Customs Ruling HQ 230090 - Internal advice; foreign trade zone; privileged foreign status; preferential treatment; ATPDEA; 19 CFR 10.201-207 This is in response to your memorandum dated July 29, 2003, requesting internal advice regarding crude oil entered by Tesoro Hawaii Corporation ("Tesoro") from the Port of Honolulu’s Foreign Trade Zone No. 009A. We have considered the facts and issues raised and our response follows.

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HQ 230090
Dec 31, 2003

Type : • HTSUS :
Related: 227638

FILE: FOR-2-03-FOR2-04-RR:CR:DR 230090 IOR

TO : Port Director, Honolulu, HI

FROM : Director, Commercial Rulings Division, Office of Regulations and Rulings, SUBJECT : Internal advice; foreign trade zone; privileged foreign status; preferential treatment; ATPDEA; 19 CFR 10.201-207

This is in response to your memorandum dated July 29, 2003, requesting internal advice regarding crude oil entered by Tesoro Hawaii Corporation (“Tesoro”) from the Port of Honolulu’s Foreign Trade Zone No. 009A. We have considered the facts and issues raised and our response follows.

FACTS:

On December 16, 2002, Tesoro filed an Application for Foreign Trade Zone Admission and/or Status Designation Final (CF 214), to transfer 442,009 barrels of imported crude oil into the Port of Honolulu’s Foreign Trade Zone (“FTZ”) No. 009A. Tesoro applied for and was granted privileged foreign status for the crude oil, on December 16, 2002. On the CF 214 the crude oil is classified under subheading 2709.00.1000, Harmonized Tariff Schedule of the United States (“HTSUS”), and the origin of the crude oil is identified as “EC”, or Ecuador. Subsequently, on January 3, 2003 and February 14, 2003, Tesoro entered for consumption 441,021 barrels of the crude oil from the FTZ, under subheading 2709.00.100040, HTSUS. The merchandise was entered at the duty rate of $0.525 per barrel.

Subsequently, by letter dated April 16, 2003, Tesoro, through its broker, submitted certificates of origin for the entered crude oil, and requested a refund of the duty paid on the crude oil, on the basis that the crude oil is eligible for duty free treatment under the Andean Trade Promotion and Drug Eradication Act. You request advice as to whether Tesoro is eligible for a refund because the crude oil was granted privileged foreign status. You also ask whether a Significant Information Report (SIR), CF 213, is sufficient to verify the country of origin set forth on the certificate of origin. At the time of this decision, no SIR has been completed.

ISSUE:

Whether a grant of privileged foreign status precludes a subsequent claim for duty-free treatment under 19 CFR 10.112.

LAW AND ANALYSIS:

The Trade and Development Act of 2002 (“the Act”), was signed into law on August 6, 2002 (Pub.L. 107-210, 116 Stat. 933). Title XXXI of the Act concerns the renewal and expansion of the Andean Trade Preference Act (“ATPA”) and is entitled the Andean Trade Promotion and Drug Eradication Act (“ATPDEA”). The ATPDEA immediately restored duty-free trade treatment to articles that had been eligible for ATPA benefits prior to the program’s expiration on December 4, 2001. The ATPDEA amends the ATPA, which is codified at 19 U.S.C. §§3201 through 3206, to provide additional trade benefits to designated beneficiary countries. The amendment provides preferential tariff treatment for certain goods previously excluded from ATPA eligibility, including “petroleum, or any product derived from petroleum, provided for in headings 2709 and 2710 of the HTS”, that is “imported directly into the customs territory of the U.S. from an ATPDEA beneficiary country, and that meets the requirements” set forth therein, and the President determines that such article is not import-sensitive in the context of imports from ATPDEA beneficiary countries. 19 U.S.C. §3203(b)(1)(B).

Presidential Proclamation 7616, dated October 31, 2002 and published in the Federal Register (67 FR 67283) on November 5, 2002, implemented the ATPDEA. The Presidential Proclamation made necessary changes to the HTSUS to implement the ATPDEA and designated Bolivia, Colombia, Ecuador and Peru as ATPDEA beneficiary countries, and serves as the determination that merchandise under subheading 2709.00.10, HTSUS, is eligible for the preference. The proclamation added the duty rate of “free” and the symbol “J+” in the “Special” subcolumn for subheading 2709.00.10, HTSUS. The “J+” denotes the merchandise which is described in 19 U.S.C. §3203(b)(1)(B), supra. See also General Note 11(d), HTSUS.

The applicable Customs Regulations for the ATPDEA are located in 19 CFR 10.201 – 10.207. In 19 CFR 10.204 it is stated:

In order to be eligible for duty-free treatment under the ATPA, an article shall be imported directly from a beneficiary country into the customs territory of the United States.

For purposes of this requirement, the term “imported directly” is defined in 19 CFR 10.204, as including “(a) direct shipment from any beneficiary country to the United States without passing through the territory of any non-beneficiary country”. In this case, although the merchandise was admitted into an FTZ prior to entry into the Customs territory of the U.S., such admission into the FTZ does not constitute the territory of a “non-beneficiary country.” The FTZ is a geographical entity separate and distinct from the Customs territory. Hawaiian Independent Refinery v. United States, 460 F.Supp. 1249, 1255 (Cust. Ct. 1978). However it is still within the geographic territory of the United States, and is not the territory of a “non-beneficiary country.”

The “date of importation” is defined in 19 CFR 101.1 to mean:

…in the case of merchandise imported otherwise than by vessel, the date on which the merchandise arrives within the Customs territory of the United States. In the case of merchandise imported by vessel, “date of importation” means the date on which the vessel arrives within the limits of a port in the United States with intent then and there to unlade such merchandise.

Based on the foregoing definition, arrival of the merchandise in the U.S., prior to admission into the FTZ constitutes an importation. Therefore, even prior to admission of the merchandise into the FTZ, the merchandise has been “imported”, but not entered, into the Customs territory of the U.S. Further, even if the merchandise were not considered to have been “imported” in the “Customs territory” of the U.S. prior to entry from the FTZ, the definition in section 10.204 does not preclude ATPDEA eligibility for merchandise shipped directly from a beneficiary country, for admission of merchandise into a U.S. FTZ prior to entry of the merchandise into the Customs territory.

With respect to merchandise transferred from an FTZ to Customs territory, 19 CFR 146.65(a)(1) provides:

Privileged 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. Classification of merchandise subject to a 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. Notwithstanding the grant of privileged status, Customs may correct any misclassification of any such entered merchandise when it posts the bulletin notice of liquidation under §159.9 of this chapter.

Tesoro submitted the application for privileged status on December 16, 2002. 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, the duty-free rate under the ATPDEA was implemented on October 31, 2002. Therefore, the duty-free rate presently applicable to merchandise from Ecuador was applicable on December 16, 2002, the time the application for privileged status was made.

The merchandise is not subject to any tariff-rate import quota, therefore the restriction in the regulation is not applicable. Further with respect to quota merchandise, 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 of the textiles 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. Since the decision in Inter-Maritime Fwd. Co., the applicable regulation has been amended to provide for use of the higher non-quota duty rate.

The instant case is distinguishable from Inter-Maritime Fwd. Co., in that unlike in tariff quota matters, with respect to the preferential rate under the ATPDEA, there is no dual rate. The preferential rate, if requested and the requirements are met, is applicable. In this case an importer filing a consumption entry on December 16, 2002 for Ecuadoran crude oil under the general duty rate, would not be precluded from subsequently requesting the special duty rate, under 19 CFR 10.112, infra.

The purpose of privileged foreign status and its legislative history in relation to the applicable duty rate was discussed in HQ 227638, dated November 30, 1998. The concept of privileged status was adopted in order to create equity for merchandise entered for consumption directly upon importation, and merchandise entered for consumption from a FTZ. In the hearings on earlier bills for the establishment of foreign trade zones before the Senate Subcommittee of the Committee on Commerce, on S. 3170, October 10, 11, and 21, 1919, p. 96-105, the concept of and need for privileged status foreign merchandise was discussed 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, it was 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 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.

Emphasis added. 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 because of the change to the proviso by the 1950 amendment which fixed duty liability on entry from a zone.

In this case, the applicable rate for merchandise with the ATPDEA preference was the duty free rate. Had the merchandise been entered for consumption on December 16, 2002, the merchandise would have been eligible for the duty free rate. Under 19 CFR 10.112, duty free entry documents or reduced duty documents can be filed anytime prior to the liquidation of an entry becoming final. Nothing precludes the applicability of section 10.112 to entries of privileged foreign merchandise from an FTZ.

Therefore, assuming the claim for preference is verified, and it is determined that the subject merchandise qualifies under ATPDEA, Tesoro is entitled to a refund of the duty paid. You also ask whether an SIR is sufficient to verify the country of origin of the merchandise. With regard to verification of a claim for preference, the regulations provide guidance on verification in 19 CFR 10.207(e). As no verification has been done at this point, and no specific question regarding the origin is raised, it is premature to respond to any question of what constitutes a sufficient verification.

HOLDING:

Privileged foreign status merchandise entered for consumption from a foreign trade zone is not precluded from the provision of 19 CFR 10.112.

You are to mail this decision to the importer that is the subject of the internal advice 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 and Border Protection personnel, and to the public on the Customs Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Myles Harmon