FOR-2-03/FOR-2-04-RR:CR:DR 227638 IOR
U.S. Customs Service
Office of Field Operations
Foreign Trade Zone Program Manager
1300 Pennsylvania Avenue, N.W., Room 5.2B-55
Washington, D.C. 20229
ATTN: William J. Kotlowy
RE: Foreign-trade zones; privileged foreign status; Angolan petroleum feedstock; merchandise processing fees; exemption; beneficiary developing country; HTSUS, General Note 4(b); 19 U.S.C. 58c; 19 U.S.C. §81c; 19 CFR 24.23; 19 CFR 146.65(a)(1); Inter-Maritime Fwd. Co., Inc. v. U.S.
Dear Sir:
This is in response to your request for internal advice of July 24, 1997 [FOR-FO:TC:C:C MS], forwarding a July 17, 1997 request from Arthur Andersen LLP on behalf of Valero Refining Company ("Valero"), that certain previously entered merchandise be exempt from the merchandise processing fee (MPF).
FACTS:
On August 1, 1996, on a CF 214 (Application for Foreign-Trade Zone Admission and/or Status Designation Final) Valero applied for the admission of 369,838 barrels of Angolan petroleum feedstock into its foreign trade zone (“FTZ”) subzone in Corpus Christi, Texas, in privileged foreign status (19 CFR 146.41). The application was approved on August 7, 1996, and the CF 214 indicates that the merchandise was received at the zone on August 4, 1996. The CF 214 shows that the value of the merchandise was $5,631,765.00, and the pro forma invoice indicates the same value and shows the amount of user fee due as $11,826.71. The Customs Regulations 24.23(b) (19 CFR 24.23(b)) provide that the fee for processing merchandise (MPF or user fee) is 0.21 percent of the total value of the merchandise, and is not to exceed $485 and is not to be less than $25.
According to CF 7501s, and Customs records, from August 1, 1996 (CF 7501 dated August 14, 1996) through May 1, 1997 (CF 7501 dated May 15, 1997), Valero entered the subject merchandise for consumption, in seven different entries. Each of the seven entries included other merchandise as well. The MPF for each of the seven entries was calculated at 0.21 percent per entry, and $485.00 was collected per entry for a total of $3,395.00.
On January 1, 1997, Angola was designated as a least-developed beneficiary developing country (BDC). See General Note 4(b), Harmonized Tariff Schedule of the United States (HTSUS). This designation entitles an importer of merchandise that is “the growth, product or manufacture” of Angola to duty-free treatment upon the direct importation from Angola into the customs territory of the United States. Id. Moreover, pursuant to 19 CFR 24.23(c)(1)(iv), products from BDCs are exempt from the MPF payment requirement of 19 CFR 24.23(b). Accordingly, Valero contends that the Angolan feedstocks entered after January 1, 1997 (entry numbers PQ1-xxxx108-6, dated April 24, 1997, and PQ1-xxxx110-2, dated May 1, 1997), should be exempt from the MPF. Your internal advice request refers to the Valero inquiry as a refund application, however Valero’s inquiry refers to an exemption as opposed to a refund.
In the two 1997 entries, the 0.21 percent MPF is calculated based on the value of the Angolan feedstock as well as the other merchandise. For the April 24 entry, 0.21 percent of the total entered amount for MPF is $7,273.12, and the MPF calculated on the Angolan feedstock alone is $759.42. For the May 1 entry, 0.21 percent of the total entered amount for MPF is $7,439.66, and the MPF calculated on the Angolan feedstock alone is $304.98.
ISSUE:
Whether Angolan petroleum feedstock, admitted into an FTZ under privileged foreign status prior to attaining status as a product of a BDC, is exempt from MPF upon entry into Customs territory, which occurs subsequently, when the merchandise is considered a product of a BDC.
LAW AND ANALYSIS:
With regard to the assessment of the ad valorem MPF, 19 U.S.C. §58c(a)(9)(A) provides that the Secretary of the Treasury shall charge and collect an ad valorem fee for the processing of merchandise that is formally entered or released. Regulation 19 CFR 24.23(b)(1)(i)(A) provides that “merchandise that is formally entered or released” is subject to an MPF, which is due and payable “at the time of presentation of the entry summary and shall be based on the value of the merchandise.” In this case, entry summaries were filed between August 14, 1996 and May 15, 1997. As stated above, two of the entries were made in 1997, after Angola was designated a BDC.
With respect to merchandise transferred from an FTZ to customs territory, 19 CFR 146.65(a)(1) provides that “[p]rivileged foreign merchandise provided for in this section will be subject to the tariff classification according to its character, condition and quantity, at the rate of duty and tax in force on the date of filing, in complete and proper form, the application for privileged status.” Valero submitted the application for privileged status on August 1, 1996. Thus, pursuant to 19 CFR 146.65(a)(1), the merchandise was subject to the rate of duty and tax in force on this date. As stated above, Angola was not designated a least-developed BDC until January 1, 1997. See General Note 4(b), HTSUS. Therefore, the duty-free rate presently applicable to Angolan merchandise was not applicable at the time the application for privileged status was made.
Valero takes the position that the MPF is not a “duty” or “tax,” as described in 19 CFR 146.65(a)(1), and therefore the correct date to assess the MPF is not the date of application for privileged status, but the date the entry summary is presented to Customs, pursuant to 19 CFR 24.23(b)(1)(i)(A). It is Valero’s position that products entered after January 1, 1997 should be exempt from the MPF. It is provided in 19 U.S.C. §58c(g)(2) that “[e]xcept to the extent otherwise provided in regulations, all administrative and enforcement provisions of customs laws and regulations, other than those laws and regulations relating to drawback, shall apply with respect to [the merchandise processing fee] prescribed under subsection (a) of this section,... as if such fee is a customs duty (emphasis added).” See also 19 CFR 24.23(e)(1), which implements the statute.
The provision in 19 U.S.C. §58c(g)(2) thus requires a determination whether 19 CFR 146.65(a)(1) is an administrative or enforcement provision of the customs regulations. The legislature delegates to administrative agencies “the power to make rules and regulations to implement a statute.” 2 Am. Jur. 2d Administrative Law §152 (1994). The Secretary of the Treasury is authorized the superintendence of the collection of duties on imports “as he shall judge best”, in 19 U.S.C. §3. Section §58c(a), authorizes and directs the Secretary of the Treasury to charge and collect the fees listed in the statute. The phrase “all administrative and enforcement provisions” is broad and includes the Customs Regulations and most of the statutes administered and enforced by Customs. The phrase appears frequently in statutes, however has been rarely, if ever, interpreted or defined. It would seem that the phrase refers to the authority delegated by the legislature to the applicable agency. For example, according to the language in 19 U.S.C. §58c(g)(2), quoted above, a provision pertaining to a Customs duty in the Internal Revenue Regulations or statutes, most likely would not also apply to the MPF, unless another statute specifically included it as was done in 19 U.S.C. §58c(g)(2), but with respect to Internal Revenue laws and regulations.
Generally, the reference to administrative and/or enforcement provisions of an agency, seems to be to those statutes and regulations which pertain to the powers delegated to the agency, by the legislature. See e.g., U.S. v. Hunter, 80 F.2d 968, 970-971 (5th Cir. 1936); Springfield Industries Corp. v. United States, 11 C.I.T. 331, 332, 341 (1987); United States Shoe Corporation v. United States, 114 F.3d 1564, 1569, 1571 (Fed. Cir. 1997). In Sturges v. Clark D. Pease, Inc., 48 F.2d 1035 (2d Cir. 1931), the Court distinguished between “administrative provisions” which are to be applied by the Secretary of the Treasury, and those provisions for injunctive relief, which are intended to be enforced only by a court. In Werner G. Smith Co. v. United States, 40 C.C.P.A. 90, 94-95 (1952), the Court distinguished between “administrative provisions” and “duty-levying provisions” of the Tariff Act of 1930, in the context of amendments that were made by the Customs Administrative Act of 1938 (“the act of 1938 not only amended certain administrative provisions of the 1930 act, but also changed certain of its duty-levying provisions”). Senate report No. 1465, 75th Congress, 3rd Session, of the Senate Finance Committee on the 1938 act, stated the purpose of the act:
Besides the primary purpose of facilitating more efficient administration of the customs laws, the other major purposes of H.R. 8099 may be briefly summarized as follows:
(1) To restate the customs and other laws with the administration of which the Customs Service is charged, in certain instances where this may be profitably done in such a manner as will simplify their interpretation and administration.
(2) To fill in gaps in existing law to relieve administrative difficulties.
(3) To suppress abuses which have, in a few instances, grown up under existing law, and which cannot be corrected by administrative practice.
(4) To liberalize the laws in certain desirable respects where this will facilitate administrative efficiency without jeopardizing the revenue of the United States or the interests of the public.
Id., at 6-7. The provisions which were the subject of the Administrative Act of 1938, included Tariff Act of 1930 sections 304 (marking), 308 (temporary free importation under bond, repealed in 1962), 309 (supplies for vessels and aircraft), 460 (penalties for failure to report or file manifest, repealed in 1986), 516 (petitions by domestic interested parties), 520 (refunds and errors), and 623 (bonds and other security). These are examples of the types of provisions which are “administrative” provisions. Despite the language in Werner G. Smith Co, according to the Senate Report “the bill is an administrative bill” and “[i]t does not deal with duty rates.” Id., at 6. Apparently duty rates are one type of provision which is not considered to be an “administrative” provision.
Finally, in delegating the collection, administration and enforcement of the Harbor Maintenance Fee to the Customs Service, as part of the Comprehensive Water resources Development Act of 1986, Pub. L. No. 960622, 100 Stat. 4082 (codified at 26 U.S.C. §4461), the House Report described the Tariff Act of 1930, as amended, and the Customs Regulations, as having already “set out detailed rules and procedures for the classification and appraisal of imported merchandise and for the administration and enforcement of customs laws.” H. Rep. No. 99-228 (1986), reprinted in 1986 U.S.C.C.A.N. 6705, 6714. The legislature viewed administrative and enforcement provisions of customs laws as including the collection of duties.
Part 146 of the Customs Regulations (19 CFR 146), implements 19 U.S.C. §81c:
This part 146 of the Customs Regulations governs the admission of merchandise into a foreign trade zone;...and transfer of merchandise from a zone into Customs territory.
From the plain language of section 58c(g)(2), then, we conclude that the regulation, 19 CFR 146.65(a)(1), which provides for the method of determining under which classification and rate of duty privileged foreign merchandise is subject for purposes of collecting the appropriate duties, constitutes an administrative provision of the Customs regulations. The regulation does not establish the classification and set the duty rate. The classification and duty rate is set by the Harmonized Tariff Schedule of the United States. Similarly, the provision for assessment of additional duties for failure to mark, 19 U.S.C. §1304(h) (§1304(c) at the time of the 1938 act), was specifically included in the administrative act. Thus, 19 CFR 146.65(a)(1) is an administrative provision of Customs regulations, and for the purposes of that regulation, MPFs are treated as customs duties, in accordance with 19 U.S.C. §58c(g)(2).
The authorization to grant the privilege to establish, operate and maintain an FTZ is provided by 19 U.S.C. §81b(a). The legislation proposing FTZ’s was discussed in the legislative history of earlier bills for the establishment of foreign trade zones. In the hearings before the House Committee on Ways and Means, on H.R. 9778, October 10 and 11, 1919, p. 139, William Kent, a member of the Tariff Commission, stated that the proposed legislation “merely carries out in betterwise, and with greater economy, the necessarily established purpose of the Government not to tax or to attempt to tax goods going into export.” In the hearings before the Senate Subcommittee of the Committee on Commerce, on S. 3170, October 10, 11, and 21, 1919, p. 5, in his testimony, Mr. J.J. Dwyer, manager of the Port Development Department of the San Francisco Chamber of Commerce, stated the purpose of the bill was “to expedite and encourage foreign commerce, and for other purposes”, and as follows:
The central idea of the bill and the feature that we desire to adopt from European practice is the exemption of the vessel and of the goods or articles brought into the zone while they are in the zone from all customs control or supervision, with the exception of precautions against smuggling....
