HQ 113813 - Vessel Repair Entry No. 514-3005503-1; S.S. THOMPSON LYKES; Israeli labor; U.S. parts/materials; 19 U.S.C. ? - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1998 HQ Rulings > HQ 003906 - HQ 114067 > HQ 113813

Previous Ruling Next Ruling
HQ 113813

October 15, 1998

VES-13-18-RR:IT:EC 113813 GEV

CATEGORY: CARRIER

Chief, Residual Liquidation and Protest Branch U.S. Customs Service
6 World Trade Center
New York, New York 10048-0945

RE: Vessel Repair Entry No. 514-3005503-1; S.S. THOMPSON LYKES; Israeli labor; U.S. parts/materials; 19 U.S.C. ?

Dear Sir:

This is in response to your memorandum dated January 10, 1997, which forwards for our review and consideration an application for relief from the assessment of vessel repair duties pursuant to 19 U.S.C. ? 1466. Our findings are set forth below.

FACTS:

The S.S. THOMPSON LYKES is a U.S.-flag vessel operated by Lykes Bros. Steamship co., Inc. Subsequent to the completion of shipyard work in Israel, the vessel arrived at Port Elizabeth, N.J., on September 13, 1996. A vessel repair entry was timely filed.

Pursuant to an authorized extension of time, an application for relief with supporting documentation was timely filed. The applicant seeks relief for Item Nos. 1 through 12-A. With respect to Item Nos. 1-4, the applicant seeks relief pursuant to the United States-Israel Free Trade Area Implementation Act of 1985. As for Item Nos. 5 through 12-A, the applicant's basis for relief is that the articles under consideration are of U.S. origin and/or manufacture.

ISSUE:

1. Whether evidence is presented sufficient to justify the duty-free treatment of costs incurred in Israel pursuant to the United States-Israel Free Trade Area Implementation Act of 1985, as partially implemented by Presidential Proclamation 5924 of December 21, 1988.

2. Whether evidence is presented sufficient to justify duty-free treatment under 19 U.S.C. ? 1466 for the costs of those articles for which the applicant alleges are of U.S.-origin and/or manufacture.

LAW AND ANALYSIS:

Title 19, United States Code, ? 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.

In regard to the Israeli labor charges for which the applicant seeks relief, it is noted that 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 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 record we note that the invoices from Israel Shipyards Ltd. and the American Bureau of Shipping provide a sufficient breakdown of the costs of Israeli labor and articles which were made in Israel. Accordingly, those costs for which the applicant seeks relief that are covered by Item Nos. 1-4 are exempt from duty pursuant to Proclamation 5924.

In regard to the applicant's claim for relief for Item Nos. 5 through 12-A based on U.S. origin and/or manufacture, we note that 19 U.S.C. ? 1466(h)(3) provides as follows:

The duty imposed by section (a) of this section shall not apply to-
...
(3) the cost of spare parts necessarily installed before the first entry into the United States, but only if duty is paid under appropriate commodity classifications of the Harmonized Tariff Schedules of the United States upon first entry into the United States of each such spare part purchased in, or imported from, a foreign country. (Emphasis added)

For the purpose of 19 U.S.C. ? 1466(h), we have defined a "part" as follows:

A part is determined to be something which does not lose its essential character or its identity as a distinct entity but which, like materials, is incorporated into a larger whole. It would be possible to disassemble an apparatus and still be able to identify a part. The term part does not
mean part of a vessel, which practically speaking would encompass all elements necessary for a vessel to operate in its designated trade.
Examples of parts as defined are seen in such items as piston rings and pre-formed gaskets, as opposed to gaskets which are cut at the work site from gasket material.

Upon reviewing the application and supporting documentation, we note that the remainder of the items for our consideration fall within the duty-free exemption of 19 U.S.C. ? 1466(h)(3) with the exception of Item Nos. 5, 5-A, 6-B and 11. Item Nos. 6-B and 11 cover U.S. prepaid freight/shipping costs for non-dutiable parts and are therefore nondutiable.

Item Nos. 5 and 5-A cover paint/coatings. With respect to these costs it should be noted that ? 1466(h)(3) is a claim for relief which is available only to parts, not materials such as paint. Relief is available for paint under ? 1466(h)(2), provided the requisite criteria are met. That statutory provision is set forth below:

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 clas- sifications 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, or

19 U.S.C. ? 1466(h)(2) contemplates entry of the pertinent part or material, and the payment of duty under the appropriate commodity classification of the HTSUS, prior to the use of the pertinent part or material in the foreign shipyard. In regard to Item Nos. 5 and 5-A, we note that while ? 1466(h)(2) applies by its terms only to foreign-made imported parts or materials, there was ample reason to extend its effect to U.S.-made parts or materials as well. To fail to do so would act to discourage the use of U.S.-made parts or materials in effecting foreign repairs since continued linkage of remission provisions of subsection 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. Consequently, Customs so extended the duty-free treatment of subsection (h) to U.S.-manufactured parts or materials (See, e.g., Customs ruling letter 110980, dated April 16, 1991) In this regard, we note that the applicant has submitted documentation sufficient to prove that the paint/coatings covered by Item Nos. 5 and 5-A were manufactured in the United States. Accordingly, the applicant's claim for relief for these items is granted.

HOLDING:

1. Evidence is presented sufficient to justify the duty-free treatment of costs incurred in Israel pursuant to the United States-Israel Free Trade Area Implementation Act of 1985, as partially implemented by Presidential Proclamation 5924 of December 21, 1988.

2. Evidence is presented sufficient to justify duty-free treatment under 19 U.S.C. ? 1466 for the costs of those articles for which the applicant alleges are of U.S.-origin and/or manufacture.

Sincerely,

Jerry Laderberg
Chief

Previous Ruling Next Ruling