DRA-1-09-RR:CR:DR
229644RDJ
Assistant Port Director
610 S. Canal St.
Chicago, IL 60607-4523
RE: Protest No. 3901-02-100878; Davis & Geck Ltd.
Definition of Exportation; Drawback
Dear Sir:
This is in reference to Protest No. 3901-02-100878 filed by Sandler & Travis Trade Adv. Serv. Inc. on behalf of Davis & Geck Ltd ("D&G"). Our decision follows.
FACTS:
Davis & Geck protested the liquidation of the following drawback entries: WY7-XXXX463-8, WY7-XXXX467-9, WY7-XXXX469-5, WY7-XXXX625-2 and WY-XXXX655-9. The claims for drawback were denied by the Port of Chicago and liquidated at $0.00 on March 1, 2002. The Port denied the drawback claims because it determined that the alleged exportations did not qualify as valid for drawback purposes.
Drawback entry # WY7-XXXX463-8 was filed on October 21, 1999 stating a claim for drawback in the amount of about $29,XXX.XX. Drawback entry # WY7-XXXX467-9 was filed on October 22, 1999 making a claim for drawback in the amount of about $25,XXX.XX. Drawback entry WY7-XXXX625-2 was filed on December 4, 2002, making a claim for drawback in the amount of about $27,XXX.XX. Drawback entry no. WY7-XXXX469-5 was filed on November 30, 2000 making a claim for drawback in the amount of about $32,XXX.XX and drawback entry no. WY7-XXXX655-9 was filed on January 30, 2001 making a claim for drawback in the amount of about $18, XXX.XX.
On each of these drawback entries, the port issued a CF29 Notice of Action stating that the referenced claims had been liquidated at $0.00 due to the claimant's failure to comply with 19 C.F.R. 191.2 (m). The CF29 stated specifically that the "shipments to the Dominican Republic did not qualify as valid exportations for drawback purposes because there was no intention of uniting the kits with the mass of goods belonging to the Dominican Republic".
D&G is a manufacturer of surgical supplies. It imports needles and sutures and subjects them to further processes in order to make them fit for surgical procedures. On December 6, 2001, the Office of Rulings and Regulations approved a specific manufacturing drawback ruling under 1313(b) (HQ 229243). The process of manufacture was described as the coating of the needles with silicon which provided a permanent lubrication considered necessary for surgical procedures. At D&G's plant in Puerto Rico, the sutures underwent a certain heat treatment process (in order to adhere the silicon to the needles) and cutting in accordance with customer requirements. In HQ229243, it was determined that these processes (coating by silicon, heat treatment and cutting to length for surgical use), resulted in an article made fit for a particular use. However, another aspect of the manufacturing process involved the threading of the needles to the sutures. In order to accomplish the threading, D&G would ensemble the kits in Puerto Rico (as described above) and ship them to the Dominican Republic. In the Dominican Republic, the suture and needles would be removed from the kits, threaded and placed back into the kits. The kits would then be shipped back to Puerto Rico where they would be sterilized and sold either to domestic or foreign markets. The issue in this protest is whether the transfer to the Dominican Republic to accomplish the threading, qualified as an "exportation" for drawback purposes.
In its protest, D&G claims that it complied with all the requirements of 19 U.S.C. 1313(b) and 19 C.F.R. 191, including the requirement of exportation. D&G states that upon return into Puerto Rico, duty was paid on the appraised value of the kit less the value of the U.S. components. D&G requests that the drawback entries be reliquidated with the duty as asserted in their drawback claims. D&G stated that any liquidation otherwise would be contrary to the evidence presented in HQ228670 (response to the internal advice requested by the Port to OR&R) and HQ 229243.
As evidence of exportation, D&G submitted two sets of import documents from the Dominican Republic. These are almost illegible as to the merchandise identified but they do correspond to the importation of medical sutures and needles to the Dominican Republic. The transfer from US territory into the Domican Republic is evidenced by the airwaybills and the "Despacho de Mercancias" show the Dominican Customs' "release". In one set, there is an airwaybill identified as #19801422120 which corresponds to the one identified in drawback claim WY7-XXXX467-9. The date of the shipment is October 7, 1997 and the recorded value is about $108,XXX.XX. The Dominican import document contained what appeared to be a date of importation, October 8, 1997. Another document is titled "Despacho de Mercancias" dated October 7, 1997, it identifies the airwaybill #198-01422120. It released the stated merchandise, described as four containers of "parts for the manufacture of medical sutures". The declared value corresponds to the values recorded in the invoices (# 97205 and #97206, which are associated with the above-identified airwaybill 19801422120). The invoices state that the "declared value is for Customs purposes only" and, at the bottom right of the page, they state "NO CHARGE" to the affiliate, Sherwood Davis & Geck Caribe, Inc. located at Itabo Haina, Santo Domingo.
