United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1993 HQ Rulings > HQ 0556734 - HQ 0557035 > HQ 0556751

Previous Ruling Next Ruling


HQ 556751


September 8, 1992

CLA-2-CO:R:C:S 556751 RAH

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.25

Mr. Steven W. Baker
Bellsey and Baker
100 California Street, Suite 670
San Francisco, California 94111

RE: Eligibility of merchandise for duty-free treatment under subheading 9801.00.25, HTSUS

Dear Mr. Baker:

This is in response to your letter of May 28, 1992, on behalf of Royal Robbins, Inc., regarding entry of returned merchandise.

FACTS:

Royal Robbins, Inc., imported various items of men's apparel, originating in Hong Kong, India, China and Malaysia. All the entries were properly duty paid and accompanied by valid visas or export certificates. On February 6, 1992, Royal Robbins pulled the goods in the subject entry from its domestic warehouses and put together a shipment "intended" for the Netherlands. You state that the merchandise would have been eligible for same condition drawback, but it was decided not to prepare such a filing due to the relatively small value and number of entries involved.

When the goods arrived in the Netherlands, they were refused entry due to the absence of textile visas covering merchandise from the original countries of production to the European Community. Without ever leaving the custody of the carrier, the goods were returned to San Francisco International Airport.

Upon return to the United States, Royal Robbins attempted to enter the merchandise under subheading 9801.00.2500, Harmonized Tariff Schedule of the United States (HTSUS), as previously imported articles reimported for the reason that such articles did not conform to sample or specification.

You contend that the circumstances surrounding this shipment meet the requirements for reimportation under subheading 9802.00.2500, HTSUS, because the failure to deliver the merchandise is a breach of an implied warranty of merchantability, which, in turn, is a failure to meet specifications.

You further argue that, under the Uniform Commercial Code and the United Nations Convention on Contracts for the International Sale of Goods, there is, in contracts not otherwise explicitly covering the issue, an implied warranty of merchantability for merchandise sold. You state that the ability to deliver merchandise within a particular country is clearly a requirement of merchantability (UCC Section 2-503; CISG Article 30).

Alternatively, you urge that the merchandise in question was never exported from the United States and, thus, no second entry is required.

In order to avoid a significant economic loss, you request that Customs permit the merchandise to return to the commerce of the United States without a requirement for additional visas or waivers. On August 5, 1992, you informed a member of my staff that Customs has issued an "Order to Transfer" the merchandise on August 23, 1992, which will result in its sale at a public auction.

ISSUE:

Whether merchandise shipped from the United States to the Netherlands where it was not allowed to enter that country for failure to produce textile visas is eligible for duty-free treatment under subheading 9801.00.25, HTSUS, as merchandise which does not conform to specification, upon its return to the United States.

LAW AND ANALYSIS:

Dutiable merchandise imported and afterwards exported, even though duty thereon may have been paid on the first importation, is liable to duty on every subsequent importation into the Customs territory of the United States, unless exempt by law. Section 141.2, Customs Regulations (19 CFR 141.2).

One such exemption is set out in subheading 9801.00.25, HTSUS, which provides for the duty-free entry of:

[a]rticles, previously imported, with respect to which the duty was paid upon such previous importation if (1) exported within three years after the date of such previous importation, (2) reimported without having - 3 -
been advanced in value or improved in condition by any process of manufacture or other means while abroad, (3) reimported for the reason that such articles do not conform to sample or specification, and (4) reimported by or for the account of the person who imported them into, and exported them from the United States.

Articles satisfying each of the above requirements are entitled to duty-free treatment, assuming compliance with the documentary requirements of section 10.8a, Customs Regulations (19 CFR 10.8a). This regulation contains the same criteria found in subheading 9801.00.25, HTSUS. The documents required are declarations by the person abroad who received and is returning the merchandise and by the owner or importer (or consignee or agent). Each declaration must include a description of the articles, and the latter declaration must set forth information relative to the original importation of the merchandise, such as port and date of importation, entry number, and name and address of the importer at the time the duty was paid. (19 CFR 10.8a(b)). However, the District Director may waive the documentary requirements upon satisfaction that the requirements of that subheading are met. 19 CFR 10.8a(c).

