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HQ 220989


May 11, 1989

CLA-2-CO:R:C:E 220989 L

CATEGORY: CLASSIFICATION MARKING OTHER

TARIFF NO.: General Note 4 (c)

John J. Scanlon, Jr., Esq.
Kemp, Smith, Duncan & Hammond
P.O. Drawer 2800
El Paso, Texas 79999-2800

RE: Tariff classification of certain magnetic tapes, microfiche, and microfilm

Dear Mr. Scanlon:

Your inquiry dated October 7, 1988, JS No. 88-0538 concerns the classification of certain magnetic tapes, microfiche, and microfilm; their admission and use in a foreign trade zone (FTZ); and the applicability of country of origin marking requirements.

FACTS:

A 5-page description of the processing of certain used airline tickets, credit card receipts, and other associated documents sent from the United States to Mexico has been submitted. At the end of each processing cycle, also described in the submission, data resulting from the processing is transferred to blank magnetic tape said to be of United States manufacture. Eventually, the same data is transferred to microfiche or microfilm, also said to be of United States manufacture.

The magnetic tape bearing the business data is then imported into the United States, the data processed, the magnetic tape reused with new data, and the tape returned to Mexico for further use.

The data transferred either to microfiche or microfilm in Mexico may be imported into the United States with or apart from the magnetic tape.

At some point it is apparently contemplated that magnetic tape bearing the above business data will be imported into the United States temporarily free of duty under bond under subheading 9813.00.05, Harmonized Tariff Schedule of the United States (HTSUS; formerly item 864.05, Tariff Schedules of the

United States) and then admitted into a foreign trade zone (FTZ). In the FTZ the data from the imported tape would be copied onto blank United States manufactured magnetic tape admitted to the FTZ in domestic status. The tape onto which the data was copied would then be transferred from the FTZ into the Customs territory of the United States.

ISSUE:

Four issues are presented. The first is whether magnetic tape, microfiche, and microfilm bearing business data are exempt from general note 1, Harmonized Tariff Schedule of the United States (HTUS) pursuant to general note 4(c), HTSUS.

The second issue is whether magnetic tape bearing business data may be imported temporarily free of duty under bond for processing in a FTZ, the process being the reproduction of the data from the imported tape onto a tape of United State manufacture admitted to the zone in domestic status, with subsequent transfer of the copies into the Customs territory of the United States free of duty taxes, and quota.

The third issue is whether the magnetic tape, microfiche, and microfilm imported bearing business data are subject to country of origin marking requirements pursuant, to 19 U.S.C. 1304.

The fourth issue is whether if the magnetic tape, microfiche, and microfilm is marked with country of origin while still blank the markings must be amended or removed when the magnetic tape, microfiche, or microfilm bearing business data transferred to it abroad is returned to the United States.

LAW AND ANALYSIS:

General Note 1 to the HTSUS provides that "[A]ll goods provided for in this schedule and imported into the customs territory of the United States from outside thereof are subject to duty or exempt therefrom as prescribed in general notes 3 and 4."

General note 4(c) provides that for the purposes of general note 1 "records, diagrams and other data with regard to any business, engineering or exploration operation whether on paper, cards, photographs, blueprints, tapes or other media. . .are not goods subject to the provisions of the tariff schedule."

The predecessor of general note 4(c) was General Headnote 5(e), Tariff Schedules of the United States (TSUS), identical in wording to general note 4(c), HTSUS. General Headnote 5(e) TSUS, was enacted into law in 1983, see Public Law 97-446 of January 12, 1983, section 201(a)(3), 96 Stat. 2329, which also provided for the repeal of item 870.10, TSUS, a tariff provision similar, but not identical to, General Headnote 5(e), TSUS.

Item 870.10, TSUS, provided for entry free of duty for "[R]ecords, diagrams, and other data with regard to any business, engineering, or exploration operation conducted outside the United States, whether on paper, cards, photographs, blueprints, tapes, or other media." General Headnote 5(e) as enacted was identical to the repealed item 870.10, TSUS, with the exception (and deletion) of the underlined portion.

Headquarters letter 071242SC, March 28, 1983, discussing the enactment of General Headnote 5(e), TSUS, and repeal of item 870.10, TSUS, pointed out that "[T]he rulings made with respect to document coverage, under the predecessor provision in item 870.10, TSUS, will still apply to business records imported as intangibles, with the exception that under the new law the operations need not be conducted outside of the United States."

In your description of the process you state, among other things, that your client contracts with Airline Reporting Corporation (ARC) to process airline tickets (and associated documents) which various travel agencies throughout the United States have sold on behalf of ARC. The records, therefore, do not relate to a business operation conducted outside the United States. However, as noted above, with the enactment of General Headnote 5(e), TSUS, it is no longer necessary that the records relate to business operation conducted outside of the United States.

The next question is whether the business records imported must be the business records of the importer or whether, as in this case, they can be the business records of an unaffiliated party.

The legislative history of item 870.10, TSUS, is discussed at some length in Headquarters letter 079847, October 28, 1987. It is clear that the intent of item 870.10, TSUS, was to exempt from duty business records or other data relating to the operations of foreign offices . . .of American businesses. A comment of Mr. Mills, in the Congressional Record of May 9, 1962,
page 8010, states "[T]he provision would not, of course, apply to business records processed abroad when no other phase of the business operations to which the records pertain occurs abroad." See, too, Headquarters letter 063240, October 24, 1979.

The enactment of General Headnote 5(e), TSUS, and repeal of item 870.10, TSUS, was not accompanied by an explanation of the reason for the deletion of the phrase ". . . conducted outside the United States. . .". We conclude that deletion of the requirement that the records relate to business conducted outside the United States also removed the need for the business records to be the business records of the importer. General Headnote 5(e), TSUS, of course, was transferred without change to general note 4(c), HTSUS.

The legislative history of item 870.10, TSUS, also indicates that the records contemplated in item 870.10, TSUS, are not salable, S.Rep. No. 1318, 97th Cong., 1st. Sess. 1640 (1962). Similarly, records or data classifiable under General Headnote 5(e), TSUS, were not permitted any commercial value except to the business to which they pertain, see Headquarters letter 073099, June 5, 1984. We interpret "salable" and "commercial value" to mean that the primary purpose of importation into the United States is resale to others.

The question of sale of the records is not specifically addressed in your submission. Based upon your description of the process, we assume that your client, who processes the records under a contract with ARC, does not import the records into the United States primarily for the purpose of sale to ARC or others.

Based upon the foregoing, the subject magnetic tape, microfiche, and microfilm, bearing business records and not imported for resale, are exempt from general note 1, HTSUS, pursuant to general note 4(c), HTSUS. While no entry is required for articles enumerated in general note 4, HTSUS (section 141.4(a), Customs Regulations, will be amended to reflect this), the importer must declare the records and the Customs Service retains the right to inspect all parcels containing them.

You next ask if your client can temporarily import magnetic tapes into a FTZ under subheading 9813.00.05, HTSUS; copy the data from the imported tapes onto blank tapes of United States manufacture admitted to the FTZ in domestic status; and thereafter transfer the copies into the Customs territory of the United States free of quotas, duty, and taxes.

In the circumstances described, it is not necessary for your client to enter the magnetic tape temporarily free of duty under bond. The tape can be sent directly to the zone from the port of arrival by cartman or bonded carrier, as may be appropriate, and there have the data copies from the imported tape onto blank tapes of United States manufacture. As noted in your submission, C.S.D. 83-73 (Headquarters letter 215445, March 14, 1983) held that tape recordings produced in a FTZ on tape in domestic status by the use of imported master tapes may be sent into customs territory free of quota, duty, and taxes. Note that pursuant to T.D. 86-16 the status of privileged domestic was abolished and domestic status merchandise is now generally governed by section 146.43, Customs Regulations.

The third and fourth issues relate to country of origin marking of magnetic tape, microfiche, and microfilm, and whether any such marking on blank magnetic tape, microfiche, or microfilm must be amended or removed when the magnetic tape, microfiche, or microfilm bearing business data is returned to the United States.

The Customs Service has previously held that "intangibles" under the TSUS are not articles within the meaning of 19 U.S.C. 1304 and therefore need not be marked with the country of origin. Business records such as those described and the media by which they are carried would have been within the intendment of intangibles in General Headnote 5(e), TSUS. Since general note 4(c), HTSUS, carried over virtually the same language as that in General Headnote 5(e), TSUS, the same view is adopted; that is, the subject magnetic tape, microfiche, and microfilm bearing business data need not be marked with country of origin pursuant to 19 U.S.C. 1304, and blank magnetic tape, microfiche, and microfilm marked with country of origin (we note that all of the magnetic tape, microfiche, and microfilm herein is said to be of United States manufacture) while still blank but which has business data transferred to it while abroad need not have the markings amended or removed.

HOLDING:

1. Magnetic tape, microfiche, and microfilm bearing business data as described in detail in a submission dated October 7, 1988, bearing the reference JS No. 88-0538, imported into the United States is exempt from general note 1, HTSUS, pursuant to general note 4(c), HTSUS, and entry is not required for articles enumerated in general note 4(c), HTSUS.

2. Magnetic tape may be imported into the Customs territory of the United States and transferred to a FTZ for reproduction of the data from the imported tape onto a tape of United States manufacture admitted to the FTZ in domestic status. The tape copies may be transferred to the Customs territory of the United States free of duty, taxes, and quota.

3. Magnetic tape, microfiche, and microfilm bearing business data meeting the requirements of general note 4(c), HTSUS, are not subject to the marking requirements of 19 U.S.C. 1304.

4. Magnetic tape, microfiche, and microfilm marked with country of origin while still blank but which has business data meeting the requirements of general note 4(c), HTSUS, transferred to it abroad need not have the markings amended or removed upon its return to the United States.

Sincerely,

John Durant, Director

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