The other airwaybill is identified as # 19801422234 with an export date of November 21, 1997. It also corresponds to WY7-XXXX467-9. The declared value in the airwaybill is illegible. The Dominican import document appears to be dated November 22, 1997 identifying 7 containers consisting of medical sutures and needles, valued at $272,XXX.XX. The "Despacho De Mercancias" document dated November 22, 1997 identifies the same amount of $272,XXX.XX as the value of the merchandise. D&G submits two invoices ( #97226 and #97227) as applicable to this particular importation. Invoice # 97226 and #97227 declare a certain value (almost illegible) "for Customs purposes only" and "NO CHARGE" (at the right hand corner) to Sherwood Davis & Geck, Caribe Inc., Itabo Haina, Santo Domingo.
ISSUES:
Does the shipping of the subject articles to the Dominican Republic for further assembly constitute an "exportation" for drawback purposes?
LAW & ANALYSIS:
Initially, we note that the subject protest was timely filed on May 29, 2002, within 90 days of the liquidation of the subject drawback entries (May 1, 2002) in accordance with 19 U.S.C. 1514 (a)(6) and (3)(a).
Compliance with the Customs Regulations on drawback is mandatory and a condition for payment of drawback (United States v Hardesty Co. Inc. 36 CCPA 47, C.A.D. 396 (1949); Lansing Co. Inc. v. U.S., 77 Cust. Ct. 92, C.D. 4675; Guess? Inc. v U.S. 944 F.2d 855, 858 (C.A.F.C. 1991) As noted, D&G was authorized by Customs on December 6, 2001 (HQ 229243) to claim drawback under the provisions of 19 U.S.C. 1313(b), manufacturing drawback. In order to claim drawback, the manufactured or produced article must be exported or destroyed under Customs supervision. The issue in this case is whether the shipment to the Dominican Republic constituted an exportation in accordance to 19 C.F.R. 191.2(m)(1).
According to 19 C.F.R. 191.2(m)(1), "exportation" for purposes of drawback means the severance of goods from the mass of good belonging to this country with the intention of uniting them with the mass of goods belonging to some foreign country. This definition is consistent with the decision of the Supreme Court in the case of Swan and Finch Co. v. United States, 19 U.S. 143 (1903) ). It has been held that the intention of the parties at the time of shipment abroad is the controlling factor in the determination of whether or not the shipment is an exportation (F.W. Meyers & Co., Inc., v. United States, 29 Cust. Ct. 202, C.D. 1468 (1952)). In 19 C.F.R. 101.1, the definition of "exportation" adds that a shipment of merchandise abroad with the intention of returning it to the United States with a design to circumvent provisions of restriction or limitation in the tariff laws or to secure a benefit accruing to imported merchandise is not an exportation.
In this case, D&G shipped the kits of needles and sutures to the Dominican Republic where they were threaded and returned to Puerto Rico to be sterilized and sold to both foreign and domestic markets. What is determinative is to establish D&G's intention at the time of shipping. As described in the protest, the intent was to transfer the items to the Dominican Republic in order to accomplish the final threading of the sutures prior to their sterilization upon their return into the U.S. territory. Intent can only be inferred from acts and circumstances (see, American Custom Brokerage (a/c Astral Corp.) v. U.S., 72 Cust. Ct. 245, 375 F.Supp. 1360 (1974) (testimony of vessel owner and vessel captain coupled with the actual return of the vessel to the Mediterranean showed an intent not to bring the vessel permanently into the U.S. and that intent resulted in the absence of an importation) and Rentner v. U.S., 15 Ct. Cust. Appl. 147 (1927) (since intent not to sell gowns imported under a TIB entry was contradicted by sales within a few days after importation).
Customs has issued a number of rulings interpreting the definition of exportation for drawback purposes. In HQ 212451, the process of exportation was analyzed as to whether a domestic sugar refinery shipped sugar to Canada where the Canadian customer packaged the sugar and shipped it back to the U.S. for consumption. While this case is similar to the situation involving D&G, it was relevant that the sugar was sold to the Canadian customer who packaged and returned it to the U.S. for consumption. The case noted that the primary issue was that of intent, that "uniting with the mass belonging to a foreign country" occurs when any bona fide commercial purpose is proven" (see, HQ 212451). Therefore, for purposes of drawback, an exportation did occur when the U.S. sugar corporation sold the sugar to their Canadian customer who packaged it and returned it to the U.S. for consumption. Another aspect was also analyzed by this ruling. It stated that if the sugar is shipped to a foreign country merely for warehousing and it is intended to be returned into the U.S. for consumption, then it would not constitute an exportation for drawback purposes. This is an important distinction because in the D&G case, the items were not merely warehoused but further assembled which was the purpose of the exportation.
