HQ 0111480 - Instruments of International Traffic; IIT; Satellites; Communication Satellites; Components; Diversion; Withdrawal; INTELSAT; 19 U.S.C. 1322; 19 C.F.R. 10.41a. - United States International Trade Commision Rulings

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HQ 111480

October 22, 1991

BOR-7-07 CO:R:IT:C 111480 JBW

CATEGORY: CARRIER

David B. Meltzer, Esquire
INTELSAT
3400 International Drive, N.W.
Washington, D.C. 20008-3098

RE: Instruments of International Traffic; IIT; Satellites; Communication Satellites; Components; Diversion; Withdrawal; INTELSAT; 19 U.S.C. 1322; 19 C.F.R. 10.41a.

Dear Mr. Meltzer:

This letter is in response to your letter of January 15, 1991, in which you request a ruling on the status of communication satellites as instruments of international traffic when, subsequent to their release as instruments of international traffic, the launch site is changed to a site outside of the United States.

FACTS:

The International Telecommunications Satellite Organization (INTELSAT) is an international organization established by treaty to provide to all regions of the world on a commercial, non- discriminatory basis telecommunications satellites and ground facilities required for international public telecommunications. Agreement Relating to the International Telecommunications Satellite Organization, Aug. 20, 1971, art. III, 23 U.S.T. 3813, 3819, T.I.A.S. 7532. Over one hundred nations, including the United States, are parties to the agreement.

In furtherance of its mandate, INTELSAT contracted with Hughes Aircraft Company (Hughes) to construct five communications satellites in the INTELSAT VI series. These satellites were denominated F-1 through F-5 and, given their size, could be launched only on the United States Space Shuttle or the European Ariane 4 rocket. The INTELSAT-Hughes contract required international participation; companies in seven countries supplied the components used to construct the satellites.

INTELSAT intended the F-2 to be the first satellite launched and contracted with NASA for launch of the satellite on the Space Shuttle. Components of the satellite were imported between July, 1984, and December, 1985. These components were released by the Customs Service as instruments of international traffic (IIT's) pursuant to Treasury Decision 70-178, which recognized as instruments of international traffic "communication satellites and components and parts for such satellites, to be launched in the United States...." T.D. 70-178, 4 Cust. B. & Dec. 489 (1970).

Two subsequent events would affect the satellite components released in the United States as instruments of international traffic for the construction of the INTELSAT F-2 and other satellites. First, in 1984, the Congress statutorily revoked the authority extended to the Secretary of the Treasury to designate communication satellites as instruments of international traffic. Trade and Tariff Act of 1984, Pub. L. No. 98-573, 124(c), 98 Stat. 2948, 2956 (1984); see 19 U.S.C. 1322(a). Thus, any communication satellite or component "entered" on or after January 1, 1985, would no longer enjoy instrument of international traffic status and would be subject to entry and payment of duty. Trade and Tariff Act of 1984, Pub. L. No. 98- 573, 195(b)(1), 98 Stat. 2948, 2972 (1984).

Second, the CHALLENGER accident of January 28, 1986, required INTELSAT to reconsider launching alternatives for the F- 2 satellite. Following CHALLENGER, the Director General of INTELSAT referred to the Board of Governors for approval the change of launch vehicles from the Space Shuttle to the Ariane for the first two INTELSAT VI satellites. This request was based on the need to meet "operational requirements"; these operational requirements derive from obligations by INTELSAT to the signatory countries to maintain in space a sufficient number of satellites to meet the communication needs of the signatories. Given the operational life span of the satellites in orbit in 1986, the operational requirements would not have been met by NASA because of an anticipated delay of over one year in the Space Shuttle program. INTELSAT considered other United States launch options and subsequently contracted with Martin Marietta to launch two of the INTELSAT VI satellites on Titan III rockets. However, the record shows that, given the information available in 1986, the Ariane would provide the earliest launch date for the F-2. The F-2 was exported to French Guiana in April, 1989, and launched in November, 1989.

Following exportation and launch of the F-2 satellite, the Los Angeles office of the Customs Service directed Hughes to file entries and pay duties on components of the F-2 that were released as instruments of international traffic. Hughes sought a ruling from this office in a letter dated June 14, 1990. Hughes's request for ruling was premised on the understanding that exportation of the satellite would constitutes a "diversion" of the components released as instruments of international traffic. From this premise, Hughes requested that we establish the date of diversion, the date of importation, and the eligibility of components for drawback. In dictum, this office accepted the premise of the Hughes letter that the exportation of the components, which had been treated as instruments of international traffic, constituted a diversion and ruled on the three questions raised by Hughes. Headquarters Ruling Letter 111107, dated February 22, 1991 (C.S.D. 91-8, 25 Cust. B. & Dec. No. 22, 15, 17 (May 22, 1991)). INTELSAT and Hughes now challenge the premise of the previous correspondence by contending that the components retained their status as instruments of international traffic when they were exported to a launch site outside of the United States.

ISSUE:

Whether communication satellites and components of communication satellites that were released in the United States duty-free as instruments of international traffic are subject to entry and payment of duty if the satellites or components are exported for launch to a site outside of the United States.

LAW AND ANALYSIS:

Title 19, United States Code, section 1322(a), provides:

Vehicles 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 regulation or instructions of the Secretary of the Treasury.

19 U.S.C. 1322(a) (1988). The Customs regulations issued under the authority of this section are contained in 19 C.F.R. 10.41a (1991). The regulations specifically designate lift vans, cargo vans, shipping tanks, skids, pallets, caul boards, and cores for textile fabrics as instruments of international traffic. 19 C.F.R. 10.41a(a)(1). The regulations also authorize the Commissioner of Customs to designate other items as instruments of international traffic. Id.

Under this delegated authority, the Commissioner of Customs designated as instruments of international traffic "communication satellites and components and parts for such satellites, to be launched in the United States...." T.D. 70-178, 4 Cust. B. & Dec. 489 (1970). This Treasury Decision provided for the release of these articles under the procedures established in 19 C.F.R. 10.41a. Further, components and parts could be stored under special bond. T.D. 70-214(1), 4 Cust. B. & Dec. 699 (1970). In 1984, however, the Congress statutorily revoked the authority extended to the Secretary of the Treasury to designate communication satellites as instruments of international traffic. Trade and Tariff Act of 1984, Pub. L. No. 98-573, 124(c), 98 Stat. 2948, 2956 (1984); see 19 U.S.C. 1322(a). Thus, after January 1, 1985, which was the effective date of the amendment, no communication satellite or component could be released in the United States as an instrument of international traffic. This amendment did not affect the status of satellites or components already released in the United States.

Eligibility for release of a communication satellite or component as an instrument of international traffic was conditioned on some demonstration that the article was "to be launched in the United States." Consequently, the Customs Service excluded from the scope of the articles specified in T.D. 70-178 equipment associated with the design, construction, and control of communication satellites, but that would not be launched. Headquarters Ruling Letter 101232, dated November 5, 1974. Further, communication satellite parts that were to be launched in Japan were denied release as instruments of international traffic. Headquarters Ruling Letter 104310, dated November 28, 1979; Headquarters Ruling Letter 105535, dated June 22, 1982. Each of these rulings considered the prospective eligibility of communication satellites and components for release as instruments of international traffic. The Customs Service has never considered the question of how a communication satellite or component released as an instrument of international traffic would lose such status.

The Customs Regulations establish the circumstances under which instruments of international traffic lose such status after release. The regulations provide that an article that is released as an instrument of international traffic and "is subsequently diverted to point-to-point local traffic within the United States, or is otherwise withdrawn in the United States from its use as an instrument of international traffic [] becomes subject to entry and the payment of any applicable duties." 19 C.F.R. 10.41a(d). The application of the principles of diversion to point-to-point local traffic becomes strained in the general context of satellite parts and do not appear applicable in this case where the components were exported to another country for launch.

There is precedent in these narrow circumstances for the exportation of the article without entry and payment of duty. The Customs Service has ruled that "[a]rticles described in Treasury Decision 70-178 which have not been damaged are not subject to entry or payment of duty if exported." Headquarters Ruling Letter CR 542.112 R, dated September 24, 1971. The articles in question are among those so discussed in that Treasury decsion. Thus, the satellite components under consideration could be exported without liability for entry or the payment of duty. Once exported, the legislative change would prohibit the subsequent re-entry of the satellite components in the United States as instruments of international traffic.

HOLDING:

The communication satellite components that were released in the United States as instruments of international traffic for construction of the INTELSAT VI F-2 communication satellite are not subject to entry and payment of duty because of the change of the launch site to a site outside of the United States. Duties that have been paid on these components should be refunded.

This holding modifies Headquarters Ruling Letter 111107, dated February 22, 1991 (C.S.D. 91-8, 25 Cust. B. & Dec. No. 22, 15, 17 (May 22, 1991)) insofar as Holding I of that ruling is premised on a determination that the subject satellite components were diverted or withdrawn. The other holdings remain unchanged.

Sincerely,

B. James Fritz
Chief

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