HQ 112389: Vessel Repair; Application for Relief; 19 U.S.C. 1466(h); Israel Repairs; U.S. Origin Materials; ABS Surveys; Vessel Repair Entry No. C53-0012183-3; M/V OMI SACRAMENTO

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 112389

                        October 13, 1992

VES-13-18-CO:R:IT:C 112389 MLR

CATEGORY:  Carriers

Deputy Assistant Regional Commissioner
Commercial Operations Division
423 Canal Street
New Orleans, Louisiana 70130-2341

RE:  Vessel Repair; Application for Relief; 19 U.S.C. 1466(h); 
     Israel Repairs; U.S. Origin Materials; ABS Surveys; Vessel
     Repair Entry No. C53-0012183-3; M/V OMI SACRAMENTO 

Dear Sir:

     This is in response to your memorandum of June 29, 1992,
regarding the petition for review submitted by OMI Bulk
Management Company.


FACTS:

     The record reflects that the subject vessel, the M/V OMI
SACRAMENTO, arrived at Houston, Texas, on December 20, 1991. 
Vessel repair entry number C53-0012183-3 was filed December 26,
1991, indicating work performed on the vessel in Haifa, Israel. 
Evidently, two applications for relief were submitted, one
untimely filed on February 21, 1992, in New Orleans, Louisiana,
and another timely filed by OMI's agent, Moran-Gulf Shipping, on
February 18, 1992, in Houston, Texas.  A petition for review was
filed April 29, 1992.  Since the application for relief was
timely filed in Houston and was never considered on the merits,
the petition for review will be treated as an application for
relief and any further requests for relief from the assessment of
vessel repair duties should be filed in the form of a petition
for review.

     Relief is sought for all items listed in Israel Shipyard
Ltd. invoice 14877, except on those costs detailed in some of the
items for materials taken from the vessel's spares.  The
applicant states that the records showing the origin of the
materials are not available, except for the materials used in
item 41.  Relief is also sought on the American Bureau of
Shipping (ABS) surveys performed.  Relief is not sought for
Triton Marine Service invoice E091/91, and International Paint
Co. invoice 848038.

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.


ISRAEL SHIPYARDS INVOICE 14877
     ITEM 9    TAILSHAFT & PROPELLER

     The invoice indicates that as part of the tailshaft and
propeller maintenance work, new seals were installed.  The
applicant states that the stern tube seals used on the OMI
SACRAMENTO were supplied by Eagle Industry Co., Ltd. of Tokyo,
Japan, at no cost to replace a set that failed on the OMI
MISSOURI.  Enclosed in the record is a facsimile message from OMI
Corporation (hereinafter OMI) to Eagle Industry stating that the
replacement stern tube seals had not been received, and a
facsimile message from Eagle Industry to OMI stating that the
spare parts will be delivered.  There is no other evidence,
except a statement by OMI, to prove the stern tube seals were
provided at no cost.  Therefore, absent further evidence, the
value of the stern tube seals installed on the vessel should be
determined and duty thereon assessed.


ISRAEL SHIPYARDS INVOICE 14877
     Item No.       Description              Installation Cost

     11             Hatch Cover Wheel              $300
     12             M/E Turbocharger spares       4,000
     25(A14)        150 mm Gate Valve               490
     26(#2)         M/E Bottom End Bearing        1,000
     33             Hatch Cover Piston Seal       2,200
     35             Grab Hyd. Cyl. Oil Seal       4,500
     46             Piston Crown, etc.            3,350
     54             Port Aux. Turbocharger        1,500
     65             Lifeboat Steel Wire             750
     67             M/E Piston Crown, etc.        7,500
     69             Pt. Aux. Engine Exh. Valve    1,100

     The applicant states that these materials were taken from
the vessel's spares.  

     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.

     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.  If a foreign manufactured article is claimed
to have been previously entered for consumption, duty paid by the
vessel operator, there must be proof of this fact in the form of
a reference to the consumption entry number for that previous
importation, as well as to the U.S. port of importation.  If
imported articles are purchased in the United States from a party
unrelated to the vessel operator, a domestic bill of sale to the
vessel operator must be presented.  

