VES-13-18-CO:R:IT:C 111534 LLB
Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341
RE: Vessel Repair; Petition for Review; S/S CHELSEA; Vessel
repair entry number C17-0001395-1
Dear Madam:
Reference is made to your memorandum of February 21, 1991,
which forwarded for our consideration the Petition for Review
filed by the vessel operator in connection with the partial
denial of an Application for Relief from vessel repair duties
regarding the above-captioned entry.
FACTS:
An Application for Relief filed in connection with the
above-captioned vessel repair entry was denied except for
classifiably free items, due to the insufficiency of
documentation submitted.
The present Petition for Review provides detail concerning
problems experienced with the vessel's boilers both in and while
travelling between, various United States ports prior to the
commencement of a foreign voyage. Finally, at the port of
Guayanilla, Puerto Rico, the main condenser was opened and six
tubes which were found to be leaking were plugged-up. The main
condenser was closed, and it was noticed that the water level in
the starboard boiler was much lower than that in the port side
boiler. A boiler tube leak was suspected. The starboard boiler
was entered and the failure of two superheater tubes was noted.
No repairs were made at that time, although saw dust was injected
into the main condenser in an attempt to lower chloride levels.
It is stated that the chloride levels were then considered
acceptable to permit the vessel, "...to sail under emergency
conditions." It is reported that the vessel then proceeded to
Curacao, Netherlands Antilles, which had, "...the nearest
available repair facility while also taking into consideration
the repair facility with the least amount of deviation from our
intended destination port of Buenos Aires."
ISSUE:
Whether, under the facts as stated, refund or remission of
vessel repair duties is warranted.
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.
On August 20, 1990, the President signed into law the
Customs and Trade Act of 1990 (Pub. L. 101-382), section 484E of
which amends the vessel repair statute by adding a new subsection
(h). Subsection (h) has two elements, which are as follows:
(h) The duty imposed by subsection (a) of this section shall
not apply to--
(1) the cost of any equipment, or any part of
equipment, purchased for, or the repair parts
or materials to be used, or the expense of
repairs made in a foreign country with
respect to, LASH (Lighter Aboard Ship) barges
documented under the laws of the United
States and utilized as cargo containers, or
(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 effective date of the amendment is stated as follows:
Effective Date.--The amendment made by this
section shall apply 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.
Subsection (d)(2) of section 1466 provides that:
(d) If the owner or master of such vessel
furnishes good and sufficient evidence
that...
(2) 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...
then the Secretary of the Treasury is authorized to
remit or refund such duties...
Customs has in the past linked this duty remission
provision to the duty assessment provision in subsection (a) of
the statute. We have held that a two-part test must be met in
order for remission of duty to be granted: first, that the
article must be of U.S. manufacture; and, second, it must be
installed by U.S.-resident or regular vessel crew labor. The
reason for this position is that (d)(2) refers to "such
equipments or parts...", etc., without any logical association
for the word "such" occurring in that subsection. We inferred
that "such" articles must refer to those installed under
subsection (a), absent any other reasonable predication. The new
amendment puts this issue to rest by making it clear that as
concerns foreign-made parts imported for consumption and then
installed on U.S. vessels abroad, the labor required for their
installation is separately dutiable. A part may now be
considered exempt from vessel repair duty albeit the foreign
labor cost is dutiable.
In all cases which meet the conditions imposed by the
statutory amendment, uniform treatment will be accorded to parts
sent from the United States for use in vessel repairs abroad.
This will be so regardless of whether they are proven to have
been produced in the U.S., or to have been imported and entered
for consumption with duty paid. In both cases, the cost of the
materials is duty exempt and only the cost of foreign labor
necessary to install them is subject to duty. Crew member or
U.S.-resident labor continues to be free of duty when warranted,
in cases which qualify under the new law.
In this case, the vessel departed the United States (Puerto
Rico) under emergency conditions, the operators being fully aware
of deficiencies which required attention in a repair facility.
Information provided by Customs officials in San Juan, Puerto
Rico, establishes that a commercial ship repair facility with
drydock is located at Pier 15 in San Juan. The presence of this
facility establishes that resort to a foreign repair yard
possibly was unnecessary. The fact that the yard in Curacao may
have been preferable due to its proximity to the intended final
destination of the vessel is not a relevant factor as commercial
expediency is not a justification for selecting foreign repair
facilities over domestic. (Customs Ruling Letter 110027 of
September 29, 1989).
In reviewing the evidence, we note the presence of invoices
detailing both labor and materials having been supplied from the
United States. In regard to these invoices, we find that those
from Dunlap Marine, Aalborg Ciserv, and CTI cover the provision
of resident labor, and those from Trojan Tube, Ain Plastics and
Aroy Manufacturing cover the cost of materials from the United
States. As such, the costs reflected in these cited invoices are
considered duty-free under the provisions of subsections (d)(2)
and (h) of the vessel repair statute, as discussed above.
HOLDING:
After a thorough examination of the evidence and analysis of
the law and relevant precedents, we have determined to allow in
part and deny in part the Petition for Review in this matter as
specified in the Law and Analysis portion of this ruling.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch