FOR-2-01 RR:CR:DR
231255RDC
Mr. Marshall V. Miller
Miller & Company PC
4929 Main Street
Kansas City, MO 64112
Re: Kwikset Corporation
Dear Mr. Miller:
This is in response to your letter dated 12/30/2005, in which you request a ruling on behalf of foreign trade zone (FTZ) operator Kwikset Corporation, regarding the use of the direct delivery procedures for three entities using foreign trade zone number 202, site 20A (FTZ) in Mira Loma, California.
FACTS:
Kwikset Corporation (Kwikset) is the operator of the FTZ described above. The port of Los Angeles is the grantee of the FTZ. According to the request, “Kwikset and three other related corporate entities store merchandise” in a warehouse facility located within the FTZ. Those companies are Baldwin Hardware (Baldwin), Price Pfister, Inc. (Price), and Weiser Lock (Weiser). Kwikset leases the FTZ and “is responsible for the merchandise of” Baldwin, Price and Weiser that is located in the warehouse facility. Employees of Kwikset operate the warehouse and are “responsible for receiving, handling, storing and shipping all merchandise” admitted to the zone. In addition, “Kwikset is responsible for the building, grounds, insurance, security (including C-TPAT), and as the Foreign-Trade Zone Operator [,] the receiving, handling, storing, record maintenance, and shipping of all the merchandise at the facility.” Kwikset also advises that Kwikset performs all the functions required of a zone operator by the CBP Regulations at 19 C.F.R. §§ 146.4, 146.21, 146.22, 146.25, 146.26, and 146.37 by listing all the requirements contained therein.
Kwikset’s letter states that, Kwikset and Baldwin, Price and Weiser are “related” in that “all four entities are companies of the Black & Decker Corporation and all four companies are managed under Black & Decker Hardware and Home Improvement Group.” The four companies are headquartered in the same facility. The hardware manufactured by Kwikset is marketed under the Kwikset, Weiser and Baldwin brand names. Kwikset also states that, “all financial data” for the four entities “is consolidated under the Black and Decker Hardware and Home Improvements Group on a monthly basis and submitted together to the Black and Decker corporate office . . . .” “All four companies . . . have the same officers, including the vice presidents of finance, supply chain, manufacturing, international, sourcing and information technology. Kwikset and Weiser . . . have the same sales organization.” But, the four companies admit and withdraw merchandise to the zone and file entries using their own importer of record number.
The Port Director, Los Angeles, approved Kwikset to use direct delivery at the FTZ but only for “that merchandise [of] which Kwikset is the owner or purchaser, pursuant to 19 C.F.R. 146.39 and 146.40.” Kwikset was not approved to use direct delivery procedures for the merchandise that is admitted to the zone by Baldwin, Price and Weiser. Kwikset now requests that CBP rule that this Baldwin, Price and Weiser merchandise “also may be received at the [FTZ]” using the direct delivery procedures. Kwikset state that, “the only question raised by Los Angeles Customs revolves around . . . whether Kwikset is considered an ‘owner or purchaser’ of the goods” admitted and withdrawn from the zone by Baldwin, Price and Weiser. Accordingly, that is the issue we address.
ISSUES:
For purposes of direct delivery procedures is Kwikset, the FTZ operator, the owner or purchaser within the meaning of 19 C.F.R. § 146.39(c)(3) of the goods admitted to the FTZ by Weiser, Price or Baldwin?
LAW AND ANALYSIS:
Admission of goods to an FTZ generally requires application on a CBP form 214 (CF 214) and prior permission from the port director (see 19 C.F.R. § 146.32). Direct delivery of goods is an exception to these requirements. The CBP Regulations provide for direct delivery procedures at 19 C.F.R. § 146.39. Using direct delivery procedures, merchandise may be delivered to a zone without prior application and approval on a CF 214 (see 146.39(a)) and without being retained for CBP examination (see § 146.36)). Thus, direct delivery procedures expedite the delivery of merchandise to a zone. The direct delivery procedures are designed for goods the nature of which is known to CBP because they are of the type consistently admitted to that zone. Because, when the other criteria in § 146.39(c) is met, such merchandise poses a low risk of violation of the laws CBP enforces, such goods are permitted to be admitted to the zone without prior approval on a CF 214.
