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HQ 114077

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September 17, 1997

VES-13-18-RR:IT:EC 114077 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415 P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. 110-7994475-4; PRESIDENT KENNEDY, V-89-E; 19 U.S.C. 1466; Petition

Dear Madam:

This is in response to your memorandum of August 15, 1997, which forwarded the petition submitted on behalf of American President Lines, Ltd. ("petitioner") with respect to the above-referenced vessel repair entry.

FACTS:

The evidence of record indicates the following. The PRESIDENT KENNEDY ("vessel"), a U.S.-flag vessel owned and operated by the petitioner arrived at the port of Seattle, Washington on March 8, 1997. The subject vessel repair entry was timely filed. The vessel underwent certain foreign shipyard work in Korea, Taiwan, and Japan in February of 1997.

In Ruling 114000 dated July 16, 1997, which contained our determinations on the application for relief with respect to the above-referenced entry, we found certain items dutiable and certain items nondutiable.

ISSUE:

Whether the costs of the subject items are dutiable pursuant to 19 U.S.C. 1466(a).

LAW AND ANALYSIS:

19 U.S.C. 1466 provides for the payment of duty at a rate 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 be employed in such trade.

The subject entry is a "post-Texaco" entry, i.e., an entry filed after the appellate decision in Texaco Marine Services, Inc., and Texaco Refining and Marketing, Inc. v. United States, 44 F.3d 1539 (CAFC 1994), aff'g 815 F.Supp. 1484 (CIT 1993). Accordingly, the Texaco decision applies to this entry. Our position with respect to post-Texaco entries has been stated in detail in many rulings, as well as in Memorandum 113350 dated March 3, 1995, published in the Customs Bulletin and Decisions on April 5, 1995 (Vol. 29, No. 14, p. 24).

Items For Which Relief Is Requested

General Services Items - As we have stated in many rulings, including Ruling 113474 dated October 24, 1995 where our position was first stated, general services items on post-Texaco entries are to be prorated between dutiable and nondutiable costs.

Items 301-306 - Painting, High Pressure Washing, Grit Blasting, etc. The petitioner has submitted additional documentation in support of its claim that these items are nondutiable because they were resultant from previous ineffective painting/repairs. Such documentation includes the following: a letter of February 6, 1996 from the port engineer to the foreign shipyard; a "Report on Observations of Underwater Hull Painting Condition ..." from Marine Design and Operations, Inc.; a "Report on Cold Flow Problems Associated with Self Polishing Copolymer on the Ship Bottom" by a professional engineering firm; a memorandum of April 21, 1996 with respect to the performance of the vessel; a memorandum of January 20, 1996 with respect to the paint procedures used during the 1996 painting; and a memorandum of July 31, 1997 from the petitioner's port engineer to its fleet manager with respect to the paint failure. This documentation satisfactorily evidences the paint failure and the ineffectiveness of the 1996 repairs. The documentation submitted by the petitioner also satisfactorily explains the time period between the 1996 repairs and the repairs at issue in this entry.
Accordingly, we find that items 301-306 are nondutiable because the earlier repairs were completely ineffective.

Item 206 - Prefabricated Steel. The petitioner states: "We believe that both 19 U.S.C. 1466(h)(2) and (h)(3) apply in this case and make the parts made from prefabricated steel involved non-dutiable."
We disagree and we find that this cost is dutiable under 19 U.S.C. 1466(a).

It is our position, as stated in Ruling 113673 dated July 7, 1997, that 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. The petitioner has not established this.
19 U.S.C. 1466(h)(3) applies to "spare parts ..." It does not apply to materials. We have held previously that prefabricated steel is a material and is not within the scope of 19 U.S.C. 1466(h)(3). See, for example, Ruling 113883 dated April 1, 1997, Ruling 113673 dated July 7, 1997, and Ruling 113938 dated August 22, 1997. Accordingly, this item is not eligible for treatment under 19 U.S.C. 1466(h)(2) or (h)(3). It is dutiable under 19 U.S.C. 1466(a).

CF 226 Item 2 - Hull Paint Inspection. We find that this item is nondutiable because it is an item incident to the nondutiable painting, above.

CF 226 Item 8 - Photographic Services. We find that this item is nondutiable because it is an item incident to the nondutiable painting, above.

CF 226 Item 9 - Marine Design & Operations, Inc. Consulting Services. We find that this item is nondutiable because it is an item incident to the nondutiable painting, above.

CF 226 Item 10 - Paint. We find that this item is nondutiable because it is an item incident to the nondutiable painting, above.

CF 226 Item 11 - Paint. We find that this item is nondutiable because it is an item incident to the nondutiable painting, above.

HOLDING:

As detailed above, the petition is granted in part and denied in part.

Sincerely,

Director,
International Trade Compliance

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