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HQ 109622


August 31, 1988

BOR-7-04-CO:R:P:C 109622 GV

CATEGORY: CARRIER

Mr. Richard H. Streeter
Barnes & Thornburg
Federal Bar Building
1815 H Street, NW.
Washington, D.C. 20006

RE: Request for Reconsideration

Dear Mr. Streeter:

This is in reference to your letter of July 1, 1988, on behalf of your client, Cast North America ("Cast"), requesting a reconsideration of Customs ruling BOR-7-04-CO:R:P:C 109232 GV, dated June 21, 1988, regarding their movements of contain- erized merchandise which originate in Europe and are destined to points in the New England area.

FACTS:

Cast is an ocean carrier that operates on the North Atlantic between the Ports of Montreal, Canada, and Antwerp, Belgium. It also conducts regularly scheduled trucking oper- tions in conjunction therewith between the Port of Montreal and points in the New England region of the United States with trucking equipment that is domiciled in Montreal.

In regard to Cast's movements of containerized merchandise which originate in Europe and are destined to points in the New England area, after the container is loaded with merchandise at a point located in Europe, it is placed on board Cast's vessel in Antwerp and transported to the Port of Montreal, Canada, where it is off-loaded. In Montreal, the container is placed on a chassis for delivery to the consignee which is located in the United States. The containers are then moved by tractor- trailer in a regularly scheduled service to points in the New England region. In most instances, the container and its mer- chandise will clear Customs at the United States border and be transported directly to the consignee's facility where it will be unloaded. Thereafter, the container either will be moved to a new location where it will be loaded with export cargo, or it will be transported back to Montreal empty.

There are instances, however, where prior to delivering the container and its contents to the ultimate consignee, Cast has been requested to transport the containers in-bond to an in- spection facility in Boston in order to have the Customs in- spection performed in the Boston area. As a convenience to the shipper and its customs broker, Cast has complied with those instructions. At the time the trucks deliver the container loads of merchandise to the container freight station, Coastal, Inc., (Coastal), the in-bond manifest is turned over to Coastal for submission to Customs in Boston. The container is stored at Coastal until a Customs release has been obtained. Further- more, while most of the merchandise delivered to the container station remains on the disconnected trailer, some merchandise is removed from the trailer for inspection. If the inspection cannot be performed when the container arrives, the trailer on which the container is mounted will be disconnected from the tractor and the trailer and driver will return to Canada. After the contents of the container are examined by Customs, the container is reloaded with the same merchandise. There- after, at a later date a Cast driver will return in another tractor trailer unit which will be separated at Coastal, attach his tractor to the previously dropped-off trailer, and proceed to deliver the container to the consignee (located at a point not directly incidental to the international schedule) pursuant to the terms of the through bill of lading which covers the transportation of the container from the original point of origin to its ultimate destination in the United States. As stated in the affidavit of Mr. John M. Majchrowicz, General Manager, North American Trucking, for Cast, which was enclosed in your letter of February 26, 1988, "... it was Cast's standard operating procedure to pick up the container on the driver's next trip assuming it had been able to clear Customs by that time." (emphasis added) Because Cast's Montreal-New England service is built around a regular Monday/Wednesday/ Friday schedule, and a smaller Tuesday/Thursday schedule, the example used by Mr. Majchrowicz is that if a container was dropped on a Monday, the driver would retrieve it on the following Wednesday and proceed to its ultimate destination in the United States. It should be noted, however, that this is a best case scenario and in view of the fact that the time frame for each shipment may vary it cannot be stated that this parti- cular aspect of Cast's service (i.e., dropping off trailers at Coastal and hauling them at a later date) is regularly scheduled.

Cast was advised by Customs personnel in Boston that following the inspection, the movement from the container facility to the ultimate destination would constitute an illegal "point- to-point" or "local" movement within the domestic transporta- tion of the United States in violation of section 123.14(c), Customs Regulations (19 CFR 123.14(c)). In response to letters from Cast's counsel dated November 14 and December 14, 1987, and February 26, 1988, Customs issued ruling BOR-7-04-CO:R:P:C 109232 GV, dated June 21, 1988, holding that the subject foreign-based trucks (i.e., truck tractors towing truck trail- ers) are considered instruments of international traffic until such time as they are disconnected at the container station. At the point of separation, the tractors are no longer trans- porting merchandise in international traffic and therefore may not engage in local traffic (i.e., carrying merchandise or pas- sengers between points in the United States) unless entry is made pursuant to section 10.41(d) and applicable duty paid. In regard to the trailers, it was held that they remain in inter- national traffic until they reach the point on the inward trip of complete unlading for purposes other than Customs examina- tion. The trailers retain their status as instruments of international traffic and may continue to move the merchandise to its ultimate destination per the through bill of lading (albeit by a U.S.-based tractor). Pursuant to a letter from counsel, dated July 1, 1988, Customs was requested to reconsider its ruling of June 21 1988, on this matter.

ISSUE:

Whether there is a movement in local traffic within the meaning of 19 CFR 123.14(c) when a Canadian-based tractor pulls a previously dropped-off Canadian-based trailer loaded with in- bond merchandise destined to points in the United States, from a container freight station in Boston at a date later than when the trailer arrived at the container station, was disconnected from the tractor pulling it and remained there until Customs released the merchandise.

LAW AND ANALYSIS:

Section 141.4, Customs Regulations (19 CFR 141.4), provides that entry as required by title 19, United States Code, section 1484(a) (19 U.S.C. 1484(a)), shall be made of every importation whether free or dutiable and regardless of value, except for intangibles and articles specifically exempted by law or regu- lations from the requirements for entry. Since the foreign- based equipment in question is not within the definition of in- tangibles as shown in General Headnote 5, Tariff Schedules of the United States (19 U.S.C. 1202), it is subject to entry and payment of any applicable duty if not specifically exempted by law or regulations.

Instruments of international traffic may be entered without entry and payment of duty under the provisions of 19 U.S.C. 1322. To qualify as instruments of international traffic, trucks having their principal base of operations in a foreign country must be arriving in the United States with merchandise destined for points in the United States, or arriving empty or loaded for the purpose of taking merchandise out of the United States (see section 123.14(a), Customs Regulations (19 CFR 123.14(a). "Taking out" means destined to a foreign country and does not cover merchandise or passengers whose intended destination is a second point in the United States.

A foreign truck tractor which arrives in the United States in international traffic towing a foreign truck trailer, either empty or loaded, constitutes a foreign "truck", as that term is used in section 123.14(a), (b), and (c)(1), Customs Regulations (19 CFR 123.14(a), (b) and

However, section 123.14(c), Customs Regulations (19 CFR 123.14(c)) states that with one exception, a foreign-based truck, admitted as an instrument of international traffic under section 123.14, shall not engage in local traffic in the United States. The exception, set out in section 123.14(c)(1), states that such a vehicle, while in use on a regularly scheduled trip, may be used in local traffic that is directly incidental to the international schedule.

Section 123.14(c)(2), Customs Regulations (19 CFR 123.14(c)(2)), provides that a foreign-based truck trailer admitted as an instrument of international traffic may carry merchandise between points in the United States on the return trip as provided by section 123.12(a)(2), Customs Regulations (19 CFR 123.12(a)(2)) which allows use of local traffic as is reasonably incidental to its economical and prompt return to the country from which it entered the United States. Section 123.14(c)(2) applies only to truck trailers and not to tractor- trailer units which, as was stated earlier, are considered trucks as that term is used in the Customs Regulations.

Section 10.41(d), Customs Regulations (19 CFR 10.41(d)), provides, in part, that any foreign-owned vehicle brought into the United States for the purpose of carrying merchandise bet- ween points in the United States for hire or as an element of a commercial transaction, except as provided for in section 123.14(c), is subject to treatment as an importation of mer- chandise from a foreign country and a regular Customs entry therefore shall be made. Section 123.14(d), Customs Regula- tions (19 CFR 123.14(d)), provides that any violation of section 123.14, is subject to forfeiture under section 592, Tariff Act of 1930, as amended (19 U.S.C. 1592).

It is your position that Customs June 21 ruling on this matter is not only contrary to the plain wording of the con- trolling regulations, but also disregards well established principles concerning the "flow of commerce". In support of this position counsel cites C.I.E. 1062/62 and Walling v. Jacksonville Paper Company, 317 U.S. 564, 568, 63 S.Ct. 332, 335, 87 L.Ed. 460 (1943). A closer examination of the control- ling authority in this case does not support your claim.

The Customs Simplification Act of 1953 (Pub. L. 67-243), added section 322 to the Tariff Act of 1930 (19 U.S.C. 1322) to grant to international traffic the generally recognized customary exceptions from Customs requirements. Although 19 U.S.C. 1322 does not define "customary exceptions," the legis- lative history is explicit in stating that the customary excep- tions referred to are those mentioned in "United States Import Duties" (1952, at page 269). Senate Report No. 632, 83rd Con- gress, 1st Session, page 12, states "It (19 U.S.C. 1322) does not change the customary exceptions as set out in ... United States Import Duties (1952) p. 269." The intent of Congress is also apparent from House Report No 760, 83rd Congress, 1st Session, page 13. These provisions now appear, essentially without change, in sections 10.41(d) and 123.14 referred to above. Customs has long held that these provisions concern only the movement and tariff status of the vehicles, regardless of whether the merchandise carried is engaged in an international movement.

