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HQ 558673




December 14, 1994

CLA-2 CO:R:C:S 558673 DLD

CATEGORY: CLASSIFICATION

District Director of Customs
33 New Montgomery Street
San Franciso, California 94105

RE: Decision on Application for Further Review of Protest No. 2809-94-100266.

Dear Sir:

This protest was filed against your decision in the liquidation as dutiable of an electron microscope imported by Stanford University.

FACTS:

Stanford University purchased a transmission electron microscope from Philips Electronic Instruments, Inc. in Holland on December 22, 1992. On June 3, 1993, Dr. Ann F. Marshall of Stanford applied to Customs Headquarters for duty-free entry under subheading 9810.00.60 of the Harmonized Tariff Schedule of the United States (HTSUS).

On June 24, 1993, Customs asked Stanford whether there would be any use of the microscope "by, or for the benefit of, any commercial entity." Dr. Marshall responded on August 31, 1993, in part: "As is usual in the university research environment, there may be collaborative research with industry." On September 17, 1993, M.R. Beasley, Director of the Stanford Center for Materials Research (CMR), wrote to Customs that CMR's "faculty and staff do on occasion carry out collaborative research with their scientific counterparts in industry." On the basis of these statements, the application was denied on November 2, 1993, on the grounds that it did not satisfy subsection 301.4(a)(3) of the joint regulations of the Department of Commerce and the Department of the Treasury (15 CFR 301.4(a)(3)). This subsection, one of three which is the responsibility of Customs, does not allow "commercial use" of the instrument of the application.

Accordingly, the entry pertaining to the importation (San Francisco entry no. 131-0677224-0) was liquidated as dutiable by the San Francisco District on March 18, 1994. A protest was filed with the San Francisco District Director with a request for further review of the protest. This is the response of Customs Headquarters to the request for further review.

ISSUE:

Does an electron microscope imported by Stanford University qualify for duty-free entry as a scientific instrument or apparatus under subheading 9810.00.60, HTSUS?

LAW AND ANALYSIS:

The protest (page 1) states that "Stanford University is a' nonprofit educational and research institution." This is one of the requirements for duty-free entry under the regulations (15 CFR 301.4(a)(1)). Customs main responsibility is for three subsections of the governing regulations: 15 CFR 301.4(a)(1),(2} and (3). We will stipulate that Stanford satisfies two of these three, namely, 15 CFR 301.4(a)(1) and 15 CFR 301.4(a)(2). However, 15 CFR 301.4(a)(3) states in part that all three must be satisfied in order for the application to be approved: "If any of the Commissioner's determinations [i.e., 15 CFR 301.4(a)(1),(2) or (3)] is in the negative, the application shall be found to be outside the scope of the Act and shall be returned to the applicant with a statement of the reason(s) for such findings." It is Customs position that the Stanford application fails to qualify with respect to 15 CFR 301.4(a)(3) and thus cannot be approved for duty-free treatment.

Inasmuch as Stanford's main argument in the protest is that Customs has misinterpreted or misapplied subsection 15 CFR 301.4(a)(3) of the regulations, which pertains to commercial purposes, we here reproduce that subsection in its entirety:

[The Commissioner of Customs shall determine]: (3) Whether the instrument which is the subject of the application is intended for the exclusive use of the applicant institution and is not intended to be used for commercial purposes. For the purposes of this section, commercial uses would include, but not necessarily be limited to: Distribution or sale of the instrument by the applicant institution; any use by, or for the primary benefit of, a commercial entity; or use of the instrument for demonstration purposes in return for a fee or other valuable consideration. In making the above determination, the Commissioner may consider, among other things, whether the results of any research to be performed with the instrument will be fully and timely made available to the public. For the purposes of this section, use of an instrument for the treatment of patients is considered noncommercial.

If any of the Commissioner's determinations is in the negative, the application shall be found to be outside the scope of the Act and shall be returned to the applicant with a statement of the reason(s) for such findings.

The Customs letter of November 2, 1993, denying duty-free entry to Stanford contained this sentence: "For the purposes of this section of the regulations, commercial uses would include any use by, or for the benefit of, any commercial entity." Stanford objects that the exact wording in subsection 15 CFR 301.4(a)(3) is: "any use by, or for the primary benefit of, a commercial entity .... "[emphasis added]. The sentence in the Customs denial letter did not purport to be a direct quotation from the regulations. Nevertheless, Stanford correctly points out that the sentence in the denial letter differs from the wording of 15 CFR 301.4(a)(3) by dropping "primary" and substituting "any" for "a" before "commercial entity". However, the sentence quoted by Stanford is not the wording of the regulation itself, but rather, it is the wording of an example of "commercial use" provided in the regulation. The correct reading is: "For the purposes of this section, commercial uses would include, but not necessarily be limited to ... any use by, or for the primary benefit of, a commercial entity... " That is, any use, by, or for the primary benefit of, a commercial entity is a commercial use.

