HQ 225445 - Internal advice request concerning liability of bond principal to ensure exportation of merchandise purchased in duty- free shop; 19 CFR 113.63(g)(5); 19 CFR 113.62(a) and (b). - United States International Trade Commision Rulings

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HQ 225445

January 17, 1995

BON-2 CO:R:C:E 225445 TLS

CATEGORY: ENTRY

District Director
U.S. Customs Service
111 West Huron Street Rm. 603
Buffalo, New York 14202-2378

RE: Internal advice request concerning liability of bond principal to ensure exportation of merchandise purchased in duty- free shop; 19 CFR 113.63(g)(5); 19 CFR 113.62(a) and (b).

Dear Sir:

This office has received the above-referenced request for internal advice as provided for under Customs regulations. We have considered the request and have made the following decision.

FACTS:

You state that a duty-free store operator wishes to locate a store at an access road entrance leading to a bridge crossing into Canada. The only point at which a vehicle could exit from the access road is immediately before entering the bridge toll booth. The store operator proposes to take steps to ensure that merchandise purchased in its store will be exported across the bridge. You would like to add the following language to the bond terms:

The principal is responsible for monitoring the exportation of all bonded merchandise sold from their store. The principal is required to immediately report all instances of nonexportation of bonded merchandise to U.S. Customs. The principal is obligated to pay all taxes and duties due for goods not exported as required. The principal is liable for penalties and/or liquidated damages assessed by U.S. Customs for failure to assure exportation of bonded merchandise.

Pursuant to 19 CFR 113.14, you seek advice on whether the proposed language may be added to the bond terms.

ISSUE:

Whether Customs may amend the bond terms in this case to hold the duty-free store owner liable if there are no reasonable assurances made for exportation of the duty-free merchandise or the merchandise is in fact not exported at all.

LAW AND ANALYSIS:

Under 19 U.S.C. 1555(b)(3)(A), a duty-free enterprise must make reasonable assurances that the duty-free merchandise it sells will be exported. Generally, such merchandise must be delivered "only beyond the exit point." This includes land border situations. See 19 CFR 19.39(a). The "exit point" is defined as an area in close proximity to an actual exit for departing the Customs territory. 19 CFR 19.35(d). There must be no practical alternative to continuing on to a foreign country or returning to the Customs territory via a U.S. Customs inspection facility. Id. The district director has the final authority "as to what constitutes the exit point or reasonable assurance of exportation in a given situation..." Id.

Section 113.63, Customs Regulations (19 CFR 113.63), covers basic custodial bond conditions. Under 19 CFR 113.63(c)(5), Class 9 bonded warehouse operators are to provide reasonable assurances of exportation of merchandise withdrawn under the sales ticket procedure of [19 CFR 144.37(h)]. A duty-free store by definition is a Class 9 bonded warehouse. See 19 CFR 19.1(a)(9). Under 19 CFR 144.37(h), the sales ticket from the purchase of merchandise in a duty-free store may serve as a blanket permit for withdrawal. Under 19 CFR 113.63(g)(5), the principal of a custodial bond must agree to "pay any charges arising out of the principal's custodial operation." The language "any charges" would include the charges arising from the principal's failure to reasonably assure exportation of merchandise bought in its store.

Under 19 CFR 113.14, a district director may draft conditions covering a transaction under bond if the director believes there are no existing regulations applicable to that transaction. Your inquiry notes that you believe the more specific language you suggest regarding the bond principal's liability should be applied in this case. The language you have suggested would hold the principal liable for penalties and damages Customs would assess for failure to assure exportation of the duty-free store merchandise. Under 19 CFR 113.62(a) and (b), a bond principal (and the surety) agree to pay duties, taxes, and charges arising from instances where the bonded merchandise was released into the commerce of the United States. To the extent that the proposed language is consistent with the above-cited provisions, we do not believe the proposed language is necessary. This is especially true when considering the purpose of 19 CFR 113.14. The regulation provides for the drafting of additional bond conditions if current regulations are found to be inadequate. We find the above-cited regulations are directly applicable to and adequately address the proposed transaction.

HOLDING:

Customs regulations (19 CFR 113.62 and 19 CFR 113.63 in particular) are applicable to situation above, where the owner of a duty-free warehouse has proposed to locate the duty-free store directly across the street from a bridge access road leading out of the Customs territory. To the extent that the language you propose to add to the bond terms is consistent with the existing regulatory requirements, it need not be included in the bond terms. The amendment of the bond is not warranted.

Sincerely,

John Durant, Director

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