CON-9-04-RR:CR:DR 227512 SAJ
Port Director of Customs
U.S. Customs Service
511 NW Broadway Street
Portland, OR 97209
ATTN: Megan Fishel (719)
Entry Specialist
RE: Internal Advice Request from Oregon Metallurgical Corp.; Temporary Importation Bond provisions concerning sales; Harmonized Tariff Schedule of the United States, subheading 9813.00.0520; 19 C.F.R. 101.1(k), 19 C.F.R. 10.37; Ex-
portation defined; Purchasing agent; FIFO accounting; NAFTA schedule X; T.D. 98-16; Retroactive treatment;
Summary submission
Dear Sir or Madame:
This office has reviewed the above-referenced request for internal advice initiated by a letter dated April 1, 1997, from Oregon Metallurgical Corp. We have considered the request and have made the following decision.
FACTS:
The evidence relating to the export sales consists of the following two sets of documents: The first set concerns KBK Inc.
KBK Inc. purchase order 503038 to Oremet for 22,000 pounds of 6 AL 4V titanium alloy that was to be shipped to Kyokuto Boeki Kaisha, Ltd. at Tokyo, Japan. KBK, Inc. is said to be the U.S. based subsidiary of Kyokuto Boeki Kaisha, Ltd. Under the purchase order, KBK, Inc. assumed responsibility for payment.
Oremet’s invoice 98090 to KBK Inc. referencing purchase order 503038 which covered the shipment is the next document.
The invoice describes the covered merchandise as two sets of
13 billets weighing 11,326 and 11,312 pounds respectively.
The invoice identifies the billets as D950591 and D950562, respectively.
A bill of lading showing Oremet as the shipper and KBK Inc. as the consignee. The bill of lading references the Oremet invoice number. The bill of lading covers the shipment from Oremet to Los Angeles.
An On Board Shipping Line bill of lading covering the shipment to Japan from Los Angeles showing KBK Inc. as the shipper and Kyokuto Boeki Kaisha Ltd. as the consignee.
The second set covers a transaction involving Oremet, Trahide Co. and Industrias Electroquimicas S.A. of Peru.
The first document is Oremet invoice 99157 to Trahide Co. referencing Trahide’s purchase order P.O.845 and Oremet’s order
OS 953332. The invoice covers 6600 pounds of standard melt grade titanium sponge and there is a merchandise lot identification of RM955075.
A copy of Trahide’s purchase order P.O.845, which refers to the invoice merchandise lot identification number, RM955075, and states that the sale would be F.O.B. Portland, Oregon. The order is dated November 10, 1995.
The Oremet invoice is dated December 6, 1995.
There is an Oremet bill of lading (99157) which shows that the truck is to deliver the titanium to the vessel “C. Val- paraiso” for shipment to Peru. There is a vessel bill of lading showing that the vessel loaded the titanium at Seattle, Washington for shipment to Peru.
The file also contains the following documents relating to import and production.
Sanyu Kigyo Co. invoice 227529 GR dated September 11, 1995, covering four different lots of titanium sponge, with a declared Kazakhstan origin.
A document identified as a “Traveler” in counsel’s letter to this office dated September 4, 1997. The copy of the Traveler refers to Oremet’s customer, SNECMA and identifies the titanium as Heat RT970045. Counsel states that this document accompanies the titanium article after the melt until the article is shipped to the customer. The Traveler is dated January 23, 1997. The Traveler describes a series of 24 processing steps, apparently beginning with the cast ingot and ending with the final inspection before shipment to the customer.
An illustrative production processing diagram shows receipt into Oremet’s warehouse where the weight and identity are said to be verified. At the warehouse, a lot number is assigned. The diagram shows that the next step is described as the primary operation: melting, mixing, weighing and blending and alloying,
among other processes. After melting, the diagram shows that imports can either be sent to various finishing operations or be sent to the customer directly.
There is a listing of the waste in the manufacturing process and the net yields. However, it is unclear how that information relates back to a particular importation.
There is a description of the production processing diagram steps entitled “CIS(Commonwealth of Independent States) Sponge Process Procedure.” At the warehouse, the document states that after the CIS sponge is received, it is weighed and any discrepancies in quantity are noted. According to the document, Oremet control numbers such as RM93346, are assigned. The document gives the following meanings to the number:
RM means raw material
93 means the year received (1993)
3 means that it is CIS material
346 are last three digits of the original
CIS lot number.
