HQ 111492: Vessel Repair; Petition for Review; 19 U.S.C. 1466(h); Repairs in Israel; Israeli Labor; U.S. Manufactured Materials; ABS Surveys; Vessel Repair Entry No. 514- 3003884-7; ALMERIA LYKES V-18

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 111492

                         August 5, 1992

VES 13-18 CO:R:IT:C 111492 MLR

CATEGORY:  Carriers

Deputy Assistant Regional Commissioner
Classification and Value Division
ATTN:  Residual Liquidation and Protest Branch
New York, New York  10048-0945

RE:  Vessel Repair; Petition for Review; 19 U.S.C. 1466(h);
     Repairs in Israel; Israeli Labor; U.S. Manufactured
     Materials; ABS Surveys; Vessel Repair Entry No. 514-
     3003884-7; ALMERIA LYKES V-18

Dear Sir:

     This is in response to your memorandum of January 15, 1991,
regarding the petition for review submitted by Lykes Bros.
Steamship Co., Inc.

FACTS:

     The record reflects that the subject vessel, the ALMERIA
LYKES, arrived at Port Elizabeth, New Jersey, on September 21,
1989.  Vessel repair entry, number 514-3003884-7, was timely
filed indicating work performed on the vessel in Haifa, Israel.
The vessel underwent hull and engine repairs, and United States
Coast Guard and various American Bureau of Shipping (ABS)
inspections were conducted.  Israeli or U.S.-residents or
members of the regular crew allegedly performed the necessary
labor for certain repair work.  Certain materials used in the
process were of foreign origin, other than Israeli, and some
materials were supplied by companies in the United States,
although their country of manufacture was not established.
Accordingly, the application for relief (HQ 110909) which was
filed on November 9, 1989, was denied.

     An extension was granted until December 21, 1990, to file a
petition for review which was filed on that day.  The petitioner
requests relief on ABS Surveys #836117, #836115, and #836119; and
on the items listed in the following invoices:

Exhibit        Manufacturer        Invoice             Amount
B              International       No. 756568          $20,814.20
               Paint

C              A-H Refractories    No. 1822              5,158.72
               Inc.

D              Waukesha Bearings   No. 325003            6,991.00
                                   No. 328483            6,630.88

E              Drew Chemical       No. 032586              469.84
               Corporation         (Supplier:  Lee
                                   Engineering)

F              Peck & Hale Co.     No. 2529              1,104.54
                                   (Supplier:
                                   Bridon Elm, Inc.)

G              Mercer Rubber Co.   No. 101649              780.00
                                   (Supplier:
                                   C.V. Harold)

H              General Rubber      No. 100999              295.00
                                   (Supplier:
                                   C.V. Harold)

     Note:  C.V. Harold Invoice 100395 $555.00 is not of U.S.
manufacture (See Exhibit I)

J              Standard Supply     No. 0129912             871.60

                                                       $43,115.78

Petitioner submits sworn statements by the manufacturers listed
above attesting to the United States origin of the materials in
question.  Petitioner does not seek relief for C.V. Harold/
General Rubber Corp. invoice #100395 in the amount of $555, and
De Jong & Lavino B.V. (De Jong) invoice #18919 in the amount of
$5518.

     As to the ABS Surveys, the petitioner claims that because no
duty was assessed on repairs made in Israel under Presidential
Proclamation 5924, then no duty shall be assessed on a survey
conducted as an "integral part" of that repair.  Alternatively,
the petitioner claims that the surveys were required and should
be non-dutiable.

ISSUE:

     Whether the claim for relief can be justified under the
terms of the United States-Israel Free Trade Area Implementation
Act of 1985, as partially implemented by Presidential
Proclamation 5924 of December 21, 1988, or otherwise allowed.


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 foreign or
coastwise trade, or vessels intended to engage in such trade.

     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 of 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.

     On August 20, 1990, the President signed into law Pub. L.
101-382, section 484E of which amends section 466, Tariff Act of
1930, as amended (19 U.S.C. 1466), by adding a new paragraph (h)
to the statute {19 U.S.C. 1466(h)}.

     The new section provides in part that:

(h) 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
          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....

Therefore, the provision is applicable in this instance.

     While section 1466(h) applies by its terms only to foreign-
made imported parts, there is ample reason to extend its effect
to U.S.-made materials as well.  To fail to do so would act to
discourage the use of U.S.-made materials in effecting foreign
repairs since continued linkage of remission provisions of
section 1466(d)(2) with the assessment provisions of section
1466(a) would obligate operators to pay duty on such materials
unless they were installed by crew or U.S. resident labor.  If an
article is claimed to be of U.S. manufacture, there must be proof
of its origin in the form of a bill of sale or domestic invoice.

U.S. Manufactured Materials

     The record is well organized and clearly proves that the
items described above in Exhibits B, C, D, E, F, G, H, and J,
were manufactured in the United States.  Accordingly, the
petitioner is entitled to relief as to those items.

De Jong & Lavino Invoice:

     In the application for relief, the steel listed in the De
Jong invoice was held to be dutiable as it was not of U.S. or
Israeli origin.  Further, the De Jong invoice did not show a cost
amount; Israel Shipyards Ltd. billed Lykes a total of $429,876
for various repair work which included the steel listed on the De
Jong invoice.

