LIQ-15 RR:CR:DR
229806RDC
Robert Birthisel
Williams Mullen
SunTrust Center
500 East Main Street
Suite 1301
Norfolk, VA 23510
Dear Mr. Birthisel:
This is in response to your request dated January 10, 2003, on behalf of your client, South Florida Auto Terminal (“SFAT”), for “an opinion regarding Harbor Maintenance Fees’ (“HMF”) application to non-conforming automobiles.”
FACTS:
According to your request, SFAT operates a foreign trade zone (“FTZ”) in Port Everglades, Florida. Used automobiles from Japan are unladen in Port Everglades and are “either transported in bond to another carrier for immediate shipment to another country, or entered into [the FTZ] until a customer, outside the U.S., is identified to receive the automobile.” All of the cars admitted into the FTZ are eventually exported. “All of the cars are right hand drive, used Japanese automobiles. The cars do not meet the requirements imposed by U.S. law, including safety standards, and therefore cannot be sold in the U.S. and you state, cannot be entered into the U.S.
Further, you state that these cars cannot be modified to meet U.S. standards, hence none of these automobiles are entered for consumption into the U.S. You state that the only reason these cars are in the U.S. is “to take advantage of the shipping lines providing service to the Caribbean islands to which the Japanese automobiles are ultimately destined.” It is your position that this cargo, unladen in Port Everglades, Florida, consisting of used automobiles from Japan which are not permitted to be sold in the U.S. and are admitted into a FTZ is not subject to the Harbor Maintenance Fee (“HMF”).
ISSUES:
Is cargo, unladen in Port Everglades, Florida, consisting of used automobiles from Japan which are not permitted to be sold in the U.S. and that are either admitted into a FTZ or transported in bond to another carrier and exported is subject to the Harbor Maintenance Fee?.
LAW AND ANALYSIS:
The Harbor Maintenance Fee, provided for at 26 USC §§ 4461, 4462, supplies federal funding for the maintenance of any channel or harbor in the United States which is not an inland waterway and is open to public navigation. Specifically, 26 § USC 4461(a) and (b), as amended by 11214 of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-508), provide for the assessment of a tax (i.e., HMF) on any port use in an amount equal to 0.125 percent of the value of the commercial cargo involved.
"Port use" for purposes of assessing the HMF is defined as either the loading of commercial cargo on, or the unloading of commercial cargo from a vessel, a commercial port subject to the HMF (26 USC § 4462((a)(1)(A)(B)). The term commercial cargo means any cargo transported on a commercial vessel. The applicable regulatory authority promulgated by Customs pursuant to 26 USC § 4462(h) to implement the above statutory provisions is § 24.24, Customs Regulations (19 CFR § 24.24). Certain cargoes are exempted from the application of the HMF, including “cargo entering the United States for transportation and direct exportation to a foreign country” (26 USC § 4462(d)(1)).
As we understand the facts as described by you, one of two things happens to the cargo of used Japanese cars that is unladen at Port Everglades. The cars are either 1) “transported in bond to another carrier for immediate shipment to another country,” or 2) “entered into [the FTZ] until a customer, outside the U.S., is identified to receive the automobile.” The cargo described above that is “transported in bond to another carrier for immediate shipment to another country,” under 19 USC § 1553 and in accordance with 19 CFR § 18.20 - § 18.24, is exempt from the HMF per 19 CFR § 24.24(c)(6), which implements 26 USC § 4462(d)(1) and provides, in pertinent part, that:
the tax imposed by section 4461(a) shall not apply to bonded commercial cargo entering the United States for transportation and direct exportation to a foreign country.
Further, 19 CFR § 24.24(c)(6) provides, in pertinent part,
(c) Exemptions. The following are not subject to the [HM]fee: . . .
(6) Cargo entering the U.S. in bond for transportation and direct exportation to a foreign country, . . . .
However, with regard to that portion of the cargo that is “entered into [the FTZ] until a customer, outside the U.S., is identified to receive the automobile” there is no exemption from the HMF applicable to goods admitted into a FTZ. On the contrary we call to your attention 19 CFR § 24.24(e)(3)(i), which states, in part,
when imported cargo is unloaded from a commercial vessel at a port within the definition of this section, and destined for . . . foreign trade zone admission, . . . in the case of foreign trade zones, the person or corporation responsible for bringing merchandise into the zone, is liable for payment of the port use fee at the time of unloading. . . . . The fee shall be collected on all formal entries, including warehouse entries and temporary importation under bond entries, and admissions into foreign trade zones.
(See HRL 113783, December 12, 1996.)
You contend that since the cars entering the FTZ enter the U.S. only “for the purpose of direct export,” that since these cars are never entered for consumption in the U.S., this cargo should be considered “cargo entering the U.S. in bond for transportation and direct exportation to a foreign country” and exempt from the HMF per § 24.24(c)(6). You also state that “Customs appears to interpret the term “direct” to imply a measurement of time rather than direction.” Finally, you argue that “if the regulation is interpreted as defining goods which cannot make legal entry into the [U.S.] as being something other than ‘cargo entering the U.S. in bond for transportation and direct exportation to a foreign country’ what else could the cargo be?”
We note that no evidence is provided to support the contention that the cars cannot be entered for consumption in the U.S. It appears self-evident that right hand drive cars, which do not meet U.S. safety and other requirements cannot be driven in the U.S. and perhaps are prohibited from being offered for sale in the U.S., but this is not the same as being prohibited from being entered for consumption into the U.S. Hence, without evidence we are not convinced that the described cars cannot be entered for consumption into the U.S.
The plain language of 19 USC § 1553 which controls transportation and exportation movements makes it clear that transportation and exportation means “a movement through the United States” (HRL 223430, April 15, 1992). Further, the word “direct” which in common usage means “proceeding from one point to another in time or space without deviation or interruption,” which was added to the implementing Customs Regulation (§ 24.24(e)(3)(i)) also evidences that the exemption provided in 26 USC § 4462(d)(1) does not encompass cargo admitted into a FTZ for an undetermined period of time.
You also state that the court’s decision in BMW Manufacturing Corporation v. United States (69 F. Supp. 2d 1355 (Ct. Intl. Trade 1999), aff’d 241 F.3d 1357 (U.S. App. 2001)) does not apply to your cargo because the facts in BMW are distinguishable from those you present, i.e., because the foreign-produced motor vehicles received at BMW’s FTZ “can and did enter into the commercial markets of the United States” but that the used vehicles admitted into SFAT’s FTZ never enter the U.S. This conclusion is not supported by the law and is contrary to the Customs Regulations, i.e. § 24.24(e)(3)(i) and the opinions of both the Court of International Trade (“CIT”) and the Court of Appeals for the Federal Circuit (“CAFC”) in BMW Manufacturing. We can find no support for inferring that liability for the HMF depends on whether the goods enter or are capable of entering the commerce of the U.S. However, the plain language of the statute, regulations and applicable court decisions all dictate that the HMF applies to goods entering a FTZ.
In BMW Manufacturing (69 F. Supp. 2d 1355 (Ct. Intl. Trade 1999), aff’d 241 F.3d 1357 (U.S. App. 2001)) BMW disputed the imposition and collection of the HMF on foreign goods - complete motor vehicles or automotive components - it admitted into its FTZ. BMW relied on 26 USC § 4462(f)(1) which provides that the HMF is to be treated for administration and enforcement purposes as a customs duty and 19 USC § 1528 which requires that a tax is to be construed as a customs duty if it is to be treated as a customs duty. BMW concluded that since per 19 USC. § 81c(a) duty is only imposed on foreign goods admitted into a FTZ when they leave the FTZ and enter the U.S. Customs territory then no HMF was due on its foreign goods when they were admitted into the FTZ.
The Court of International Trade rejected BMW’s argument and held that the HMF does apply to cargo admitted into an FTZ per 19 CFR § 24.24(e)(2)(iii). (69 F. Supp. 2d 1355, 1359.) The CIT noted that goods admitted into a FTZ are not included among the list of port uses specifically exempted from the HMF under IRC § 4462 (69 F. Supp. 2d 1355, 1358) and that because the HMF is treated as a customs duty for administration and enforcement purposes only, neither IRC § 4462(f)(1) nor 19 USC § 1528 rendered applicable the customs duty exemption in 19 USC § 81c(a) for cargo admitted into an FTZ. (Id.) The CIT’s decision was upheld by the U.S. Court of Appeals for the Federal Circuit (241 F.3d 1357 (U.S. App. 2001), rehearing and rehearing en banc denied, May 9, 2001).
The CAFC in its decision on the BMW appeal stated,
The HM[F] statute makes clear that the tax is due immediately upon cargo unloading, without regard to the destination of the merchandise. IRC § 4461(c)(2) (stating that "the [HM[F]] shall be imposed . . . at the time of unloading"). Under BMW's construction of the statute, the destination of the cargo would be crucial, . . . . Had Congress intended to impress such a condition on the imposition of the HMT, it seems illogical that it would have imposed the tax "at the time of unloading." Furthermore, we have previously stated that "the HMT is a generalized Federal charge for the use of certain harbors . . . intended to be assessed independently of whether the 'port use' is for imports, exports, or other shipments . . . ." Texport Oil Co. v. United States, 185 F.3d 1291, 1297 (Fed. Cir. 1999) (citations omitted) (emphasis added). Congress therefore could not have intended that there be an HMT exemption for goods admitted into an FTZ without explicitly providing for one, as it did in the case of "bonded commercial cargo," IRC § 4462(d)(1), because it is a general tax on port use that is not conditioned on formal entry into the customs territory of the United States.
(emphasis added) (241 F.3d 1357, 1362.) Also under Texport, (185 F.3d 1291) the Federal Circuit held that the HMF was not eligible for refund under the drawback laws. Moreover, 19 USC § 1313(u) would seem to apply to the situation described.
The reasoning of the CIT and CAFC in the BMW cases applies to the facts you describe. Contrary to your assertion, per 26 USC § 4460(c)(2)(B), the HMF triggering event is the use of the harbor. The liability for the HMF attaches “‘at the time of [cargo unloading.’” (241 F.3d 1357, 1357.) However,
Congress expressly exempted certain port use from the fee. Congress created a "special rule for Alaska, Hawaii, and possessions." 26 U.S.C. § 4462(b). . . . . Congress also expressly exempted "bonded commercial cargo entering the United States for transportation and direct exportation to a foreign country." 26 U.S.C. § 4462(d)(1). The facts of this matter give rise to neither exemption and the statute does not include specific exemption for cargo that is admitted into a foreign trade zone after unloading at a covered port.
(69 F. Supp. 2d 1355, 57-58.) Therefore the exemption from the HMF provided in 26 USC § 4462(d)(1) applies only “to bonded commercial cargo entering the United States for transportation and direct exportation to a foreign country” and does not apply to cargo admitted into a FTZ.
Finally, you assert that since the used cars at issue are non-conforming, i.e., they are right hand drive, do not meet U.S. safety or emissions standard, these cars have no “commercial value within the U.S.” These cars “only have value in the foreign countries to which” they are exported. Hence, their value in the U.S. for purposes of the HMF is zero. We do not agree. 26 USC § 4462(a)(5)(A), provides, “the term 'value' means, except as provided in regulations, the value of any commercial cargo as determined by standard commercial documentation.” Thus, for purposes of valuation for HMF liability no consideration is given to the end-use of the cargo, its ultimate destination or any other cargo-specific standard. The value is determined by the price paid per the invoice or similar “standard commercial documentation.”
HOLDING:
Cargo, unladen in Port Everglades, Florida, consisting of used automobiles from Japan which are not permitted to be sold in the U.S. that are admitted into a FTZ is subject to the Harbor Maintenance Fee.
Sincerely,
Myles Harmon, Director
Commercial Rulings Division