BOR-4-07-RR:BSTC:CCI H005096 rb
Robert Shapiro
Thompson Coburn LLP
1909 K Street, NW., Suite 600
Washington, D.C. 20006-1167
RE: Instruments of international traffic; Accessories; Tamper-Resistant
Embedded Controller (TREC); 19 U.S.C. 1322(a); 19 CFR 10.41a
Dear Mr. Shapiro:
In your letter of January 5, 2007, on behalf of your client, International Business Machines Corporation (IBM), you in effect request a reconsideration of Headquarters ruling (HQ) 116684, dated August 17, 2006. Essentially, in HQ 116684, IBM’s Tamper-Resistant Embedded Controller (TREC) device was designated as an instrument of international traffic (IIT) under 19 CFR 10.41a(a)(3). However, HQ 116684 also noted that the TREC would be subject to entry, where required by 19 CFR 10.41a(a)(2). It is this entry requirement to which the company takes exception. Our response to your request follows.
FACTS:
International Business Machines Corporation (IBM) (the company) has developed a device known as a Tamper-Resistant Embedded Controller (TREC). In brief, the TREC is an enhanced container-security, monitoring and tracking device. Once installed, the device collects, analyzes and reports data as to the status, condition and location of the container and its contents. The TREC is designed to be mounted on new containers, or retrofitted into containers already in circulation. It is envisioned that the TREC may arrive installed in a container, or separately, to be so installed.
ISSUE:
(1) Whether the TREC may be designated as an instrument of international traffic (IIT) under 19 CFR 10.41a(a)(1), as the company requests.
(2) Whether the TREC would be subject to compliance with 19 CFR 10.41a(a)(2), in order to be duty-free as an IIT accessory, if imported separately from the IIT.
LAW AND ANALYSIS:
To be eligible in and of itself for designation as an instrument of international traffic (IIT), an article must be used as a substantial container or holder of merchandise. Subheading 9803.00.50, Harmonized Tariff Schedule of the United States (HTSUS), is the controlling provision herein, and it reads in pertinent part as follows:
Substantial containers and holders, if products of the United States..., or if of foreign production
and previously imported and duty (if any) thereon paid, or if of a class specified by the
Secretary...as instruments of international traffic [IITs]...and accessories and equipment for
[containers of foreign production which are IITs]...Free
Emphasis added. Under 19 U.S.C. 1322(a), these IITs may be excepted from the application of the customs laws to such an extent and under such terms and conditions as may be prescribed in regulations. The applicable regulation which implements section 1322(a) is 19 CFR 10.41a, and both this law and regulation must perforce be construed consistently with HTSUS subheading 9803.00.50.
Substantial Container or Holder; 19 CFR 10.41a(a)(1)
Specifically, in § 10.41a(a)(1), certain containers and holders are designated as IITs under section 1322(a), with the Commissioner having the authority “to designate as [IITs]...such additional articles or classes of articles as he shall find should be so designated.” Articles designated as IITs under § 10.41a(a)(1) are exempt from entry. However, given the constraints imposed by subheading 9803.00.50, HTSUS, supra, articles designated as IITs under section 1322(a), and pursuant to § 10.41a(a)(1), have been strictly limited to substantial containers and holders. Articles which do not qualify as substantial containers or holders have consistently been refused designation as IITs under § 10.41a(a)(1). E.g., HQ 114872, of December 15, 1999 (cardboard boxes not sufficiently substantial containers); C.S.D. 90-45 (steel wire slings not used as holders in international traffic); HQ 108493, of August 13, 1986 (information letter) (sweat absorber sheet used to protect cargo in transit did not appear to be “containers or holders”); C.S.D. 79-395 (steel cargo slings used only to lade/unlade cargo).
The Company’s Basic Contentions
Nevertheless, the company believes that: its TREC device is an IIT under 19 CFR 10.41a(a)(1); the designation of the TREC in HQ 116684 (August 17, 2006) as an IIT under 19 CFR 10.41a(a)(3) automatically entitles it to exemption from entry if imported separately; § 10.41a(a)(2), which requires that a container accessory be entered if imported separately, applies only to “non-IIT accessories” (accessories not designated as IITs); the Customs Convention on Containers, 1972, Articles 6 and 11(2), unequivocally directs that container accessories be admitted without customs documentation (entry); and the entry requirement for a TREC imported separately
conflicts with the World Customs Organization Framework of Standards to Secure and Facilitate Global Trade (WCO Framework), and the Customs-Trade Partnership Against Terrorism (C-TPAT).
