HQ 0223828 - Internal advice request concerning exportations from a foreign trade zone to the Island of Guam; 19 U.S.C. 81c(a) - United States International Trade Commision Rulings

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HQ 223828

July 1, 1992

FOR-2-03 CO:R:C:E 223828 C

CATEGORY: ENTRY LIQUIDATION

Patricia Goldman, Regional Director
Regulatory Audit Division
U.S. Customs Service
Southeast Region
909 S.E. First Avenue
Miami, FL 33131-2595

RE: Internal advice request concerning exportations from a foreign trade zone to the Island of Guam; 19 U.S.C. 81c(a)

Dear Ms. Goldman:

This responds to the internal advice request submitted to our office by the Branch Manager, Regulatory Audit Division, Atlanta Branch, concerning the referenced subject (FOR-2-O:R:DLB; 431-92-FT1-001; dated March 9, 1992). We have reviewed the file and our response follows.

FACTS:

The facts as we understand them are as follows: Yamaha Motor Manufacturing Corporation of America (YMMCA) imports merchandise into the United States for admission into a foreign trade zone (FTZ) where such merchandise is used in the manufacture of golf carts. The golf carts are then shipped to the Island of Guam after withdrawal from the FTZ under transportation and exportation entries. Customs has determined that appropriate duties should be assessed against the golf carts since the merchandise is not "exported" as required under the foreign trade zones law, 19 U.S.C. 81c(a). YMMCA asserts that duties can be applied only upon admission of the golf carts into the Customs territory; since Guam is not part of the Customs territory, the Customs laws do not apply to the golf carts.

ISSUE:

Are duties properly applicable to merchandise manufactured in a foreign trade zone when that merchandise is withdrawn from the zone under transportation and exportation entries for shipment to the Island of Guam?
LAW AND ANALYSIS:

The law pertaining to foreign trade zones, 19 U.S.C. 81c-u, provides for the duty-free admission into a FTZ of merchandise of every description for the various purposes set forth in section 81c(a), including storage, manufacturing, and manipulation. This merchandise, according to section 81c(a), must then be exported, destroyed, or sent into the Customs territory. Upon destruction or exportation to a foreign country, duties need not be paid. Upon entry into the Customs territory, duties must be paid.

It is well established that the Island of Guam is an insular possession of the United States and not a foreign country. For purposes of the drawback law and the tariff provision pertaining to temporary importation under bond, shipments from the United States to Guam are not exportations to a foreign country. (See Customs Service Decision (C.S.D.)79-77, 13 Cust. Bull. 1114.) (See also Rothschild & Co. v. United States, 16 Ct. Cust. App. 442 (1929) and Mitsubishi International Corp. v. United States, 55 Cust. Ct. 319, C.D. 2597 (1965); yet, see C.S.D. 82-48 for applicability of drawback to merchandise imported into the United States, duty paid, from an insular possession and then exported back to that insular possession under drawback conditions. 16 Cust. Bull. 762.) Because shipments to Guam from the United States are not considered exportations to a foreign country, we conclude that the shipment of golf carts from a FTZ to Guam is not an exportation to a foreign country sufficient to meet the exportation requirement of the statute, 19 U.S.C. 81c(a).

YMMCA asserts that since the merchandise is not entered into the customs territory, it is not subject to the Customs laws, including those pertaining to the application of duty. However, the Rothschild case is illuminating on this point. There, an importer made the same claim with respect to the exportation of merchandise from a customs bonded warehouse. Under 19 U.S.C. 1557, as then constituted (1929), merchandise admitted into a bonded warehouse could be exported to a foreign country without the payment of duty. Merchandise was withdrawn from the warehouse for shipment to Guam and Customs assessed duties against it on the grounds that shipments to Guam are not exportations to a foreign country. Since the exportation requirement of the statute had not been met, duties were applicable. The United States Court of Customs Appeals agreed with Customs position and the assessment of duty was upheld. Subsequently, 19 U.S.C. 1557 was amended by Congress to explicitly permit fulfillment of the exportation requirement upon exportations to Guam.

The foreign trade zones law does not provide for fulfillment of the exportation requirement upon exportations to Guam or any other insular possession or territory of the United States. Any such provision will have to be provided upon amendment of the statute, as was done with 19 U.S.C. 1557. In the absence of such an amendment, Customs position is that the exportation requirement of 19 U.S.C. 81c(a) can be met only upon exportation to a foreign country. This comports with the definition of "exportation" in the Customs regulations (19 C.F.R. 101.1(k).) Since Guam is not a foreign country, shipments to Guam from a FTZ are not exportations within the contemplation of 19 U.S.C. 81c(a). Thus, such exportations do not fulfill the requirement of the statute. Consequently, as in the Rothschild case, duty assessment by Customs is proper.

Further, liability for duty arises upon importation (19 C.F.R. 141.1). An importation is the arrival of goods at a United States port from a foreign port or place with the intent then and there to unlade them. United States v. Estate of Boshell, 14 Ct. Cust. App. 273, T.D. 41884 (1922); Porto Rico Brokerage Co. v. United States, 76 F. 2d 605, 23 CCPA 16 (1935); East Asiatic Co., Inc. v. United States, 27 CCPA 364 (1940); Sherwin-Williams Co. v. United States, 38 CCPA 13 (1950); United States v. John V. Carr & Sons, 266 F. Supp. 175, aff'd 396 F. 2d 1017, 55 CCPA 111 (1967). Merchandise admitted into a foreign trade zone has been imported. The contention that duty cannot be imposed on goods admitted into a FTZ because a FTZ is considered to be outside the customs territory was rejected as an overbroad reading of the foreign trade zones statute. Nissan Motor Manufacturing Corp. U.S.A. v. United States, 7 Fed. Cir. (T) 143, 146 (1989). The Nissan court characterized the merchandise there involved as imported merchandise. Id. at 143, 146-47. There is no dispute that duty on imported goods entered into a FTZ can be avoided upon compliance with the statute. However, YMMCA's argument is that once admitted into a zone, merchandise can be removed without regard to the express provisions of the statute and still not be dutiable. The Nissan court's reasoning (at pages 146-47) with respect to compliance with the express language of the statute concerning the admission of goods into a zone is equally applicable to zone withdrawals. That is, the duty exemption does not apply unless there is strict compliance. Since the statute requires destruction or exportation for duty- free treatment, a shipment to Guam that is not an "exportation" does not fulfill the requirement.

HOLDING:

Merchandise admitted duty-free into a FTZ and there manufactured into other articles is dutiable upon withdrawal from the zone when such articles are shipped to Guam or other insular possessions. Shipments to Guam from a foreign trade zone do not meet the exportation requirement of 19 U.S.C. 81c(a). Guam is not a foreign country for purposes of exportation under the statute.
If you have any further questions, please contact this office.

Sincerely,

John Durant, Director

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