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HQ 115115

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September 27, 2000

VES-13-18 RR:IT:EC 115115 RSD

CATEGORY: CARRIER

Chief, Liquidation Branch
U.S. Customs Service
Post Office Box 2450
San Francisco California 94126

Attn: Vessel Repair Liquidation Unit, Room 107

RE: Vessel Repair Entry No. C27-0171358-1, PRESIDENT GRANT, V-19; Parts, Engine Connecting Rods; 19 U.S.C. 1466h(3)

Dear Sir/Madam:

This is in response to your memorandum dated July 14, 2000, forwarding for our review, a petition dated June 14, 2000, submitted by AMERICAN SHIP MANAGEMENT, LLC., regarding the above-referenced vessel repair entry.

FACTS:

American Ship Management LLC., (ASM), is the ship manager for the M/V PRESIDENT GRANT, a U.S.- flag container vessel trading primarily between the West Coast of the United States and the Far East. During the subject voyage, in February of 2000, the vessel underwent repairs in China, Japan, and Korea. The vessel arrived at the Port of Los Angeles, California on March 6, 2000. A vessel repair entry and an application for relief from duty were timely filed. On May 26, 2000, your office issued a decision regarding the application for relief from duty on various repairs to the PRESIDENT GRANT. On June 14, 2000, American Ship Management filed a petition for review of your decision. Our ruling is set forth below.

ISSUE:

Whether the foreign costs, contained within the subject entry for which our review is sought are dutiable under 19 U.S.C. § 1466.

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) that 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 that are cut at the work site from gasket material.

The term equipment as used in the vessel repair statute is determined to mean something that 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.

Subsection (h)(3) is administered by maintaining the requirement that a vessel repair entry (Customs Form 226) must be filed upon first arrival in the United States of vessels covered by the repair statute. Since issuance of instructions by Customs Headquarters on May 31, 1995, in instances in which a vessel operator claims certain foreign parts expenditures to be within the terms of subsection (h)(3), it has been required that continuation sheets normally submitted with entries for consumption (Customs Form 7501-A) must be completed and attached to the vessel repair entry form. The continuation sheets must provide all required information necessary to assign the proper duty rate as listed in the Harmonized Tariff. The vessel repair entry number is the sole number assigned to the entry, and such an entry with continuation sheets attached is considered to be a vessel repair entry.

The petitioner requests relief on item # 4 pursuant to 19 U.S.C. §1466(h)(3) for reconditioned connecting rods for diesel engine purchased and necessarily installed. Upon consideration, we concur that the reconditioned engine connecting rods constitute parts that are eligible for treatment under 19 U.S.C. §1466(h)(3). (See also Customs Ruling Letter 114860, dated December 21, 1999.) However, petitioner concedes that the transportation cost for shipping engine connecting rods to the repair yards, which is mentioned on the applicable invoice, should be fully dutiable under 19 U.S.C. § 1466(a). Accordingly, the shipping costs for transporting the engine connecting rods will be fully dutiable under 19 U.S.C. § 1466(a).

HOLDING:

As explained above, the subject item No. 4, engine connecting rods, are considered parts and thus are eligible for relief pursuant to 19 U.S.C. § 1466(h)(3). Accordingly, the petition is granted.

Sincerely,

Larry L. Burton
Chief
Entry Procedures and Carriers Branch

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