HQ 0111548 - Instruments of International Traffic; Local Traffic; Trucks; Positioning of Trailers; LTL Movements; Replace- ment of Tractor; Backhauls/Lateral Movements; Base of Operations; 19 U.S.C. 1322 - United States International Trade Commision Rulings

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HQ 111548

September 3, 1991

BOR-7-04-CO:R:IT:C 111548 GEV

CATEGORY: CARRIER

Robert L. Cope, Esq.
Grove, Jaskiewicz and Cobert
1730 M Street, N.W.
Washington, D.C. 20036-4579

RE: Instruments of International Traffic; Local Traffic; Trucks; Positioning of Trailers; LTL Movements; Replace- ment of Tractor; Backhauls/Lateral Movements; Base of Operations; 19 U.S.C. 1322

Dear Mr. Cope:

This is in response to your letter dated February 20, 1991, requesting clarification of the status of certain operations of your client when handling international shipments between points within the United States. Our ruling on these operations is set forth below.

FACTS:

TransX is a Canadian-based for hire motor carrier with terminal facilities at various locations in the United States. TransX operates in domestic Canadian commerce, international commerce between the United States and Canada, and in domestic United States commerce. TransX holds appropriate operating licenses from, among others, the Interstate Commerce Commission (ICC) authorizing the described operations.

TransX currently conducts extensive regularly scheduled services on commodities moving between the United States and Canada in international traffic, and involving such ports of entry as Detroit, Michigan; Buffalo, New York; Pembina, North Dakota; and Blaine, Washington. These services involve the transportation of Canadian-origin goods to U.S. destinations and U.S.-origin goods to Canadian destinations. Transx operates terminal facilities in the United States at Chicago (Addison and Lincolnshire, Illinois) and Eagan and Roseville, Minnesota, among other locations. TransX has several Canadian terminal facilities, including Toronto, Ontario. Its principal place of business is 2595 Inkster Blvd., Box 36, Group 200, R.R. 2, Winnipeg, Manitoba, Canada R3C 2E6.

TransX's U.S.-Canada international operations have recently been called into question by the District Director of Customs, Pembina, North Dakota. In view of this, TransX's operations are being internally reviewed and restructured to ensure future compliance with all applicable Customs laws and regulations. Accordingly, the transactions set forth for review constitute identical, recurring future transactions for which TransX is seeking a ruling as to their compliance with all applicable Customs regulations.

TransX's regularly scheduled international service between the United States and Canada is often performed with a Canadian tractor and Canadian trailer bringing an import shipment to a consignee in the United States. To a lesser degree, U.S.-based equipment is also used in this service. Upon unloading of the trailer at the consignee's facility, the empty Canadian trailer must be repositioned to another shipper's facility on TransX's route for loading of export merchandise destined to Canada. Less than trailer load (LTL) shipments are an important part of TransX's operations. LTL shipments may be involved in import and export movements between the United States and Canada, or in domestic point-to-point movements. The most economical and efficient method for TransX to handle these shipments is to consolidate LTL shipments in one trailer at one or more locations in the United States.

During the course of TransX's service, situations arise where, after clearing Customs at the border and before reaching the consignee at the final U.S. destination of the imported merchandise, a TransX Canadian tractor hauling a loaded Canadian trailer is unable to complete the shipment for one of a variety of reasons (e.g., equipment breakdown or accident; driver illness; family problems; or termination). TransX then dispatches another tractor and driver to pick up the trailer, continue the movement, and complete delivery to the U.S. importer.

On occasion, TransX, after completing a regularly scheduled import movement to the United States, will have an export shipment to Canada for the regularly scheduled return trip of TransX's Canadian-based equipment. The consignors of these shipments may be located to the east, west, or south of TransX's U.S. terminals. In order to pick up these shipments and move them to Canada, TransX's tractors and trailers will have to travel away from Canada to obtain the freight, and then make the scheduled return trip to Canada. For example, on some shipments, TransX will deliver an import shipment to a consignee in Springfield, Illinois, then proceed to St. Louis, Missouri, to pick up the export shipment to Canada. In other circumstances, TransX will deliver to Springfield, and then pick up the export shipment in Indianapolis.

In regard to the above scenarios, the question has arisen as to what criteria Customs considers in determining a carrier's principal base of operations within the meaning of 123.14(a). TransX is seeking guidance from Customs in this regard.

ISSUES:

1. Whether a Canadian-based tractor is operating in local traffic in violation of 19 CFR 123.14(c)(1) when, after hauling a Canadian-based trailer into the United States, and after the trailer's subsequent unloading, the tractor is then used to position the empty trailer at a different United States point for the loading of export merchandise, then proceeds to haul it to Canada.

2. Whether a Canadian-based tractor is operating in local traffic in violation of 19 CFR 123.14(c)(1) when, after hauling a Canadian-based trailer into the United States to its point of unloading, it is subsequently used to position a different empty Canadian-based trailer between two United States points for subsequent loading with an export shipment to Canada.

3. Whether the use of a United States-based tractor to position an empty Canadian-based trailer between two points in the United States for the subsequent loading of an export shipment to Canada constitutes a movement in local traffic in violation of 19 CFR 123.14(c)(1).

4. Whether the use of a Canadian-based tractor to position an empty United States-based trailer between two points in the United States for the subsequent loading of an export shipment to Canada constitutes a movement in local traffic in violation of 19 CFR 123.14(c)(1).

5. Whether the use of a Canadian-based tractor-trailer unit in picking up LTL export cargo destined to Canada at various United States locations along its regularly scheduled international route constitutes a movement in local traffic in violation of 19 CFR 123.14(c)(1).

6. Whether the loading and transporting of an LTL export shipment in one Canadian-based tractor-trailer unit used in international traffic between two points in the United States for subsequent consolidation at a United States point not located along the international route in a different trailer for export to Canada constitutes a movement in local traffic in violation of 19 CFR 123.14(c)(1).
7. Whether the loading of domestic and export LTL cargo in the same Canadian-based tractor-trailer unit for a movement from one United States point to another for subsequent deconsolidation of the shipment and continuation of only the export LTL cargo to Canada constitutes a violation of 19 CFR

8. Whether the replacement of a Canadian-based tractor by another such tractor after it enters the United States hauling a Canadian-based trailer but prior to the transportation of the loaded trailer to its United States destination and the subsequent completion of the route by the replacement tractor constitutes a violation of 19 CFR 123.14(c)(1).

9. Whether local traffic incidental to a regularly scheduled international trip within the meaning of 19 CFR 123.14(c)(1) is required to be in the general direction of the country or destination point of the import or export.

10. Whether there are specific criteria which Customs reviews in determining a vehicle's "principal base of operations" within the meaning of 19 CFR 123.14(a).

LAW AND ANALYSIS:

Section 141.4, Customs Regulations (19 CFR 141.4), provides that entry as required by title 19, United States Code, 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 regulations from the requirements for entry. Since the foreign-based equipment in question is not within the definition of intangibles as shown in General Note 4, Harmonized Tariff Schedule of the United States (HTSUS; 19 U.S.C. 1202, as amended), it is subject to entry and payment of any applicable duty if not specifically exempted by law and 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 19 CFR 123.14(a)).

Generally speaking, a foreign truck tractor which arrives in the United States in international traffic towing a foreign trailer, either empty or loaded, constitutes a foreign "truck" as that term is used in 123.14(a), (b), and (c)(1), Customs Regulations (19 CFR 123.14(a), (b), and (c)(1)). It should be noted, however, that in regard to truck tractors, whether they stay connected to their respective trailers or separate, the same restrictions set forth in the aforementioned regulatory authority would nonetheless apply.

Section 123.14(c), Customs Regulations, states that with one exception, a foreign-based truck, admitted as an instrument of international traffic under 123.14, shall not engage in local traffic in the United States. The exception, set out in 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.

A carrier may be considered as engaged in regularly scheduled service whether trips are scheduled hourly, daily, weekly, etc., provided the trips are regular, not varied, and are over an established route. Trips made if and when a load is available do not qualify.

Section 123.14(c)(2), Customs Regulations, 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 123.12(a)(2) which allows use for such transportation as is directly 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 trailers and not to tractor-trailer units which, as was stated earlier, are considered trucks as that term is used in the Customs Regulations.

We note that 10.41a(f), Customs Regulations (19 CFR 10.41a(f)) is repeatedly cited by counsel in the ruling request. In this regard we refer to 10.41a(a)(3) which provides:

"As used in this section, 'instruments of international traffic' includes the normal accessories and equipment imported with any such instrument which is a 'container' as defined in Article 1 of the Customs Convention on Containers."

