HQ 111790: Vessel repair; Casualty alleged; United States parts; Resident and crew labor; Vessel STELLA LYKES, V-9; Vessel repair entry number C19-0008502-3

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 111790

                        January 22, 1991


VES-13-18-CO:R:IT:C  111790 LLB

CATEGORY:  Carriers

Deputy Assistant Regional Commissioner
Commercial Operations Division
South Central Region
New Orleans, Louisiana 70130

RE:  Vessel repair; Casualty alleged; United States parts;
     Resident and crew labor; Vessel STELLA LYKES, V-9;
     Vessel repair entry number C19-0008502-3

Dear Sir:

     Reference is made to your memorandum of July 8, 1991, which
forwards for our review and consideration the Application from
the assessment of vessel repair duties submitted by Lykes
Brothers Steamship Co., Inc., in regard to the above-captioned
vessel repair entry.

FACTS:

     While in port in Apapa, Nigeria, the vessel touched bottom
on two occasions.  At the next port of call, Mombasa, Kenya, the
vessel operator took the precaution of having the vessel surveyed
for potential underwater damage related to the two incidents.
The survey and related services revealed no damage attributable
to the incidents.  While in Mombasa, the windlass hydraulic pump
and motor were renewed in their entirety.  The record reflects
that the parts utilized were of United States origin and that the
labor was performed by a technician from the United States and
the regular crew of the vessel.

ISSUE:

     Whether sufficient evidence is presented to permit a finding
that the foreign shipyard operations performed in this case are
to be considered duty-free.
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.

     Title 19, United States Code, subsection 1466(d)(1), states
that the Secretary of the Treasury is authorized to remit or
refund such duties if the owner or master furnishes good and
sufficient evidence that the vessel was compelled to put into a
foreign port and make repairs to secure the safety and
seaworthiness of the vessel to enable her to reach her port of
destination.

    The term "casualty" as it is used in the statute, has been
interpreted as something which, like stress of weather, comes
with unexpected force or violence, such as fire, explosion, or
collision (Dollar Steamship Lines, Inc. v. United States, 5
Cust. Ct. 28-29, C.D. 362 (1940).  In this sense, a "casualty"
arises from an identifiable event of some sort.  In the absence
of evidence of such a casualty event, we must consider the repair
to have been necessitated by normal wear and tear.  See Customs
Ruling Letter 106159  LLB (9-8-83).

     Experience demonstrates damage to underwater parts of
vessels is usually not easily detectable or susceptible of
definite proof respecting the date and place of occurrence.
Therefore, relief under  1466 is granted in the absence of proof
that the vessel concerned was grounded, struck bottom or her
propeller contacted some floating object capable of causing
damage, prior to commencement of her voyage.  C.I.E. 1202/59.

     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 the present matter, we are left with expenditures for a
casualty-related survey of underwater areas of the vessel, and
materials and labor of domestic origin related to the windlass
repair.  In neither case do we find duty to be owing.

HOLDING:

     Following a thorough review of the evidence and analysis of
the law and applicable precedents, we have determined that the
Application for Relief filed in this matter should be granted.

                              Sincerely,




                              B. James Fritz
                              Chief
                              Carrier Rulings Branch