The company’s foregoing contentions, and related conclusions, are without legal merit. First, as explained above, the TRECs cannot be designated as IITs under
§ 10.41a(a)(1) because the TRECs are not substantial containers or holders of merchandise. Such devices, however, may be employed as accessories for use with intermodal containers, and, in fact, the company’s own literature describes the device as a “container accessory.”
Accessories for IIT Container; 19 CFR 10.41a(a)(3) & (a)(2)
With respect to accessories for IIT containers, 19 CFR 10.41a(a)(3) provides that:
[a]s used in [§ 10.41a], ‘instruments of international traffic’ [IITs] includes the normal accessories
and equipment imported with any such instrument which is a ‘container’ as defined in Article 1 of
the Customs Convention on Containers.
Emphasis added. Hence, any “designation” made under § 10.41a(a)(3) (that an article is a normal accessory of an IIT container) would entitle the accessory to the same exemption from customs entry as the IIT container itself only to the extent that the accessory is “imported with” the container.
Accordingly, the company infers entirely too much from the finding in HQ 116684, supra, that the TREC was an IIT container accessory, and thereby subsumed under the term “instruments of international traffic,” in § 10.41a(a)(3). As already indicated, under the plain language of § 10.41a(a)(3), supra, this finding, or designation, would exempt the TREC from entry only to the extent that the TREC was “imported with” the IIT container. At the same time, as further noted in HQ 116684, this designation would enable the TREC to be entered, duty-free, if imported separately, in accordance with
§ 10.41a(a)(2).1 To this end, § 10.41a(a)(2) reads in relevant part as follows:
...accessories, and equipment for any container of foreign production which is an [IIT] may be
entered...for consumption without the deposit of duty if the person making the entry...files a
declaration...that the accessory or equipment is for a container of foreign production which is an
[IIT]. The port director must be satisfied that the importer of the...accessory...had the declared
intention at the time of importation.
(1 Thus, in addition to HQ 116684, the company also misinterprets HQ 116288, of August 12, 2004.
HQ 116288 designated container security units (CSUs) as IITs under § 10.41a(a)(3) (as opposed to
§ 10.41a(a)(1)), and held that this designation would cover those CSUs imported separately (without IIT containers). However, HQ 116288 did not even address, let alone find inapplicable, the entry requirement in § 10.41a(a)(2) as to those units that might be separately imported in bulk.)
Emphasis added. Quite obviously, the concept of a so-called “non-IIT accessory” as asserted by the company finds no legal support whatever in the clear text of
§ 10.41a(a)(2). Nor does such a concept comport with the rulings cited by the company in this regard.2 Plainly, the accessories in § 10.41a(a)(2) are the same as those involved in § 10.41a(a)(3). The operative distinction is that under § 10.41a(a)(3), the IIT accessory is exempt from entry when imported with an IIT container; and, under
§ 10.41a(a)(2), the IIT accessory is subject to entry, duty-free, when imported separately for use with such a container.
Containers of Foreign Production; 19 CFR 10.41a(a)(2)
The company adverts to the added requirement in § 10.41a(a)(2) that the entry filer submit a declaration of intent confirming that the device is “for a container of foreign production.” The company insists that such a declaration would involve “a determina- tion that is nearly impossible to make when the TREC may not be deployed for up to a year after importation.” Such an acknowledgment by the company highlights the need for the entry and attendant declaration of intent mandated by § 10.41a(a)(2). The device may not lawfully be admitted under subheading 9803.00.50, HTSUS, if it might be employed thereafter in domestic commerce, or for use otherwise than in international traffic.3
1972 Container Convention; WCO Framework; C-TPAT
The company speculates that since § 10.41a(a)(2) does not contain procedures for TRECS intended for use with ‘containers of domestic production,’ TRECS so intended upon importation would be eligible for “entry-free importation under [§ 10.41a(a)(1)], as no other regulatory provision applies.” The company labors under a fundamental misunderstanding as to the scope of § 10.41a in this respect.4
In short, if the TREC devices should be imported individually or in bulk (without IIT containers), a customs entry would be required, whether under 19 CFR 10.41a(a)(2), or as otherwise provided by law and/or regulation (see 19 CFR 141.4(a) & (b)(3)).
