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HQ 114572





March 28, 2000

VES1318RR:IT:EC 114572 LLB

CATEGORY: CARRIER

Chief, Liquidation Section
U. S. Customs Service
P. O. Box 2450
San Francisco, California 94126

RE: Vessel Repair; Protest; M/V PRESIDENT ADAMS, Voyage 100; Entry No. C27-167490-8; Protest No. 2704-98-102676;19 U.S.C. 1466(h)(3)

Dear Sir:

This letter is in response to your memorandum which forwarded for our review a Protest concerning assessed duties relating to the vessel repair entry captioned above. Our ruling follows.

FACTS:

The vessel PRESIDENT ADAMS, a United Statesflag vessel operated by American Ship Management, LLC, of Walnut Creek, California, arrived at the port of San Pedro, California, on June 13, 1998. A vessel repair entry was timely filed according to Customs records. According to the vessel repair entry and other documents in the file, the vessel underwent certain work in Kaohsiung, Republic of China. No prior plea for relief was filed, and the entry was liquidated in accordance with established procedures. The present Protest is an appeal from certain elements of that liquidation.

The present matter involves a reconsideration of four cost items which were liquidated as dutiable under subsection (a) of the vessel repair statute at the rate of 50 percent. The items being considered include the following:

Entered item 1, the installation of gangway motor mounts; Entered item 2, the installation of a replacement protective shield for the ship’s whistle; Entered item 7, the installation of new track sections for the ship’s stores crane; Entered item 9, the installation of aluminum manhole covers for the lashing bridge.

ISSUE:

Whether the cost of items described in the FACTS portion of this ruling are dutiable under paragraph (a) the vessel repair statute (19 U.S.C. 1466(a)), or whether they might be duty-free pursuant to paragraph (h)(3) of the law (19 U.S.C. 1466(h)(3)).

LAW AND ANALYSIS:

Section 466(a), Tariff Act of 1930, as amended (19 U.S.C. 1466(a)) provides, in pertinent part, that:

The equipments, or any part thereof ... purchased for, or the repair parts or materials to be used, or the expenses of repairs made in a foreign country upon a vessel documented under the laws of the United States to engage in the foreign or coasting trade, or a vessel intended to be employed in such trade, shall, on the first arrival of such vessel in any port of the United States, be liable to entry and the payment of an ad valorem duty of 50 per centum on the cost thereof in such foreign country.

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) then included two elements and 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) provisions which had expired and no longer existed as of January 1, 1993. The new law also added for the first time a subsection (h)(3) which exempts from vessel repair duty:

(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 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 scope of the amendment is narrow. It is useful to bear in mind that the limiting language of (h)(3) refers only to "spare parts", whereas the main body of the law in subsection (a) of the statute assesses duty on a broad range of costs including "equipments, or any part thereof, including boats,...or the repair parts or materials to be used, or the expenses of repairs..." (emphasis added). It is clear that the Congress has recognized a distinction between these categories of purchases, and has extended vessel repair duty limitations under subsection (h)(3) only to certain qualifying parts.

In order to ensure proper enforcement of the amended statute, it is necessary that the key terms be defined. In defining parts, materials, and equipment, it is most beneficial to do so in general descriptive terms rather than in the form of specific lists of items which fit into categories. In compiling lists it is inevitable that items will be inadvertently omitted, which result may lead to improper or inconsistent application of the law. These critical definitions were included in the May 31, 1995, issuance by Customs Headquarters.

For purposes of 19 U.S.C. 1466 the term materials is determined to mean something which is consumed in the course of its use, and/ or loses its identity as a distinct entity when incorporated into the larger whole. Some examples of materials as defined are seen in such items as a container of paint which is applied to vessel surfaces, and steel which is incorporated into the hull, fittings, and superstructure of a vessel.

A part under section 1466 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 readily 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.

The term equipment as used in the vessel repair statute is determined to mean something which constitutes an operating entity unto itself. Equipment retains at least the potential for portability. Equipment may be affixed to a vessel in a non-permanent fashion, such as by means of bolts or other temporary methods, which is a feature distinguishing it from being considered an integrated portion of the hull and superstructure of a vessel. Examples of equipment as defined are seen in such items as winches and generators.

In reviewing the items under consideration we find that they all meet the previously provided definition of a “part” under the law. Each is a distinct entity which is incorporated into a larger whole without losing its essential character. In regard to at least one of the items (store crane tracks), Customs has previously considered and ruled upon the identical issue. In Ruling Letter 113991 (July 2, 1997), with respect to voyage 88E of the PRESIDENT KENNEDY, the provision of 11 meters of trolley track for the store crane was held to be subject to duty treatment under the provisions of subsection (h)(3) of the statute. We hold the same in this case.

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 Protest should be allowed in full as specified in the Law and Analysis portion of this ruling.

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 no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing 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 Ruling Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Acting Chief
Entry Procedures and Carriers Branch


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