HQ 224683 - 19 U.S.C. 1313(j)(2); same condition substitution drawback; possession of merchandise; bailment; CSD 85-52; Maulding v. U.S. Dear Sir: - United States International Trade Commision Rulings

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HQ 224683

December 6, 1993

DRA-4-CO:R:C:E 224683 SR

CATEGORY: DRAWBACK

Deputy Regional Director
Commercial Operations Division
U.S. Customs Service
300 N. Los Angeles, California 90012

RE: 19 U.S.C. 1313(j)(2); same condition substitution drawback; possession of merchandise; bailment; CSD 85-52; Maulding v. U.S. Dear Sir:

This request for internal advice was initiated by a letter dated April 26, 1993, from the Deputy Regional Director of the Commercial Operations Division of the Pacific Region of Customs.

FACTS:

Clarendon Ltd. imports copper cathodes for which they pay the duty. These imported copper cathodes are sold domestically. Clarendon also purchases fungible copper; cathodes from Magma Copper Co., a domestic copper producer located in San Manuel, Arizona. (A company called Philipp Brothers, Inc., went out of business and assigned its rights to Clarendon Ltd. to purchase copper cathodes from Magma Copper Company.) Clarendon instructs Magma Copper to ship the copper cathodes to Western Sunset International in Dominguez, California, a container stuffing station where they are loaded into containers for ocean shipment to foreign purchasers. The inland bills of lading provided show that more copper is shipped than is to be exported. It is common practice for Clarendon to ship copper for domestic use and for exportation together to reduce shipping costs.

Clarendon states that once Magma Copper has received payment Clarendon issues instructions for Magma to ship the copper cathodes. In order to expedite the shipments the shipping orders are generally given orally and are then confirmed by letter which may be dated after goods have been shipped. The railway bills of lading show that the goods are consigned to Clarendon in care of Western Sunset International. Western Sunset International is paid by Clarendon to load the containers and prepare the export documentation according to Clarendon's instructions. Clarendon is the exporter of record on the ocean bills of lading and export declarations.

ISSUE:

Whether Clarendon had possession of the products as required by 19 U.S.C. 1313(j)(2).

LAW AND ANALYSIS:

Same condition substitution drawback is provided for under 19 U.S.C. 1313(j)(2). Under this provision a drawback claimant must show that the exported merchandise:

1. is fungible with the imported merchandise;

2. was not used in the United States during the three years prior to exportation, beginning with the date the imported merchandise was imported;

3. is in the same condition at the time of exportation as was the imported merchandise at the time of importation; and

4. was in the possession of the claimant during the period between the relevant importation and exportation.

It was found in C.S.D. 85-52 that ownership of a commodity is not necessarily possession of that commodity for purposes of the same condition substitution drawback law. "Possession . . . means complete control over the articles or merchandise on premises or locations where the possessor can put the articles or merchandise to any use chosen. It does not mean that by trading commercial paper, e.g., purchase orders or bills of lading, between brokers or others in a commodity while that commodity winds its way across america by train or truck, possession is somehow created. Transactions made in order to create a climate for drawback will not support drawback."

C.S.D. 85-52 further states: "To hold that for purposes of same condition drawback arbitragers and futures dealers in commodities have 'possession' of these commodities because of the purchase of commercial paper and temporary storage in leased bins or tanks, would not further the intent of Congress or the fundamental purpose of the drawback law."

The drawback claimant is not required to have physical possession if the merchandise is stored in bailment. Bailment, in its ordinary legal signification, imports the delivery of personal property by one person to another in trust for a specific purpose, with a contract, express or implied, that the
trust shall be faithfully executed, and the property returned or duly accounted for when the specific purpose is accomplished, or kept until the bailor reclaims it. 8 Am. Jur. Bailment section 2 (1980).

The relationship of bailor-bailee arises when the owner, while retaining general title, delivers personal property to another for some particular purpose on an express or implied contract to redeliver the goods when the purpose has been fulfilled, or otherwise deal with the goods according to the bailor's directions. Maulding v. U.S., (CA9 Alaska) 257 F. 2d 56.

In this case Clarendon becomes the owner and bailor when the copper cathode is purchased from Magma. Magma, acting as bailee, ships the copper cathode to the container stuffing station under instructions from Clarendon. On all documents after the purchase Clarendon is named as the owner of the merchandise. Clarendon pays all costs involved after the purchase. These facts show that Clarendon does have possession of the merchandise before exportation. When Magma ships the copper cathode to the container station it is merely acting as the bailee.

HOLDING:

Clarendon does have possession of the copper cathode for purposes of same condition substitution drawback under 19 U.S.C.

Sincerely,

John Durant, Director

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