CLA-2-CO:R:C:S 556751 RAH
Mr. Steven W. Baker
Bellsey and Baker
100 California Street, Suite 670
San Francisco, California 94111
RE: Eligibility of merchandise for duty-free treatment under
subheading 9801.00.25, HTSUS
Dear Mr. Baker:
This is in response to your letter of May 28, 1992, on
behalf of Royal Robbins, Inc., regarding entry of returned
merchandise.
FACTS:
Royal Robbins, Inc., imported various items of men's
apparel, originating in Hong Kong, India, China and Malaysia.
All the entries were properly duty paid and accompanied by valid
visas or export certificates. On February 6, 1992, Royal Robbins
pulled the goods in the subject entry from its domestic
warehouses and put together a shipment "intended" for the
Netherlands. You state that the merchandise would have been
eligible for same condition drawback, but it was decided not to
prepare such a filing due to the relatively small value and
number of entries involved.
When the goods arrived in the Netherlands, they were refused
entry due to the absence of textile visas covering merchandise
from the original countries of production to the European
Community. Without ever leaving the custody of the carrier, the
goods were returned to San Francisco International Airport.
Upon return to the United States, Royal Robbins attempted to
enter the merchandise under subheading 9801.00.2500, Harmonized
Tariff Schedule of the United States (HTSUS), as previously
imported articles reimported for the reason that such articles
did not conform to sample or specification.
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You contend that the circumstances surrounding this shipment
meet the requirements for reimportation under subheading
9802.00.2500, HTSUS, because the failure to deliver the
merchandise is a breach of an implied warranty of
merchantability, which, in turn, is a failure to meet
specifications.
You further argue that, under the Uniform Commercial Code
and the United Nations Convention on Contracts for the
International Sale of Goods, there is, in contracts not otherwise
explicitly covering the issue, an implied warranty of
merchantability for merchandise sold. You state that the ability
to deliver merchandise within a particular country is clearly a
requirement of merchantability (UCC Section 2-503; CISG Article
30).
Alternatively, you urge that the merchandise in question was
never exported from the United States and, thus, no second entry
is required.
In order to avoid a significant economic loss, you request
that Customs permit the merchandise to return to the commerce of
the United States without a requirement for additional visas or
waivers. On August 5, 1992, you informed a member of my staff
that Customs has issued an "Order to Transfer" the merchandise on
August 23, 1992, which will result in its sale at a public
auction.
ISSUE:
Whether merchandise shipped from the United States to the
Netherlands where it was not allowed to enter that country for
failure to produce textile visas is eligible for duty-free
treatment under subheading 9801.00.25, HTSUS, as merchandise
which does not conform to specification, upon its return to the
United States.
LAW AND ANALYSIS:
Dutiable merchandise imported and afterwards exported, even
though duty thereon may have been paid on the first importation,
is liable to duty on every subsequent importation into the
Customs territory of the United States, unless exempt by law.
Section 141.2, Customs Regulations (19 CFR 141.2).
One such exemption is set out in subheading 9801.00.25,
HTSUS, which provides for the duty-free entry of:
[a]rticles, previously imported, with respect to which
the duty was paid upon such previous importation if (1)
exported within three years after the date of such
previous importation, (2) reimported without having - 3 -
been advanced in value or improved in condition by any
process of manufacture or other means while abroad, (3)
reimported for the reason that such articles do not
conform to sample or specification, and (4) reimported
by or for the account of the person who imported them
into, and exported them from the United States.
Articles satisfying each of the above requirements are
entitled to duty-free treatment, assuming compliance with the
documentary requirements of section 10.8a, Customs Regulations
(19 CFR 10.8a). This regulation contains the same criteria found
in subheading 9801.00.25, HTSUS. The documents required are
declarations by the person abroad who received and is returning
the merchandise and by the owner or importer (or consignee or
agent). Each declaration must include a description of the
articles, and the latter declaration must set forth information
relative to the original importation of the merchandise, such as
port and date of importation, entry number, and name and address
of the importer at the time the duty was paid. (19 CFR
10.8a(b)). However, the District Director may waive the
documentary requirements upon satisfaction that the requirements
of that subheading are met. 19 CFR 10.8a(c).
In order to qualify for duty-free treatment under subheading
9801.00.25, HTSUS, there must be some tangible evidence that the
returned merchandise does not conform to "specification." The
scope of that term, however, is not limited to physical
specifications or sample comparison, but may also include failure
to meet the terms of a contract. Evidence of failure to meet
specification can be evidenced by the written contract, or if
oral, by the declarations required under 19 CFR 10.8a(b). If the
written contract in this case had expressly provided for the
condition of appropriate quota/visa requirements for the subject
textiles and it was returned for failure to meet this condition,
we would consider this to be representative of "failure to meet
specification" within the meaning of subheading 9801.00.25,
HTSUS. However, the subject textile merchandise must be covered
by the appropriate quota/visa or a waiver thereof from the
Department of Commerce, upon re-entry into the United States for
consumption.
Although we are not persuaded by your analogy of the
drawback statute (19 U.S.C. 1313) to subheading 9801.00.25,
HTSUS, we nevertheless note that in one of the drawback cases
cited in your letter (T.D. 77-121) we held that section 313(c) of
the Tariff Act, as amended, does not provide for an allowance of
drawback due to unmerchantability or failure to comply with an
implied warranty, because such evidence is not equivalent to
proof of failure to conform to specifications.
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Accordingly, we find that failure to deliver goods based on
an implied warranty of merchantability is a not a failure to
conform to sample or specification for purposes of subheading
9801.00.25, HTSUS. That subheading was intended for situations
in which merchandise was exported and rejected because it was not
satisfactory to the person to whom it was shipped. Such
intention is evidenced by a report of the Senate Finance
Committee dated December 16, 1970 (S. Report No. 91-1467, 91st
Sess, 2nd Sess. (1970) reprinted in U.S. CODE CONG. & AD. NEWS
7517, which provides in part:
The committee was informed that in at least one
instance a shipment of articles was imported and the
normal duty was paid. Thereafter the articles were
sold and exported to a customer in a foreign country,
who subsequently rejected them for the reason that they
did not conform to specification. Upon return to the
United States, the articles were again subject to duty
under U.S. tariff law. The committee is of the opinion
that the laws should be changed, as proposed in H.R.
9138, to prevent a recurrence of double liability for
duty in imported article under similar circumstances.
We also disagree with your argument that the merchandise in
question was never exported from the United States, and that no
second entry is therefore required. An exportation means a
severance of goods from the mass of things belonging to this
country with the intention of uniting them to the mass of things
belonging to some foreign country. 19 CFR 101.1(k).
The courts have held that the intention of the parties at
the time of shipment is the controlling factor in determining
whether or not there has been an exportation. F.W. Myers & Co.
v. United States, C.D. 1468 (1952) and cases cited therein. In
that case, miniature toy animals of Japanese origin were shipped
to Canada, where Canadian officials refused to permit entry of
the merchandise due to the fact that under Canadian law and
regulations this was prohibited merchandise. When the goods were
returned to the United States a duty was assessed on them. The
plaintiff argued that since the goods had been refused entry into
Canada by the Canadian government, they had never been exported
from the United States and therefore, their physical return from
Canada did not constitute an importation. The court, however,
held that at the time of shipment there was an intention to
export, that the shipment constituted an exportation and the
return of goods to this country was an importation, upon which
the goods were dutiable.
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Moreover, the courts have held that "...So long as an
immediate bona fide purpose to seek a foreign market coincides
with a bona fide act of shipment later changes in either the
intent or destination have no effect upon the original character
of the act as an exportation." Nassau Distributing Co. v. United
States, C.D. 1459 (1952) citing United States v. The National
Sugar Refining Co., 39 CCPA 96.
HOLDING:
Merchandise exported to a foreign country with the intention
that it enter that country's market constitutes an exportation.
Moreover, that country's refusal to enter the merchandise for
failure to produce textile visas or to satisfy other government
requirements is not a failure to meet sample or specification
for purposes of subheading 9801.00.25, HTSUS, where such a
condition is not specified in the contract. Accordingly, the
merchandise is not eligible for duty-free treatment under
subheading 9801.00.25, HTSUS, upon its return to the United
States. In addition, the subject textile merchandise must be
covered by the appropriate quota/visa or waiver thereof, upon re-
entry for consumption into the United States.
Sincerely,
John Durant, Director
Commercial Rulings Division