CLA-2 RR:TC:SM 559454 BLS

U.S. Customs Service
District Director
477 Michigan Avenue
Room 200
Detroit, MI 48226

RE: Reconsideration of Application for Further Review of Protest No. 3801-94-106710 concerning the applicability of subheading 9801.00.10, HTSUS, to Ford Taurus station wagons; detrimental reliance; uniform and established practice; 19 U.S.C. 1315(d); Peugeot Motors; General Note 3(d)

Dear Sir/Madame: This is a request for reconsideration of a decision on an Application for Further Review of the above-referenced protest which was timely filed on behalf of Auto Enterprises, Inc., against your decision denying duty-free treatment under subheading 9801.00.10, HTSUS, of Ford Taurus Station Wagons (1994 models). The subject merchandise was entered on March 29, 1994 through the port of Detroit and was liquidated on August 19, 1994. In our decision dated June 29, 1995 (Headquarters Ruling Letter (HRL) 558983), we directed that the protest be denied in full.

FACTS: The merchandise which is the subject of this protest consists of 1994 Ford Taurus model vehicles imported from Canada. Protestant submits that the vehicles were assembled in a U.S. foreign trade zone ("FTZ") (assembly plant in Chicago, Illinois, foreign trade subzone 22B) and then shipped directly from the FTZ to Canada where they were used primarily as rental vehicles prior to being imported into the U.S. Upon entry into the U.S., the vehicles were classified under heading 8703, Harmonized Tariff Schedule of the United States (HTSUS), and assessed a duty rate of 2.5 percent ad valorem.

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Protestant states that the vehicles entered into the commerce of Canada in many cases as a result of purchases by rental car companies for incorporation into their fleets. Protestant further states that after a certain period of time many of these vehicles are then purchased by U.S. Department of Transportation-licensed importers, such as Protestant, for reimportation into the U.S. These vehicles are then serviced to satisfy U.S. DOT standards and sold for use in the U.S. market.

ISSUES: (1) Whether there is an established and uniform practice to provide duty-free treatment under subheading 9801.00.10, HTSUS, to vehicles which are produced in an FTZ from U.S. and foreign components, exported directly from the FTZ and then imported into the U.S. (2) Whether Protestant has substantiated its claim for detrimental reliance.

(3) Whether the subject vehicles qualify for assessment of duty based only on their applicable foreign value content, as provided in General Note 3(d), HTSUS.

LAW AND ANALYSIS:

Subheading 9801.00.10, HTSUS, provides for the free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 C.F.R. 10.1), are met. The courts have held that, while some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. Border Brokerage Co., v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970). Moreover, compliance with section 10.1(a) is mandatory and a condition precedent to recovery unless compliance has been waived or is impossible. Maple Leaf Petroleum, Ltd., v. United States, 25 CCPA 5, T.D. 48976 (1937). The basis for waiver of the required documentation is predicated upon the district director being satisfied by the production of other evidence as to the U.S.-origin of the merchandise and its eligibility under subheading

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9801.00.10, HTSUS.

The sixth proviso to section 3 of the Foreign Trade Zone Act ("FTZA") of June 18, 1934 (49 Stat. 9), as amended, states as follows: That articles produced or manufactured in a zone and exported therefrom shall on subsequent importation into the customs territory of the United States be subject to the import laws applicable to like articles manufactured in a foreign country, except that articles produced or manufactured in a zone exclusively with the use of domestic merchandise, the identity of which has been maintained in accordance with the second proviso of this section may, on such importation, be entered as American goods returned. (Emphasis added). Customs addressed the issue concerning the dutiable status of articles made with foreign components in a Foreign Trade Zone that are imported after having been exported from the zone in C.S.D. 95-3, 29 Cust. Bull. 11 (February 8, 1995). In this case, automobiles were made in an FTZ using some parts of foreign origin. Those parts were admitted into the zone in either privileged foreign status or non-privileged foreign status. After manufacture, the automobiles were exported to Canada without any duty having been paid on those parts. After that exportation, the automobiles were imported into the U.S. The issue in C.S.D. 95-3 was whether the sixth proviso to section 3 of the Foreign Trade Zones Act (19 U.S.C. 81c(a)) requires duty to be assessed on the full value of an automobile made in a zone with U.S. and foreign parts exported and then returned to the U.S. In this decision, Customs held that the automobile is dutiable on its full value at the appropriate most-favored nation rate of duty on its importation back into the U.S. See also 19 CFR 146.67(e). While in this reconsideration Protestant does not seek to contest the holding in C.S.D. 95-3, it argues that the vehicles should be eligible for duty-free treatment under subheading 9801.00.10, HTSUS, when they are returned to the U.S., based on the existence of an established and uniform practice and detrimental reliance, and contests Customs denial of duty-free treatment for the subject entries. In this regard,