In C.I.E. 1062/62 Customs held that a truck tractor which, after clearing Customs at the United States-Canadian border, dropped its trailer at a compound adjacent to the customs sta- tion where it later picked up the trailer and proceeded to transport it to its ultimate destination (New Jersey), was engaging in a movement in international traffic temporarily interrupted in the United States during the time the tractor was absent in Canada. Our ruling of June 21 held that decision to be clearly distinguishable from the case now in issue in that it involved the movement of merchandise by the same trac- tor, the same trailer, on the same day. We do not agree that the only distinction between that situation and the one now in issue is that the final movement does not occur on the same day as the initial movement (see last page, item 5, of affida- vit of Mr. John M. Majchowicz, General Manager, North America Trucking, for Cast, which was enclosed in your letter of February 26, 1988, stating that Cast does not hold itself out on a daily basis to perform the same scheduled service with the same piece of equipment). Accordingly, the three distinguish- ing characteristics set forth in our previous ruling cannot be disputed.

In addition, we note that counsel blames Customs for the delay in not moving the merchandise to its final destination on the same day as the initial movement. Counsel readily admits, however, that in most circumstances during the course of Cast's operations merchandise will clear Customs at the United States border and will be transported directly to the customer. It should be noted that Cast's in-bond transportation of merchan- dise to the container freight station in Boston for Customs inspection, rather than inspection at the border (as was the case in C.I.E. 1062/62), was done at the behest of the shipper and its customs broker, not at the behest of the Customs Service and not with prior Customs approval. Furthermore, at the time the manifest is received by Coastal, Inc., the in-bond movement of the merchandise is considered to have terminated in view of the fact that the liability for the storage and safekeeping of the merchandise has been transferred from the bonded carrier (Cast) to the container freight station (Coastal, Inc.) pursuant to section 19.44(b), Customs Regulations (19 CFR 19.44(b)). This transfer of liability is an additional salient discernible factor not found in C.I.E. 1062/62.

Accordingly, we reiterate that the facts in C.I.E. 1062/62 and those now under consideration are clearly distinguishable. To construe the holding in C.I.E. 1062/62 to be applicable to a factual pattern other than the same one upon which it was based would permit any foreign-based equipment to transport merchandise between any two United States points at any time provided the merchandise has not reached its ultimate United States des- tination. Such an interpretation would be inconsistent with the intent of Congress to limit competition with domestic transportation by vehicles in international traffic. It would work to the detriment of domestic interests.

Counsel further maintains that Customs previous ruling on this matter is inconsistent with the principles concerning the "flow of commerce" (i.e., once goods are placed in commerce, they remain within the flow of commerce until their journey is ended). Counsel cites Walling v. Jacksonville Paper Co., supra, which held that the temporary placing of paper products in a wholesale distributor's warehouse prior to their reaching their final destination did not take such paper products out of interstate commerce so as to render inapplicable the Fair Labor Standards Act (29 U.S.C. 201 et seq.).

Customs questions the applicability of Walling. The issue now under consideration is not the movement of the merchandise but that of the carrier. We reiterate, that the issue of what constitutes "local traffic" for the purposes of 19 CFR 123.14(c) is determined by the physical operation of the equip- ment, not the character of the commerce involved. The legal authority you cite is merely determinative as to the character of the merchandise in that particular case for purposes of the laws and regulations administered by the United States Depart- ment of Labor. It is not controlling as to the dutiability and Customs treatment of foreign-based tractors and trailers that move merchandise between two United States points.

Accordingly, we affirm our previous ruling on this matter (BOR-7-04-CO:R:P:C 109232 GV, dated June 21, 1988). At the point of separation (i.e., the container freight station) the tractors were no longer transporting merchandise in international traffic and therefore could not engage in local traffic (i.e., transport the trailer loads of merchandise from the container freight station to the ultimate destination in the United States) unless entry were made pursuant to section 10.41(d).

HOLDING:

A movement in local traffic occurs within the meaning of 19 CFR 123.14(c) when a Canadian-based tractor pulls a previously dropped-off Canadian-based trailer loaded with in-bond merchan- dise destined to points in the United States, from a container freight station in Boston at a date later than when the trailer arrived at the container station, was disconnected from the tractor pulling it and remained there until Customs released the merchandise.

Sincerely,

John E. Elkins
Acting Director, Regulatory

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