CLA-2 RR:TC:SM 560126 MLR
Port Director
U.S. Customs Service
477 Michigan Avenue
Detroit, MI 48226
RE: Application for Further Review of Protest No. 3801-95-100754; Denial of duty exemption under HTSUS subheading
9801.00.10 to Mercedes Benz; General Note 3(d); uniform
and established practice; NAFTA; Article 509; FTZ
Dear Sir:
This is in reference to a protest and application for
further review filed by
International Vehicle Importers, contesting the denial of the
duty exemption of subheading 9801.00.10, Harmonized Tariff
Schedule of the United States (HTSUS), to Mercedez Benz
vehicles.
FACTS:
The Mercedez Benz vehicles were entered on September 9
and 23, 1994, and were liquidated on December 23, 1994, and
January 6, 1995, respectively. The application for further
review of protest no. 3801-95-100754 was timely filed on
February 2, 1995. The protestant states that cars and trucks
assembled in U.S. foreign trade zones (FTZs) were shipped to
Canada and were eligible for duty-free entry into Canada
under section 401(b) of the North American Free Trade
Agreement (NAFTA) and under the Automotive Practices Trade
Act (APTA), as originating material of the U.S. It is
further stated that some of the vehicles were purchased by
U.S. Department of Transportation-licensed importers, such as
the protestant, for reimportation into the U.S., and that
upon reimportation, Customs advanced the U.S. duty rate from
zero to 100 percent ad valorem. It is stated that the non-U.S. parts and components in the vehicles range from zero to
about twelve percent by value. The protestant claims that
there is no legal basis which requires advancing the rate of
duty for these vehicles, or which disallows the payment of a
lower duty rate. Therefore, in accordance with U.S. law, and
in particular, the sixth proviso of the Foreign-Trade Zones
Act (FTZA), the NAFTA and the NAFTA Implementation Act, it is
claimed that the vehicle at issue is not a vehicle to which
the 2.5 percent duty rate applies, but at a minimum should be
dutiable at the same rate as like articles manufactured in
Canada.
The protestant claims that the Mercedez Benz vehicles
were made in a U.S. FTZ, exported to Canada, and upon
importation into the U.S. were classified under heading 8703,
HTSUS, and assessed a duty rate of 2.5 percent ad valorem.
It is claimed that the vehicles should have been allowed
entry duty-free as a U.S. good under subheading 9801.00.10,
HTSUS, or as a NAFTA good. Furthermore, it is claimed that a
uniform and established practice was in existence on these
vehicles as goods manufactured in the U.S. because for at
least ten years the duty rate assessed by Customs for the
reentry of such vehicles was zero, and that liquidation of
the vehicles under heading 8703, HTSUS, was taken without any
prior notice or discussion. Furthermore, the protestant
states that other ports on the U.S.-Canadian border continue
to follow the ten-year, customary practice.
ISSUES:
I. Whether the Mercedez Benz vehicles imported into the
U.S., are entitled to duty-free entry under subheading
9801.00.10, HTSUS, or preferential duty treatment under
the NAFTA, and whether there is a uniform and
established practice to provide such duty treatment.
II. Whether the Mercedez Benz vehicles qualify for a duty on
their applicable foreign value content, as provided in
General Note 3(d), HTSUS.
LAW AND ANALYSIS:
I. Duty-Free Treatment
A. Subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUS, provides for the free
entry of products of the U.S. that have been exported and
returned without having been advanced in value or improved in
condition by any process of manufacture or other means while
abroad, provided the documentary requirements of section
10.1, Customs Regulations (19 CFR 10.1), are satisfied.
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 Company, Inc. v. United States, 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 port director being satisfied by the
production of other evidence as to the American origin of the
merchandise and its eligibility under subheading 9801.00.10,
HTSUS.
In Headquarters Ruling Letter (HRL) 553240 dated March
5, 1985, a truck was assembled in a FTZ, using both
"privileged domestic" and "privileged foreign parts." The
truck was withdrawn from the FTZ 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 reimported into 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. 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." This
position was followed in HRL 556976 dated June 9, 1994, in
which Customs concluded that engines produced as a result of
a substantial transformation of foreign and domestic parts in
a FTZ established in the U.S. and entered from the FTZ for
consumption before being exported to Japan were considered
"article[s] manufactured within the Customs territory of the
U.S.," and, therefore, "products of the U.S." for purposes of
subheading 9802.00.80, HTSUS, and
19 CFR 10.12(e). Even assuming arguendo that the subject
vehicles were produced in a U.S. FTZ, as there is no evidence
that the vehicles were exported, duty paid from the FTZ prior
to being reimported into the U.S., the vehicles are not
considered a good of U.S.-origin for purposes of eligibility
under subheading 9801.00.10, HTSUS.
B. NAFTA Eligibility
In C.S.D. 95-3, 29 Cust. Bull. 11 (February 8, 1995),
Customs addressed the issue concerning the dutiable status of
automobiles made in part with foreign components in a FTZ
that were imported after having been exported from the FTZ.
The automobile parts were admitted into the FTZ 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 FTZA (19 U.S.C. 81c(a)) requires duty to be assessed
on the full value of an automobile made in a FTZ exported and
then returned to the U.S. In short, in C.S.D. 95-3 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. Therefore, even assuming
arguendo that the subject vehicles were produced in a FTZ
located in the U.S., such an automobile still does not
qualify for duty-free treatment under the NAFTA. C.S.D. 95-3
is herein incorporated by reference. See also HRL 558983
dated June 29, 1995, which is also herein incorporated by
reference, finding that no established and uniform practice
under subheading 9801.00.10, HTSUS, was created pursuant to
19 U.S.C. 1315(d) for vehicles produced in a FTZ located in
the U.S.
II. General Note 3, 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 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, it is indicated that the articles are
Mercedez Benz vehicles, model years 1991 and 1995. The entry
documentation for the vehicle entered on September 23, 1994,
which was submitted, indicates that the vehicle was
classified under heading 8703, HTSUS. The documentation also
indicates that the vehicle was entered into the U.S. from
Canada. It is also alleged that the automobile was produced
in a U.S. FTZ. However, the first digit of the vehicle
identification number (VIN) for the entry submitted is a "W"
which means that the vehicle was produced in Germany.
Therefore, as it does not appear that the vehicle was
produced in a U.S. FTZ, the vehicle does not qualify for the
reduced duties provided by General Note 3(d), HTSUS.
Accordingly, this protest should be denied.
HOLDING:
Based on the information provided, the subject vehicles
exported from Canada and imported into the U.S., are not
entitled to duty-free treatment under either the NAFTA or
subheading 9801.00.10, HTSUS. Since the evidence indicates
that the vehicles were produced in Germany, they also do not
qualify for reduced duties under General Note 3(d), as added
by Pub. L. 104-295, 110 Stat. 3514 (October 11, 1996).
Therefore, this protest should be denied.
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
Tariff Classification Appeals
Division
Office of Field Operations