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Protestant further contends that Customs erred in HRL 558893 in stating that its "long-standing position" has been that "goods which are produced in a FTZ from both U.S. and foreign components are not considered products of the U.S., unless duty has been paid on the value of the foreign components when exported from the zone, or the good is comprised wholly of domestic components or materials." In Headquarters Ruling Letter (HRL) 553240 dated March 5, 1985, a truck was assembled in a foreign trade zone, using both "privileged domestic" and "privileged foreign parts." The truck was withdrawn from the foreign trade zone on a weekly formal entry covering the production of additional trucks. Duties were paid on the assembled foreign merchandise having privileged foreign zone status upon withdrawal of the truck from the FTZ for domestic consumption during 1982. The truck was subsequently exported to Germany and then returned to the U.S. Customs held in HRL 553240 that since the truck was first transferred to the Customs territory of the U.S., and duties were paid on the foreign components, prior to being exported to Germany, upon return to the U.S., the truck was eligible for duty-free treatment under the American Goods Returned provision. We concluded that the foreign merchandise used in the assembly of the truck had lost its foreign character and was considered to have been substantially transformed by being merged into the assembled truck. "The merger occurred in the FTZ located in the U.S. and the substantial transformation was complete when the truck was entered for consumption in the U.S. and duties paid on the privileged foreign merchandise." We also stated that "If the truck had been exported to Germany from the zone without the intervening transfer to the Customs territory, the truck would have remained fully dutiable under the appropriate tariff classification.' (See also HRL 556976 dated June 9, 1994.)

Protestant contends that the facts in HRL 553240 are not comparable to the present situation since the vehicle in that case was not exported directly from a FTZ as in the instant case but passed first through the customs territory. In addition, Protestant argues that the "dicta" which Customs cites in support of its claim of a long-standing position in this regard does not explain how the appropriate classification would be determined, nor does it consider that the country from which the goods are imported, Canada in this case, may be different from the country of origin of the foreign components in the vehicle.

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We agree that the facts in HRL 553240 are not directly analogous to the circumstances presented in the instant case. However, since Customs had ruled in HRL 553240 under circumstances in which a vehicle of both foreign and U.S. parts were assembled in a zone and transferred to the customs territory, the general statement was made to cover the obvious situation not specifically presented in the facts in that case, i.e., where a vehicle was exported directly to the foreign country (and not transferred to the customs territory) and returned. This statement did not represent a new Customs position, but was made in the context of HRL 553240 since it more fully represented Customs interpretation of the sixth proviso to section 3 of the FTZA.

Accordingly, while this statement covered a situation not directly related to the factual situation in HRL 553240, we find that it clearly represented Customs position with regard to the dutiable status of an imported article assembled in a FTZ from U.S. and foreign parts, and exported directly from the zone to a foreign country without transfer to the customs territory.

1) Established and Uniform Practice

Protestant contends that Customs has failed to comply with the requirements of 19 U.S.C. 1315(d) which concerns the effective date of administrative rulings resulting in higher rates.

