FOR-2-03-CO:C:R:E 222146 JR
Mr. Theodore A. Galantowicz
District Director of Customs
7911 Forsyth Blvd., Suite 625
St. Louis, Missouri 63105
RE: Cameras; packaging; combining; FTZ; microscope
Dear Sir:
This is in response to your memorandum dated February 15,
1990 (FILE: FOR-ADD: CO DKH), requesting internal advice
concerning the Seiler Instrument & Manufacturing Company's
procedure of combining (packaging together) domestic or imported
duty-paid cameras with imported microscopes in a foreign trade
zone.
FACTS:
Microscopes made in the German Democratic Republic (G.D.R.)
are admitted into a foreign trade zone (FTZ) in St. Louis,
Missouri in non-privileged foreign status. These microscopes
have ports and the other necessary attachments to receive a
camera. In the FTZ, Seiler Instruments associates a camera with
each G.D.R. microscope. This is accomplished by physically
opening each crate containing a microscope and inserting into the
crate a packaged camera (either domestic or imported duty-paid).
These microscopes with cameras are subsequently entered for
consumption by Seiler under subheading 9011.20.4000, Harmonized
Tariff Schedule of the United States (HTS), at the rate of 20% ad
valorem. If the camera is of domestic origin, it will not be
subject to payment of duty and its value will be deducted from
the total value of the microscope-camera combination. If the
camera is of foreign origin and has not been previously entered
and duty-paid, the camera component of the microscope-camera
combination will be dutiable at the rate determined by the
classification of the microscope-camera combination.
In any event, following the initial entry for consumption
Seiler removes the camera from the microscope-camera combination
and returns the camera to the FTZ in domestic status where it is
again packaged with another microscope and reentered by Seiler
for consumption from the FTZ. Please note that the second time
the foreign camera (now imported duty-paid) is entered into the
Customs territory, its value is deducted from the total value of
the microscope-camera combination like a camera of domestic
origin.
Your office has raised the question whether the procedure
described above is consistent with the revised Customs FTZ
regulations, 19 CFR 146.71(d)(1) (see T.D. 86-16, effective
May 12, 1986) and C.S.D. 89-41.
ISSUE:
Is the entry for consumption of imported microscopes that
have been associated with cameras (domestic or imported duty-
paid) by means of packaging in a FTZ considered to be a "sham"
when the cameras are repeatedly returned to the FTZ in order to
be packaged with other imported microscopes?
LAW AND ANALYSIS:
The second proviso to section 3 of the Foreign-Trade Zones
Act of 1934, as amended, authorizes the Secretary of the Treasury
and, by Treasury Order No. 165, Revised (T.D. 53654), the
Commissioner of Customs, to make such regulations respecting the
identity and the safeguarding of the revenue as necessary with
respect to articles entered into the Customs territory and then
taken into a zone. By T.D. 86-16, section 146.71, relating to
the release and removal of merchandise from a zone, was added to
title 19 of the Customs Regulations (CR). As discussed in C.S.D.
89-41, the purpose of section 146.71, in part, was to avoid abuse
of the second proviso of 19 U.S.C. 81c by an assortment of
schemes designed to circumvent provisions of restriction or
limitation in the tariff laws or to secure a benefit that would
otherwise not be available.
Section 146.71(d)(1) provides, in part, that where
merchandise is removed (transferred) from a zone but does not
enter the commerce of the United States in Customs territory and
is subsequently readmitted to a zone in domestic status, the
district director shall cancel the entry for consumption and
restore the merchandise to its last foreign zone status. See 19
CFR 146.71(d)(1).
As was the issue in C.S.D. 89-41, we must decide whether
the purpose of the operation as outlined above in the FACTS
section is a "sham" transaction prohibited under section
146.71(d)(1), CR, or one permitted by the second proviso to 19
U.S.C. 81c and section 146.71(d)(3), CR. Of course, a
determination must be made by the district director as to whether
the returning of previously entered articles to the FTZ by the
importer to be associated with other imported articles is to
circumvent high duty rates or import restrictions.
Applying the six factors listed in C.S.D. 89-41 (and in T.D.
