HQ 0111107 - Instrument of international traffic; communications satellite; components; date of importation; diversion; drawback - United States International Trade Commision Rulings

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HQ 111107

February 22, 1991

BOR-7-07-CO:R:IT:C 111107 KVS

CATEGORY: CARRIER

Bruce H. Leeds
Manager, Export/Import Operations
Hughes Aircraft Co.
7200 Hughes Terrace
P.O. Box 45066
Los Angeles, CA 90045-0066

RE: Instrument of international traffic; communications satellite; components; date of importation; diversion; drawback

Dear Sir:

This is in response to your letter of June 14, 1990, which requests a ruling regarding telecommunications satellites intended for use aboard the Space Shuttle but launched in another country, which were originally imported as instruments of international traffic. Your ruling request asks that we provide information as to three issues: 1) the date of diversion of such articles; 2) the date of import for such articles; and 3) the eligibility drawback of such articles.

FACTS:

From 1983 until 1986, Hughes Aircraft Company imported satellite components into the United States, some of which were designated as instruments of international traffic, to be utilized on the Intelsat 6 satellites produced by that company. Of the five satellites to be built in this series, two were scheduled for launch on the Space Shuttle, two on the European Ariane rocket and one was undetermined.

The imported components were identified as either "flight" or "non-flight" components because of the requirement that a satellite be launched from the United States in order to be categorized as an instrument of international traffic (IIT). We are informed that for "flight" components, Hughes Aircraft identified the particular satellite to which they were assigned as well as the location of launch for that particular satellite. We are told that IIT status was claimed only for those "flight" components scheduled for Space Shuttle launch.

One of the satellites scheduled for launch aboard U.S. spacecraft was Intelsat 6 F2 (flight model 2). Hughes informs us that the components for the F2 satellite were imported between July 1984 and July 1985 and that the parts were used within three years of receipt.

We are told that the intended launch schedule for the Intelsat 6 F2 was influenced by several factors. Production delays detained completion of this satellite beyond original estimates. As a result of the accident involving the Space Shuttle Challenger in January 1986, future launches were delayed and commercial satellites were eliminated from the Shuttle payload. Therefore, although the Intelsat 6 F2 was originally intended for launch aboard the Space Shuttle in 1986, the satellite was exported to French Guiana on April 21, 1989 and launched into orbit on an Ariane rocket on November 10, 1989.

ISSUES:

I. What is the date of diversion for a telecommunications satellite, whose components were originally imported as instruments of international traffic, which was intended for use aboard the U.S. Space Shuttle but was ultimately launched in another country.

II. What is the date of importation for a telecommunications satellite whose components were originally imported as instruments of international traffic.

III. Whether drawback under 19 U.S.C. 1313(a) may be granted when satellite components imported into the United States as instruments of international traffic between July 1984 and July 1985 are manufactured or produced into a telecommunicaitons satellite which was exported to a foreign country in 1989.

LAW AND ANALYSIS:

Section 322(a), Tariff Act of 1930, as amended (19 U.S.C. 1322(a)), provides that "[v]ehicles and other instruments of international traffic, of any class specified by the Secretary of the Treasury, shall be excepted from the application of the customs laws to such extent and subject to such terms and conditions as may be prescribed in regulations or instructions of the Secretary of the Treasury."

Treasury Decision 70-178 designated communications satellites, their components, and spare parts brought into the United States to be launched in the United States for use in a global communications satellite system as instruments of
international traffic. Treasury Decision 70-214(1) provided for the storage of the components and parts under a special bond.

The authority of the Secretary to make a designation for these articles was statutorily revoked in 1984 by Pub.L. 98-573, section 124(c), which amended 19 U.S.C. 1322(a) to read, "[t]he authority delegated to the Secretary by this subsection shall not extend to communications satellites and components and any parts thereof."

The amendment did not purport to revoke IIT status for satellites and components already designated as instruments of international traffic. Therefore, any such articles imported before the amendment's effective date, January 1, 1985, would retain their status as instruments of international traffic until diverted or destroyed. Conversely, any importations occurring after January 1, 1985, would not be entitled to treatment as instruments of international traffic and any such importations would be subject to the payment of duty as well as any applicable penalty action.

The Customs Service has held that diversion of an instrument of international traffic renders that article subject to duty. Regarding the articles under consideration, launch from the United States was a requirement for a satellite to be designated as an instrument of international traffic (see Customs Ruling 105535, dated June 22, 1982). Therefore, if a satellite is exported to French Guiana for launch, the article has been withdrawn from its use as an instrument of international traffic in the United States and a diversion has occurred.

I. Date of Diversion

As stated above, the 1984 amendment which effectively denied communications satellites and their component parts status as instruments of international traffic did not apply retroactively to revoke the status of such articles entered before January 1, 1985. Therefore, for those items, the date of diversion must be determined.

It is urged that the date of diversion be determined to be the date of launch in French Guiana. The inquirer contends that, notwithstanding the fact that the parts were assigned to a particular spacecraft upon entry into the United States, they were interchangeable and thus could ultimately be used on another Intelsat 6 satellite. Consequently, it is asserted that although the launch configuration of certain components is more certain at the time of export, the final configuration is not final until the date of the launch in French Guiana.

We do not find this argument to be persuasive as it disregards the effect of the 1984 statutory amendment. As previously stated, the statute disallowed the designation of satellites and component parts as instruments of international traffic after January 1, 1985. Therefore, if a satellite already designated as an IIT is exported after January 1, 1985, it may not be re-entered as an IIT, regardless of whether the satellite is launched from French Guiana on the Ariane or whether it re-enters the United States to be launched aboard the Space Shuttle.

The operative date becomes the date the article is exported from the United States. Once exported, the item is no longer an instrument of international traffic; it has been removed from the launch cycle of a U.S. spacecraft and thus, has been effectively diverted. The date of diversion, then, is the date on which the article is exported to a foreign country.

II. Date of Importation

We agree with the inquirer that, as a general matter, the date of importation is governed by the definition in 19 CFR 101.1(h), which states:

"Date of importation" means, in the case of merchandise imported otherwise than by a 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.

We are urged by the inquirer to disregard this general rule and instead find that the date of importation for the satellites under consideration occurred at the time the articles were diverted or otherwise withdrawn from use as instruments of international traffic, which the inquirer contends is the date of launch in French Guiana. The rationale given for this position is that the satellites and component parts, having been designated as instruments of international traffic, were not "imported" in the usual sense, presumably since a consumption entry was not filed upon arrival in the United States.

We find no basis of support for this position. C.S.D 79-19 (dated July 7, 1978), in discussing the date of importation for drawback purposes of certain warehoused material, held that "the date of importation is determined by the means of conveyance."

The Customs Service established that importation and entry constitute separate events by stating "[t]he importation occurs before the merchandise is entered for consumption or warehouse" and thus rejected the argument that date of importation for the articles under consideration did not occur until the time it became necessary to file a consumption entry.

III. Eligibility for Drawback

Drawback is provided for in section 313, Tariff Act of 1930, as amended (19 U.S.C. 1313). Under paragraph (a) of this statute:

[u]pon the exportation of articles manufactured or produced in the United States with the use of imported merchandise, the full amount of duties paid upon the merchandise so used shall be refunded as drawback, less 1 per centum of such duties...

Paragraph (i) of 19 U.S.C. 1313 provides that:

[n]o drawback shall be allowed under the provisions of this section unless the completed article is exported within five years after importation of the imported merchandise.

The Customs Regulations pertaining to drawback are found in Part 191 of the Customs Regulations (19 CFR Part 191).

In this case Hughes has an approved drawback contract (see Treasury Decision 80-296(M)) under which it is allowed to claim drawback on imported electronic and mechanical components used in manufacturing communication satellites, spacecraft, and electronic and mechanical subassemblies for satellites and spacecraft. Applicable duties would be paid on satellite components withdrawn from IIT status (19 CFR 10.41a(d)) and would be treated as "duties" for purposes of 19 U.S.C. 1313(a) (see Customs Service Decision 85-50).

Accordingly, if the satellite components, the manufacture of those components in the United States, and the manufactured articles are within the drawback contract obtained by your company, and if the requirements in 19 U.S.C. 1313 and 19 CFR Part 191 are complied with, Hughes could qualify for drawback if the exportation of the satellites occcurs within five years from the date of importation of the components for which drawback is claimed. In this case importation occurred at the time the components were brought into the United States (i.e., between

July 1984 and July 1985). Therefore, drawback may only be granted with regard to the satellite components exported less than five years after the date of importation, and then only upon compliance with the applicable drawback contract, 19 U.S.C. 1313, and 19 CFR Part 191.

HOLDING:

I. The date of diversion for a telecommunications satellite, whose components were originally imported as instruments of international traffic, which was intended for use aboard the U.S. Space Shuttle but was ultimately launched in another country is the date the satellite was exported to a foreign country.

II. The date of importation for a telecommunications satellite whose components were originally imported into the United States as instruments of international traffic is the date the components arrived in the Customs territory of the United States.

III. When satellite components imported into the United States as instruments of international traffic between July 1984 and July 1985 are manufactured or produced into a telecommunications satellite which was exported into a foreign country in 1989, drawback under 19 U.S.C. 1313(a) may only be granted with regard to the components exported less than five years after the date of importation, and then only upon compliance with the applicable drawback contract, 19 U.S.C. 1313, and 19 CFR Part 191.

Sincerely,

B. James Fritz

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