Section 1315(d)provides as follows: No administrative ruling resulting in the imposition of a higher rate of duty or charge than the Secretary of Treasury shall find to have been applicable to imported merchandise under an established and uniform practice shall be effective with respect to articles entered for consumption or withdrawn from warehouse for consumption prior to the expiration of thirty days after the date of publication in the Federal Register of notice of such ruling; but this provision shall not apply with respect to the imposition of anti-dumping duties or the - 6 -

imposition of countervailing duties under section 1303 of this title.... (Emphasis added.)

Protestant contends that an established and uniform practice, as defined in the case of Hereaus-Amersil v. United States, 617 F. Supp. 89, 9 CIT 412 (1985), aff'd, 795 F. 2d 1575, existed in this case as the result of uniform liquidations over a long period of time.

In Hereaus-Amersil, the court stated that the factors to be considered in determining an established and uniform practice are:

...the number of entries resulting in the alleged uniform classifications, the number of ports at which the merchandise was entered, the period of time over which the alleged uniform classifications took place, and whether there had been any uncertainty regarding the classification over its history. In essence, the question is whether a uniform and established practice existed that would lead an importer, in the absence of notice that change in classification will occur, reasonably to expect adherence to the established classification practice when making an importation.

In that case, over 300 liquidations at two ports had occurred over a 10-year period. The court held that the importer was entitled to rely upon the continued classification absent a published notice of a contemplated change in classification practice pursuant to 19 U.S.C. 1315(d).

Similarly, Protestant states that for 10 years, vehicles produced in U.S. FTZs were imported duty-free under subheading 9801.00.10, HTSUS. In support of this claim, Protestant submits in evidence lists of entries for vehicles imported through various ports. These entries include the VIN numbers of the vehicles. For example, Protestant states that this evidence reflects that during the period January 1, 1993 to June 30, 1994, it imported 1,157 vehicles produced in FTZs which were entered at six different ports as U.S. goods returned. [Evidence of FTZ production is established by the VIN number, which shows the U.S. facility where the vehicle was produced,

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the model year, (which may not be the year of production), and other information which reflects the sequence of production. Further inquiry of the manufacturer or other reliable information is required to establish that the U.S. facility was operating as a FTZ at the time of production.]

Protestant also points out that while FTZ production began in 1985, it is difficult to quantify the exact number of vehicles produced in a FTZ since the entries made under subheading 9801.00.10 do not distinguish between vehicles made in a FTZ and those which were not produced in a zone. Further, Protestant notes that a time gap exists in importations between 1989-1992, because there was no economic incentive to import cars from Canada during this period. [We assume that in making this point Protestant is distinguishing between entries made under subheading 9801.00.10 that reflect the VIN number and those entries that are incomplete or otherwise do not reflect the VIN number.]

Protestant also states that if the vehicles had not been classified under subheading 9801.00.10, then they would have been classified under heading 8703 or 8704 of the HTSUS and the vehicles would have been subject to a 2.5% duty or a 25% duty. Protestant argues that this change in tariff classification constitutes a change in established and uniform practice as defined by the court in Hereaus-Amersil.

Protestant's contention presupposes that Customs officers allowing entry under subheading 9801.00.10, HTSUS, during the protest period, were aware of both the fact that the vehicles were assembled in a FTZ and that they had not entered the customs territory (with payment of duty) upon release from the zone prior to exportation. In this regard, Protestant states that the VIN number located on the frame of the vehicle reflected not only the country of origin (primarily U.S.), but also the exact plant in the U.S. which produced that vehicle. Protestant also submits in evidence entries in which the VIN number was also located on the CF 7501 and on the invoices, although, as noted, this did not occur in every case. Protestant notes that Customs officers would periodically examine the VIN number to determine the country of origin. Based on this information which was available to the Customs officers, Protestant contends that it was Customs responsibility to determine the amount of duty to be deposited at entry and to properly classify the merchandise. Protestant argues that Customs did classify the vehicles uniformly for many years, finding the merchandise to qualify for treatment as U.S. goods returned.

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We do not concur with Protestant's contention that Customs knew (or should have known) that the vehicles entered under subheading 9801.00.10 were produced in a FTZ and had not entered the U.S. from the FTZ prior to exportation to Canada. It is true that the VIN number located on the vehicles (and perhaps on the entry summary and/or the invoice), reflected the country of origin and place of manufacture in the U.S. However, the actual name of the place of manufacture is not reflected by the VIN number; rather, the eleventh digit of the VIN represents the final assembly location of the vehicle. (The tenth digit represents the model year.) To determine the actual location requires further inquiry of the manufacturer, unless such information was maintained by the involved Customs office. No such showing is made. Furthermore, a plant might have been a FTZ in a particular year but not a FTZ in the following year, or such a change might have occurred within the same month. This information could only be verified through communication with the manufacturer, after review of the VIN number. Under these circumstances, we find that Protestant has not established that Customs knew, or had reason to know, that any of the entered vehicles covered by the protest were produced in a FTZ. In fact, Protestant has not established that those vehicles which may have been produced in the FTZ were exported directly therefrom without first being entered into the U.S.

Furthermore, as we stated in HRL 558983, we believe that a uniform and established practice cannot exist for entries which are claimed to be duty-free under subheading 9801.00.10, HTSUS.

In Peugeot Motors Of America, Inc. v. United States, 8 CIT 167 (1984), the Court of International Trade held that the law governing an established and uniform practice was not intended to cover appraisement of merchandise. The court pointed to the opening statutory phrase under 19 U.S.C. 1315(d) ("No administrative ruling resulting in the imposition of a higher rate of duty or charge ..."), and stated that it related to the imposition of a rate of duty which is imposed under the classification provisions of 19 U.S.C. 1500 and not the appraisement provisions of 19 U.S.C. 1500 and 1402. The court further stated the following:

Uniformity in classification...was intended to be covered by section 1315(d). Appraisement is conceptually different from classification. In appraisement every transaction stands independently. The same merchandise from the same manufacturer - 9 -

sold to a different purchase may result in an entirely different appraisement, as well as the basis of appraisement, depending upon the terms, conditions, and restrictions, etc. of the sale. Consequently, a uniform practice of appraisement is not possible.... Id at 171.

We believe that the principles gleaned from the court's reasoning are also applicable to the eligibility requirements under subheading 9801.00.10, HTSUS. Thus, in order for an entry to be free of duty under this provision, certain documentation requirements must be met, or the port director must be satisfied that all of the requirements for eligibility under this provision have been met so that the documentation requirements may be waived. Therefore, the fact that one Ford Taurus may enter into the U.S. at a free rate of duty under subheading 9801.00.10, HTSUS, does not necessarily mean that a similar Ford Taurus is eligible to enter into the U.S. duty-free under subheading 9801.00.10, HTSUS. While the courts have found that a section 1315(d) "established and uniform practice" can be predicated on uniform classifications and liquidations at various ports over a period of time (Heraeus-Amersil, Inc., supra), the facts at issue in this case, however, do not merely involve the question of whether or not a certain tariff classification applies, but rather whether the subject vehicles have satisfied all of the requirements for duty-free eligibility under a Chapter 98, HTSUS, provision. Entries under subheading 9801.00.10, HTSUS, are fact specific, and like appraisement issues, "every transaction stands independently." Peugeot Motors, supra at 171. Hence, mere liquidations covering the same type of merchandise at a free rate of duty are not enough to establish a uniform and established practice with regard to eligibility for duty-free treatment under subheading 9801.00.10, HTSUS. 2) Detrimental Reliance

Protestant further maintains that Customs' publication of C.S.D. 95-3 has the effect of applying retroactively a new Customs Service position to substantially identical transactions entered into in reliance on a previous Customs Service position. It is further claimed that this modification is in violation of 19 C.F.R. 177.9(e)(1), which concerns ruling letters which have the effect of modifying past Customs

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treatment of transactions not covered by ruling letters. According to 19 C.F.R. 177.9(e)(1): The Customs Service will from time to time issue a ruling letter covering a transaction or issue not previously the subject of a ruling letter and which has the effect of modifying the treatment previously accorded by the Customs Service to substantially identical transactions of either the recipient of the ruling letter or other parties. (Emphasis added.) In such circumstances, pursuant to 19 C.F.R. 177.9(e)(1), the Customs Service may delay the effective date of the ruling letter, and continue the treatment previously accorded the substantially identical transaction, for a period of up to 90 days from the date the ruling letter is issued. However, in situations where a party has relied, not on a previously issued ruling letter, but on past Customs treatment, Customs requires that the affected party submit an application requesting a delay in the effective date of a ruling letter. In these situations, 19 C.F.R. 177.9(e)(2) sets forth specific requirements for such applications. According to this provision, the applicant must demonstrate to the satisfaction of the Customs Service that the treatment previously accorded relates to substantially identical transactions and was sufficiently consistent and continuous that the party reasonably relied on the past treatment in the arrangement of future transactions. Specifically, section 177.9(e)(2) requires that the applicant must submit evidence of past treatment by the Customs Service covering the 2-year period immediately prior to the date of the ruling letter, listing all substantially identical transactions by entry number. In addition, the applicant must provide the quantity and value of merchandise covered by each such transaction, the ports of entry, and the dates of final action by the Customs Service. Section 177.9(e)(2) further notes that, "The evidence of reliance shall include contracts, purchase orders, or other materials tending to establish that the future transactions were arranged based on the treatment previously accorded by the Customs Service." Finally, in order to grant a delay pursuant to 177.9(e)(1), the Regulations require that Customs examine all relevant factors regarding the issue of reliance. Section 177.9(e)(3) requires that Customs carefully review the past transactions on which reliance is claimed to determine whether there was an examination of merchandise by Customs. Furthermore, in making the determination to delay, the weight accorded to the documented history of consistent and continuous Customs treatment, will be

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diminished in the following instances: transactions involving small quantities or values, informal entries, and situations where Customs, in the interest of commercial facilitation and accommodation, processes expeditiously and without examination and/or import specialist review. See 19 C.F.R. 177.9(e)(3). Protestant submits that a new Customs Service position (C.S.D. 95-3) was applied by the Customs Service to transactions substantially identical to the transactions involving FTZ-produced vehicles during the period covered by the protest. Protestant further claims that Customs' past treatment of these "substantially identical transactions" was sufficiently consistent and continuous during the protest period so that the importers reasonably relied thereon in arranging future transactions and thus, Protestant has satisfied its claim for detrimental reliance. Protestant claims that prior to the subject entries, every vehicle produced in a FTZ, except to the extent that the vehicle was subject to drawback, was entered duty-free as American Goods Returned under subheading 9801.00.10, HTSUS, and that it has submitted relevant evidence, in satisfaction of the requirements of 19 CFR 177.9(e)(3) in this case, that the prior entries had the relative domestic content and the same sources (Foreign Trade Zones) as the protested entries. Further, as there is no indication that the district director waived production of the documentary requirements, (See HRL 558893), Protestant contends that it reasonably believed that Customs knew the circumstances of manufacture of the subject vehicles and that its treatment of the entries reflected that knowledge.

We find that Protestant has failed to demonstrate that the entries which were previously liquidated free of duty are substantially identical transactions to the entries involved in this protest. As we stated in HRL 559983, mere evidence of liquidation of a vehicle at a free rate under subheading 9801.00.10, HTSUS, is not sufficient to establish that the transaction was substantially identical to the subject entries. In order to be eligible for duty-free treatment under this provision, each entry must satisfy the documentation requirements or the port director must be satisfied that all of the requirements for eligibility are satisfied so that the documentary evidence may be waived. In the instant case, there is also no indication that the district director (now port director) waived production of the documentary requirements. Therefore, even if Protestant could produce evidence that vehicles manufactured in a FTZ were exported directly from the zone to Canada and subsequently imported into the U.S. free of duty under subheading 9801.00.10, HTSUS, this would not mean that future entries of vehicles would have been entitled to enter into the U.S. free of duty. As

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previously indicated, the requirements (including documentation) for eligibility under subheading 9801.00.10, HTSUS, must be satisfied for each article at the time of its importation, and cannot be based upon prior importations of similar articles.

In summary, Protestant has not established whether the prior entries which were accorded duty-free treatment involved substantially identical circumstances (exportation from a FTZ without transfer to the customs territory) as the entries which are the subject of this protest, or that Customs knew the circumstances of the manufacture of the vehicles. Further, Protestant has failed to submit evidence of the claimed treatment by Customs covering the 2-year period immediately prior to the date of the ruling letter, as required by 19 CFR 177.9(e)(2). Under the circumstances, we find that Protestant has not established a basis for claiming detrimental reliance pursuant to 19 CFR 177.9(e).

3) General Note 3(d), HTSUS

As determined above, automobiles produced in FTZs that are exported directly to Canada or Mexico and not formally entered for consumption in the U.S., generally are subject to duty on the full value (i.e., both foreign and domestic content) of the automobile when they re-enter the U.S. General Note 3(d), HTSUS, which was added by section 19 of the Miscellaneous Trade and Technical Corrections Act of 1996, Pub. L. 104-295, 110 Stat. 3514 (October 11, 1996), however, provides, in part, as follows with respect to the calculation of duties on the foregoing vehicles when appropriate information is presented:

[n]otwithstanding any other provision of law, the duty imposed on a qualified article shall be the amount determined by multiplying the applicable foreign value content of such article by the applicable rate of duty for such article.

General Note 3(d)(ii), HTSUS, defines a "qualified article" as an article that is:

(A) classifiable under any of subheadings 8702.10 through 8704.90 of the [HTSUS],

(B) produced or manufactured in a foreign trade zone before

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January 1, 1996,

(C) exported therefrom to a NAFTA country (as defined in section 2(4) of the NAFTA Implementation Act (19 U.S.C. 3301(4)), and

(D) subsequently imported from that NAFTA country into the customs territory of the United States--

(I) on or after the effective date of this subdivision, or

(II) on or after January 1, 1994, and before such effective date, if the entry of such article is unliquidated, under protest, or in litigation, or liquidation is otherwise not final on such effective date.

In this case, the articles are Ford Taurus station wagons classified under heading 8703, HTSUS. The entry documentation indicates that the vehicles were entered into the U.S. from Canada on March 29, 1994. Protestant also submits that the vehicles were produced in a U.S. FTZ. Therefore, provided protestant presents (within a specified period of time) sufficient information to establish the "applicable foreign value content" as well as "the FTZ percentage" required under General Note 3(d), duty will be payable only on the foreign content contained in each vehicle. See Fact Sheet 7346071 dated December 11, 1996. To the extent that the vehicles qualify for the reduced duties under General Note 3(d), this protest should be granted in part.

HOLDING:

1) Based on the information provided, the subject vehicles made from U.S. and foreign components which are produced in a FTZ, exported directly from the FTZ into Canada and then imported into the U.S. are not entitled to duty-free treatment under subheading 9801.00.10, HTSUS. Furthermore, we do not find that Protestant has demonstrated that either an established and uniform practice was created pursuant to 19 U.S.C. 1315(d), or a claim for detrimental reliance is warranted within the meaning of 19 C.F.R. 177.9(e). However, if sufficient information is presented to establish that the vehicles qualify for reduced duties under General Note 3(d), as added by Pub. L. 104-295, 110 Stat. 3514 (October 11, 1996), duty is payable only on the applicable foreign content contained in the vehicle, and this protest should be granted in part accordance with the foregoing. - 14 -

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.


Sincerely,

John
Durant, Director
Tariff
Classification Appeals Division