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HQ 113700

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March 26, 1998

VES-13-18-RR:IT:EC 113700 CC

CATEGORY: CARRIER

Chief, Vessel Repair Liquidation Unit
U.S. Customs Service
423 Canal St.
New Orleans, LA 70130

RE: Protest No. 2002-96-101054; Vessel Repair Entry No. C20-0040508-7; S/S ELIZABETH LYKES; V-121; 19 U.S.C. ?

Dear Sir:

This is in response to your memorandum of July 11, 1996, forwarding a protest with respect to the above-referenced vessel repair entry.

FACTS:

The ELIZABETH LYKES is a U.S.-flag vessel owned and operated by Lykes Brothers Steamship Company. Subsequent to the completion of various foreign shipyard work, the vessel arrived at New Orleans, Louisiana on February 6, 1995. A vessel repair entry was filed on February 7, 1995.

An application for relief was timely filed. By a letter dated January 10, 1996, from your office, the application was granted in part and denied in part. The subject entry was liquidated on February 2, 1996. A protest was timely filed by Lykes Brothers Steamship Company on March 29, 1996.

The protestant protests your decision to deny relief for three items: 3b, 3c, and 4. Item 3b is a 3CM radar. Item 3c is the U.S. labor costs for installation of the 3CM radar. Item 4 is the U.S. labor costs for work on a 10CM radar.

You denied relief for Item 3b because it is equipment and thus not eligible for duty-free treatment under 19 U.S.C. ? 1466(h)(2). You denied relief for the U.S. labor costs for items 3c and 4 because the installed parts and materials were not U.S.-manufactured.

The protestant claims that Item 3b should not be dutiable pursuant to 19 U.S.C. ? 1466(h)(2) because U.S. parts and materials were used, and the foreign parts and materials of this item were duty-paid. For Item 3c the protestant claims that U.S. labor costs should be duty-free since U.S. parts and materials were used. For Item 4 the protestant claims that U.S. labor should be duty-free when used in conjunction with foreign duty-paid parts or materials, pursuant to 19 U.S.C. ? 1466(h)(2).

ISSUE:

Whether the subject items are dutiable pursuant to 19 U.S.C.

LAW AND ANALYSIS:

19 U.S.C. ? 1466(a) provides, in part, for payment of an ad valorem duty of 50 percent of 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.

19 U.S.C. ? 1466(h)(2) provides that duty imposed by subsection (a) [19 U.S.C. ? 1466(a)] shall not apply to the following:

[T]he 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 plain language of 19 U.S.C. ? 1466(h)(2) states that it applies only to spare parts or materials; 19 U.S.C. ? 1466(h)(2) does not allow for duty-free treatment of equipment. For Item 3b relief was denied because the 3CM radar was determined to be equipment, since the relevant documentation showed that this item consisted of a complete radar unit which was imported. We have reviewed the relevant documentation and agree that Item 3b consisted of a complete radar unit. In similar rulings we have found that a new radar system that is installed is considered vessel equipment, rather than parts or materials. See Headquarters Ruling (HQ) 113798, dated January 9, 1997 and HQ 114092, dated September 12, 1997 for a complete discussion of a radar system being considered vessel equipment. Consequently, we find that Item 3b is vessel equipment, and, thus, is not eligible for duty-free treatment pursuant to 19 U.S.C. ? 1466(h)(2).

Also, 19 U.S.C. ? 1466(h)(2) does not allow for duty-free treatment of U.S. labor. See, e.g., HQ 111692, dated December 17, 1991, and HQ 111789, dated January 29, 1992. Consequently, the subject U.S. labor costs for items 3c and 4 would not be eligible for duty-free treatment pursuant to 19 U.S.C. ?

19 U.S.C. ? 1466 also provides, in pertinent part, the following:

(d) If an 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....

19 CFR ? 4.14(c)(3) states that remission or refund of duty is authorized if good and sufficient evidence shows:

(ii) United States parts and equipment installed with American labor. The equipment, equipment parts, repair parts or materials used on the vessel were manufactured or produced in the United States and purchased by the owner of the vessel in the United States, and the labor necessary to install such equipment or to make such repairs was performed by residents of the United States or by members of the regular crew of the vessel.

The U.S. labor costs for Item 3c are not eligible for a remission or refund of duty pursuant to 19 U.S.C. ? 1466(d)(2) and 19 CFR ? 4.14(c)(3)(ii), because the equipment installed, the imported 3CM radar, is foreign-made.

HOLDING:

The subject items are dutiable pursuant to 19 U.S.C. ? 1466. Accordingly, the protest is denied.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch

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