HQ 111629: Protest No. 1801-90-000062; Tampa Vessel Repair Entry No. C18-0005369-1, dated November 9, 1988; GREEN BAY, Voyage 8. U.S. spare parts and owner-supplied spare parts; Customs and Trade Act of 1990; P.L. 101-382; 19 U.S.C. 1466(h); warranty work; duplicate charges.

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 111629

                            January 21, 1992

VES-13-18-CO:R:P:C  111629 BEW

CATEGORY:  Carriers

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

RE:  Protest No. 1801-90-000062;  Tampa Vessel Repair Entry No.
     C18-0005369-1, dated November 9, 1988; GREEN BAY, Voyage 8.
     U.S. spare parts and owner-supplied spare parts; Customs and
     Trade Act of 1990; P.L. 101-382; 19 U.S.C. 1466(h); warranty
     work; duplicate charges.

Dear Sir:

     This is in reference to memoranda dated April 4 and 17,
1991, and January 8, 1992, from your office which transmitted
protest No. 1801-90-000062, relating to vessel repair entry No.
C18-0005369-1, concerning the GREEN BAY, Voyage 8, which arrived
at the port of Tampa, Florida, on November 5, 1988.

FACTS:

     During the period from September 29 to October 6, 1988,
while in Yura, Japan, the vessel GREEN BAY underwent various
shipyard operations at the Mitsui Dockyard Co., Ltd., Yura
dockyard.  By decision dated March 23, 1990, HQ 110558 LLB, we
ruled that the Application for Relief was untimely filed.  The
dutiability of these operations was considered by your office and
the entry was liquidated on September 14, 1990.  The protest was
timely filed on December 5, 1990.  Included in your
considerations was the matter of whether the spare parts used in
the repairs are dutiable under the statute; and whether certain
other repairs alleged to be guarantee work and duplicate charges
were remissible under the statute.

     The following items are the only items which are presently
being protested:

     A.  Spare parts of foreign origin.

     B.  Guarantee work

     C.  Duplicate charges

     The protestant claims that the subject spare parts should be
duty free because section 484E of Public Law 101-382 provides for
payment of duty under an appropriate commodity classification of
the Harmonized Tariff Schedules of the United States (HSTUS).
It further claims that the subject law applies retroactively in
cases such as this.

     It further claims that the items listed on the
"specification of drydocking" dated October 6, 1988, should be
classified free because all of the items listed in the document
were performed in fulfillment of the Warranty Clause of the
shipbuilding contract dated August 1, 1986.  It cites the Court
of International Trade case of Sea-Land Service, Inc. v. United
States, 683 F. Supp. 1404 (1988) as the legal basis for its
claim.

     Finally, it claims that Customs charged duty twice on item
1-3 listed on Mitsui invoice Y14809.  It claims that duty was
charged on this item in Mitsui invoice Y14807, and again charged
on the same item in Mitsui invoice Y14809.  Copies of the
relevant pages from the said two invoices have been submitted to
substantiate this claim.

     The GREEN BAY was delivered to Central Gulf by the shipyard
in 1987.  The subject guarantee work was performed under a
construction contract.  The standard contract contained a
warranty clause (Article X WARRANTY OF QUALITY), containing two
time elements, which read as follows:

     1.  Guarantee of Materials and Workmanship:

          For a period of twelve (12) months after the date of
          delivery of the Vessel, the Contractor shall guarantee
          the Vessel, and all of her engines, machinery, parts
          and equipment, that are manufactured or supplied by the
          Builder or its subcontractors under this Contract, but
          excluding the materials, equipment and/or instruments
          supplied by the Buyer, against all defects which are
          solely due to defective material and/or poor
          workmanship by the Builder.

     2.  Notice of Defects:

          The Buyer, or its duly authorized representative(s),
          shall notify the Builder in writing, or by cable or
          telex confirmed in writing, as promptly as possible
          after discovery of any defect for which claim is to be

          made under this guarantee.  The Buyer's written notice
          shall include full particulars as to the nature and
          extent of the defect, but excluding incidental or
          consequential damages as hereinafter provided.

          The Contractor shall have no obligation for any
          defects discovered prior to the expiry date of the said
          twelve (12) months period, unless of such defects is
          received by the Builder not later than thirty (30 days
          after such expiry date.

     The warranty provisions are conditioned upon timely written
notice being given by the owner to the shipyard within 30 days
following the expiration of the warranty period.

ISSUES:

     1.   Whether the cost of foreign spare parts or materials
          which are purchased and installed on the vessel aboard
          prior the parts or materials being imported into the
          United States is subject to duty under the vessel
          repair statute. (19 U.S.C. 1466(h).  Whether the
          statute applies to entries made either before or after
          the August 20, 1990, date of enactment, so long as
          those entries have not been finally liquidated.