The operator of an FTZ that desires to use direct delivery procedures makes application to the port director (see § 146.39(b)) and the port director must approve the application if the criteria set out in § 146.39(c) is satisfied. These criteria are:
(1) The merchandise is not restricted or of a type which requires Customs examination or documentation review before or upon its arrival at the zone;
(2) The merchandise to be admitted to the zone, and the operations to be conducted therein, are known well in advance, are predictable and stable over the long term, and are relatively fixed in variety by the nature of the business conducted at the site; and
(3) The operator is the owner or purchaser of the goods.
(19 C.F.R. § 146.39(c)). According to the ruling request, the port director, Los Angeles, denied Kwikset the use of direct delivery for goods admitted to the FTZ by Weiser, Price or Baldwin because Kwikset is not “the owner or purchaser of [these] goods” within the meaning of § 146.39(c)(3).
For purposes of § 146.39(c)(3), the owner or purchaser of the goods is defined by the right to make entry as provided by 19 U.S.C. § 1484(a)(2)(B). In T.D. 86-16 which set forth a final rule revising the FTZ regulations and simplifying the criteria for direct delivery (51 Fed. Reg. 5040, 2/11/1985)), CBP referred to Customs Directive (C.D.) 3530-02 for the definition of “owner or purchaser.” In response to comments that criticized the direct delivery procedures, among others, as “too stringent,” Customs said:
The specific restriction of the direct delivery procedure to subzones and zone sites has been limited. However, we believe that most general-purpose zones will not qualify for the procedure because the zone operator is not the owner or purchaser of the merchandise (as interpreted by Customs in Customs Directive 3530-02, dated November 6, 1984). The criteria for direct delivery ensure that not only are the shipments repetitive and relatively unchanging, but also that the zone operator is in a position to see that they remain so.
(51 Fed. Reg. 5040, 2/11/1985)).
C.D. 3530-02, referred to in T.D. 86-16 as interpreting “owner or purchaser of the merchandise” for purposes of § 146.39(c)(3), has been superceded by C.D. 3530-002A (6/27/2001), entitled “Right to Make Entry.” C.D. 3530-002A defines the terms “owner or purchaser” as:
any party with a financial interest in the transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc. . . . . The terms “owner” or “purchaser” would not include a “nominal consignee” who effectively possesses no other right, title, or interest in the goods except as he possessed under a bill of lading, air waybill, or other shipping document.
Since, “owner or purchaser of the merchandise” for purposes of § 146.39(c)(3) is “any party with a financial interest in the transaction,” owner or purchaser is determined by the relationship of the would-be importer to the goods, i.e., the right to make entry is defined by the nature of the would-be importer’s interest in the goods. The examples of entities provided in C.D. 3530-002A as those with “financial interest in the transaction” so as to be considered the owner or purchaser of the goods and afforded the right to make entry: a buying or selling agent; one who imports on consignment, under loan or lease, for exhibition, repair, alteration or further fabrication, etc., enjoy something more than a custodial interest in the goods. That is, those considered to have a financial interest in the goods so as to be owners or purchasers, have interests in the goods which go beyond mere custody of the goods as in the bailee-to-bailor relationship evidenced by those excluded from having a financial interest, possessors of “a bill of lading, air waybill, or other shipping document.”