In HQ 223701 (May 28, 1992), it involved the importation of medical tablets. Upon importation to the U.S. duties were paid. Thereafter, part of the shipment was exported abroad and drawback was claimed. Abroad, the tablets were packaged and returned to the U.S. Upon their return to the U.S., the claimant paid full duties on the value of the returned merchandise and on the cost of packaging. Upon review of the protest, Customs determined that the claim for drawback should have been granted since the merchandise was shipped abroad for a valid commercial purpose (packaging) independent of obtaining drawback. The items had paid duties upon their initial importation into the US and subsequently, again, upon their return after packaging. There was no evidence that the merchandise was shipped abroad "with the intention of returning it to the United States with a design to circumvent provisions of restriction or limitation in the tariff laws or to secure a benefit accruing to imported merchandise" (19 C.F.R. 101.1). In Camera Specialty Co., v. U.S., 34 Cust. Ct. 27, C.D. 1672 (1955), the court held that camera lenses and lens parts manufactured in the Russian Zone of Germany, imported into the U.S., shipped to the Western Zone of Germany for repair, and returned to the U.S. in their repaired condition were considered to be exported from the U.S. when they were shipped to the Western Zone of Germany for repair.
Consistent with the definition of "exportation" in the Customs Regulations and the above court case, we have stated that "'uniting [goods] with the mass of things belonging to some foreign country' occurs when any bona fide commercial purpose is proven." In C.S.D. 82-154 (HQ 214285) watches made in the U.S. were transported to Canada to be stored at their distribution center pending sale orders throughout the Western Hemisphere without specific knowledge as to whether a percentage of the watches would end up in the U.S. market. Customs determined that this constituted an "exportation" for drawback purposes. In C.S.D. 82-155, an exportation did not occur when the owner of an imported truck sent the trucks to Canada for disassembly and re-entry into the United States because the sole purpose of shipping the truck abroad was to obtain drawback and to take advantage of the difference in duty. D&G states that upon return into Puerto Rico, duty was paid on the appraised value of the kit less the value of the U.S. components. In Timex Corp v US 12 CIT 629, 691 F.Supp. 1445, Timex combined imported crystals and domestic bezels to produce "bezel-crystal assemblies". The "bezel-crystal assemblies" were exported and drawback was claimed. On foreign soil, these "bezel-crystal assemblies" became assembled with other parts to become watches. The watches were imported back into the US. Timex sought duty free treatment for the "domestic bezels" as American goods returned after assembled abroad. It is clear from the Court's holding that the shipment abroad of the bezel-crystal assemblies that were assembled into watches and then returned to the U.S. did not preclude a finding that the shipment of the bezel-crystal assemblies was an exportation notwithstanding the intent to return the watches incorporating the bezel-crystal assemblies to the U.S.
In the D&G case, the purpose of the exportation was to continue the assembly process which would finish the product into a new article with a distinctive name, character and use. This is evidenced by the fact that the invoices did not reveal that the merchandise was sold or permanently transferred to the Dominican affiliate to be integrated with the commerce of the Dominican Republic. Neither the statutes or the cases discussed required that severance be considered of permanent nature. In 228670 (internal advice request dated July 24, 2001), we mentioned that the temporary nature of the stay in the Dominican Republic for the purpose of assembling the sutures and needles would not preclude finding that there was an intent to unite the needles and sutures to the mass of things belonging to the Dominican Republic.
The shipment to the Dominican Republic was to employ labor in that country to accomplish the assembly of the needles and suture into one unit. Consequently, the shipment under those circumstances would meet the definition in 19 C.F.R. 101.1 and 191.2(m) of an exportation.
HOLDING:
Protest is to be granted.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with Customs Form 19 to the protestant no later than sixty (60) days from the date of this letter. Any reliquidation of the entry or entries in accordance with this decision must be accomplished prior to mailing of the decision. Sixty (60) days from the date of the decision the Office of Regulations and Rulings will make this decision available to Customs personnel and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, the Freedom of Information Act and other public access channels.
Sincerely,
Myles Harmon, Acting Director
Commercial Rulings Division
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