HQ 0112728 - Vessel Repair; Petition for Review; Spare Parts; U.S. Labor Vessel Repair Entry No. C15-0012648-2 - United States International Trade Commision Rulings

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HQ 112728

October 8, 1993

VES-13-18-CO:R:IT:C 112728 DEC

CATEGORY: CARRIER

Regional Director
Commercial Operations Division
ATTN: Vessel Repair Liquidation Unit
New Orleans, Louisiana 70130

RE: Vessel Repair; Petition for Review; Spare Parts; U.S. Labor Vessel Repair Entry No. C15-0012648-2
Date of Arrival: October 30, 1991
Port of Arrival: Sunny Point, North Carolina Vessel: S/S ROVER V-74

Dear Sir:

This ruling is in response to your memorandum dated May 6, 1993, which forwards for our consideration a petition for review filed in connection with the assessment of vessel repair duties on the above-referenced vessel.

FACTS:

The S/S ROVER, an American-flag vessel owned by Central Gulf Lines, Inc. underwent foreign shipyard repairs during September and October, 1991. An American labor team sent from the United States carried out many of the repairs. Subsequently, the vessel arrived in the United States on October 30, 1991. A timely vessel repair entry was filed on November 5, 1991.

Headquarters Ruling 112069, dated May 21, 1992, addressed the vessel operator's application for relief from vessel repair duties. On April 29, 1993, the vessel operator timely filed a petition challenging the dutiability of items 10, 11, 27, 28, and 29 as they appear in the submitted materials.

ISSUE:

Whether the work performed upon the subject vessel is subject to duty pursuant to 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.

According to 19 U.S.C. 1466(d)(2) and implementing regulations, remission or refund of duties is authorized if good and sufficient evidence is furnished showing that the equipment, equipment parts, repair parts or materials used on the vessel were manufactured or produced in the United States and purchased by the vessel owner in the United States, and the labor necessary to install such equipment or to make such repairs was performed by U.S. residents or by the vessel's regular crew members.

With the enactment of 19 U.S.C. 1466(h) (this statute which recently expired on December 31, 1992, was in effect on the date the subject vessel made entry), the duty climate relative to parts and materials was altered. Under subsection (h), materials and parts were considered as a separate component of a shipyard bill entitled to duty-free consideration, regardless of the character of the operation in which they were utilized, so long as they had been previously imported into the United States with appropriate consumption entry duties having been paid. Other than crew labor under subsection (a) of the statute, this was the first time that qualified labor was not required in order that the cost of materials in an installation be accorded duty-free status.

Since section 1466(h) applied by its terms only to foreign- made imported parts, Customs found 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 19 U.S.C. 1466(d)(2) with the assessment provisions of subsection (a) of 1466 would obligate operators to pay duty on such materials unless they were installed by crew or resident labor.

Even though 1466(h) is not currently in effect, Customs has come to recognize that a dichotomy exists in analyzing the dutiability of materials and labor under 19 U.S.C. 1466(d)(2). Section 1466(d) states that:

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 . . . (emphasis added).

19 U.S.C. 1466(d)(1993).

While a literal reading of the statute appears to require that materials used in repairs to be of U.S.-origin and that the installation be performed by U.S.-resident labor or by members of the vessel's regular crew, it is Customs position that such a reading serves to frustrate the intent of the vessel repair statute. In United States v. Gissel, the court stated the following regarding the legislative history of the modern day vessel repair statute.

The Tariff Act of 1930 included within its formal title the following purpose: "An Act to provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes." 46 Stat. 590 (1930). This statute provides for the imposition and collection of customs duties upon entry of various foreign merchandise into the United States. Since foreign repair parts on vessels were generally thought of and classified as dutiable merchandise and since it was Congressional policy to encourage the obtaining of American flag vessel repairs in American shipyards, such repairs were expressly included as dutiable merchandise within a provision of the Tariff Act.

United States v. Gissel, 353 F. Supp. 768, 772 (S.D. Tex. 1973), aff'd, 493 F.2d 27 (5th Cir. 1974).

It is apparent that the objective of the vessel repair statute was not only to "encourage" the U.S. shipbuilding industry, but to "protect American labor" as well. Consequently, while section 1466(d)(2) contains a requirement regarding the origin of parts and labor, it is Customs position that the word "and" in the context of this particular statutory provision is not conjunctive.

Running through all the decisions involving issues similar to the one at bar there is found the well- settled principle that courts may construe the words "and" and "or" to have a meaning different from that arrived at by a strict grammatical construction, if by so doing the different provisions of the paragraph or act can be harmonized, and anomalous results avoided. Of course, in considering language used in a tariff act, there need be no construction if there exists no ambiguity, but if anomalous results flow from the language when given its ordinary grammatical meaning, and if such construction throws different parts of the paragraph or act out of harmony, its use unquestionably has produced ambiguity and uncertainty to the extent and degree which makes applicable the rule that courts may
ignore the technical grammatical meaning and ascertain the real intent of the legislature.

Doughten Seed Co. v. United States, T.D. 48686 (1936).

In Mount Washington Tanker, Co. v. United States, the United States Court of Customs and Patent Appeals addressed the issue of whether repairs performed by foreign labor who signed on as crew in a foreign port and completed their work while the vessel was in international waters was subject to duty. In finding these operations dutiable, the court approved of the trial court's analysis that the legislative purpose of the vessel repair statute would be frustrated if the vessel operator elected to forego U.S. labor to have repairs performed by foreign workers hired as special crew and these costs were deemed non-dutiable. Essentially, the court found that the vessel operator used "foreign labor to the detriment of the U.S. workers that Congress sought to protect." Mount Washington Tanker, Co. v. United States, 69 C.C.P.A 23, 28- 29, 665 F.2d 340, 345 (1981).

Analogously, it is Customs position that the cost of U.S.- resident labor is not subject to duty under 19 U.S.C. 1466 when no equipments, parts, or materials are used in conjunction with the expertise of U.S. labor. To do so would frustrate the intent of the vessel repair statute. Consequently, duty with respect to items 27, 28, and 29, which were deemed dutiable based on a strict reading of the 19 U.S.C. 1466(d)(2), are not subject to duty. Headquarters Ruling 112069 (May 21,1992) is, therefore, modified to reflect the statutory interpretation outlined above.

While Items 10 and 11 referred to equipment allegedly purchased in the United States and shipped foreign for use in repairs conducted overseas by U.S.-resident labor, these items were initially deemed dutiable at the application stage because the applicant failed to produce a U.S. bill of sale or other evidence indicating the equipment's origin. Since the petitioner has now produced a U.S. bill of sale with respect to Item 10, duty with respect to this item may be remitted.

Item 11, however, remains dutiable. The petitioner claims that the shipment of spare parts represented by this item was incomplete. Furthermore, the petitioner refers to the alleged fact that the entry indicates that the spares were not shipped nor were they received. Review of Item 11 and the entry on file with Customs does not reveal this statement. Unless and until the petitioner can produce authenticated evidence that the spares were not shipped, this item shall remain dutiable.

HOLDING:

After a thorough review of the record and the additional evidence presented, the petition for relief is granted in part and
denied in part as detailed in the Law and Analysis portion of this ruling. The petitioner should be informed of the right to file a protest following liquidation of this entry, as evidenced by the posting of the bulletin notice of liquidation.

Sincerely,

Stuart P. Seidel

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