CLA-2 RR:TC:SM 559517 MLR
Area Port Director
U.S. Customs Service
9901 Pacific Hwy.
Blaine, WA 98230
RE: Application for Further Review of Protest No. 3004-95-100150; Denial of duty exemption under HTSUS subheading
9801.00.10 to Ford Explorer; General Note 3(d); uniform
and established practice; NAFTA; Article 509; FTZ
Dear Sir:
This is in reference to a protest and application for
further review filed by
Ryan Investments, Inc., contesting the denial of the duty
exemption of subheading 9801.00.10, Harmonized Tariff
Schedule of the United States (HTSUS), to a 1994 Ford
Explorer.
FACTS:
The 1994 Ford Explorer was entered on January 4, 1995,
and was liquidated on April 21, 1995. The application for
further review of protest no. 3004-95-100150 was timely
filed on July 18, 1995. The protestant states that cars and
trucks assembled in U.S. foreign trade zones (FTZs) were
shipped to Canada and were eligible for duty-free entry into
Canada under section 401(b) of the North American Free Trade
Agreement (NAFTA) and under the Automotive Practices Trade
Act (APTA), as originating material of the U.S. It is
further stated that some of the vehicles were purchased by
U.S. Department of Transportation-licensed importers, such
as the protestant, for reimportation into the U.S., and that
upon reimportation, Customs advanced the U.S. duty rate from
zero to 100 percent ad valorem. It is stated that the non-U.S. parts and components in the vehicles range from zero to
about twelve percent by value. The protestant claims that
there is no legal basis which requires advancing the rate of
duty for these vehicles, or which disallows the payment of a
lower duty rate. Therefore, in accordance with U.S. law,
and in particular, the sixth proviso of the Foreign-Trade
Zones Act (FTZA), the NAFTA and the NAFTA Implementation
Act, it is claimed that the vehicle at issue is not a
vehicle to which the 2.5 percent duty rate applies, but at a
minimum should be dutiable at the same rate as like articles
manufactured in Canada.
The protestant states that the Ford Explorer was made
in a U.S. FTZ, exported to Canada, and upon importation into
the U.S. was classified under heading 8703, HTSUS, and
assessed a duty rate of 2.5 percent ad valorem. It is
claimed that the vehicle should have been allowed entry
duty-free as a U.S. good under subheading 9801.00.10, HTSUS,
or as a NAFTA good. Furthermore, it is claimed that a
uniform and established practice was in existence on these
vehicles as goods manufactured in the U.S. because for at
least ten years the duty rate assessed by Customs for the
reentry of such vehicles was zero, and that liquidation of
the vehicles under heading 8703, HTSUS, was taken without
any prior notice or discussion. Furthermore, the protestant
states that other ports on the U.S.-Canadian border continue
to follow the ten-year, customary practice.
ISSUES:
I. Whether the 1994 Ford Explorer produced in a FTZ in the
U.S. with U.S. and foreign components, exported
directly to Canada, and imported into the U.S., is
entitled to duty-free entry under subheading
9801.00.10, HTSUS, or preferential duty treatment under
the NAFTA, and whether there is a uniform and
established practice to provide such duty treatment.
II. Whether the 1994 Ford Explorer qualifies for a duty on
its applicable foreign value content, as provided in
General Note 3(d), HTSUS.
LAW AND ANALYSIS:
I. Duty-Free Treatment
A. Subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUS, provides for the free
entry of products of the U.S. that have been exported and
returned without having been advanced in value or improved
in condition by any process of manufacture or other means
while abroad, provided the documentary requirements of
section 10.1, Customs Regulations (19 CFR 10.1), are
satisfied. While some change in the condition of the
product while it is abroad is permissible, operations which
either advance the value or improve the condition of the
exported product render it ineligible for duty-free entry
upon return to the U.S. Border
Brokerage Company, Inc. v. United States, 314 F. Supp. 788
(1970), appeal dismissed, 58 CCPA 165 (1970). Moreover,
compliance with section 10.1(a) is mandatory and a condition
precedent to recovery unless compliance has been waived or
is impossible. Maple Leaf Petroleum, Ltd. v. United States,
25 CCPA 5, T.D. 48976 (1937). The basis for waiver of the
required documentation is predicated upon the port director
being satisfied by the production of other evidence as to
the American origin of the merchandise and its eligibility
under subheading 9801.00.10, HTSUS.