The document states that an Oremet raw materials lot number is assigned, giving the example, RM933009. The document states that the Oremet raw materials lot number is traceable to the vendor lot number. Thus, RM933009 would identify the same titanium sponge identified by the vendor lot number in the example, RM933346. Since the last three digits don’t match, the example does not appear to follow the above code.
The letter of Oremet’s broker dated August 9, 1996 to Portland Customs identifies two documents as records of two heats. While the exhibit No. indicates that these are heat records neither heat number appears and the documents are titled:
Blend 94-151(A-C) dated May 2, 1994 and
Blend 94-160(A-D) dated May 9, 1994
Blend 94-151(A-C) lists three Oremet identification numbers (P13848, S4650, and P13882) in one section and Oremet identi- fication number 940132, 60 pounds of titanium dioxide bricks and 18 pounds of iron turnings in another section. The end totals indicate all of the listed inputs made the blend.
Blend 94-160(A-D) lists two identification numbers (B13914 and B13913) in one section and three Oremet identification lot numbers(940063, 940132 and 940138), together with 84 pounds of titanium dioxide and 16 pounds of iron in another section. The end totals indicate all of the listed inputs made the blend.
There is a listing of 1993 exports sales said to be eligible for T.I.B. cancellation but the list does not contain apparent reference to any importation. It does list heat numbers.
There is a Oremet Sponge Heat List dated July 31, 1996 which covers 12 heats for the period August 12, 1993 to July 12, 1996. Counsel’s letter of July 10, 1997, states that this document shows the amount of sponge used in the exported articles. The list does not identify specific exports.
There are additional diagrams showing different processing steps in the manufacture of titanium mill products but none identify entry, manufacturing, or export records.
Finally, this office received electronic messages and a facsimile transmission dated March 31, 1998, concerning the issue whether a sale to a foreign customer in which the foreign customer takes possession in the U.S. of the T.I.B. article comes within the prohibition against sales in subchapter XIII, Chapter 98, HTSUS. A copy of Oremet’s invoice 108404 showing a sale to a Swiss company and Oremet’s delivery to an air carrier at JFK International airport was included in the file.
ISSUES:
Whether the proscription against sale or offer for sale in subchapter XIII, Chapter 98, HTSUS, is violated by a sale to a U.S.-based affiliate to carry out the delivery to the foreign affiliate?
Whether the proscription against sale or offer for sale in subchapter XIII, Chapter 98, HTSUS, is violated when a person in the U.S. purchases the T.I.B. goods and later sends those goods to its overseas customer.
Whether the proscription against sale or offer for sale in subchapter XIII, Chapter 98, HTSUS, is violated if the foreign purchaser takes possession of T.I.B. goods in the U.S. pursuant to its sale contract?
Whether there is sufficient evidence showing that Oremet can attribute exports back to a T.I.B. entry using first-in, first-out inventory management accounting records?
LAW AND ANALYSIS:
The proscription against sale or offer for sale on temporarily imported goods is in chapter note 1(a), subchapter XIII, Chapter 98, HTSUS. The proscription has existed since the Tariff Act of 1913. The proscription was contained in the proviso to Section IV, paragraph J, subsection 4 of that Act. It was continued in Section 308 of the Tariff Act of 1922, Section 308 of the Tariff Act of 1930 and Headnote 1(a), subpart 5C, Schedule 8, TSUS.
The courts and Customs have interpreted the provision. In Louise & Co. v. United States, 8 Ct. Cust. Appls. 430, T.D. 37669 (1918), the court interpreted the 1913 Act provision. The decision dealt with two companies: Louise & Co. And La Mode Importing Co. However, only the facts of La Mode were discussed. La Mode imported gowns for use as manufacturing models. After that use, La Mode sold the gowns to Robinson & Co. Of Winnipeg, Canada. Pursuant to that sale, the gowns were sent to the Canadian buyer, although the details of the sale and the shipment to Canada were not reported in this decision or the decision of the Board of General Appraisers, T.D. 37590 (1918). The Board of General Appraisers held that any sale came within the pro- scription. That holding was reversed by the appellate court. The appellate court held that if the sale was to effect or complete the exportation, the sale was outside the proscription. That is, if a sale is the means by which the goods are carried out of the country and exported, there is no violation.
In Grab Fashion Co. et al v. U.S., 10 Ct. Cust. Appls. 42, T.D. 38262 (1920), the court again interpreted the provision in the 1913 Act. The court affirmed the Board’s decision that a proscribed sale and offer for sale occurred notwithstanding the fact that some of the goods were exported. The court found that “when the garments were received in New York, they were immediately placed upon inspection for sale or rent to other manufacturers of women’s garments.” The court noted that “Notices in writing or by telephone were promptly sent to numerous customers of the importers advising them of the receipt of the garments and commending the articles as desirable models of the season’s styles, and also requesting that the customers call without delay to inspect them.” See 10 Ct. Cust. Appls. at 42.
Customs, in a series of decisions which were published as abstracts, followed the courts’ interpretations. For example,
T.D. 54624(25)(1958)states that merchandise which is to be sold in the United States for exportation to a foreign purchaser is not imported for sale or sale on approval within the meaning of section 308(the then TIB provision).
The KBK purchase order states that the titanium alloy was destined for Japan at the time the order was made on April 28, 1995. The documentary evidence shows the intent of the sale was to carry out the exportation. The Ormet invoice of August 29, 1995 further supports the intent of the sale was to carry out the
exportation by listing the intended foreign recipient. The shipping documents which show that the goods went from Oremet’s plant at Albany, Oregon to Los Angeles and then by ship to Japan to the recipient show that the purpose of the sale was to effect the exportation. The evidence shows a transaction that comes within the court’s interpretation in Louise & Co. v. U.S., supra.
The evidence in the second transaction involving Oremet to Trahide to Industrias Electroquimicas fits more closely with the circumstances in Grab Fashion Co, supra, than with the circum- stances in Louise & Co, supra. While the titanium did get exported, the evidence fails to show that the Oremet-to-Trahide sale was incident to that exportation. The Trahide Purchase Order to Oremet dated November 10, 1995 shows no foreign destination. The terms of sale “FOB Portland, Oregon” do not necessarily indicate any foreign destination particularly since Trahide is in Key Biscayne, Florida. While the Oremet invoice to Trahide contains handwritten notations referencing the name of the vessel that took the goods to Peru, there is no explanation as to the author of that notation nor as to the date they were written.
The Oremet bill of lading dated December 6, 1995 which covered the shipment from Oremet’s plant in Albany, Oregon to Seattle, Washington, did list the vessel “Valpariso”, vessel voyage number, and the destination of Callao, Peru. The shipment from Seattle to Callao, Peru is covered by the vessel company’s bill of lading dated December 13, 1995. As noted above, the terms, both in the Trahide Purchase Order and the Oremet invoice were FOB Portland, Oregon. The Oremet bill of lading shows that the transaction changed to have the goods sent to Seattle, Washington, rather than to Portland, Oregon. The movement of the goods started almost one month after the purchase was made, without any intent to export being shown on the documentary evidence. The vessel booking number of 5PDXNA8041 on the Columbus Line Ocean bill of lading dated December 13, 1995 does not match exactly the handwritten notation on the Oremet invoice of
December 6, 1995(5PDXNA8041 via 5PPONA8044) although there is a match between the vessel name and voyage number on both doc- uments. At most, it would seen that the handwritten notation occurred no earlier than the Columbus Line booking contract and the evidence indicates that contract was more than one month after the sale between Oremet and Trahide. Based on the evidence in the file, the Oremet-to-Trahide sale appears to come within the decision in Grab Fashions Co., supra, and, therefore, would be in violation of the statutory proscription against sale of T.I.B. goods.
The question of possession by the foreign purchaser in this country would also seem to be answered by the court’s inter- pretation in Louise & Co., supra. The evidence with respect to the possession by the foreign buyer shows that the sale was to the foreign buyer. The relevant invoice shows a sale to a Swiss company and delivery to JFK airport. The invoice contains a warning against unlawful diversions in violation of the regulations of the U.S. Export Administration as well as the statement that the commodities covered by the invoice are being exported in accordance with those regulations. The concurring opinion in the Louise & Co. decision was based on the assumption that the T.I.B. importer was the export shipper. The court’s opinion, however, focused on whether the sale effected or completed the exportation rather than the identity of the shipper. Compare 8 Ct. Cust. Appls. 433 with 8 Ct. Cust. Appls. 434. The court rejected the argument that the issue turned on whether the exportion shipment was one of sale or consignment. Consequently, sale to a foreign purchaser with the foreign purchaser only carrying out the exportation does not constitute a violation of the proscription of the statute.
The final issue concerns the use of an accounting method to identify a particular import of merchandise within a mass of commingled, fungible goods.
First, the letter of the Director, Entry Division, Office of Trade Compliance, dated July 28, 1994, is not a ruling within the meaning of 19 C.F.R. 177.1(d)(1) and (6). Paragraph (d)(1) defines a ruling as a written statement issued by the Head- quarters Office or the appropriate office of Customs as defined by Part 177. Paragraph (d)(6) defines the Office of Regulations and Rulings as the relevant Headquarters Office. The Entry Division, Office of Trade Compliance, is not within the Office of Regulations and Rulings. The designation of the Office of Regulations and Rulings as the Headquarters Office responsible for issuing rulings was made by T.D. 75-186, 9 Cust. Bull. 396. (1975). The definition of a ruling in paragraph (d)(1) has
remained substantially unchanged since its promulgation by
T.D. 75-186, 9 Cust. Bull. 395 (1975). There was a change pro- mulgated by T.D. 80-285 which permitted tariff rulings within the jurisdiction of the then Regional Commissioner of Customs, New York Region to issue. However, rulings involving interpretation of the temporary importation under bond law were not so delegated. Consequently, the only office authorized to issue a statement of the Customs Services’ position on the subject matter area was that of the Office of Regulations and Rulings.
The Customs Service has provided examples of the acceptable application of first-in, first-out accounting methods to identify specific imports of merchandise within a mass of commingled, fungible goods. Those examples are set forth in Schedule X to
the Appendix of Part 181, Customs Regulations and in 19 C.F.R. 191.14(c)(1)(1998 ed.). The file does not include Oremet’s inventory records. Therefore, whether Oremet’s recordkeeping is in compliance with a first-in, first-out accounting method cannot be determined. However, the file does contain evidence which indicates that Oremet treats titanium sponge from the Common- wealth of Independent States separately. Moreover, the evidence with respect to the heats, an invoice to Sanyu Kigyo Co. Of September 11, 1996 showing a country of origin of Kazakhstan, and the Oremet invoice to Trahide Co. indicates that Oremet main- tained identity of that sponge throughout the processing steps. In any event, there is a lack of evidence to show that first-in, first-out accounting records were maintained by Oremet.
HOLDING:
1. A sale, in which the evidence shows was simply incident to the carrying out of the exportation does not violate the prohibition against sale in Chapter Note 1(a), Subchapter XIII, Chapter 98, HTSUS, following the holding in Louise & Co. v. U.S., 8 Ct. Cust. Appls. 430, T.D. 37669(1918).
2. A sale between a T.I.B. importer to another company in the U.S. of the T.I.B. merchandise that was not incident to the exportation is a violation of the prohibition against sale under Chapter Note 1(a), Subchapter XIII, Chapter 98, HTSUS, even if ultimately the T.I.B. merchandise was exported, following the holding in Grab Fashion Co. et. al. v. U.S., 10 Ct. Cust. Appls. 42, T.D. 38262(1920).
3. Possession by the foreign buyer of T.I.B. goods in the U.S. pursuant to a sale between the foreign buyer and the T.I.B. importer does not violate the prohibition of Chapter Note 1(a), Subchapter XIII, Chapter 98, HTSUS; if the sale is incident to carrying out the exportation.
4. There is insufficient information on Oremet’s inventory records to determine if Oremet is identifying specific T.I.B. imports under an acceptable first-in, first-out accounting method as illustrated by Schedule X, 19 C.F.R. Part 181, Appendix, and 19 C.F.R. 191.14.
The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Freedom of Information Act and other public access channels 60 days from the date of this decision.
Sincerely,
John Durant, Director
Commercial Rulings Division