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HQ 111790

January 22, 1991

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


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.


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.


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

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.


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.


B. James Fritz

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