     2.   Whether the court-established elements for warranty
          recognition are present in this case, as detailed in
          the case of Sea-Land Service, Inc. v. United States,
          683 F.Supp. 1404 (1988).  Whether sufficient evidence
          is presented to establish that the certain repairs are
          "guarantee work" which is remissible under the vessel
          repair statute (19 U.S.C. 1466).

LAW AND ANALYSIS:

     Section 1466 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.

     Pursuant to the Customs and Trade Act of 1990 (Pub. L. 101-
382) which amends 19 U.S.C. 1466, the cost of foreign-made parts
imported into the United States for consumption and then
installed on U.S. vessels abroad is exempt from duty.   This
amendment adds a new subsection (h), which reads 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 netting)
               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 this amendment makes this section
applicable to any entry made before the date of enactment of this
Act that is not liquidated on the date of enactment of this Act,
and any entry made--

               (A) on or after the date of enactment of this
                   Act, and
               (B) on or before December 31, 1992.

     Since the subject entry was not liquidated until September
14, 1990, a date after the enactment, the new section 1466(h) is
applicable to this entry as it relates to spare parts.  Based
upon the language of these new provisions of law, Customs has
ruled that the cost of imported parts and materials upon which
duties have previously been paid under the Harmonized Tariff
Schedule of the United States will not be subject to duty.

     There can be no doubt that the language of section 1466(h)
which requires duty payment on spare parts under the Harmonized
Tariff Schedule of the United States upon first entry, is
directed to the entry of the spare parts, not the entry of a
United States-flag vessel.  In fact the legislative history (Sen.
Rept. 101-252, pp. 37-38), in referring to what is now section
1466(h)(2) provides that "[t]his section is intended to ensure
that vessel owners will pay duty on such parts and materials only
once, at the time of their first entry into the United States."
(emphasis supplied).  Further, Senator Breaux, author of the
legislation, has indicated his concern that the Customs
administration of the vessel repair statute prior to the new
legislation limited the ability of vessel operators to reduce
costs "...by ordering foreign spare parts for delivery in the
United States."

     The purpose of section 1466(h)(2) is not to assure the
lowest rate of duty possible but rather to ensure that duty will
be paid under the Tariff Act of 1930, as amended, only once.

     The need for the payment of duty under "...appropriate
commodity classifications of the Harmonized Tariff Schedule...",
as required by the statute, is initiated at the time a vessel
arrives with the limits of a port in the United States with the
intent then and there to unlade merchandise.  (See section
101.1(h), Customs Regulations (19 CFR 101.1(h)).  The special
status accorded vessels, their tackle, apparel, equipment, and
appurtenances has long been recognized, with vessels being
considered sui generis and totally distinct from merchandise.
(See The Conqueror, 166 U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937
(1896); United States v. William Herman Wepner, 32 CCPA 30,
C.A.D. 282 (1944)).  The requirements for the entry of
merchandise are provided in section 1484 of title 19, United
States Code, wherein exceptions to those requirements are also
provided.  Among the cited exceptions are those circumstances
provided under 19 U.S.C. 1498, subsection (10) of which provides
for entries relating to the vessel repair statute.

     The result of all of the foregoing is that spare parts and
materials of foreign origin were not meant to benefit from nor
will they be permitted to benefit from the duty exemption under
section 1466(h)(2) unless they are regularly entered as
merchandise at the Harmonized Tariff Schedule rates of duty
prior to their foreign installation.  To hold otherwise would be
contrary to the intent of the legislation, and would render
meaningless the statutory requirement that a vessel owner or
master certify that such imported spare parts and materials are
intended for use aboard a qualifying vessel.  In addition, such
an interpretation would render 1466(a) meaningless with regard to
"the repair parts" provision.  The rules of statutory
construction discourage such a result.

     The certification required by 19 U.S.C. 1466(h)(2) as to the
vessel's documentation (foreign or coasting trades) and service,
will be made by the master on the vessel repair entry (CF 226)
at the time of arrival.  The fact of payment of duty under the
Harmonized Tariff Schedules of the United States (HTSUS) for a
particular part will take the form of a positive statement which
must identify the port of entry and the consumption entry number
for each part installed on the ship which has not previously been
entered on a CF 226.  This evidence of proof of importation and
payment of duty must be presented in order to escape duty and any
other applicable consequences.

     After a complete review of the documentation submitted with
this entry, we find that the subject spare parts were purchased
and installed on the vessel during the period from September 5
through October 6, 1988.  We further find that the subject spare
parts and materials were not imported into the United States and
the duty paid under the HTSUS prior to installation on the
vessel.  Accordingly, the protest is denied as to the subject
foreign spare parts.

     In the case of Sea-Land Service, Inc. v. United States, 683
F. Supp. 1404 (1988), the Court addressed whether repair work
performed on a newly constructed vessel subsequent to its
delivery to the owner might be considered to be part of the new
construction contract.  Simply put, the Court considered whether
"completion of construction" is a viable concept so as to render
the duty provisions of 19 U.S.C. 1466(a) inapplicable if proven.
The Court found completion of new construction to be a valid
concept, subject to specific conditions, which are:

     1.   "All work done and equipment added [must be] pursuant
          to the original specifications of the contract for the
          construction of the vessel ...."

     2.   "This basic standard is limited to work and equipment
          provided within a reasonable period of time after
          delivery of the vessel."

     The contract for construction of the said vessel contained
clauses guaranteeing for twelve (12) months any area of the
vessel for which the builder accepted responsibility under the
contract and specifications, conditioned upon written
notification from the owner of any covered defect within the
agreed upon 12-month period.

     In the Sea-Land case, we found that the court-ordered
criteria has been satisfied and that the "reasonable period of
time" for the warranty period was the one-year period specified
in the contract.  We have since held likewise in similar cases,
and have adopted the one-year limit as the benchmark for honoring
new construction warranties which otherwise qualify.

     The question now to be addressed is whether the Sea-Land
Service, Inc., supra., court-ordered criteria and/or contract
requirements have been satisfied in this case.

     We note that the repair bill being protested in this case
indicates repairs having been effected before the expiration of
the one year and thirty-day period specified in the warranty
clause of the contract.  The fact that repairs were made during
the stated period permits us to assume that notification was
given to the original vendor by the vessel operator as specified
in the contract, so long as we find an invoice from the original
vendor stating that work was performed at no charge.  If repair
work is performed by remote contractors as permitted under the
contract, there must be evidence that the builder was notified
before repair or that the vessel operator was reimbursed by the
original vendor (see Article X of the contract).

     In this case, warranty claims are made for two (2) areas
listed in the document "Specification of Drydocking" dated
october 6, 1988, as follows:

     4.  Guarantee Items of Deck Department

          1.  Welding cracks with stop holes and "remaing" of
          weldment to No. 2 F.O. tank top on air truck at frll7
          port/stb'd on car deck No. 11

          2.  Pilot ladder reels by port/stb'd gangway, renew
          ball bearings and reconditioned the frames.

          3.  Galley drains

          4.  Hinge pins of side ramps

          5.  Non-slip paint around fixed ramp on car decks
          remove where damaged or pealing of the paint.

          6.  Bow thruster

          7.  Upper and navigation bridge decks outside doors.

          8.  Exterior doors on upper deck

          9.  Clothes lockers in quarter

          10. Install isolation valve on air line of ship's
          whistle.

     2.  Guarantee Items of Engine Department

          1.  Emergency diesel generator

          2.  Composit boiler sampling line

          3.  Waste oil incinerator suction strainer

          4.  115V grounds.

          5.  Replace or Repair scav-exh press, manometer on
          M.E.

          6.   Repair leading of relief valve of M.D.O filling
          line.

          7.   Potable water tank.

          8.   Renew inlet and outlet valves to M.E. fuel oil
          backflush heater due to values leak.

          9.   Rectify cause of water leaking into insulation and
          under floor in reefer handling room inb'd bulkhead.

          10.  Renew door closer aftermost door on port side
          accom. deck.

          11.  Rectify cause of dropping head tank level on bow
          thruster.

          12.  Renew stud piece from evaporator air ejector to
          overboard line.

          13.  Renew gaskets on M.E. Lub. oil return lines to
          sump tank.

          14.  Renew 3 way valve for M.E. turbocharger water
          washing.

     These items were performed without cost by the contractor
itself. Accordingly, the protest is granted as to the subject
items.

HOLDING:

     Following a thorough review of the law and analysis of the
evidence, the protest is denied as to the spare parts.

     Inasmuch as there is evidence that the foreign shipyard
operations claimed to be covered by warranty were performed
pursuant to the conditions of the warranty clause of the contract
for construction, the protest is granted as to the twenty-four
(24) items stated in the Specification of Drydocking" dated
October 6, 1988.

     The  protest is granted as to the duplicate charges.

                                     Sincerely,




                                     B. James Fritz
                                     Chief
                                     Carrier Rulings Branch