The objective was that Customs would not be involved with any merchandise in the zone, unless and until it entered Customs territory.
The reference to legislative history for bills other than the one eventually enacted is appropriate, as the proposed legislation essentially remained the same. House Report 1521, 73d Congress, 2d session, p. 3, for H.R. 9322, which was enacted June 18, 1934, includes a statement from the Secretary of Commerce, in support of the establishment of FTZ’s, that “[t]hese bills appear to be identical with the one that had been introduced annually for a number of years.”
Because of the objective that Customs would not be involved with merchandise in the zone, the bills proposed in 1919 did not include a provision for privileged merchandise. Imported merchandise, entered into customs territory from the FTZ was to be appraised and liquidated upon entry into customs territory. In the hearings before the House Committee on Ways and Means, on H.R. 9778, October 10 and 11, 1919, pp. 8-9, a summary of the report of the United States Tariff Commission stated with respect to section 3, that it provides:
[G]oods from the zone entering into customs territory of the United States shall pay duties as though originating in a foreign country. This procedure is a handicap against the zone, as compared with customs territory, inasmuch as not only the imported goods must pay full duty, but duty must be charged, based upon their manufactured form, without crediting domestic materials with rebate or giving credit for American manufacturing operations performed in the zone.
In his statement before the Committee, Mr. Kent explained how merchandise manufactured in the zone would be treated upon entry into customs territory:
We adopted what I believe is the Hamburg theory, and that is that a free zone for customs purposes, you will find in the bill, is specifically considered as foreign territory. If you have foreign rubber and domestic cotton in the zone, and hose made out of the combination, the duty is collected on the hose, and there is no levey on the cotton. It goes through the customs and then to the interior of the country as a manufactured article manufactured in a foreign territory, for customs purposes....
Id., at 141-42. In the hearings before the Senate Subcommittee of the Committee on Commerce, on S. 3170, supra, the concept of and need for privileged status foreign merchandise was discussed, on pp. 96-105, in the testimony of Mr. George W. Ashworth, Chief of the Division of Customs, Treasury Department. The discussion concerned the fact that foreign merchandise entering customs territory from the vessel at the dock and foreign merchandise entering customs territory from the FTZ would be appraised differently, because Customs would have no record of when the merchandise in the zone was imported from the foreign country, and would not have a value upon which to base appraisal. As a remedy, to the discrepancy in appraisement, Mr. Kent proposed:
[I]t was our intent that a man bringing a vessel into the zone by showing his consular invoice could carry his goods through the customs gate of the zone with equal facility as he could carry it through the customs gate in customs territory-- that portion of his cargo for which he showed his consular invoice and which was segregated and identified and which was intended for that purpose. So there would be equality through the customshouse for a vessel that came through customs territory and a vessel that came into the zone for stuff intended for immediate transportation into the interior.
Id., at 98. The discussion in the hearings questioned whether under the proposed bill, Customs had the authority to appraise merchandise as it enters the zone, even if requested by the importer, and whether provision should be made for such authority. Id., at 99. It was agreed that the usefulness of the zone would be greatly diminished “unless we devise a system whereby the duties will be the same for goods coming through the zone into customs territory and goods landing directly in customs territory.” Id., at 101. In the discussion it was proposed that the burden of proof of the origin of the merchandise falls upon the importer, and that the one thing that cannot be accommodated is “a man changing his mind as to what he wants to do with his goods.” Id., at 104-105. In the legislation ultimately enacted, a provision for privileged merchandise was included.
The provision for privileged foreign merchandise is set forth in 19 U.S.C. §81c, in the first proviso:
That whenever the privilege shall be requested and there has been no manipulation or manufacture effecting a change in tariff classification, the appropriate customs officer shall take under supervision any lot or part of a lot of foreign merchandise in a zone, cause it to be appraised and taxes determined and duties liquidated thereon. Merchandise so taken under supervision may be stored, manipulated, or manufactured under the supervision and regulations prescribed by the Secretary of the Treasury, and whether mixed or manufactured with domestic merchandise or not may, under regulations prescribed by the Secretary of the Treasury, be exported or destroyed, or may be sent into customs territory upon the payment of such liquidated duties and determined taxes thereon. If merchandise so taken under supervision has been manipulated or manufactured, such duties and taxes shall be payable on the quantity of such foreign merchandise used in the manipulation or manufacture of the entered article.
Section 3 of the 1934 act (19 U.S.C. §81c(a)), was amended in 1950, to authorize the manufacturing and exhibition of merchandise in FTZ’s. The 1950 amendment also eliminated the absolute requirement that the duties for privileged merchandise be paid within a maximum of two years, even if the merchandise was never sent into customs territory. The 1950 amendment did not affect the purpose of the provision for obtaining privileged status for merchandise. In the legislative history on the 1950 amendment, the Senate Report, No. 1107, 1950 U.S. Code Cong. Service, p. 2533, at 2535-36, stated that the finding on taxes and duties on the merchandise in the zone could be requested at any time until there was a manipulation or manufacture effecting a change in tariff classification, but that such finding could be made only once, and “once made, would thereafter govern the dutiable and taxable status of the merchandise whenever it was sent into customs territory,” and the “duties and taxes would be payable in accordance with the finding”.
Despite the language in the first proviso of 19 U.S.C. §81c(a), liquidation, within the meaning of 19 U.S.C. §1500, of the privileged merchandise does not occur until it is entered into Customs territory. The privileged foreign merchandise “liquidations” are not liquidations within the meaning of 19 U.S.C. §1500. See, T.D. 95-35. However, it is clear from the statutory language, the regulations and the legislative history, that the liquidation of the merchandise is based on the rate of duty in force on the date of filing of the application for privileged status. The regulations provide for correction of any misclassification, up to the time the bulletin notice of the liquidation is posted. 19 CFR 146.65(a)(1). There is however no provision for “adjustment” of the duty rate, which as determined above, includes the MPF. Adjustment of the duty rate, for reason other than a correction, would go against the purpose of the privilege, which is to fix the duty rate to that which is applicable at the time the privilege is applied for.
The Customs statute, 19 U.S.C. §1500(c) and (d), requires Customs to “fix” the final amount of duty to be paid on appraised merchandise, and to liquidate the merchandise, under the rules and regulations prescribed by the Secretary. Part 159 of the Customs Regulations (19 CFR 159) provides for the liquidation of entries of merchandise, and in 19 CFR 159.1, defines liquidation as “the final computation or ascertainment of the duties...accruing on an entry.” Based on the foregoing analysis, the liquidation provisions are administrative provisions, and therefore the term “duty” used therein includes MPF, and the MPF is included in the liquidation of the entry. Although the final computation and ascertainment of duties occurs upon liquidation, it is clear from the statute and the legislative history, that under section 81c(a), the rate of duty applicable at the time of liquidation under section 1500 would not replace that rate applicable at the time the privileged status was granted.
Valero essentially requests that we treat its merchandise as if it had chosen non-privileged foreign status, pursuant to 19 CFR 146.65(a)(2). This section provides that “[n]onprivileged foreign merchandise . . . will be subject to tariff classification in accordance with its character, condition and quantity as constructively transferred to Customs territory at the time the entry or entry summary is filed with Customs.” Valero could have applied for this status on the CF 214, but did not. The Customs Regulations provide in 146.41(e) that the status as privileged merchandise is binding and cannot be abandoned. This is consistent with the legislative history in both 1919 and 1950. Just as the duty rate cannot be adjusted for privileged status merchandise, the MPF also cannot be adjusted.
We note that this situation is distinguishable from that involved in Inter-Maritime Fwd. Co., Inc. v. United States, 192 F.Supp. 631 (Cust. Ct. 1961), wherein the court considered the admission of woolen textiles into an FTZ that were given the status of “privileged foreign merchandise.” At the time of the admission into the zone, a tariff quota on woolen textiles was in place but had not yet been met. The merchandise was later withdrawn from the zone and entered for consumption. A portion of the merchandise was entered before the terminating point of the tariff quota, while another was entered after the quota was reached. Customs determined that the portion of the merchandise entered after the quota had been reached was dutiable at the higher, non-quota tariff rate. The court agreed, finding that:
[T]he quota established for woven woolen fabrics provided not for a single rate of duty, as in the case of ordinary merchandise, but set up a dual rate of duty dependent upon the status of the merchandise when such woolen fabrics were entered for consumption, and the applicable rate for the involved merchandise was not dependent upon the mere fact that the goods were in the foreign trade zone with privileged status.
Id. at 637. The court stated that the effect of privileged status, was to guarantee the importer “against unforeseen future increases in duty while such goods remained in the trade zone, while at the same time protecting Government revenue on such merchandise not entered for consumption so as to obtain the benefit of the quota concession.” Id.
The instant case is distinguishable from Inter-Maritime Fwd. Co., in that unlike in tariff quota matters, with respect to MPF there is no dual rate. The MPF either applies or does not apply. The effect of privileged status is not to guarantee the importer the lowest rate available. The purpose, as set forth in the legislative history, is to eliminate any discrepancy in the liquidation of the entry which may occur by the entry going through the FTZ into Customs territory.
Furthermore, since the Inter-Maritime Fwd. Co. decision, the dual rate for merchandise subject to quota has been addressed in the Customs regulations, 19 CFR 146.65. The revision of the regulations in 1986, added the following language to 146.65(a)(1):
Classification of merchandise subject to tariff-rate import quota will be made only at the higher non-quota duty rate in effect on the date privileged foreign status was granted.
If any additional provision was intended with respect to MPF or other fees which are treated as duties, it could have been included in the regulations. There is nothing in the statute, legislative history or regulations to indicate that the duties provided for in the first proviso of 19 U.S.C. §81c(a), meant anything other than the duties for purposes of which the MPF and other fees, are treated as duties. If any fee was to be exempt from the proviso, it could have been addressed. Under 19 U.S.C. §58c(g)(2), the only exception to the treatment of the subject fees as a duty, is for purposes of drawback. If such an exception had also been intended for administration of FTZ’s, it could have been easily stated in §58c(g)(2).
We note that in Texport Oil Company v. United States, No. 98-21, slip op. (CIT, March 5, 1998) (appeal pending, Nos. 98-1352 and 98-1353), the MPF was clearly stated to be a “fee” as opposed to a “duty” or “tax”, with respect to a drawback law. The statute and regulations clearly state that the MPF is to be treated as a “duty” except under laws and regulations relating to drawback. Therefore, Texport, is not determinative of this matter, and the MPF is to be treated as a Customs “duty” for purposes of 19 CFR 146.65(1). The subject merchandise is not exempt from the MPF assessed.
Even if it were determined that the entered merchandise is exempt from the MPF, although privileged foreign status was applied for upon admission of the merchandise in the FTZ, we do not believe Valero has established that it would be entitled to any refund of MPF. Even if no MPF had been assessed on the Angolan feedstock, Valero still would have owed the maximum $485 MPF per entry, as the $485 cap would have been met by the MPF assessed on the remaining items on the entry.
HOLDING:
Angolan petroleum feedstocks, admitted into an FTZ under privileged foreign status prior to the goods attaining status as products of a BDC, are not exempt from MPF upon entry for consumption of these feedstocks, when entry occurs after the merchandise attains status as products of a BDC.
You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, 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.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant, Director
Commercial Rulings Division