HQ H282601
FOR 2-06
OT:RR:CTF:ER
H282601 SMS
Robert D. DeCamp, Esq.
Sandler, Travis & Rosenberg, P.A.
551 Fifth Avenue, Suite 1100
New York, NY 10176
Re: Ruling Request; Application of 19 U.S.C. § 1321(a)(2)(C) from Foreign Trade Zones
Dear Mr. DeCamp:
This is in response to your request for a binding ruling dated December 20, 2016, on behalf of the American Apparel & Footwear Association (“AAFA”) as to whether the application of Section 321 withdrawals under 19 U.S.C. § 1321(a)(2)(C), are permissible from Foreign Trade Zones (“FTZs”).
FACTS:
AAFA Members import and export merchandise to and from the United States, respectively. AAFA Members seek to ship bulk commercial merchandise into the United States and admit it into an FTZ. Once a purchase, valued at $800 or less is made, based on the aggregate purchase by a single customer on a single day, AAFA Members propose to enter the merchandise using informal entry procedures pursuant to Section 321 of the Tariff Act of 1930, as amended (19 U.S.C. § 1321) and U.S. Customs and Border Protection (“CBP”) Regulations: 19 C.F.R. §§ 10.151, 10.153, 143.21, and 143.23.
ISSUE:
Whether merchandise imported in bulk above $800, admitted into an FTZ, and entered for consumption in shipments under $800 qualifies for informal entry procedures pursuant to Section 321 of the Tariff Act of 1930, as amended (19 U.S.C. § 1321).
LAW AND ANALYSIS:
Section 901 of the Trade Enforcement and Trade Facilitation Act of 2015, Pub. L. 114-125, 130 Stat. 122 (“TFTEA”) amended 19 U.S.C. § 1321(a)(2)(C) to provide for the duty free entry of articles valued at $800 or less which are imported by one person on one day. TFTEA at § 901. Before the enactment of TFTEA, § 1321(a)(2)(C) provided for the duty free entry of articles valued at $200 or less which were imported by one person on one day. Section 321(a)(2)(C) mandates, however, that “[t]he privilege of this subdivision (2) shall not be granted in any case in which merchandise covered by a single order or contract is forwarded in separate lots to secure the benefit of this subdivision.” 19 U.S.C. § 1321(a)(2)(C). This administrative exemption from duty was originally established by the Customs Simplification Act of 1953, Pub L. 67-243, 42 Stat. 651, the primary purpose of which is to save time, money, and complexity in the administration of customs laws. See Sen. R. No. 632, 83d Cong., 1st Session at 1 (1953). The legislative history indicates that the law “[eliminated] certain unnecessary annoyances and inequities which [plagued] both the Government and private parties engaged in the import-export business.” Id.
The relevant regulations provide clarification regarding the administrative exemption. In particular, 19 C.F.R. § 10.151 provides that importations, made by one person on one day, valued at not over $800 may be entered under informal entry procedures free of duty and tax, unless there is reason to “believe that the shipment is one of several lots covered by a single order or contract and that it was sent separately for the express purpose of securing free entry therefor or of avoiding compliance with any pertinent law or regulation.” 19 C.F.R. § 10.151. Consolidated shipments addressed to one consignee shall be treated for purposes of § 10.151 as one importation. 19 C.F.R. § 10.153(d). A “shipment” is defined as “the merchandise described on the bill of lading or other document used to file or support entry.” 19 C.F.R. § 101.1. Further, 19 C.F.R. § 143.22 explains, in pertinent part, that CBP may require formal consumption or appraisement entry for any merchandise if deemed necessary for import admissibility enforcement purposes, revenue protection, or the efficient conduct of Customs business. See e.g., HQ 545017 (Aug. 19, 1994).
Under the pre-TFTEA de minimis value exemption, CBP has ruled that imports valued under $200 and made through online or catalog purchases and delivered directly to the purchaser, may enter duty-free. CBP has ruled that imports valued under $200 and made through online or catalog purchases and delivered directly to the purchaser, may enter duty-free. In HQ H236325, dated August 21, 2014, we found that jewelry purchased online from jewelry manufacturer, First Canadian, through Overstock.com Inc., and shipped directly to the purchaser in the U.S. was allowed administrative exemption. HQ H236325 (Aug. 21, 2014). We explained that the focus was on the individual importer for purposes of claiming the exemption and “the $200 per day value limit applies to each individual purchaser.” Id. Because the individual orders of jewelry of $200 were shipped directly to the customer, the administrative exemption from duty applied. Id. We further highlighted that:
The language of both 19 U.S.C. §1321 and 19 C.F.R. §10.151 put the focus of the exemption from duty on the importer of the merchandise, inasmuch as it may only be claimed on importations of merchandise of $200 or less by one person on one day. Thus, it is necessary to ascertain who is importing the merchandise, and whether the importation by that importer exceeds $200 on one day.
Id. Based on all of the above, in order to determine if the administrative exemption found under Section 321 is permissible, it is necessary to ascertain the value of the shipment at the time of importation and the identity of the party claiming the administrative exemption.
AAFA asserts that goods withdrawn from an FTZ by an individual who purchased the goods, not exceeding the $800 limit for one person on one day, meets the requirements of Section 321. AAFA asserts that this position is analogous to CBP’s previously held determinations in Customs Service Decision (“C.S.D.”) 79-454, dated April 2, 1979; HQ H055447, dated July 14, 2009; and HQ 230090, dated December 31, 2003, that allowed the use of temporary importations under bond (“TIB”) on certain goods withdrawn from an FTZ, and certain duty free claims under the Andean Trade Promotion and Drug Eradication Act (“ATPDEA”) and Generalized System of Preference (“GSP”) on goods withdrawn from FTZs, “assuming that any other regulatory requirements are met.” Lastly, AAFA submits that this interpretation is consistent with the relevant treatment of FTZs intended by Congress; to allow goods to be placed in an FTZ free of Customs duties and laws, until withdrawn for consumption in the United States; and with the purpose of Section 321; to spare the Government the expense of having to process entries of low value shipments. AAFA states: “[a]ny interpretation which prevents the 321 provisions from applying . . . on goods withdrawn from foreign trade zones . . . would effectively provide for the application of duties against goods entered into the foreign trade zone, as opposed to goods that are entered directly from a foreign country. . .” Contrary to AAFA’s assertions, we do not agree that the rulings cited by AAFA supports the application the administrative exemption under Section 321 to the facts presented.
Generally, FTZs are considered to be areas outside of the Customs territory of the United States for the purposes of payment of duty. The purpose of establishing FTZs is to “expedite and encourage foreign commerce and other purposes.” 15 C.F.R. § 400.1. The FTZ Act, as amended (19 U.S.C. §§ 81a-81u), is administered in the context of evolving U.S. economic and trade policy and economic factors relating to international competition. Pursuant to the provisions of Section 3 of the FTZ Act:
Foreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs laws of the United States . . . be brought into a zone and may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured . . . and be exported, destroyed, or sent into customs territory of the United States therefrom, in the original package or otherwise; but when foreign merchandise is so sent from a zone into customs territory of the United States it shall be subject to the laws and regulations of the United States affecting imported merchandise.
19 U.S.C. § 81c(a). Furthermore, informal entry procedures are applicable to withdrawals made from an FTZ or subzone. In pertinent part, the CBP’s Foreign Trade Zone Manual states:
In order to transfer zone merchandise into the Customs territory for consumption, the importer of record shall file a consumption entry under the procedures of 19 CFR 141 and 19 CFR 142. In addition, an appraisement, informal, or electronic entry for consumption may be filed as set forth in 19 CFR 143.
Section 9.7 of CBP’s Foreign Trade Zone Manual (emphasis added); see also 19 C.F.R. § 143.21.
Although informal entry procedures are applicable for goods withdrawn from FTZs, the applicable rules governing informal entry procedures must still be complied with. In order to qualify for the administrative exemption found under Section 321, CBP must determine whether at the time of importation, the merchandise at issue was within the $800 per person per day limit. Pursuant to 19 C.F.R. § 101.1, the “date of importation” means:
in the case of merchandise imported otherwise than by vessel, the date on which the merchandise arrives within the Customs territory of the United States. In the case of merchandise imported by vessel, “date of importation” means the date on which the vessel arrives within the limits of a port in the United States with intent then and there to unlade such merchandise.
Furthermore, the FTZ regulations define foreign merchandise as: “imported merchandise which has not been properly released from Customs custody in Customs territory.” 19 C.F.R. § 146.1 (emphasis added). Therefore, prior to its admission into the FTZ, the merchandise has been “imported,” but it simply has not been entered into the Customs territory of the United States.
CBP has considered various scenarios involving FTZs based on the foregoing definition. In HQ 228151, dated January 22, 1999, the arrival of merchandise in the United States, prior to admission into the FTZ was recognized as an importation. The broker inquired, for TIB time limitation purposes, whether the date of importation would be the “actual date of importation” or the date the subject merchandise was withdrawn from the FTZ. CBP determined that the importation date, for purposes of the TIB, would be the date the merchandise originally arrived at the port limits of Miami. While the subject merchandise could be withdrawn from the FTZ, the date of importation and the one-year limitation provided for under TIB commenced from the date the merchandise was originally imported into the United States, not the date the merchandise was withdrawn from the FTZ. See HQ 228151 (Jan. 22, 1999). In HQ H055447, dated July 14, 2009, A&I Products, Inc. sought a ruling regarding the Generalized System of Preferences (“GSP”) eligibility of merchandise admitted into an FTZ, to be later withdrawn and entered into the United States for domestic consumption. CBP held that the GSP requirement, that merchandise must be “imported directly” into the United States from a beneficiary country, was still met even though the merchandise was admitted into the FTZ, outside of customs territory. HQ H055447 (July 14, 2009). We cited HQ 230090, dated December 31, 2003, to demonstrate that the arrival of merchandise in the United States prior to the admission into an FTZ constituted an importation. Id. In HQ 547936, dated August 3, 2001, CBP determined that while, under 19 C.F.R. § 146.65(b)(3), CBP may make an allowance to the entered value for merchandise that is damaged or deteriorated at the time of importation, because the time of importation is “the date on which the vessel arrives within the limits of a port in the United States,” the allowance does not apply to merchandise that deteriorates after admission to an FTZ. HQ 547936 (Aug. 3, 2001). Additionally, as cited by AAFA in C.S.D. 79-454, Legacy Customs held that while merchandise may be entered into the Customs territory from a foreign trade zone by TIB entry, “it should be noted that the date of importation is the date as defined by section 101.1 (h) of the Customs Regulations.” C.S.D. 79-454. Accordingly, these cases, which includes those cited to by AAFA, establish the longstanding position that importation occurs prior to the admittance of merchandise into an FTZ.
Based on the facts presented by AAFA, its Members plan to import merchandise by commercial bulk shipments into the United States and admit the merchandise into FTZs. Thereafter, the bulk merchandise will be sold to consumers and withdrawn from the FTZ and shipped to their final destinations. If a purchase is valued under $800, then AAFA’s Members would like to apply the administrative exemption under Section 321 to the withdrawal. As noted in the definitions under 19 C.F.R. §§ 101 and 146, merchandise stored in an FTZ is considered imported before it is admitted to the zone or subzone. Consequently, we have to analyze whether merchandize stored in FTZs qualify for the administrative exemption under Section 321 by examining the total value of the shipment at importation rather than at the time of withdrawal from the FTZ. Here, because the merchandise is imported in bulk and only broken down into shipments of $800 or less at the time of withdrawal from an FTZ, we find that at the time of importation, the value of the merchandise shipment exceeds $800.
Further, 19 C.F.R. § 10.153(d) provides that “[c]onsolidated shipments addressed to one consignee shall be treated for purposes of §§ 10.151 and 10.152 as one importation.” 19 C.F.R. § 10.153(d). If as described, the bulk shipments are consigned to AAFA Members at the time of importation, then 19 C.F.R. § 10.153(d) would also disqualify the goods from the administrative exception under Section 321 at withdrawal from the FTZ. Specifically, we have noted that the focus for claiming the exemption from duty under 19 U.S.C. § 1321 and 19 C.F.R. § 10.151 must be on the person importing the goods. Accordingly, where orders of merchandise worth $800 or less are ordered online or through a catalog and are delivered directly to the purchaser, such goods may enter duty free pursuant to 19 U.S.C. § 1321 and 19 C.F.R. § 10.151. For example, as we noted in HQ H236325, when a supplier filled a customer’s order from inventory and shipped the merchandise directly to the customer in the United States, such shipments could be imported free of duty because the merchandise was imported by one person on one day. However, in this instance, the goods at issue are not being shipped directly to the ultimate purchaser. Instead, AAFA Members are acting as the importers and are importing the goods as one consolidated shipment into an FTZ, and the ultimate purchaser is unknown at the time of importation. Consequently, at the time of importation, the party that would qualify the goods for the administrative exemption under Section 321 is the AAFA Member, rather than the ultimate purchaser.
Finally, AAFA references the legislative history behind the establishment of FTZs to support their argument for Section 321 treatment. However, we note that the requirement that the administrative exception under Section 321 applies to a “shipment of articles imported by one person on one day” is statutory. 19 U.S.C. § 1321. Moreover, Congress did not create an exception that permits CBP to ignore the Section 321 importation requirement. Consequently, CBP must comply with the plain language of the governing statutes rather than consider legislative history. When applying U.S. Customs laws to FTZ merchandise, slated for entry, CBP will not ignore existing laws that require a determination related to the status of the merchandise at importation; therefore, CBP will not replace the importation event with the entry event from an FTZ.
Because the merchandise is imported in a bulk consolidated shipment valued at over $800 at importation, 19 C.F.R. § 10.153(d) prevents the goods from leaving the FTZ duty free under 19 C.F.R. § 10.151. Moreover, under Section 321, the $800 per day limit applies to the AAFA Members at the point of importation and not to the individual purchasers subsequent to importation. Accordingly, the shipments and transactions proposed by AAFA, valued over $800 at importation, do not qualify for duty-free treatment and informal entry under the administrative exception of Section 321.
HOLDING:
Based on the above, because the merchandise is imported in bulk and valued at greater than $800 at the time of importation, the proposed transaction and FTZ withdrawals do not qualify for the administrative exemption from duty under 19 U.S.C. § 1321 and 19 C.F.R. § 10.151.
Please note that 19 C.F.R. §177.9(b) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Gail G. Kan, Chief
Entry Process and Duty Refunds Branch