Pursuant to Article 1(b)(v) of the Customs Convention on Containers, "...the term 'container' includes neither vehicles nor conventional packing..."

Furthermore, 10.41(a), Customs Regulations provides:

"Locomotives and other railroad equipment, trucks, buses, taxicabs, and other vehicles
used in international traffic shall be subject to the treatment provided for in Part 123 of this chapter."

Accordingly, 10.41a(f) is not applicable to the TransX operations in question. That section of the Customs Regulations is inapplicable to vehicles whose treatment as instruments of international traffic is provided for in 10.41(a), 10.41(d) and Part 123, Customs Regulations.

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

Whether the use of an instrument of international traffic constitutes a diversion from international traffic is based on the facts in each case. The transportation of merchandise in international traffic is the key; the domestic movement of merchandise must be secondary to the international movement and meet other criteria. There must be a regular international schedule and the domestic movement must follow the same basic route as the merchandise moving in international traffic.

It should be noted that the ICC licenses held by TransX and the applicable Customs Regulations are easily reconciled. The former authorizes a carrier to transport general commodities between points in the United States while the latter applies the statutory requirements that govern such movements.

The record is devoid of any evidence regarding the base of operations and schedules of the vehicles in question. Assuming, arguendo, that the vehicles in the scenarios under consideration are based as stated in the ruling request, and that they are in fact operating pursuant to regularly scheduled international trips, our findings are as set forth below. It should be noted, however, that should a specific question regarding TransX's operations arise at a future date (e.g., the possible assessment of a penalty for a point-to-point violation), the facts surrounding that particular incident will be reviewed on their own merits notwithstanding the holdings of this ruling.

In regard to the first issue, the arrival of the Canadian- based tractor-trailer unit into the United States with import merchandise, the delivery of the merchandise to the point of unloading, the positioning of the empty trailer, the reloading of merchandise and subsequent hauling of the loaded trailer to Canada does not constitute a diversion of the vehicles from international traffic to illegal local traffic provided this operation occurs along the truck's regularly scheduled international route. The leg of the trip between the point of unloading to the point of reloading is merely concomitant to the return of the vehicle to its point of origin (i.e., Canada) after the delivery of the cargo. The tractor-trailer unit, which remains intact throughout this scenario, is not transporting merchandise between United States points. The empty trailer is not considered to be merchandise for purposes of 123.14 in view of the fact that the focus of both the commercial transaction and the tractor's itinerary is the delivery of the cargo in the trailer, not the movement of the trailer between two United States points. Accordingly, the Canadian-base tractor is not operating in local traffic in violation of 123.14(c)(1), Customs Regulations.

The rationale and holding of Issue 1 above is also applicable to Issue 2, provided the positioning by the Canadian- based tractor of a different empty Canadian-based trailer occurs along the tractor's regularly scheduled international route. Absent meeting these criteria the tractor in question is engaging in illegal local traffic. Accordingly, since no merchandise is being transported between two United States points there is no diversion from international traffic to local traffic and no violation of 123.14(c)(1), Customs Regulations.

Issues 3 and 4 involve the positioning discussed above albeit with combinations of U.S. and Canadian-based equipment. In Issue 3 the use of a U.S.-based tractor to reposition an empty Canadian-based trailer does not constitute an illegal point-to- point movement. It should be noted, however, that although 123.14 is inapplicable to the U.S.-based tractor (it applies to foreign-based equipment), the prohibition against foreign-owned vehicles from engaging in illegal domestic traffic set forth in 10.41(d), Customs Regulations, may apply. In other words, a U.S.-based, Canadian-owned tractor would come within the purview of 10.41(d). We further note that the provisions of 123.14(c)(2) would apply to the Canadian-based trailer under consideration.

In Issue 4, the use of a Canadian-based tractor to position an empty U.S.-based trailer between two points in the United States would not constitute a movement in local traffic in violation of 123.14(c)(1), provided the positioning occurs along the tractor's regularly scheduled international route.

Issue 5 involves the use of a Canadian-based tractor-trailer unit in picking up LTL export cargo destined to Canada at various United States locations along its regularly scheduled international route. The consolidation of export cargo in this scenario involves no movement of merchandise in local traffic in violation of 123.14(c)(1), Customs Regulations.

