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HQ 113222

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October 2, 1994

VES-5-CO:R:IT:C 113222 GEV

CATEGORY: CARRIER

Ronald W. Gerdes, Esq.
Sandler, Travis & Rosenberg, P.A.
1341 G Street, N.W.
Washington, D.C. 20005-3105

RE: Harbor Maintenance Fee; In-bond transit; Exportation; 26 U.S.C. ?? 4461, 4462

Dear Mr. Gerdes:

This is in response to your letter dated September 23, 1993, on behalf of your client, Philips Consumer Electronics Company ("Philips") of Greeneville, Tennessee, requesting reconsideration of ruling no. 112822, dated September 20, 1993, regarding the applicability of the Harbor Maintenance Fee (HMF) to certain shipments of cargo.

FACTS:

Philips has contracted with American President Lines ("APL") and Neptune Orient Lines ("NOL") to ship merchandise from the Far East to Juarez, Mexico, the site of one of Philip's manufacturing facilities. The cargo arrives by vessel at Los Angeles where it is unladen and reshipped by rail to El Paso on a Transportation and Exportation Bond (T&E) filed on behalf of, and in the name of, the steamship line. The cargo is then trucked to Juarez. The entire transaction, from the Far East to Juarez, will be on the same bill of lading. After a shipment arrives in Juarez it is broken down with some of it remaining in Mexico, some sold to third countries and some returning to the United States. The cargo returning to the United States is shipped by truck on a new bill of lading, without clearing Mexican customs, for distribution to various locations within the United States.

In response to counsel's ruling request dated July 22, 1993, Customs issued ruling no. 112822, dated September 20, 1993, which held that cargo returning to the United States as described above was not exempt from the payment of the HMF pursuant to 26 U.S.C. that Customs reconsider the ruling in light of additional  - 2 -
information not included in the original ruling request. In addition, counsel requested a meeting with Customs officials to further discuss the matter. Customs agreed to both requests.

In a letter dated October 27, 1993, the additional information referenced above was submitted to Customs and included copies of the shipping contracts between Philips and the steamship lines involved (i.e., APL and NOL) and paperwork filed with Mexican Customs. A meeting to discuss this matter was held at Customs Office of Regulations & Rulings on December 2, 1993 at which time counsel was given an opportunity to submit further evidence in support of Philips' position. To that end, by letter dated July 13, 1994, counsel submitted a copy of a representative sample of an APL bill of lading annotated with the master T&E number, a sample of a separate paper T&E filed by NOL for each bill of lading, and a copy of a relevant page from the vessel manifest.

ISSUE:

Whether cargo that is shown to be destined for the United States on the importer's purchase documents and that is shipped from Los Angeles through Mexico to the importer in the United States is entitled to the exemption from the HMF provided by 26 U.S.C. ? 4462(d)(1).

LAW AND ANALYSIS:

The HMF, codified at 26 U.S.C. ?? 4461, 4462, provides Federal funding for the maintenance of any channel or harbor in the United States which is not an inland waterway and is open to public navigation. The Customs Regulations promulgated pursuant to the aforementioned statutory authority are set forth in 19 CFR

Specifically, 26 U.S.C. ?? 4461(a) and (b), as amended by 101-508), provide for the assessment of a tax (i.e., HMF) on any port use in an amount equal to 0.125 percent of the value of the commercial cargo involved. "Port use" for purposes of assessing the HMF is defined as either the loading of commercial cargo on, or the unloading of commercial cargo from, a commercial port subject to the HMF. (26 U.S.C. ? 4462((a)(1)(A)(B))

Certain cargoes are exempted from the application of the HMF. Specifically, 26 U.S.C. ? 4462(d)(1) provides, in pertinent part, that:

"...the tax imposed by section 4461(a) shall not apply to bonded commercial cargo entering the United States for transportation and direct exportation to a foreign country." (emphasis added)

It is further provided in 26 U.S.C. ? 4462(d)(2) that the exemption set forth in ? 4462(d)(1) applies unless, with respect to cargo exported to Mexico: (1) The Secretary of the Treasury determines that Mexico has imposed a substantially equivalent port use fee on commercial vessels or commercial cargo using Mexican ports; or (2) a study made pursuant to Pub. L. 99-662 finds the fee is not likely to cause significant economic loss to a U.S. port or diversion of a significant amount of cargo to a port in a contiguous country.

In ruling no. 112822 we noted that although the shipments under consideration enter the United States at Los Angeles for bonded transportation to Mexico, they are subsequently trucked back to the United States pursuant to the express original intention of the importer when it purchased the articles. Consequently, it was Customs position that the return of this cargo to the United States renders its movement other than an "exportation" which is defined in 19 CFR ? 101.1(k) as meaning:

"...a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belong to some foreign country.
The shipment of merchandise abroad with the intention of returning it to the
United States...is not an exportation."

Accordingly, we held that since the returning cargo does not constitute an exportation from the United States as defined above, it would not be entitled to the exemption from payment of the HMF set forth in 26 U.S.C. ? 4462(d)(1). Furthermore, we stated that while it is correct that the trucking of the cargo in question from Mexico back to the United States does not con- stitute "port use" as defined in the HMF statute (26 U.S.C. of the HMF when the cargo in question was unloaded at the port of Los Angeles, a port subject to the HMF (see 19 CFR

Upon reviewing the supplemental information submitted and discussed at length in the two meetings subsequent to our issuing ruling no. 112822, we are of the opinion that our decision in that ruling that the HMF is applicable to the cargo returning to the United States is correct. Accordingly, our holding in ruling no. 112822 is affirmed.

HOLDING:

Cargo that is shown to be destined for the United States on the importer's purchase documents and that is shipped from Los Angeles through Mexico to the importer in the United States is not entitled to the exemption from the HMF provided by 26 U.S.C.

Sincerely

Stuart P. Seidel
Director, International Trade
Compliance Division

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