detailed in the LAW AND ANALYSIS portion of this ruling.

Sincerely,

B. James Fritz

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