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HQ 224067


January 4, 1993

DRA-4 CO:R:C:E 224067 TLS

CATEGORY: ENTRY

Mr. Matthew Chang
C. Itoh & Co. (America) Inc.
335 Madison Avenue
New York, New York 10017

RE: Drawback eligibility of merchandise designated as "instruments of international traffic" (IIT); 19 U.S.C. 1313(j)(2); 19 CFR 191.141(h); 19 CFR 10.41a; C.S.D. 81-222.

Dear Mr. Chang:

We have received your request for a ruling on the above- referenced matter. The issues raised in your letter dated July 10, 1992 have been considered and our decision follows.

FACTS:

The importer is a manufacturer of textile yarns. These yarns are imported to U.S. purchasers of the yarns on aluminum bobbins. The yarns are wound around the bobbins and removed by the purchaser upon receipt. The bobbins are then exported back to the importer, who retains ownership of them.

A recent Customs headquarters ruling held that the bobbins are properly designated as instruments of international traffic (IIT). Customs ruling HQ 110408 (October 6, 1989). The importer contends that a Customs port erroneously required it to pay duty on the bobbins and not accord them IIT status. The transaction in question is said to have occurred in July 1988, before the 1989 ruling was issued.

The importer seeks a ruling that will find the bobbins which are entered as dutiable merchandise to be eligible for drawback.

ISSUE:

Whether the bobbins are eligible for substitution same condition drawback treatment when entered as dutiable merchandise.

LAW AND ANALYSIS:

Merchandise eligible for IIT designation must meet the following tests: 1) it must be used as a container or holder of merchandise moving in the foreign trade of the United States; 2) the article must substantial, suitable for, and capable of reuse; and 3) it must be used in significant numbers in international traffic. Customs ruling HQ 104766 (August 22, 1988). The subject merchandise has been designated as such, as noted above. HQ 110408, supra.

Customs regulations require that IIT merchandise not be used in point to point local traffic in the United States subsequent to its importation. 19 CFR 10.41a. If such is the case, then the importer must file a Customs consumption entry and pay duties on the merchandise. The alternative to filing entry is to post a bond on the merchandise. Under bond, if the merchandise is diverted to local traffic, then the bond is breached and the importer is liable under the terms of the bond. 19 CFR 10.41a(c).

In the present case, the importer has been informed by New York Customs that the bobbins are not eligible for drawback. If the bobbins are imported as IIT merchandise, they are by definition a container or holder (container in this case). HQ 110408. It is correctly noted that a Customs Service Decision has ruled that containers are not eligible. C.S.D. 81-222 (May 27, 1981). It is further contended, however, that the decision applies only to containers that are imported empty and then filled in this country (the bobbins are full when imported and then emptied in this country). That reading of 81-222 is incorrect.

C.S.D. 81-222 reasoned that as containers, these types of merchandise are being put to use for their intended purpose. Whether or not they are full or empty when imported is irrelevant to that determination. The statute governing drawback clearly requires that merchandise eligible for drawback not be used before exportation. 19 U.S.C. 1313(j). Thus, to the extent that the subject merchandise has been used as containers, it is not eligible for drawback. This finding is valid even in instances when the containers were originally imported as IIT merchandise, subsequently used in domestic commerce, and consequently entered and had duties paid on them. In such cases, the use of the containers would also render them ineligible for drawback. 19 U.S.C. 1313(j).

HOLDING:

The subject IIT merchandise is not eligible for drawback under 19 U.S.C. 1313(j) as containers. Subsequent use of the IIT
containers would also render them ineligible for drawback under Customs laws and regulations.

Sincerely,

John Durant, Director

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