VES-13-18-RR:IT:EC 113813 GEV
Chief, Residual Liquidation and Protest Branch
U.S. Customs Service
6 World Trade Center
New York, New York 10048-0945
RE: Vessel Repair Entry No. 514-3005503-1; S.S. THOMPSON LYKES;
V-34;
Israeli labor; U.S. parts/materials; 19 U.S.C.
1466(h)(2) and (3)
Dear Sir:
This is in response to your memorandum dated January 10,
1997, which forwards for our review and consideration an
application for relief from the assessment of vessel repair
duties pursuant to 19 U.S.C. 1466. Our findings are set forth
below.
FACTS:
The S.S. THOMPSON LYKES is a U.S.-flag vessel operated by
Lykes Bros. Steamship co., Inc. Subsequent to the completion of
shipyard work in Israel, the vessel arrived at Port Elizabeth,
N.J., on September 13, 1996. A vessel repair entry was timely
filed.
Pursuant to an authorized extension of time, an application
for relief with supporting documentation was timely filed. The
applicant seeks relief for Item Nos. 1 through 12-A. With
respect to Item Nos. 1-4, the applicant seeks relief pursuant to
the United States-Israel Free Trade Area Implementation Act of
1985. As for Item Nos. 5 through 12-A, the applicant's basis for
relief is that the articles under consideration are of U.S.
origin and/or manufacture.
ISSUE:
1. Whether evidence is presented sufficient to justify the
duty-free treatment of costs incurred in Israel pursuant to the
United States-Israel Free Trade Area Implementation Act of 1985,
as partially implemented by Presidential Proclamation 5924 of
December 21, 1988.
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2. Whether evidence is presented sufficient to justify
duty-free treatment under 19 U.S.C. 1466 for the costs of those
articles for which the applicant alleges are of U.S.-origin
and/or manufacture.
LAW AND ANALYSIS:
Title 19, United States Code, 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.
In regard to the Israeli labor charges for which the
applicant seeks relief, it is noted that on December 21, 1988,
the President issued Proclamation number 5924 under authority of
section 4(a) of the United States-Israel Free Trade Area
Implementation Act 1985, which Proclamation provides that vessel
repair duties shall not be assessed on the cost of parts,
equipment or materials for, or repairs to U.S. vessels if the
subject expenditures are for products of Israel or work done in
Israel. Customs interprets this to mean that articles must be
made in and installed on vessels in Israel. Articles imported
into Israel from elsewhere do not qualify for the automatic duty
exemption.
Upon reviewing the record we note that the invoices from
Israel Shipyards Ltd. and the American Bureau of Shipping provide
a sufficient breakdown of the costs of Israeli labor and articles
which were made in Israel. Accordingly, those costs for which
the applicant seeks relief that are covered by Item Nos. 1-4 are
exempt from duty pursuant to Proclamation 5924.
In regard to the applicant's claim for relief for Item Nos.
5 through 12-A based on U.S. origin and/or manufacture, we note
that 19 U.S.C. 1466(h)(3) provides as follows:
The duty imposed by section (a) of this section 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 Schedules of
the United States
upon first entry into the United States of each such
spare part purchased
in, or imported from, a foreign country. (Emphasis
added)
For the purpose of 19 U.S.C. 1466(h), we have defined a
"part" as follows:
A part 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 identify a part. The
term part does not
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mean part of a vessel, which practically speaking would
encompass all
elements necessary for a vessel to operate in its
designated 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.
Upon reviewing the application and supporting documentation,
we note that the remainder of the items for our consideration
fall within the duty-free exemption of 19 U.S.C. 1466(h)(3)
with the exception of Item Nos. 5, 5-A, 6-B and 11. Item Nos. 6-B and 11 cover U.S. prepaid freight/shipping costs for non-dutiable parts and are therefore nondutiable.
Item Nos. 5 and 5-A cover paint/coatings. With respect to
these costs it should be noted that 1466(h)(3) is a claim for
relief which is available only to parts, not materials such as
paint. Relief is available for paint under 1466(h)(2),
provided the requisite criteria are met. That statutory
provision is set forth below:
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 clas-
sifications 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, or
19 U.S.C. 1466(h)(2) contemplates entry of the pertinent
part or material, and the payment of duty under the appropriate
commodity classification of the HTSUS, prior to the use of the
pertinent part or material in the foreign shipyard. In regard to
Item Nos. 5 and 5-A, we note that while 1466(h)(2) applies by
its terms only to foreign-made imported parts or materials, there
was ample reason to extend its effect to U.S.-made parts or
materials as well. To fail to do so would act to discourage the
use of U.S.-made parts or materials in effecting foreign repairs
since continued linkage of remission provisions of subsection
1466(d)(2) with the assessment provisions of subsection (a) of
1466 would obligate operators to pay duty on such materials
unless they were installed by crew or resident labor.
Consequently, Customs so extended the duty-free treatment of
subsection (h) to U.S.-manufactured parts or materials (See,
e.g., Customs ruling letter 110980, dated April 16, 1991) In
this regard, we note that the applicant has submitted
documentation sufficient to prove that the paint/coatings covered
by Item Nos. 5 and 5-A were manufactured in the United States.
Accordingly, the applicant's claim for relief for these items is
granted.
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HOLDING:
1. Evidence is presented sufficient to justify the duty-free treatment of costs incurred in Israel pursuant to the United
States-Israel Free Trade Area Implementation Act of 1985, as
partially implemented by Presidential Proclamation 5924 of
December 21, 1988.
2. Evidence is presented sufficient to justify duty-free
treatment under 19 U.S.C. 1466 for the costs of those articles
for which the applicant alleges are of U.S.-origin and/or
manufacture.
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch