Customs Ruling HQ 228619 - Protest and Application for Further Review No. 2720-99-100334; Temporary Importation under Bond; HTSUS 9813.00.30; competitive racing; testing engines

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HQ 228619
Sep 12, 2001

Type : Bonds • HTSUS :
Related: 227594; 214437; 216531; 223971

CON-9-09-CON-10-
RR:CR:DR 228619 IOR

Port Director
U.S. Customs Service
11099 La Cienega Blvd.
Los Angeles, CA 90045

Attn: Jan Franck

RE: Protest and Application for Further Review No. 2720-99-100334; Temporary Importation under Bond; HTSUS 9813.00.30; competitive racing; testing engines

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the evidence provided, Customs records, and argument made on behalf of the protestant. Our decision follows a meeting between representatives of the protestant and this office, and receipt of a supplemental submission from the protestant. It is asserted that certain information submitted is confidential as business proprietary information. The information for which we have granted the privilege, has not been included in this decision.

The subject protest covers 13 entries of engines. Eleven of the entries have two line items. The first line item is for an engine classified under subheading 8407.34.4800, Harmonized Tariff Schedule of the United States (HTSUS), and the second line item is for a U.S. made engine exported and returned, and entered under subheading 9801.00.1010. One entry, 004-xxxx3321, has one line item, an engine under subheading 8407.34.4800. One entry, 004-xxxx6825, only has one line item which consists of the U.S. made engine exported and returned, and entered under subheading 9801.00.1010.

As the protest is requesting TIB treatment for engines which were liquidated under a dutiable HTSUS provision, and the merchandise under entry 004-xxxx6825 was entered under a duty-free provision and liquidated with no duty, it does not appear that any protestable issue is raised with respect to that entry. Therefore the protest should be denied with respect to this entry. This entry will also not be considered in the following analysis, as the protest and the issues raised therein are inapplicable to this entry. The subject entries were made from February 2, 1998 through May 8, 1998. Prior to filing the entries, on April 4, 1997 the protestant filed a blanket request under 19 CFR 10.31(g), that the entries be amended to TIB entries, under subheading 9813.00.30, HTSUS, prior to release of the merchandise. The file contains Entry/Immediate delivery forms (CF3461) for six of the twelve entries at issue. According to the CF 3461’s and Customs Automated Commercial System (ACS), the merchandise which is the subject of the entries at issue was released on the date of entry. The entries were liquidated from January 22, 1999 through March 19, 1999, as entered. This protest was filed on April 21, 1999. The protest is against Customs decision to deny the amendment of the entries under 19 CFR 10.31(g).

The protestant has entered Indy-style racing engines. The engines are manufactured by a research and development company (“R&D manufacturer”) related to the protestant. The engines consist of prototype engines which are imported for track testing, and development engines (D-engines) which are used in CART (Championship Auto Racing Teams) races. The CART race series includes races such as the Grand Prix of Long Beach, Grand Prix of Detroit, and Rio 200. Until 1997, the CART series included the Indianapolis 500.

According to the protestant, the prototype engines are not used in races, and are tested by other means. We have concluded that the prototype engines are eligible for entry under subheading 9813.00.30, HTSUS.

In support of the position that the D-engines qualify for entry under subheading 9813.00.30, HTSUS, the protestant stresses the evolving nature of race engines, the enormous demands placed upon the engine, the close examination and analysis of the engines after their performance in a race, and the fact that the results of the development and analysis of the D-engines are incorporated into “lease” specification engines (“L-Spec engines”) which are produced in the U.S. and leased to the lease teams.

The D-engines are used by a development team, with a specific development driver. The engines are used by the development team in practices before a race, the qualifying round that takes place before the race to determine starting positions and in the actual races. In addition, an engine is imported to be available to the development team in a backup car, to be used in the event of a problem with the principal car, and an engine is imported as a spare to be used in the qualifying round or race if a problem develops with the designated engine.

The submissions of the protestant show that new engine specifications, in compliance with CART rules, are developed, and tested initially on the prototype engines. After the analysis of the prototype engines, the refined specifications are incorporated into the D-engines which are used under race conditions. The

protestant describes the need to test the engines under race conditions as follows:

The focus of testing in the development engine stage is to determine whether potential improvements that have shown promising results in the bench and track testing will actually prove effective under actual race conditions. Testing under race conditions is critical: track testing simply cannot replicate the complex environment of an actual race or the reactions of a professional driver to race conditions. For example, during the course of a race, drivers make thousands of subtle adjustments in response to race conditions. The incremental difference in engine performance under those race conditions can be critical – and could pass completely unnoticed in the less demanding atmosphere of a track test. Similarly, actual races place greater strain on the engines, and so serve as the best means for evaluating durability and reliability.

After a D-engine is used in a practice, qualifying round or race, it undergoes analysis. The D-engine specifications are evaluated for possible implementation into L-Spec engines. The other drivers on teams sponsored by the protestant use L-Spec engines. The protestant has provided extensive documentation to establish that some specifications of the D-engines used in races are implemented in the L-Spec. engines, once the effectiveness of the new specification has been confirmed in the D-engine for several months. The protestant has also provided extensive documentation to establish that other specifications used in D-engines, found not to be effective, are not incorporated into the L-Spec engines. The protestant has provided extensive documentation showing the extent of the testing and analysis to which the D-engines are subject after the practices, qualifying, rounds and races. The L-Spec engines are also analyzed after the races.

The protestant has submitted the article on car races, by Tony Swan, “The Technology of Speed,” Popular Science (March 1997), which has the subtitle “Winning races calls for extreme measures.” The article discusses the technological challenges involved in developing successful race engine/chassis combinations, and refers to CART as “America’s motorsports techno-showcase.” In regard to racing in general, the article describes racing as “the ultimate chess game for auto designers relentlessly seeking the limits of aerodynamics, tire design, suspensions, and power” in which “before the flag drops, the challenge is designing and refining.” It goes on to say that even as they detail the state of the art in a particular venue, “someone, somewhere is working full-time to push beyond it.” The article was submitted for the purpose of describing the variety of tracks and circuits on which the races take place. The protestant has submitted a June, 1999 press release for the purpose of establishing that because the D-engine is being tested, it does not perform consistently. As cited in the protestant’s submission, the spokesperson, the protestant’s executive vice president, stated in the press release, the following:

We have one development car, which is [the development driver’s]. He probably didn’t appreciate that much last year because he had more engine failures than other people. …. There’s good news and bad news being a development team. Sometimes things work well and you’ve got a slight advantage. Sometimes you’ve got liabilities. [Other drivers] all won races with exactly the same engine. [The development driver] had a slightly different specification that we thought would be better, and maybe the engine blew. But we learned from that so the next time that engine came out, it was better and it went to everybody. Basically everybody uses the same engine, except that we always have at least one development car.

The next sentence, and not quoted in the protestant’s submission is “[t]his year we may not race the development car, but test with it instead.” With regard to racing in general, the protestant’s executive vice president stated in the press release:

Plus you have a series of races, so after every race you may want to change the product, which we do with our Indy-car engines. In almost every race, the engine is slightly different than the previous race. So in most cases the people learn more, and that in turn goes from racing back into production.

With regard to promotion for the protestant as a result of the races, the protestant’s executive vice president stated in the press release:

People follow the driver, not the engine manufacturer. You promote the driver, and by promoting the driver you’re promoting [the protestant] as well.

The protestant has confirmed that a car with a development engine, to the spectators of a race, is no different than any other car participating in the race, practices or qualifying rounds. The development car participates in a race to the same extent as do the other cars. According to the protestant the development team and development driver have specific contracts with the protestant or the R&D Manufacturer reflecting the development aspect of the team. Although requested, a contract between the driver and the sponsor was not provided.

An internet search regarding the protestant’s current development driver and team, shows that the driver is a high profile driver, and has been a CART champion while using the development engines in races, and in one season, finished in the top three in seven out of twenty races. The driver himself generates publicity, and upon his winning, the engine used in the race is identified as that of the protestant. From interviews with the driver, it is clear that his career is that of a racecar driver. According to a published interview with the team owner, the owner switched to the protestant’s engines for the team cars in part because of the driver’s experience with the D-engines. The recent end of the team’s losing streak was attributed to the combination of contracting with the development driver and using the protestant’s engines. In another article, it is stated that the protestant was ranked first in the constructor’s championship for its engines.

With respect to practices and qualifying rounds before the races, from an internet search we established that the times and speeds in practice runs and qualifying round are recorded and published. From a telephone call to a ticket agent for an upcoming CART race, we found that seats for the practices and qualifying rounds are sold to the public as well as for the races.

The protestant has previously taken the position that the imported engines are eligible for temporary importation under subheading 9813.00.35, HTSUS, which provides for:

Automobiles, motorcycles, bicycles, airplanes, airships, balloons, boats, racing shells and similar vehicles and craft, and the usual equipment of the foregoing; all the foregoing which are brought temporarily into the United States by nonresidents for the purpose of taking part in races or other specific contests.

The issue was the subject of a protest filed in 1994, and the protestant took the position that the engines were imported for the purpose of taking part in races. At issue was whether the engines were “brought into the United States by nonresidents.” Customs did not question whether the engines were brought in for races. In an August 15, 1994 submission related to the 1994 protest, the protestant stated “[s]ome of the engines involved may have been used only for practice sessions in order to test and evaluate their performance, not for either qualifying or the actual race.”

Protestant’s entries of the subject engines have been the subject of a Compliance Assessment Team review. According to a CAT submission, dated September 14, 1997, to this office, the protestant had been advised by the CAT, that entry of the engines under subheading 9813.00.30, HTSUS was inappropriate in light of the intended use of the engines in the races. According to the CAT submission, subsequently some entries were made by the protestant under subheading 9813.00.30, HTSUS, and those entries were rejected at the Port of Los Angeles, and the protestant was required to enter the engines under subheading 8407.34, HTSUS. In response, the protestant made the entries under the dutiable provision and attached a letter to each entry stating that the entry is subject to the filing of a request pursuant to 19 CFR 10.31(g). It appears that those entries are the subject of another protest. It is not clear whether the letter attached to the entries is the same one filed on April 4, 1997.

ISSUE:

Whether the subject development engines qualify for entry under subheading 9813.00.30, HTSUS.

LAW AND ANALYSIS:

The protest was timely filed under the statutory and regulatory provisions for protests (see 19 U.S.C. §1514 and 19 CFR Part 174), within ninety days of the liquidation of the entries. We note that the liquidation of an entry and the classification and rate and amount of duties chargeable are protestable issues under 19 U.S.C. §1514(a)(2) and (5), however they are not protestable if the entries were liquidated as entered, unless Customs directed how the entries are to be made. See HQ 227594, dated April 21, 1999.

In this case, Customs had previously rejected the protestant’s entries of the subject engines under the TIB provision. We conclude that Customs did make a determination regarding the merchandise entered by the protestant, and Customs did make a decision that is protestable under section 1514, as to the classification of the imported merchandise. See, McDonnell Douglas Corp. v. United States, 78 Cust. Ct. 92, C.D. 4692 (1977) (the Court considered whether the importer had even attempted to file entries under the asserted provision, or had been directed by Customs under which provision to file the entries).

It is asserted that the Customs decision protested is that of denying amendment of the entry to a TIB entry, under 19 CFR 10.31(g). A request for amendment under 10.31(g), is provided for as follows:

Claim for free entry under Chapter 98, Subchapter XIII, HTSUS may be made for articles of any character described therein which have been previously entered under any other provision of law and the entry amended accordingly upon compliance with the requirements of this section, provided the articles have not been released from Customs custody, or even though released from Customs custody if it is established that the original entry was made on the basis of a clerical error, mistake of fact, or other inadvertence within the meaning of section 520(c)(1), Tariff Act of 1930, as amended, and was brought to the attention of the Customs Service within the time limits of that section. If an entry is so amended, the period of time during which the merchandise may remain in the Customs territory of the United States under bond shall be computed from the date of importation. In the case of articles covered by an informal mail entry, such a claim may be made within a reasonable time either before or after the articles have been released from Customs custody.

(Emphasis added).

In this case, the request for amendment was made prior to the entry of the merchandise. The regulation does not provide for requesting amendment of an entry prior to the entry having been made. Further, even if we were to consider the protest as a request to amend the entry subsequent to the release of the merchandise, such request would have to be denied as it does not claim any clerical error, mistake of fact or inadvertence in the entry of the merchandise. The filing of the blanket request, prior to the entry of the merchandise is irrelevant in this case, because it is not inaccordance with the regulations.

Subheading 9813.00.30, HTSUS, provides for the temporary duty-free entry of:

Articles intended solely for the testing, experimental or review purposes, including specifications, photographs and similar articles for use in connection with experiments or for study.

Such articles when not imported for sale or sale on approval may be admitted into the United States without the payment of duty, under bond, for their exportation within 1 year from the date of importation, which period, in the discretion of the Secretary of the Treasury, may be extended upon application, for one or more further periods, which when added to the initial 1 year shall not exceed a total of 3 years. See U.S. Note 1(a) of subchapter XIII, Chapter 98, HTSUS.

Articles may be entered under subheading 9813.00.30, HTSUS, when there is an intention to test the article itself, or when the imported articles or merchandise are imported to be used as the raw material in testing another domestic or imported article. However, free entry is not available for importation of articles which, rather than being tested themselves, are imported to measure the performance of other articles.

A controlling factor under subheading 9813.00.30, HTSUS, is whether there is a legitimate test, experiment, or review of the imported article within the meaning of the law. See generally Customs Service Decisions (C.S.D.) 82-64, 83-45 and 84-59. How the vehicles themselves are to be tested or how they are to be used in connection with a test or a review is the focus of whether the articles are eligible for temporary entry under this particular subheading.

In C.S.D. 83-45 (HQ 214437, dated January 11, 1983), Customs stated that for purposes of entry under TIB, the statute is not “ limited to the performance of ritualized testing operations upon imported equipment, but also extends to cover less rigorous procedures so long as they are designed to yield information about the imported articles which was not known prior to completion of the procedures.” C.S.D. 83-45 at 808. This language is cited by AH, and was cited in HQ 216531, dated December 28, 1983, in which case Customs permitted entry under TIB for testing Canadian locomotives in regular revenue service in the U.S. The testing equipment and facilities, and officers of the U.S. railway company were located in the U.S. and were not available in Canada. The locomotives were fitted with devices intended to provide greater traction.

The protest relies heavily on Customs decisions HQ 216531, dated December 28, 1983, and HQ 223971, dated May 22, 1992, but also cites to other decisions.

HQ 216531, addressed two issues which are at issue in this case. The first issue is whether use in commercial pursuits precludes entry under the TIB testing provision, and the second is whether the primary purpose of the importation must be testing. In HQ 216531, Customs stated:

There is no implied or express prohibition against commercial use of an article entered under the provisions for [TIB], except that the article cannot be sold or offered for sale... In an internal memorandum dated August 11, 1977, the Director, Carriers, Drawback and Bonds Division concluded that “solely” was not meant to preclude operations compatible with testing, review, or evaluation. The Director noted that earlier rulings seemed to establish a “prime use” test for item 864.30 and its predecessor provision, but did not expressly apply such a test. The Director concluded that a factual determination of the primary purpose of the importation is of paramount importance in these cases. “Solely” is not to be interpreted as “exclusively.” Therefore, subjecting articles being tested to other uses is not prohibited as long as such uses are necessary or can reasonably be calculated to assist in the testing.

(Emphasis added; item 864.30 TSUS is the predecessor of subheading 9813.00.30, HTSUS, and the two are substantively the same for purposes of this decision). The decision went on to discuss that the testing could only be performed in revenue or simulated revenue pursuits. The simulated testing would not have been cost effective and would have placed an unnecessary burden on the U.S. railway company. If the analysis stopped here, the D-engines may be eligible for the testing TIB entry. The protestant does assert that track testing cannot replicate the race conditions. However, HQ 216531 did not stop at this point. In allowing the TIB importation, the decision concluded that “the primary purpose for importing the equipped locomotives are testing and evaluation.” The protestant does not even attempt to take the position that testing of the engines is the primary purpose for importing the D-engines.

HQ 223971, dated May 22, 1992, involved the importation under subheading 9813.00.30, HTSUS, of a high-speed train to be used during regularly scheduled Amtrak service. In that case there was no issue on the question of whether the primary purpose of the importation was testing. Amtrak intended to test several different high-speed trains for the purpose of comparing the technology and economic feasibility of the various types of equipment, prior to purchase. After testing the different technologies, Amtrak would develop design specifications for its high-speed rail equipment. The issue was whether the revenue demonstrations would preclude entry under subheading 9813.00.30, HTSUS. We found that the use of the train in regularly scheduled service as part of the test procedures did not preclude importation of the train under TIB. In the analysis, Customs stated:

With regard to the use of the imported article in a commercial setting, any such use which is not incidental to the testing and evaluation program would constitute a violation of the bond resulting in the assessment of liquidated damages on an amount equal to double the estimated duties determined at the time of entry.

(Emphasis added).

In HQ 223971, there was additional objective information to support that the train was imported for testing. The train was being imported subject to a short-term arrangement known as a “Train testing Agreement” between the importer and the supplier. The inquiry also included a copy of a letter from a potential American manufacturer in support of the importation.

We do not disagree that testing and extensive analysis of the D-engines used in the races, practices and qualifying rounds occurs. However, we find that the primary purpose of the importation of the engines is to use them in races, whether as the actual race car engine, in a qualifying race, or as a spare. Based on the facts, it cannot reasonably be concluded that the race, with its results and publicity, is incidental to the testing. An incidental use connotes one of a minor, casual or coincidental nature. The facts indicate that the nature of all of racing is constant analysis and refinement of technology, and that the participants are competing by the use of technology and skill, and strive to improve with each race, based on the prior performance. This is evident from the quotes from the Popular Science article, and the comments of the protestant’s executive vice president that, in each race the engine is different from the previous race due to information obtained from the prior race and resultant refinement. The development engine is not the only one improved, refined or changed after a race. Even if the review and analysis of performance were more rigorous for a development engine, and even if the performance of an engine in a race determines whether or not a specification is later incorporated into an L-spec engine, the primary goal of the race, appears to be performance in the race.

Based on the protestant’s 1999 press release, even its executive vice president views the race as separate from testing. The development driver’s career, the protestant’s reputation, and the development team owner’s reputations are all at stake depending on the race performance of the D-engine, and not the test results. It is apparent from the protestant’s 1999 press release, that promotion for the engine is a result of performance in the races. While the test results may go hand in hand with the engine performance, the testing cannot be found to be the primary purpose of the importation of the engines. The promotion occurs with the practices and qualifying races as well, because those results are published and followed by the spectators as well as the actual races.

Racing, as the purpose of the importation of the engines is also supported by the fact that the protestant has previously attempted to import the engines under subheading 9813.00.35, HTSUS, which permits a non-resident to import an automobile and the usual equipment for purpose of taking part in a race. The protestant was denied entry under subheading 9813.00.35, HTSUS, as the protestant does not qualify as a non-resident.

In HQ 216531, supra, where Customs permitted entry under TIB for testing of anti-slip devices on locomotives to be used in regular service in the U.S., it was stated that the purpose of the testing TIB law was “to advance business interests by the exchange of ideas under a limited time period.” In this case, while there may be an exchange of ideas between the R&D manufacturer and the protestant, the testing appears to be continuous by the use of different engines in the races, and there is no limit on the time the testing will continue on the different engines, nor the number of engines that will be tested over the years. The testing in races does not fall within the limited time intended by the testing provision. Based on the foregoing, we conclude that the subject engines are not eligible for entry under subheading 9813.00.30, HTSUS.

HOLDING: The subject development engines do not qualify for entry under subheading 9813.00.30, HTSUS, as testing is not the primary purpose of the entry of the engines.

The protest should be DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

John Durant
Director, Commercial
Rulings Division