(2 Again, the company misreads the rulings it cites to support its concept of a “non-IIT accessory” in
§ 10.41a(a)(2). For example, one such ruling, HQ 116575, of January 26, 2006, resolved that “shock/ climate measuring devices [were] accessories of IITs [i.e., intermodal containers] of foreign production” (emphasis added) (the devices were not accessories of the pallets placed in the containers, as mistakenly concluded by the company). As a result, HQ 116575 ruled that the devices could be imported separately, duty-free, for such containers, under § 10.41a(a)(2).)
(3 It is noteworthy that the company obtained a ruling from the National Commodity Specialist Division (NY M86830, dated September 26, 2006) separately classifying under the HTSUS TRECS not intended “at the time of entry” for use in international traffic (subheading 8525.20.9080, HTSUS (Transmission apparatus for radiotelephony, etc.); at present, the rate of duty thereunder is free).)
(4 See, e.g., 19 CFR 10.41b(d)(2), which provides, inter alia, for duty-free entry under HTSUS subheading 9803.00.50, for containers of domestic production; no provision is made thereunder for accessories.)
By way of background, before the 1972 Customs Convention on Containers was implemented pursuant to section 127 of the Trade and Tariff Act of 1984 (Public Law 98-573, November 12, 1984), separately-imported accessories for IIT containers could not be accorded IIT status at all. Such accessories had to be entered, duty-paid (if applicable), under the specific classification for the article in the tariff schedule (see, e.g., HQ 104421, of December 31, 1979 (clip-on units for use with refrigerated containers);5 see also, H. Rept. No. 98-1015, 1984 U.S. Code Cong. & Admin. News 4960, at 4985 (“Under current law, there is no allowance for the temporary duty-free admission of container...accessories and equipment”).
However, section 127 of the Trade and Tariff Act of 1984 provided for “the duty-free entry of... accessories and equipment of ‘temporarily admitted containers,’” thereby bringing United States customs treatment into conformity with Article 11(1) of the Customs Convention on Containers, 1972 (ibid.) (emphasis added). Notably, under U.S. law, such “temporarily admitted containers” have been correctly recognized as “containers of foreign production” which have been designated as IITs (subheading 9803.00.50, HTSUS (“...repair components for containers of foreign production which are [IITs], and accessories and equipment for such containers... Free”)).6
The company also refers to Articles 6 and 11(2) of the 1972 Container Convention, as compelling, without exception, the admission of IIT container accessories free of customs entry documentation. Yet, the company overlooks the fact that Articles 6 and 11(2) are carefully qualified in this context by Article 8 of the Convention, to wit:
Each Contracting Party shall retain the right, when the provisions of article 6 cannot be applied, to
require the furnishing of a form of security and/or the production of Customs documents on the
importation or re-exportation of the container.
Article 8, 1972 Container Convention. Moreover, as specifically concerns the temporary admission of container accessories, Article 11(2) similarly states that “[t]he provisions of articles...6... and 8 shall be applicable...to the temporary admission of accessories and equipment of containers, referred to in [Article 11(1)]” (emphasis added).
Consequently, the 1972 Container Convention does not preclude an entry requirement as a pre-requisite for the temporary admission of accessories for temporarily admitted containers (i.e., containers of foreign production) which have been designated as IITs; and it is observed that the provisions of the Convention are only effective insofar as they has been enacted into U.S. law (see C.S.D. 80-62). Furthermore, neither the
(5 “[S]ince the clip-on units did not arrive in the United States in use as [IITS]...the clip-on units cannot be released without entry or payment of duty as [IITs].”)
(6 Section 127 of the Trade and Tariff Act of 1984, and subheading 9803.00.50, HTSUS, together formed the basis for the amendment of 19 CFR 10.41a(a)(2) as it currently exists (see T.D. 85-123).)
WCO Framework of Standards nor the C-TPAT program furnishes any legal foundation for waiving or disregarding any entry requirement otherwise duly mandated under U.S. law and/or regulation.
HOLDING:
(1) The TRECs may not be designated as instruments of international traffic (IITs) under 19 CFR 10.41a(a)(1).
(2) The TRECs would be subject to entry, and the filing of a declaration, in order to enable their duty-free admission as accessories for IIT containers of foreign production, as prescribed in 19 CFR 10.41a(a)(2), should the devices be imported separately from the containers.
EFFECT ON OTHER RULINGS:
HQ 116684 is affirmed.
Sincerely,
Virginia L. Brown
Director
Border Security and Trade Compliance Division