     Petitioner now submits an affidavit (Exhibit K) from M.
Cohen, of Israel Shipyards Ltd., stating that the steel listed on
the De Jong invoice was for repairs to the ALMERIA LYKES, and for
two other vessels, the HOWELL LYKES and MASON LYKES.  Israel
Shipyards allocates $5,518 of this steel for repairs made to the
ALMERIA LYKES.  Lykes acknowledges that this $5,518 is subject to
duty.  Accordingly, for purposes of liquidating the entry for the
ALMERIA LYKES, the cost amount for the De Jong invoice is $5,518
which is subject to duty.  Petitioner states that the duty on the
steel for the other vessels will be paid under separate entries.

ABS Surveys #836115, #836116, #836117, and #836119

     The application for relief denied relief with respect to ABS
Surveys #836115 (excluding Annual Survey, Drydocking), #836116,
and #836117.  The petitioner alleges that the ABS surveys in
question should be non-dutiable as integral parts of repairs held
non-dutiable under Presidential Proclamation 5924.  As to
#836119 (Mandatory Annual Survey), this survey was held to be
non-dutiable in the application for relief; however, a memo from
Customs to Lykes, dated October 17, 1990, erroneously indicates
that this survey was denied.  We affirm this as a non-dutiable
survey.

     Petitioner cites C.I.E. 429/61 as authority for explaining
how Customs distinguishes between dutiable and non-dutiable surveys:

          ....Expenses which are incurred in conducting
          inspections made subsequent to the repairs, so as to
          ascertain whether the work has been properly performed,
          are dutiable as integral parts of the expenses of
          repairs although separately itemized.  Moreover,
          testing which is effected for the purposes of
          ascertaining whether repairs to certain machinery or
          parts of the vessel are required, or are performed in
          order to ascertain if the work is adequately
          completed, are also integral parts of the repairs and
          are accordingly dutiable.

     Petitioner states that the rationale of C.I.E. 429/61, is
that some surveys and inspections are so closely related to the
repair work that they are in fact part of the repairs; therefore,
if the repairs are dutiable, the survey or inspection should also
be dutiable.  Further, if the repairs are not dutiable, there is
nothing in C.I.E. 429/61 or in its rationale which makes surveys
of them dutiable.  Petitioner states that "...if the repair had
been carried out in the United States the survey of that repair
would not be dutiable.  Precisely the same reasoning applies
here.  By Presidential Proclamation the United States has
exempted from duty repairs made in Israel upon U.S.-documented
vessels.  If there is no duty on the repair, then the survey, as
an 'integral part' of that repair, cannot be dutiable."  In the
alternative, petitioner claims that #836115 is a non-dutiable
required survey to meet the specific requirements of a
governmental entity, classification society, or insurance
carrier.  C.S.D. 79-277.

     In this instance, petitioner's argument as to the
relationship between a repair held non-dutiable under
Proclamation 5924 and the dutiability of a survey is correct.
First, we must determine whether a survey conducted by Israeli
laborers is non-dutiable because the repairs surveyed were non-
dutiable under Presidential Proclamation 5924.  If not, the
survey must be a required survey conducted to meet the specific
requirements of a classification society to be non-dutiable.  To
prove that certain surveys were required, petitioner submits
relevant parts of the ABS Rules.

     In survey #836116, the surveyor examined and reported upon
hull damage repairs made to the starboard shell plating and
internals which were necessary because of damage to the vessel
when it struck the dock in Leghorn, Italy, on December 14, 1988.
The outstanding recommendations of Survey Report No. HS 8302,
conducted at Houston, Texas, on January 1, 1989, were deleted.
Survey #836117 involved examining hull damage repairs made to the
bulbous bow outer shell plating which were necessary to satisfy
the outstanding recommendations of Survey Report No. L201091,
conducted at La Spezia, Italy, on October 24, 1987.  The ABS
report states that after the repairs were completed, the
forepeak tank was hydrostatically tested and the outstanding
recommendations are to be deleted.

     As to surveys #836116 and #836117, they correlate to repair
work detailed in Lykes' Repair Specifications nos. 9 (bulbous bow
plating) and 10 (stbd. side shell plating).  These repairs were
performed by Israeli laborers and therefore were held non-
dutiable.  However, the repairs involved the use of steel not of
U.S. or Israeli origin (see De Jong invoice discussion above)
which we have now determined to be dutiable.  Therefore, the
damage repair work involved a non-dutiable aspect (the labor) and
a dutiable aspect (the foreign steel).  The surveys clearly
involve examining the effectiveness of repairs which normally
are dutiable; here, however, the repair work is properly
segregated.  Therefore, since the surveys are related to repair
costs that fall within Proclamation 5924, the surveys are non-
dutiable.

     Survey #836115 (we do not address those segments previously
held non-dutiable) consisted of (1) a special survey of the hull,
(2) a special survey of machinery, (3) a year of grace survey,
and (4) a periodical boiler survey.  The report indicates that
many items were examined some of which were repaired.  Again,
because the surveys are related to repair work that was held non-
dutiable under Proclamation 5924, the survey is non-dutiable;
therefore, we do not need to address whether these surveys were
required for the vessel to be retained as classed.

HOLDING:

     After reviewing the additional evidence submitted, we find
that the petition for review should be allowed as set forth in
the Law and Analysis section of this ruling.

                                   Sincerely,




                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch