HQ 114467 - Vessel repair; Application for Relief; Vessel LIBERTY WAVE, V-41; Vessel repair entry number C20-0047053-7; Port of arrival, New Orleans, Louisiana, January 22, 1996; 19 U.S.C. 1466 - United States International Trade Commision Rulings

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HQ 114467

October 15, 1998

VES-13-18-RR:IT:EC 114467 LLB

CATEGORY: CARRIER

Customs Port Director
ATTN: Vessel Repair Liquidation Unit
423 Canal Street
New Orleans, Louisiana 70130-2341

RE: Vessel repair; Application for Relief; Vessel LIBERTY WAVE, V-41; Vessel repair entry number C20-0047053-7; Port of arrival, New Orleans, Louisiana, January 22, 1996; 19 U.S.C. 1466

Dear Sir:

Reference is made to your memorandum of August 28, 1998, which forwards for our consideration and appropriate action a vessel repair Application for Relief submitted by Liberty Maritime Corporation, in connection with the above-captioned matter. Your office has reviewed the entry and seeks advice regarding one invoice item. Our ruling follows.

FACTS:

The vessel LIBERTY WAVE arrived in the United States after having undergone foreign shipyard operations. The operator submitted an Application for Relief from the assessment of vessel repair duties covering numerous items. That submission was reviewed by the Vessel Repair Liquidation Unit in New Orleans, Louisiana. That unit forwarded an invoice from the entry which covers the cost of marine coatings and associated items contained in invoice number 431123 from a company known as Hempel, Houston, Texas. The invoice includes $63,383.25 in coatings and materials which were sold to the Applicant by Hempel and shipped from the United States. The submission seeks relief with respect to invoiced items which are claimed to be duty-free as either United States-manufactured and purchased or foreign-made with duty already paid.

ISSUE:

Whether duty under the vessel repair statute should be assessed on the cost of paints and other coating materials which were purchased in and sent to the vessel from the United States.

LAW AND ANALYSIS:

Title 19, United States Code, section 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.

Subsection (d)(2) of 19 U.S.C. 1466 provides that duty is to be remitted or refunded if the owner or master of a vessel provides evidence regarding vessel-related expenditures showing that:

...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 . . .

The Customs regulation which implements this subsection, 19 CFR 4.14(c)(3), specifies the same elements and, in addition, requires that the qualifying items must be purchased by the vessel owner in the United States.

The statutory and regulatory requirements concerning the use of United States-manufactured items in foreign vessel repair operations have been the subject of administrative interpretations. Prominent among these is Treasury Decision 75-257 (T.D. 75-257), which holds as follows:

The cost of labor used in a foreign shipyard to install materials of United States origin, even though the materials were purchased by the vessel owner in the United States, is also subject to duty under 19 U.S.C. 1466. However, the cost of materials of United
States origin which are purchased by the vessel owner in the United States is not subject to duty under 19 U.S.C. 1466, when installed on the vessel in a foreign country. (Emphasis added)

Thus, while it might be presumed from reading the statute alone that both the presence of qualified parts and qualified labor is required in order to invoke the benefits of subsection (d)(2), the terms of T.D. 75-257 establish that the cost of qualified parts may be considered for refund or remission even in the absence of the domestic labor element.

On August 20, 1990, the President signed into law the Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of which amended the vessel repair statute by adding a new subsection (h). Subsection (h) included two elements, the relevant one of which provides as follows:

(h) 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 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 amendment was made applicable to:
(1) any entry made before the date of enactment of this Act that is not liquidated on the date of enactment of this Act, and
(2) any entry made--
(A) on or after the date of enactment of this Act, and
(B) on or before December 31, 1992.

Section 112 (b) of Pub. L. 103-382, effective on January 1, 1995, amended the vessel repair statute by reenacting 19 U.S.C. 1466 (h)(1) and (2) which had expired and no longer existed as of January 1, 1993. The law also added for the first time a subsection (h)(3) which is not an element of this ruling.

As previously described, the Congress of the United States enacted and then reenacted section (h)(2) of the vessel repair statute. The plain wording of the statutory language exempts from vessel repair duty the cost of foreign-made parts and materials which are imported into this country with duty being paid under appropriate tariff provisions prior to their use in repairs to American vessels in foreign shipyards.

Practically speaking in terms of vessel repair duty considerations, in light of the cited Treasury Decision which separates the labor cost element from the cost to domestic goods purchased in and sent from the United States to be used in foreign shipyard operations, there exists little true distinction between goods which are manufactured here and those which are imported with duty having been paid. The only discernable difference is that for imported goods, the exemption from repair duty covers only spare parts and materials and does not extend to vessel equipment. As for the goods presently under consideration, they are considered to be materials which, since supported by invoices showing domestic sale, are free of vessel repair duty.

HOLDING:

Following a thorough review of the evidence presented as well as analysis of the law and relevant judicial and administrative precedents, we have determined that this Application for Relief should be granted as specified in the Law and Analysis portion of this ruling.

Sincerely,

Jerry Laderberg

Chief

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