In order to qualify for duty-free treatment under subheading 9801.00.25, HTSUS, there must be some tangible evidence that the returned merchandise does not conform to "specification." The scope of that term, however, is not limited to physical specifications or sample comparison, but may also include failure to meet the terms of a contract. Evidence of failure to meet specification can be evidenced by the written contract, or if oral, by the declarations required under 19 CFR 10.8a(b). If the written contract in this case had expressly provided for the condition of appropriate quota/visa requirements for the subject textiles and it was returned for failure to meet this condition, we would consider this to be representative of "failure to meet specification" within the meaning of subheading 9801.00.25, HTSUS. However, the subject textile merchandise must be covered by the appropriate quota/visa or a waiver thereof from the Department of Commerce, upon re-entry into the United States for consumption.

Although we are not persuaded by your analogy of the drawback statute (19 U.S.C. 1313) to subheading 9801.00.25, HTSUS, we nevertheless note that in one of the drawback cases cited in your letter (T.D. 77-121) we held that section 313(c) of the Tariff Act, as amended, does not provide for an allowance of drawback due to unmerchantability or failure to comply with an implied warranty, because such evidence is not equivalent to proof of failure to conform to specifications.

Accordingly, we find that failure to deliver goods based on an implied warranty of merchantability is a not a failure to conform to sample or specification for purposes of subheading 9801.00.25, HTSUS. That subheading was intended for situations in which merchandise was exported and rejected because it was not satisfactory to the person to whom it was shipped. Such intention is evidenced by a report of the Senate Finance Committee dated December 16, 1970 (S. Report No. 91-1467, 91st Sess, 2nd Sess. (1970) reprinted in U.S. CODE CONG. & AD. NEWS 7517, which provides in part:

The committee was informed that in at least one instance a shipment of articles was imported and the normal duty was paid. Thereafter the articles were sold and exported to a customer in a foreign country, who subsequently rejected them for the reason that they did not conform to specification. Upon return to the United States, the articles were again subject to duty under U.S. tariff law. The committee is of the opinion that the laws should be changed, as proposed in H.R. 9138, to prevent a recurrence of double liability for duty in imported article under similar circumstances.

We also disagree with your argument that the merchandise in question was never exported from the United States, and that no second entry is therefore required. An exportation means a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country. 19 CFR 101.1(k).

The courts have held that the intention of the parties at the time of shipment is the controlling factor in determining whether or not there has been an exportation. F.W. Myers & Co. v. United States, C.D. 1468 (1952) and cases cited therein. In that case, miniature toy animals of Japanese origin were shipped to Canada, where Canadian officials refused to permit entry of the merchandise due to the fact that under Canadian law and regulations this was prohibited merchandise. When the goods were returned to the United States a duty was assessed on them. The plaintiff argued that since the goods had been refused entry into Canada by the Canadian government, they had never been exported from the United States and therefore, their physical return from Canada did not constitute an importation. The court, however, held that at the time of shipment there was an intention to export, that the shipment constituted an exportation and the return of goods to this country was an importation, upon which the goods were dutiable.

Moreover, the courts have held that "...So long as an immediate bona fide purpose to seek a foreign market coincides with a bona fide act of shipment later changes in either the intent or destination have no effect upon the original character of the act as an exportation." Nassau Distributing Co. v. United States, C.D. 1459 (1952) citing United States v. The National Sugar Refining Co., 39 CCPA 96.

HOLDING:

Merchandise exported to a foreign country with the intention that it enter that country's market constitutes an exportation. Moreover, that country's refusal to enter the merchandise for failure to produce textile visas or to satisfy other government requirements is not a failure to meet sample or specification for purposes of subheading 9801.00.25, HTSUS, where such a condition is not specified in the contract. Accordingly, the merchandise is not eligible for duty-free treatment under subheading 9801.00.25, HTSUS, upon its return to the United States. In addition, the subject textile merchandise must be covered by the appropriate quota/visa or waiver thereof, upon re- entry for consumption into the United States.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling

See also: