HQ 0111776 - Instruments of International Traffic; Local Traffic; Trucks; 19 U.S.C. 1322 - United States International Trade Commision Rulings

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HQ 111776

December 11, 1991

BOR-7-04-CO:R:IT:C 111776 GEV

CATEGORY: CARRIER

John W. Ester, Esq.
Matheson, Parr, Schuler, Ewald, Ester & Cooke 2555 Crooks Road
Troy, Michigan 48084

RE: Instruments of International Traffic; Local Traffic; Trucks; 19 U.S.C. 1322

Dear Mr. Ester:

This is in response to your letter dated March 21, 1991, to Mr. William L. Morandani, District Director of Customs, Detroit, Michigan, regarding point-to-point hauling by Canadian motor carriers. Your letter was forwarded to this office for direct response. Our ruling on this matter is set forth below.

FACTS:

Counsel represents a number of motor carriers based both in the United States and in Canada which possess operating authority from the Interstate Commerce Commission and from various state regulatory agencies. In response to requests from the Canadian- based carriers, counsel provided their opinion as to the extent to which these carriers may lawfully conduct point-to-point operations in the United States; to wit, a Canadian-based trailer can be used for a domestic movement within the United States without formal entry and the payment of duty only if it falls within the exemptions of Title 19 of the Code of Federal Regulations. Specifically, counsel has advised that pursuant to section 123.14(c)(2), Customs Regulations (19 CFR 123.14(c)(2)), Canadian-based trailers may be used to carry merchandise between points in the United States on the return trip to Canada if such carriage is reasonably incidental to the trailers' incidental and prompt return to Canada.

Recently, one of counsel's Canadian clients inquired as to whether there had been a change in the applicable law regarding this matter. The reason for this inquiry is that the client had been cited for a "coasting" violation and had received a one page summary of the applicable law from Customs personnel at the port of entry at Sault Ste. Marie, Michigan. A copy of this summary
was enclosed with counsel's letter of March 21, 1991. Counsel states that because the summary makes no reference to the exemption in 19 CFR 123.14(c)(2), and because it emphatically states that "FOREIGN-BASED VEHICLES MAY NOT PICK UP FREIGHT AT A POINT IN THE U.S. FOR DELIVERY TO ANOTHER POINT IN THE U.S.," the client inquired as to whether the law had changed since counsel's opinion letter of 1987 regarding this matter.

Upon reviewing the applicable regulations as revised through April 1, 1990, counsel notes that it appears that the language in 19 CFR 123.12(a)(2) has been changed to refer to "departure for a foreign country" rather than "return to the country from which it entered the United States." Counsel further notes, however, that the substance of the regulations appears to remain the same. Assuming this is so, counsel inquires as to whether there has been some change in Customs interpretation of the "return trip" exception (i.e., whether the written memo provided by Customs at Sault Ste. Marie reflects Customs current policy on this matter).

In addition to the above clarification, counsel requests a ruling with regard to two proposed movements pursuant 19 CFR 123.14(c)(2). In the first example, the carrier receives a load at Sault Ste. Marie, Ontario, for delivery in Memphis, Tennessee. The carrier enters the United States at Sault Ste. Marie, Michigan, and travels to Memphis via I-75, I-69, I-65 and I-40. After delivery of the first shipment, the carrier receives a shipment from another shipper in Memphis for delivery in Gary, Indiana. On the return trip, the carrier's route is over I-55, I-57, I-94, I-69 and I-75. The equipment would move back to Canada through the same port of entry over which it entered the United States.

The second example involves a shipment from Sault Ste. Marie, Ontario, to Newton, North Carolina. Again, the carrier would enter the United States at Sault Ste. Marie, Michigan; it would proceed south via U.S. I-75 to Knoxville, Tennessee, where it would pick up I-40 to Newton. Following delivery in Newton, the carrier would move northeast on I-40 to Winston-Salem, North Carolina, where it would pick up a load destined to Detroit, Michigan. This trip would probably be handled via U.S. 601, I- 77, I-80, I-280 and I-75 to Detroit, and then via I-75 back to Sault Ste. Marie, Ontario, through the original port of entry at Sault Ste. Marie, Michigan.

Counsel states that in each of the foregoing examples, the return loads would be picked up promptly following unloading of the international shipment. Counsel further states while the route utilized on the return trip would not be identical to the one utilized on the southbound leg, the route used would be reasonably direct, there would be few, if any, additional miles
traversed in the northbound direction, and the equipment would return to Canada via the same port of entry over which it entered the United States.

ISSUE:

Whether the movements of Canadian vehicles in the United States as described above constitute local traffic in violation of 19 CFR 123.14(c)(1) and/or (2).

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 Canadian-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 reasonably incidental to its economical and prompt departure for a foreign country. Section 123.14(c)(2) applies only to trailers and not to tractor-trailer units which, as stated above, are considered trucks as that term is used in the 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.

In regard to counsel's inquiry as to whether there has been a change in the applicable law, we note the following. 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 vehicles and other instruments of international traffic the generally recognized "customary exceptions" from Customs requirements. The most recent amendment to 19 U.S.C. 1322 was implemented by Public Law 98-573, section 127(b) (effective October 30, 1984) which substituted the words "shall be excepted" for "shall be granted the customary exceptions." The legislative history of this amendment clearly states that its purpose is to provide for the duty-free entry of repair parts, accessories and equipment of temporarily admitted containers thereby bringing United States treatment into conformity with the Customs Convention on Containers, 1972. This amendment had no effect on the use of vehicles in international traffic.

In regard to the regulations promulgated pursuant to 19 U.S.C. 1322, we note that Treasury Decision (T.D. 83-118), published in the Federal Register on May 25, 1983 (48 FR 23384) amended 19 CFR 123.12(a)(2) to provide that foreign railroad equipment other than locomotives may be used on an outward trip in such trains or for such local traffic as is reasonably incidental to its economical and prompt departure for a (any) foreign country. The "outward" trip, then, would no longer refer exclusively to a return trip to the country in which the railroad equipment began its run. The equipment might return, or it might proceed to another foreign country.

The purpose of the amendments to 19 CFR 123.12 set forth in T.D. 83-118 was to allow a three country movement (Canada-U.S.- Mexico, or reverse) of foreign locomotives and railroad equipment in international traffic, and thus not subject those locomotives or that equipment to formal entry or duty. A conforming amendment to 19 CFR 123.14(c)(2) cross-referencing 19 CFR 123.12(a)(2) was also contained in T.D. 83-118. This conforming amendment changed the wording of the local traffic exemption for a foreign-based truck trailer from "...on the return trip to the country from which it entered the United States..." to "...on its departure for a foreign country..." Notwithstanding the three country movement above, the substance of the regulation, as counsel suggests, remains essentially the same.

In regard to the one page summary of the applicable regulations provided by Customs personnel at the Sault Ste. Marie port of entry, we note the following. Although 19 CFR 123.14(c)(2) is not cited specifically, the first sentence of the second paragraph is all inclusive in providing that, "In this case, the exemptions from entry are found in 19 CFR 123.14-16." In addition, the second sentence of the last paragraph provides, in pertinent part, that "...a foreign-based vehicle engaged in regularly scheduled service may haul point-to-point under certain circumstances." Accordingly, notwithstanding the last sentence of the one page summary, Customs position has been, and will continue to be, that point-to-point traffic by foreign-based vehicles is lawful provided the provisions of 19 CFR 123.14(c)(1) and/or (2) are met.

Upon reviewing the two examples set forth for our consideration, we note that although counsel requests a ruling as to the applicability of 19 CFR 123.14(c)(2) which, as stated above, applies only to trailers and not to tractor-trailer units, the examples refer to a "carrier." Assuming, arguendo, that only the trailers involved are Canadian-based (i.e., they will be hauled by U.S.-based tractors), we hold as follows.

As stated above, 19 CFR 123.14(c)(2) regarding local traffic permitted a foreign-based trailer references 19 CFR 123.12(a)(2) pertaining to local traffic permitted 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." Aside from the three country movement which, as discussed above, was the genesis of T.D. 83- 118 and is not applicable to the two examples under consider- ation, Customs has interpreted this phrase 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. The local traffic in the first example (Memphis - Gary, Indiana) diverts from the inbound route to such an extent that it cannot be said to be over a route which the equipment would otherwise travel empty. The same rationale applies regarding the local traffic in the second example (Winston-Salem, North Carolina - Detroit). Accordingly, the use of Canadian- based truck trailers in the two examples under consideration would constitute a use in local traffic in violation of 19 CFR

We note that in the event the Canadian-based trailers in question are not hauled by U.S.-based tractors but by Canadian- based tractors, such units, as discussed above, would be considered trucks for purposes of 19 CFR 123.14. As such, the local traffic in question would be in violation of 19 CFR 123.14(c)(1) in view of the fact that there is no evidence of a regular schedule, nor do the respective domestic movements involved (Memphis - Gary and Winston-Salem - Detroit) follow the corresponding same basic routes as the merchandise moving in international traffic (Sault Ste. Marie, Ontario - Memphis, and Sault Ste. Marie, Ontario - Newton, North Carolina).

HOLDING:

The movements of Canadian vehicles in the United States as described above constitute local traffic in violation of 19 CFR

Sincerely,

B. James Fritz

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