86-16) to this case, we are in agreement with the district
director that the purpose of returning the cameras into the FTZ,
after having been entered with the other microscopes for
consumption, is to circumvent a higher rate of duty. If the
microscope is entered without a camera, the microscope is
dutiable under subheading 9011.10.8000, HTS, at 45% ad valorem.
See Headquarter's Ruling HQ 085754, dated December 26, 1989,
FILE: CLA-2:CO:R:C:G, 085754. Clearly, it is to the importer's
advantage to enter a camera with a microscope under subheading
9011.20.4000, HTS, in order to be assessed only a 20% duty rate.
Further, when a domestic camera is combined with the imported
microscope in the FTZ, upon entry, the value of the domestic
component (camera) will be omitted from the value of the camera-
microscope combination on which the duty is assessed. Despite
the number of times a domestic camera is entered into the FTZ, no
duty will ever need to be paid on it. When a foreign camera is
first entered in Customs territory, duty is paid on the value of
the foreign camera under the microscope-camera combination.
However, when this camera is readmitted into the Customs
territory it is treated in the duty-paid status as the domestic
camera.
As we understand the procedure, the cameras and microscopes
are entered for consumption from the FTZ. The cameras are then
removed from the packages and returned to the zone within a week
to be reused. Readmission to the zone is requested by the
importer. The importer's intent at the time of entry to seek
readmission to the FTZ is evidenced by the fact that the cameras
are not physically joined to the microscopes in the FTZ and are
easily removed from the crate upon entry in the Customs
territory. The rate of duty is substantially higher on a
microscope imported alone than on one with a camera. Documentary
evidence exists that the microscopes are sold after entry
without the cameras (invoices, separate price lists for cameras
and microscopes, ...) since the ultimate consumer either has a
camera to use with the microscope or prefers to purchase a
different brand of camera. There is no intention to sell the
cameras after entry. The merchandise is not processed or
manufactured outside of the FTZ.
The circumstances lead us to conclude that the intent of the
operation described is to circumvent a high rate of duty on the
microscope if entered by itself and that no intention exists
that the cameras enter the commerce of the United States prior to
their readmission into the FTZ to be reused with other
microscopes on reentry. Such an operation is considered a "sham"
transaction within the meaning of 19 CFR 146.71(d)(1).
In accordance with section 146.71(d)(1), any entries for the
subject merchandise which are presently unliquidated should be
cancelled and liquidated at the rate of duty applicable to its
last foreign status, that is, a microscope under subheading
9011.10.8000, HTS, at the rate of 45% ad valorem. However,
Customs may reliquidate those entries which have been liquidated
within 90 days from the date of this ruling at the rate
chargeable to its last foreign status. Any entries finally
liquidated will not be affected unless the district director, in
his judgment, based on all relevant circumstances determines that
violations of 19 U.S.C. 1592(d) have occurred. Future entries
submitted after the date of this ruling shall be rejected or
cancelled, as appropriate, and the merchandise restored to its
last foreign status.
We will now answer the specific questions the importer
asked in his January 31, 1990, letter addressed to your office.
Yes, one may combine microscopes purchased in East Germany with
domestic cameras in a FTZ. It is permissible for the importer to
enter for consumption the microscopes with the cameras. The
importer may sell the microscopes individually, combined, or not
sell either of them if he so chooses. These same microscopes
and/or cameras may be exported. However, these same cameras (or
microscopes), as discussed above, cannot be readmitted to the FTZ
since there is no intent that the combined articles enter the
commerce of the United States prior to their readmission into the
FTZ if the sole purpose for these articles being readmitted to
the zone is to combine them with other imported microscopes so as
to circumvent a higher rate of duty when they are subsequently
entered.
HOLDING:
The entry for consumption of imported microscopes that has
been associated with cameras (domestic or imported duty-paid) by
means of packaging in a FTZ is a "sham" transaction within the
meaning of 19 CFR 146.71(d)(1) when the cameras are subsequently
removed in Customs territory and repeatedly returned to the FTZ
in order to be packaged with other imported microscopes.
Sincerely,
Stuart Seidel, Acting Director
Commercial Rulings Division