In Headquarters Ruling Letter (HRL) 553240 dated March
5, 1985, a truck was assembled in a FTZ, using both
"privileged domestic" and "privileged foreign parts." The
truck was withdrawn from the FTZ on a weekly formal entry
covering the production of additional trucks. Duties were
paid on the assembled foreign merchandise having privileged
foreign zone status upon withdrawal of the truck from the
FTZ for domestic consumption during 1982. The truck was
subsequently exported to Germany and reimported into the
U.S. Customs held in HRL 553240 that since the truck was
first transferred to the Customs territory of the U.S., and
duties were paid on the foreign components, prior to being
exported to Germany, upon return to the U.S., the truck was
eligible for duty-free treatment under the American Goods
Returned provision. The foreign merchandise used in the
assembly of the truck had lost its foreign character and was
considered to have been substantially transformed by being
merged into the assembled truck. "The merger occurred in
the FTZ located in the U.S. and the substantial
transformation was complete when the truck was entered for
consumption in the U.S. and duties paid on the privileged
foreign merchandise." This position was followed in HRL
556976 dated June 9, 1994, in which Customs concluded that
engines produced as a result of a substantial transformation
of foreign and domestic parts in a FTZ established in the
U.S. and entered from the FTZ for consumption before being
exported to Japan were considered "article[s] manufactured
within the Customs territory of the U.S.," and, therefore,
"products of the U.S." for purposes of subheading
9802.00.80, HTSUS, and
19 CFR 10.12(e). As there is no evidence that the vehicle
in the instant case was exported, duty paid from the FTZ
prior to being reimported into the U.S., the vehicle
produced in the FTZ from U.S. and foreign-origin components
is not considered a good of U.S.-origin for purposes of
eligibility under subheading 9801.00.10, HTSUS.
B. NAFTA Eligibility
In C.S.D. 95-3, 29 Cust. Bull. 11 (February 8, 1995),
Customs addressed the issue concerning the dutiable status
of automobiles made in part with foreign components in a FTZ
that were imported after having been exported from the FTZ.
The automobile parts were admitted into the FTZ in either
privileged foreign status or non-privileged foreign status.
After manufacture, the automobiles were exported to Canada
without any duty having been paid on those parts. After
that exportation, the automobiles were imported into the
U.S. The issue in C.S.D. 95-3 was whether the sixth proviso
to section 3 of the FTZA (19 U.S.C. 81c(a)) requires duty to
be assessed on the full value of an automobile made in a FTZ
exported and then returned to the U.S. In short, in C.S.D.
95-3 Customs held that the automobile is dutiable on its
full value at the appropriate most-favored nation rate of
duty on its importation back into the U.S. Customs further
stated that such an automobile does not qualify for duty-free treatment under the NAFTA. C.S.D. 95-3 is herein
incorporated by reference. See also HRL 558983 dated June
29, 1995, which is also herein incorporated by reference,
finding that no established and uniform practice under
subheading 9801.00.10, HTSUS, was created pursuant to 19
U.S.C. 1315(d).
II. General Note 3, HTSUS
As determined above, automobiles produced in FTZs that
are exported directly to Canada or Mexico and not formally
entered for consumption in the U.S., generally are subject
to duty on the full value (i.e., both foreign and domestic
content) of the automobile when they re-enter the U.S.
General Note 3(d), HTSUS, which was added by section 19 of
the Miscellaneous Trade and Technical Corrections Act of
1996, Pub. L. 104-295, 110 Stat. 3514 (October 11, 1996),
however, provides, in part, as follows with respect to the
calculation of duties on the foregoing vehicles when
appropriate information is presented:
[n]otwithstanding any other provision of law, the duty
imposed on a qualified article shall be the amount
determined by multiplying the applicable foreign value
content of such article by the applicable rate of duty
for such article.
General Note 3(d)(ii), HTSUS, defines a "qualified
article" as an article that is:
(A) classifiable under any of subheadings 8702.10
through 8704.90 of the [HTSUS],
(B) produced or manufactured in a foreign trade zone
before January 1, 1996,
(C) exported therefrom to a NAFTA country (as defined
in section 2(4) of the [NAFTA] Implementation Act (19
U.S.C. 3301(4)), and
(D) subsequently imported from that NAFTA country into
the customs territory of the United States--
(I) on or after the effective date of this
subdivision, or
(II) on or after January 1, 1994, and before such
effective date, if the entry of such article is
unliquidated, under protest, or in litigation, or
liquidation is otherwise not final on such
effective date.
In this case, the article is a 1994 Ford Explorer
classified under heading 8703, HTSUS. The entry
documentation indicates that the vehicle was entered into
the U.S. from Canada on January 4, 1995. It is also alleged
that the vehicle was produced in a U.S. FTZ. Therefore,
provided protestant presents (within a specified period of
time) sufficient information to establish the "applicable
foreign value content" as well as "the FTZ percentage"
required under General Note 3(d), duty is only payable on
the foreign content contained in the vehicle. See Fact
Sheet 7346071 dated December 11, 1996. To the extent that
the Ford Explorer at issue qualifies for the reduced duties
under General Note 3(d), this protest should be granted.
HOLDING:
Based on the information provided, the subject vehicle
produced in a FTZ from U.S. and foreign components which is,
exported directly from the FTZ into Canada and then imported
into the U.S., is not entitled to duty-free treatment under
either the NAFTA or subheading 9801.00.10, HTSUS. However,
if sufficient information is presented to establish that the
vehicle qualifies for reduced duties under General Note
3(d), as added by Pub. L. 104-295, 110 Stat. 3514 (October
11, 1996), duty is only payable on the applicable foreign
content contained in the vehicle, and this protest should be
granted.
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 attached
to Customs Form 19, Notice of Action, and 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 take
steps to make the decision available to customs personnel
via the Customs Rulings Module in ACS and the public via the
Diskette Subscription Service, Freedom of Information Act
and other public access channels.
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division