The consolidation described in Issue 6, however, differs from that described in Issue 5 in that rather than consolidating the LTL shipments in one truck at various stops along TransX's regularly scheduled international route, the consolidation occurs at TransX's U.S. terminal facilities (which, from the ruling request, appear not to be located on the aforementioned route) where the export cargo is transferred to another Canadian-based trailer containing other export shipments destined to Canada. The second trailer containing the consolidated export shipments then continues its movement to Canada. The first trailer is subsequently used for another export shipment.

Those tractor-trailer units which pick up LTL cargo at U.S. locations and then proceed to TransX's U.S. terminal facilities for consolidation of the cargo into another trailer are considered to have diverted from international traffic to local traffic. This subsequent diversion would result in a violation of section 123.14(c)(1) inasmuch as the domestic movement (pick up point to U.S. terminal facilities) does not follow the same route as the merchandise moving in international traffic (U.S. terminal facilities to Canada) therefore it cannot be said that this local use is directly incidental to the regularly scheduled international route.

Issue 7 is essentially the same situation as Issue 5 except that in addition to export LTL cargo being picked up along the route, domestic LTL cargo is transported by the same tractor- trailer unit between U.S. points along the Canadian-based truck's regularly scheduled international route. This movement does not constitute a violation of 19 CFR 123.14(c)(1).

Issue 8 addresses the replacement of a Canadian-based tractor after it has entered the United States hauling a Canadian-based trailer with import merchandise but before it reaches its United States point of destination. Under these circumstances it is our view that at the point in the United States where the tractor is switched or replaced, the tractor being replaced is no longer considered to be transporting merchandise in international traffic. Furthermore, the replacement tractor is not arriving with merchandise destined to points in the United States, nor is it arriving empty or loaded for the purpose of taking out merchandise pursuant to 123.14(a). Accordingly, the tractors' subsequent use in local traffic constitutes a violation of 123.14(c)(1) absent evidence to show they were used on a regularly scheduled trip and their use in local traffic was directly incidental to the international schedule. In regard to the trailer, it is our view that it remains in international traffic until it reaches its point of complete unlading on the inward trip.

In regard to the replacement tractor discussed above, it should be noted that Customs has held that foreign truck tractors may arrive in the United States to replace and continue the trips of similar foreign tractors which have become disabled while properly engaged in international traffic in the United States without being considered to be engaging in local traffic in violation of the Customs Regulations (Customs Circular: BOR-7- DB, dated January 23, 1962). However, absent any case involving a bona fide breakdown of the tractor, or the exceptions for engaging in local traffic noted above, the replacement scenario described in Issue 8 constitutes a use in local traffic in violation of 123.14(c)(1), Customs Regulations. It should be noted, however, that the replacement of a tractor due to circumstances purportedly constituting an emergency other than a breakdown as discussed above may, upon Customs review, suffice as a mitigating factor in the resolution of any penalty assessed.

Issue 9 covers the parameters within which local traffic may be considered "incidental" to the regularly scheduled international route. Customs has no specific criteria regarding this matter; each case is determined on an individual basis. We reiterate, however, that the domestic movement must follow the same basic route as merchandise moving in international traffic. Furthermore, it should be noted 123.14(c)(2) regarding local traffic permitted a foreign-based truck trailer references 123.12(a)(2) pertaining to local traffic of foreign railroad equipment. Section 123.12(a)(2) states that such local traffic is permitted if it is "reasonably incidental to its economical and prompt departure for a foreign country." Customs has interpreted this to mean in the general direction of the country of origin, or to the home route junction point, over a route which the equipment would otherwise travel empty. Accordingly, "backhauls" or "lateral" movements would not be considered incidental to the international route for purposes of 123.14(c), Customs Regulations.

Issue 10 pertains to the criteria Customs uses in determining a vehicle's "base of operations" as set forth in 123.14(a), Customs Regulations. Customs has no specific criteria for determining a vehicle's base of operations. As long as an operator has the intention to establish his base of operations in a certain place and operate out of that location, and presents sufficient evidence to support this intention, Customs will consider that as his base of operations. It should be noted that although such determinations are made on a case-by- case basis, Customs has ruled that a trailer that is Canadian- owned, U.S.-leased and U.S.-registered creates a rebuttable presumption that its principal base of operations is in the United States. (ruling 110785, dated October 12, 1990) We have also held that a Canadian company which purchases trailers in the U.S. in the name of a U.S. corporation which has them licensed in the U.S. creates a rebuttable presumption that the trailers are based in the United States. However, the keeping of these trailers in Canada for periods of up to six months or more constitutes sufficient evidence to rebut the aforementioned presumption (ruling 111285, dated October 21, 1990) Furthermore, we have held that truck tractors which are Canadian-owned and registered and bear license plates of Canadian provinces but are dispatched out of the U.S. indicate that the owner's intention is to base the operations of these vehicles in the U.S. and not in Canada.

In the event a vehicle is not found to be foreign-based thereby rendering 123.14 inapplicable, it may nevertheless be in violation of 10.41(d), Customs Regulations, if it is foreign- owned and carrying merchandise between points in the United States for hire or as an element of a commercial transaction without having made a formal Customs entry. Failure to make entry in this situation, just as in the case of failure to enter a foreign-based vehicle before use in local traffic, is subject to penalty under 19 U.S.C. 1592.

HOLDINGS:

1. A Canadian-based tractor is not operating in local traffic in violation of 19 CFR 123.14(c)(1) when, after hauling a Canadian-based trailer into the United States, and after the trailer's subsequent unloading, the tractor is then used to position the empty trailer at a different United States point for the loading of export merchandise, then proceeds to haul it to Canada, provided the positioning takes place along the tractor-trailer's regularly scheduled international route.

2. A Canadian-based tractor is not operating in local traffic in violation of 19 CFR 123.14(c)(1) when, after hauling a Canadian-based trailer into the United States to its point of unloading, it is subsequently used to position a different empty Canadian-based trailer between two United States points for subsequent loading with export merchandise to Canada, provided the positioning takes place along the tractor's regularly scheduled international route.

3. The use of a United States-based tractor to position an empty Canadian-based trailer between two points in the United States for subsequent loading of an export shipment to Canada does not constitute a movement in local traffic in violation of 19 CFR 123.14(c)(1).

4. The use of a Canadian-based tractor to position an empty United States-based trailer between two points in the United States for the subsequent loading of an export shipment to Canada does not constitute a movement in local traffic in violation of 19 CFR 123.14(c)(1), provided the positioning occurs along the tractor's regularly scheduled international route.

5. The use of a Canadian-based tractor-trailer unit in picking up and consolidating LTL export cargo destined to Canada at various United States locations along that truck's regularly scheduled international route does not constitute a violation of 19 CFR 123.14(c)(1).

6. The loading and transporting of an LTL export shipment in one Canadian-based tractor-trailer unit between two points in the United States for subsequent consolidation at a United States point not located along the international route in a different trailer for export to Canada does constitute a violation of 19 CFR 123.14(c)(1). The truck picking up the cargo is considered to have diverted to local traffic inasmuch as the merchandise moving in local traffic is not following the same route as the merchandise moving in international traffic and therefore the domestic movement cannot be said to be incidental to a regularly scheduled route.

7. The loading of domestic and export LTL cargo in the same Canadian-based tractor-trailer unit for a movement from one United States point to another for subsequent deconsolidation of the shipment and continuation of only the export LTL cargo to Canada does not constitute a violation of 19 CFR 123.14(c)(1) provided it occurs along the truck's regularly scheduled international route.

8. The replacement of a Canadian-based tractor by another such tractor after it enters the United States hauling a Canadian-based trailer but prior to the transportation of the loaded trailer to its United States destination and the subsequent completion of the route by the replacement tractor constitutes a violation of 19 CFR 123.14(c)(1), absent the original tractor's becoming disabled or evidence that the replacement was pursuant to the replacement tractor's regularly scheduled international trip.

9. Local traffic incidental to a regularly scheduled international route within the meaning of 19 CFR 123.14(c)(1), although decided on an individual basis, must follow the same basic route as merchandise moving in international traffic.

10. Customs has no specific criteria in determining a vehicle's "principal base of operations" as set forth in 19 CFR 123.14(a). As long as an operator has the intention to establish his base of operations in a certain place and operates out of that location, and presents sufficient evidence to support this intention, Customs will consider that as his base of operations.

Sincerely,

B. James Fritz

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