The Headquarters Ruling Letters, discussed below, addressing the requisite financial interest to be considered an owner or purchaser have all found the financial interest to be sufficient when the entity is in some significant way expecting or relying on a financial benefit from the imported goods. Thus, the focus of the inquiry is the reciprocal relationship between the entity and the goods. The rulings all identify a nexus between the financial welfare of the would-be importer’s business activities and the imported goods. This characteristic of the would-be importer’s interest in the goods, i.e., that its financial wellbeing is linked to the goods, is consistent with the comment about the criteria for direct delivery found in the final rule quoted above: “The criteria for direct delivery ensure that not only are the shipments repetitive and relatively unchanging, but also that the zone operator is in a position to see that they remain so” (51 Fed. Reg. 5040, 2/11/1985)). Therefore, when a zone operator has a financial interest in the goods so as to be considered an owner or purchaser, the goods are expected to benefit the zone operator’s financial welfare. Such a zone operator has significant incentive to continue operations as arranged with regard to the goods. As a result, the nature of the goods admitted to that zone is known to CBP because the goods are of the type consistently admitted to that zone and pose a low risk of violation of the laws CBP enforces.
Kwikset states that it is an “owner or purchaser,” as defined by one with the right to make entry per § 1484, of all the merchandise admitted to the FTZ including that of Baldwin, Price and Weiser because Kwikset has “a financial interest” in the merchandise. Kwikset argues that its financial interest in these goods is “through its obligations as a foreign-trade zone operator and under its foreign-trade zone operator’s bond.” Kwikset asserts that “as the Foreign-Trade Zone operator, Kwikset must conduct a wide variety of 'very specialized activities’ and lists among those activities: providing security in the zone; maintaining the operator’s bond; managing the zone; filing a manual; activating the zone; receiving CBP form 214; verifying quantity and identification of goods upon admission; releasing goods per CBP forms 3461 and 7512; preparing and filing annual reports and reconciliation and maintaining the contract with and paying the grantee. In addition, “Kwikset is responsible for the building, grounds, insurance, security (including C-TPAT), and as the Foreign-Trade Zone Operator[,] the receiving, handling, storing, record maintenance, and shipping of all the merchandise at the facility.”
Kwikset argues that its “interest in the merchandise admitted into the [warehouse] facility is greater than mere corporate affiliation.” Kwikset states that for the reasons explained above, its “operations and interest in the merchandise [admitted to the FTZ] is more significant than merely being related to another company and” that its “interest in the merchandise is also more than that of a nominal consignee . . . .” Finally, Kwikset concludes that, “the financial interest in the merchandise extends to the continued viability of the [warehouse] facility.” However, Kwikset has identified no relationship with the goods admitted to the zone by Baldwin, Price and Weiser except that of an FTZ and warehouse operator. As explained in detail below, the actions required of an FTZ operator evidence none of the financial interest in the admitted goods necessary to be considered an owner or purchaser. Further, Kwikset’s responsibilities as a warehouse operator also do not indicate any financial interest in the goods admitted to the FTZ by Baldwin, Price and Weiser beyond that of a typical bailor, which too is insufficient to consider Kwikset an “owner or purchaser” of the Baldwin, Price and Weiser goods.
Kwikset’s argument that performing those actions required by CBP regulations of all FTZ operators, including those enumerated in § 146.4, § 146.21, §§ 146.25 and 26, evidence a financial interest in the goods admitted, a non sequitur. The requirements to be granted permission to use direct delivery procedures are that the entity be an FTZ operator and meet the criteria set out in § 146.39(c). Section 146.39(c)(3) provides that, among other requirements, a FTZ operator also be an owner or purchaser of the goods in order to qualify for direct delivery. If status as a zone operator and the concomitant obligations were sufficient to indicate that the FTZ operator possessed adequate “financial interest in the transaction” so as to be considered an “owner or purchaser,” § 146.39(c)(3) would not be necessary. Thus, from the plain language of § 146.39(c)(3), it is clear that none of the responsibilities that the operator of a foreign trade zone assumes or the duties it is required to execute with respect to the zone users, indicates any of the financial interest contemplated to be considered an owner or purchaser under 19 U.S.C. § 1484.
Kwikset also describes its financial interest in the merchandise admitted and stored by Weiser, Price or Baldwin also as “its insurable interest” in the goods stored because Kwikset “holds the insurance policy” that covers the loss or destruction of any merchandise in the warehouse. Kwikset alone pays the premium. Kwikset concludes that this “is analogous to the financial interest Customs found sufficient in” HRL 222020 (8/1/1990). However, Kwikset’s action of procuring and maintaining casualty insurance at the warehouse facility evidences no more interest in the goods than that of a bailee, i.e., one who is entrusted with the custody of goods belonging to another. Further, an FTZ operator is responsible for “safekeeping of merchandise . . . “ (§ 146.4(c)) and “supervision by the operator shall be that which a prudent manager of a storage . . . facility would be expected to exercise . . . .” (§ 146.4(a)). It is axiomatic that the prudent warehouse manager would insure the contents of its warehouse against casualty loss as protection against claims of the owners of the stored goods.
In HRL 222020 the issue was whether the sugar refiner who had acted as importer of record had sufficient "financial interest" in the imported raw sugar so as to confer the right to make entry under 19 U.S.C. 1484. The raw sugar was supplied to the sugar refiner pursuant to an agreement by which the refiner agreed to supply refined sugar to designated companies in an amount equivalent to the production yield of the supplied raw sugar less refining losses. The refined sugar to be delivered was not required to be specifically refined from the raw sugar furnished by the raw sugar brokers, but could come from the refiner’s inventory of refined sugar. CBP concluded that, while the refiner was not the “owner” of the sugar in the strict sense because it had not acquired title to the supplied sugar, it did have sufficient financial interest in the supplied sugar to be considered the owner or purchaser within the meaning of § 1484 and C.D. 3530-02.
As stated in HRL 222020, “The financial interest in the sugar is demonstrated by the following factors: the refiner possessed the right of enforcing a mechanic's lien, if necessary, on the refined sugar; the refiner received an advance of monies to refine the sugar; the refiner paid the stevedoring charges for off-loading the raw sugar and loading the refined sugar as well as any demurrage and dispatch charges on the refined sugar. While the sugar was in the refiner’s possession, it assumed the risk of loss and purchased the applicable insurance.” Kwikset’s interest in the stored goods at issue is not analogous to that of the sugar refiner. The sugar refiner expected, indeed relied on a financial benefit from the sugar for which it acted as importer of record. The refiner had invested in the sugar by way of paying the stevedoring charges for off-loading the raw sugar and loading the refined sugar as well as any demurrage and dispatch charges. Further, because it was paid for the refining, the refiner’s financial welfare was linked to the raw sugar. It is just this type of financial interest contemplated by § 146.39(c)(3) and which Kwikset cannot evidence in the goods at issue.
In addition, Kwikset contends that the “the services Kwikset provides to the other subsidiaries of its parent corporation as an [FTZ] and warehouse operator has [sic] been previously recognized by Customs as a financial interest.” For this conclusion, Kwikset relies on HRL 115914 (4/7/2003) and 115260 (1/10/2002). A related contention is that, “Kwikset’s general business services undertaken” on the goods admitted to the zone by the three related companies “has been recognized by Customs as a financial interest.” Kwikset relies on HRL 115805 (1/7/2003) for this conclusion. HRLs 115260 and 115914 addressed the same corporate entities’ relationship to each other and the imported goods; only the imported goods were different. In both these rulings the importer of record was a U.S. corporation that was a wholly owned subsidiary (U.S. Sub) of the parent Japanese corporation (Parent). The Parent manufactured the goods and, it was determined, the U.S. Sub was its “selling agent.”
In HRLs 115260 and 115914, based on the responsibilities evidenced by the Representative Agreement, Customs determined that the U.S. Sub was the Parent’s “selling agent.” The relationship between the U.S. Sub and Parent was evidenced by a Representative Agreement. The U.S. Sub was to: communicate U.S. customer needs to Parent; make product demonstrations to Parent’s U.S. customers; communicate product specifications and acceptance criteria between Parent’s U.S. customers and Parent; advertise in the U.S. on behalf of Parent; monitor U.S. customer financial conditions on behalf of Parent; advise Parent with respect to market conditions and order and install warranty parts for machines ordered by Parent’s U.S. customers. The Parent was obligated to pay to the U.S. Sub a commission based on a percentage of the sales price between Parent and the U.S. customer.
Per C.D. 3530-02, the selling agent for the imported goods has sufficient financial interest in those goods to meet the “owner or purchaser of the merchandise” definition for purposes of § 1484. It is evident from HRLs 115260 and 115914 that the nature of a selling agent’s relationship to the goods indicates that a selling agent’s financial or commercial welfare is linked to the imported goods. Further, even if the U.S. Sub’s obligations to the Parent did not rise to the level of selling agent, its commitments constituted a financial interest in the goods well beyond that of a Kwikset’s interest as custodian of Baldwin, Price and Weiser’s in the warehouse. Clearly, because the U.S. Sub earned commission from the sale of the Parent’s goods, the Sub benefited financially from its arrangement with the Parent, thus constituting a financial interest. There is no evidence that Kwikset’s financial or commercial welfare is linked to the goods admitted to the FTZ by the other companies. Kwikset does not benefit financially from the goods stored in the warehouse or has any interest in the goods other than that of custodian.
HRL 115805 (1/7/2003) CBP concluded that one of four partners (the Partner) in a joint venture had sufficient financial interest in imported goods purchased by the joint venture to act as importer of record for merchandise necessary for a satellite launch service including rocket components, propellants and spare parts. In that ruling four companies joined together to form a joint venture to provide satellite launch services. It is evident that the Partner had significant financial interest in the imported merchandise. In addition to providing personnel, the Partner’s involvement in the joint venture extended to the entire range of the joint venture’s activities. Its responsibilities included planning, integrating, and performing the pre-launch, launch and post launch procedures required to assemble, test, transport and launch satellites on a rocket.
The Partner joined the payload with the integrated rocket sections and working with other partners, was responsible for joining the encapsulated payload to the integrated launch vehicle. The Partner operated and maintained the communications, telemetry, mission information displays, and spacecraft air conditioning systems necessary for launch and had a significant number of personnel assigned to the launch vehicle integration and mission activities. Further, the Partner was the guarantor of a significant loan taken by the joint venture and retained a lien against all of the joint venture’s assets. In addition, a Technical Services Agreement, which defined the Partner’s responsibilities with regard to the joint venture operations, required the Partner to serve as consignee for certain importations. The Partner also was holder of all the necessary Office of Defense Trade Controls licenses and that Office required that the Partner remain responsible for the control of all munitions list items.
The financial interest in the imported goods demonstrated by the importing partner in HRL 115805 go beyond any interest Kwikset has in the goods in the FTZ. The joint venture’s commercial purpose was to assemble, test, transport and launch satellites on a rocket. The imported goods were parts of the satellite launching rocket. Since the importing partner was a part owner of the joint venture, invested resources in the enterprise and guaranteed a loan for the joint venture, it is clear that the importing partner’s financial interests were served by the success of the joint venture. The success of the joint venture in turn was served by the importation of the necessary rocket components, propellants and spare parts. Consequently, it is clear that the importing partner could be said to have had a financial interest in this merchandise. Again, there is no evidence that Kwikset’s financial welfare or commercial interests are linked sufficiently to the goods admitted to the FTZ by the other three companies to conclude that Kwikset has a financial interest sufficient to consider it an “owner or purchaser” of that merchandise.
HOLDING:
For purposes of direct delivery procedures Kwikset, the FTZ operator, is not the owner or purchaser of the goods admitted to the FTZ by Weiser, Price or Baldwin and may not utilize the direct delivery procedures for goods of which Weiser, Price or Baldwin and not Kwikset, is the owner or purchaser.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division