     Further, with regard to imported articles, there must be
presented a certification on the CF 226 or an accompanying
document by a person with direct knowledge of the fact that an
article was imported or purchased for the purpose of either then-
existing or intended future installation on a company vessel. 
Ordinarily, the vessel's master would not have direct knowledge
of that fact, and an agent may also be without such knowledge. 
The second certification required by 19 U.S.C. 1466(h)(2) as to
the vessel's documentation (foreign or coasting trades) and
service (cargo vessel), will be made by the master on the vessel
repair entry (CF 226) at the time of arrival.

     If the elements stated above are proven to the satisfaction
of Customs, the cost of foreign labor utilized for installation
of U.S.-made or previously imported articles will be subject to
duty under section 1466 in matters concerning repairs, and only
the cost of qualifying materials used in repairs will be free of
duty.

     Returning to the materials taken from the vessel's spares,
the records showing their origin are not available; accordingly,
the applicant acknowledges that duty on these materials is
payable, and we agree.  The installation operations, if performed
by Israeli labor, are not subject to duty.


ISRAEL SHIPYARDS INVOICE 14877
     ITEM 41 HEAT EXCHANGER

     The applicant states that the heat exchanger was furnished
from the vessel's spares and an invoice from Advanced Fluid
Power, a company in the United States, is presented to prove its
origin.  This invoice presented meets the requisite requirements
of 19 U.S.C. 1466(h); consequently, this item is non-dutiable.


ISRAEL SHIPYARDS INVOICE 14877
     ALL OTHER COSTS

     Next, we consider the applicant's request for relief on all
other costs, not discussed above, listed on the Israel Shipyards
Ltd. invoice.  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.

     Upon reviewing the Israel Shipyards Ltd. invoice, it
sufficiently segregates the costs of Israeli labor and Israeli
materials from the costs of materials taken from the vessel's
spares.  Accordingly, all items listed on the Israel Shipyards
Ltd. invoice are non-dutiable pursuant to Proclamation 5924,
unless determined to the contrary in the LAW AND ANALYSIS portion
of this ruling.


ISRAEL SHIPYARDS INVOICE 14877
     ITEM H.1 CLEANING & PAINTING

     This items indicates that the top side, upper sides, and
bottom of the vessel were washed, sandblasted, rinsed and
painted.  The draft marks, and ship's name were also repainted. 
The applicant states that the hull paint was imported from Greece
(see International Paint Co. invoice 848038, dated 18 November
1991) and that this voids the exemption for the cost of painting
the hull.  We agree with the applicant that the use of non-
Israeli or non-U.S. materials renders those costs dutiable;
however, if the applicant can establish that the costs for
washing, sandblasting, and rinsing strictly represent Israeli
labor charges, these costs would be non-dutiable under the
Presidential Proclamation; otherwise, this item is dutiable.


AMERICAN BUREAU OF SHIPPING SURVEYS

     The applicant seeks relief for various ABS surveys
conducted.  By Presidential Proclamation the United States has
exempted from duty, repairs made in Israel upon U.S.-documented
vessels.  Therefore, by analogy, if there is no duty on Israeli
repairs, then the survey, as an integral part of that repair and
if performed by Israeli labor, is non-dutiable.  In the
alternative, a survey may be non-dutiable if it is a required
survey done to meet the specific requirements of a governmental
entity, classification society, or insurance carrier.  C.S.D. 
79-277.  

     After a thorough review of the ABS survey report, some of
the surveys relate to repair work detailed in the Israel Shipyard
Ltd. invoice, and some of the surveys were conducted to fulfill
ABS requirements.  The repairs, as discussed above, involved a
non-dutiable aspect in that they were performed by Israeli labor,
and a dutiable aspect in that dutiable non-Israeli or non-U.S.
materials were used; however, the non-dutiable costs are properly
segregated from the dutiable costs.  Normally surveys that
examine the effectiveness of repairs are considered dutiable.  In
this instance, however, since the surveys are related to repair
costs that fall within Proclamation 5924 and they were performed
by Israeli labor, the surveys are non-dutiable; consequently, we
do not address whether the surveys were required.  



HOLDING:

     The application for relief is denied and granted in part as
detailed in the LAW AND ANALYSIS portion of this ruling.

                                   Sincerely,




                                   B. James Fritz
                                   Chief
                                   Carrier Rulings Branch