CLA-2 RR:C:SM 559802 DEC
TARIFF NO: 9801.00.20
Director
Port of Dallas/Fort Worth
P.O. Box 619050
DFW Airport
Dallas, TX 75261
RE: Application for Further Review of Protest no. 550196100024;
duty-free treatment under subheading 9801.00.20,
HTSUS; lease or similar use agreement; Werner & Pfleiderer
Corp. v. United States, 17 C.I.T. 916 (1993);
19 CFR 10.108.
Dear Sir:
This is in response to a protest and application for further
review filed by Sterling International on behalf of their client,
Continental Pet Technologies, Incorporated (protestant),
concerning a denial of duty-free treatment for certain plastic
molds entered at the Port of Dallas/Fort Worth on November 3,
1995. The entry was liquidated on December 22, 1995, and this
protest was timely filed on January 12, 1996, in accordance with
Part 174, Customs Regulations (19 CFR Part 174).
FACTS:
Your office contends that the parts or molds at issue are
ineligible for entry under subheading 9801.00.20, Harmonized
Tariff Schedule of the United States (HTSUS), because you contend
that testing and evaluation is not a permissible "use" within the
meaning of 9801.00.20, HTSUS, and that "[o]nly a lease or rental
under contract with some consideration for financial or other
compensation is allowed." The evidence in the record indicates
that protestant and Sidel, Incorporated (Sidel) have
had an informal agreement to use molds or parts of their machines
that were previously imported into the U.S. and duty paid to test
new machines and then to return the molds and parts to the United
States. Subsequent to the entry at issue, the protestant and
Sidel formalized their arrangement in an agreement signed by both
parties dated December 4, 1995. The agreement states that the
molds or parts will (1) remain the property of the protestant,
(2) Sidel will use the parts or molds exclusively for testing or
qualifying machines for the protestant and will not use them for
financial gain, and (3) Sidel will return these parts or molds to
the protestant upon completion of any test or upon demand. The
agreement also states that these terms are consistent with the
practices between the two companies for the past ten years. In
support of their protest, the protestant has submitted a copy of
Customs Form (CF) 4455 dated October 11, 1995, on which the
protestant has declared that certain plastic molds will be
exported to France "for testing purposes on a temporary basis
only." In addition, the protestant has stated in writing that
the articles at issue are not advanced or improved in value while
abroad and that the protestant was the original importer of
record.
In addition, the air waybill for the exportation from France
back to the U.S. indicates the protestant as the ultimate
consignee. The record further reflects that the equipment was
reimported into the U.S. by protestant on November 2, 1995. A
Customs Form 7501 Entry Summary filed in connection with the
entry, dated November 20, 1995, reflects that at the time of
entry, protestant claimed duty-free treatment under subheading
9801.00.20, HTSUS. A CF 29 Notice of Action indicates that on
November 29, 1995, the entry was rate advanced and was to be
liquidated as dutiable unless protestant supplied the
documentation necessary to support its 9801.00.20, HTSUS, duty-free claim. Based on your conclusion that the necessary
information was not supplied, your office liquidated the subject
entry on December 22, 1995, under subheading 8480.79.9010, HTSUS.
In the process of deciding this protest, our office
contacted the broker handling this transaction and requested
proof that the goods at issue were exported from the U.S. and
later reimported pursuant to the terms of a lease or similar use
agreement that was in effect at the time of exportation from the
U.S. The evidence submitted referred to an agreement that was
formalized only after the entry of the merchandise at issue. A
sworn affidavit from officials with knowledge of the agreement
covering the goods at issue at the time of exportation from the
U.S. from officials at both Sidel and the protestant was
solicited, but it was not produced.
ISSUE:
Whether the parts or molds were exported under a lease or
similar use agreement as required by subheading 9801.00.20,
HTSUS.
LAW AND ANALYSIS:
Subheading 9801.00.20, HTSUS, provides duty-free treatment
for:
[a]rticles, previously imported, with respect
to which the duty was paid upon such previous
importation or which were previously free of
duty pursuant to the Caribbean Basin Economic
Recovery Act or Title V of the Trade Act of
1974,
if (1) reimported, without having been
advanced in value or improved in condition by
any process of manufacture or other means
while abroad, after having been exported
under lease or similar use agreements, and
(2) reimported by or for the account of the
person who imported it into, and exported it
from, the United States.
Section 10.108, Customs Regulations (19 CFR 10.108),
provides, in relevant part, that free entry shall be accorded
under subheading 9801.00.20, HTSUS, whenever it is established to
the satisfaction of the port director that the article for which
free entry is claimed was duty paid on a previous importation, is
being reimported by or for the account of the person who
previously imported it into, and exported it from the U.S., and
was exported from the U.S. under lease or similar use agreement.
Your office does not expressly dispute that the molds at
issue were previously imported into the U.S. and duty paid on
them by protestant. Nor does your office refute that protestant
was the party who exported and subsequently reimported the parts
or molds. The CF 4455 Certificate of Registration filed on the
exported molds indicate the protestant as the exporter of
record. Further, the CF 4455 indicates that the equipment was to
be returned to the U.S. In addition, the air waybill for the
exportation from France to the U.S. also indicates the protestant
as the ultimate consignee.
Your office does dispute, however, that the parts or molds
were exported under a lease or similar use agreement as required
by subheading 9801.00.20, HTSUS. In Werner & Pfleiderer Corp. v.
United States, 17 C.I.T. 916 (1993), a case interpreting item
801.00, Tariff Schedules of the United States (TSUS) (the
precursor provision to subheading 9801.00.20, HTSUS), the Court
of International Trade stated that "the provision concerning
goods exported under lease, in particular, is not the sort of
exemption from duties which must be narrowly construed." At
issue was whether or not a loan arrangement was the type of
"similar use agreement" contemplated by item 801.00, TSUS. The
court noted that the general definitions of a loan and a lease
are identical except for the requirement of consideration in a
valid lease for purposes of item 801.00, TSUS. The court went on
to state that
Although a lease must be supported by
consideration, a loan is "[a]nything
furnished for temporary use to a person at
his request, on condition that it shall be
returned, or its equivalent in kind, with or
without compensation for its use."
Id. at 918, citing Black's Law Dictionary.
Furthermore, the court opined that if the drafters of that
provision intended the provision to encompass nothing broader
than a lease, then the language "similar use agreement" would not
have been added to the provision. As a result, loan arrangements
were found to be valid "similar use agreements" for purposes of
item 801.00, TSUS, and its successor, subheading 9801.00.20,
HTSUS.
Based on the evidence of record, we are not satisfied that
the protestant and Sidel had a "similar use agreement" in place
at the time of exportation from the U.S. with respect to the
molds at issue. The formal agreement evidenced by the December
4, 1995, document subsequent to the entry at issue stated that
(1) the molds will remain the property of the protestant, (2)
Sidel will use the parts or molds exclusively for testing or
qualifying machines for the protestant and will not use them for
financial gain, and (3) Sidel will return these parts or molds to
the protestant upon completion of any test or upon demand. This
agreement was entered into only after the merchandise at issue
had been entered and classification under subheading 9801.00.20,
HTSUS, had been denied. While this agreement stated that these
terms are consistent with the practices between the two companies
for the past ten years, it did not expressly state that it
covered the goods at issue in this protest. We are of the
opinion that there is insufficient evidence under section 10.108,
Customs Regulations, to satisfy protestant's 9801.00.20, HTSUS,
claim that there was a loan or similar use agreement between the
importer and Sidel at the time the goods at issue were exported
from the U.S.
HOLDING:
It is our opinion that the goods at issue are not eligible
for duty-free treatment under subheading 9801.00.20, HTSUS. In
order to receive duty-free treatment under this tariff provision,
the importer must establish to Customs satisfaction that the
statutory requirements have been met. It is our opinion that the
information submitted is insufficient to establish that the
articles at issue were previously imported into the U.S. and duty
paid, were exported under a lease or similar use agreement, were
not advanced in value or improved in condition while abroad, and
were reimported by or for the account of the person who imported
them into and exported them from the United States. Accordingly,
the protest should be denied in full.
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 attached to Customs Form 19,
Notice of Action, and 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
Commercial Rulings Division