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HQ 116484

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September 21, 2005

VES-3-18-RR:IT:EC 116484 IDL

CATEGORY: CARRIER

Service Port Director
U.S. Customs and Border Protection
1100 Raymond Blvd., Suite 402
(ATTN: Ms. Amy Campbell)
Newark, NJ 07102

RE: 19 U.S.C. § 1466; Vessel Repair Entry C20-0059016-9; Protest No. 2002-05-100525; APL KOREA

Dear Ms. Campbell:

This is in response to a memorandum of June 6, 2005, from the Chief, Vessel Repair Unit (VRU), New Orleans, LA, forwarding for our review the protest filed by American Ship Management, LLC with respect to Vessel Repair Entry C20-0058614-2. Due to the suspension of operations at the VRU stemming from Hurricane Katrina, we are forwarding our ruling on this matter to you for disposition. Our ruling is set forth below.

FACTS:

The APL KOREA, a U.S.-flagged vessel owned by the protestant, incurred foreign shipyard costs. On May 16, 2002, the vessel arrived in the port of Seattle, Washington. A vessel repair entry was timely filed. On March 4, 2005, a determination of duty occurred. On May 26, 2005, the protestant filed Protest No. 2002-05-100525.

ISSUE:

Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. 1466?

LAW AND ANALYSIS:

Title 19, United States Code, section 1466(a) (19 U.S.C. 1466(a)) provides in pertinent part for the payment of an ad valorem duty of 50 percent of the cost of “equipments, or any part thereof, including boats, 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.”

Section 1466(h)(3) provides that duties imposed by section 1466(a) 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 Schedule of the United States [HTSUS] upon first entry into the United States of each spare part purchased in, or imported from, a foreign country.

The protestant seeks relief for Spreadsheet Line Item No. (SLIN) 20, Rudder Anodes, claiming that this item constitutes “parts” eligible for relief under the provisions of section 1466(h)(3).

A “part” under section 1466 is determined to be something that 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.

For purposes of section 1466, the term “materials” is determined to mean something that 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 sheets of steel which are incorporated into the hull and superstructure of a vessel.

The Vessel Repair Unit (VRU) denied SLIN 20 in the application for relief on the basis that the rudder anodes are materials or consumables because of the “sacrificial use” of the anodes. However, we note from the protestant’s submission that these items can be “disassembled from [the vessel] and are readily identifiable.” Consequently, in view of our discussion as to what constitutes a “part,” it is our position that the rudder anodes are “parts” eligible for relief under section 1466(h)(3).

The protestant also seeks relief for SLIN 30, Propeller Painting, claiming that the work involved a modification. The protestant claims that the main purpose of the painting of the propeller was “to achieve greater fuel efficiency by coating the propeller with a coating of paint that has smoother characteristics and anti-fouling properties than the bare surface of the nickel bronze propeller,” and that such work did not amount to a restoration.

A claim for duty-free modification must address four areas:
whether there was a permanent incorporation into the hull or fittings; whether the item would item remain aboard during an extended lay-up; if not a first-time installation, whether an item that was not in good working order was replaced; and whether the item provided an improvement in operation or efficiency.

In its denial of this item, the VRU asserts that the “painting of the propeller is not a permanent incorporation into the hull or superstructure of the vessel.” We agree. As such, the painting of the propeller does not amount to a duty-free modification.

HOLDING:

Accordingly, the costs for which the protestant seeks relief are dutiable or non-dutiable under 19 U.S.C. § 1466 consistent with the analysis above. The protest should be GRANTED-IN-PART and DENIED-IN-PART.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January [2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, 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 make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Glen E. Vereb
Chief

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