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HQ 114119

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October 8, 1998

VES-13-18-RR:IT:EC 114119 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 107 P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. 110-7994465-5; 19 U.S.C. 1466(a) and (h)(3); PRESIDENT KENNEDY, V-87E; Protest

Dear Madam:

This is in response to your memorandum dated September 19, 1997, which forwarded the protest submitted by American President Lines, Inc. ("protestant") with respect to the above-referenced vessel repair entry.

FACTS:

The PRESIDENT KENNEDY (the "vessel"), a U.S.-flag vessel, arrived at the port of Seattle, Washington on December 27, 1996. The subject vessel repair entry was timely filed. The vessel underwent certain foreign shipyard work in November and December of 1996.

The protestant asserts that an item listed on the vessel repair entry should be eligible for treatment under 19 U.S.C. 1466(h)(3), rather than dutiable under 19 U.S.C. 1466(a).

ISSUE:

Whether the subject item is dutiable pursuant to 19 U.S.C. 1466(a) or is eligible for treatment under 19 U.S.C. 1466(h)(3).

LAW AND ANALYSIS:

19 U.S.C. 1466(a) 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.

19 U.S.C. 1466(h)(3) provides:

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.

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 designed 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. (Emphasis in original.)

In Ruling 113966 dated June 17, 1997 (the ruling on the petition with respect to the subject entry), we held that "[t]he expenses relating to the prefabrication of the trolley track ... are subject to vessel repair duty under 19 U.S.C. ?1466(a)."

The essence of that holding is that while a "part" may be eligible for treatment under 19 U.S.C. 1466(h)(3), such eligibility does not extend to a cost for labor (e.g., fabrication) where that labor is performed at the vessel or on the vessel. Stated otherwise, eligibility under 19 U.S.C. 1466(h)(3) does not accrue where the vessel owner or operator pays for labor performed on the vessel. See the definition of a "part," above, where we state that a part would be a pre-formed gasket, as opposed to a gasket which is cut at the work site from gasket material.

Accordingly, we determine that the subject item is eligible for treatment under 19 U.S.C. 1466(h)(3) if the protestant can provide the vessel repair liquidation unit with documentation (e.g., an invoice and a supporting statement) supporting the facts that the cost of the subject item reflects the purchase of the trolley track and does not reflect labor performed at the vessel or on the vessel.

HOLDING:

As stated above, the protest is granted and the subject item is eligible for treatment under 19 U.S.C. 1466(h)(3) if the protestant can provide the vessel repair liquidation unit with documentation (e.g., an invoice and a supporting statement) supporting the facts that the cost of the subject item reflects the purchase of the trolley track and does not reflect labor performed at the vessel or on the vessel.

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, the Freedom of Information Act and other public access channels.

Sincerely,

Jerry Laderberg
Chief,
Entry Procedures and Carriers
Branch

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