However, the example of a "commercial use" does not logically prevent a lesser amount of use, or indeed any use at all for the benefit of a commercial entry from being considered commercial use for the purposes of subheading 9810.00.60, HTSUS (See Headquarters Ruling Letter ("HRL") 733208, May 3, 1990). In HRL 044875 of April 1, 1976, we stated that "we do not necessarily look to what percentage of the instrument's use has been allocated to commercial transactions. Any commercial use constitutes a violation..., if a significant benefit inures to a nonqualified institution." Another part of the regulations (15 CFR 301.9(b)) states: "Whenever the circumstances warrant, and occasionally in any event, the fact of continued use for 5 years for noncommercial purposes by the applicant institution shall be verified by Customs." Note that there is no qualification here of the restriction on commercial purposes.

The Stanford protest continues by arguing that, either there is no collaborative use of the instrument with industry by Stanford, or alternatively, even if there is, it should not cause the denial of the duty-free application. We herewith examine each of Stanford's arguments and provide Customs rebuttal.

The protest (page 4) argues that Stanford policy severely limits unrelated business activities. The University's "Policy On Unrelated Business Income Activities" was included with the protest and states that permission to engage in unrelated business activities at Stanford may be granted only by the Provost. This is irrelevant to the issue of commercial use. Customs maintains that the research in question is not unrelated but related to the research interests of both Stanford and their for-profit collaborators.

The letter of February 1, 1994, from Stanford Senior University Counsel Jasper Williams states that "[t]he Departments [i.e., Commerce and Treasury/Customs] apparently believe that planned collaborative research with industry is a problem under the regulation . . . Stanford does not believe that the Departments would want to disallow duty-free entry because Stanford plans to do collaborative research with industry--as encouraged by the US government..."

First, this is an admission that Stanford does plan to have collaborative research with industry utilizing the microscope. Second, although there has been encouragement of cooperation between industry and the universities, Customs is bound by the governing regulations. These reflect a statute, which in turn is based on a reciprocal multinational agreement, the "Agreement on the Importation of Educational, Scientific and Cultural Materials." Customs (and Commerce) must process the applications for duty-free entry according to the prescribed regulations and cannot approve applications on any other basis. Although it may be true that in the universities "[s]cientific collaboration is a way of life .... "(protest, page 4), this does not require Customs to act other than according to regulation.

On page 3 of the protest, it is stated: "In some instances, faculty or staff collaborate with scientists outside Stanford University; however, only Stanford faculty, staff or graduate students use the facilities." Here again is an admission of collaboration. The other point, however, that only Stanford personnel use the facilities is irrelevant. The application was denied, not because of use or anticipated use by commercial entities, but use for the benefit of commercial entities through collaboration in research.

Also on page 3 of the protest is the statement that -"[r]esults of basic research efforts are published." This is indeed something to be taken into account in connection with determining commercial use under 15 CFR 301.4(a)(3)), which states that, in making the determination, "[t]he Commissioner [of Customs] may consider, among other things, whether the results of any research to be performed with the instrument will be fully and timely made available to the public." Note that this does not say that the availability of research results determines that the applicant is eligible under the commercial use criterion (15 CFR 301.4(a)(3)), but only that Customs "may consider" this factor. All facts submitted with, and in connection with, the Stanford application were taken into consideration when the determination on eligibility was made.

HRL 557768 of May 11, 1994, expresses Customs interpretation of 15 CFR 301.4(a)(3) with regard to commercial purposes, publication of research results and collaboration:

It is apparent that it was intended that the Commissioner have the discretion to modify either the exclusive use requirement or the prohibition on commercial use or both, if the research results will be "fully and timely made available to the public." Customs consistent policy in this regard is that the use or collaborative use of an instrument imported duty-free may be extended to entities other than the applicant institution if and only if these entities would be themselves eligible institutions under 15 CFR 301.4(a)(1). That is to say, they must also be nonprofit private or public institutions established for research and educational purposes. In practice, this means that Federal and State research agencies, colleges and universities may use the instrument for purposes of education or pure scientific research if the results will be available to the public (See 15 CFR 301.1 (b) (2)) .

Thus, the use by, or the intention to allow use by, a commercial entity (such as General Motors Corporation, as in your example) would constitute grounds for denial of an application for duty-free entry under subheading 9810.00.60, HTSUS, pursuant to 15 CFR 301.4(a)(3). Similarly, the use by, or collaborative use by, a commercial entity within the five year period after duty-free entry will require the institution for which such instrument was entered to promptly notify the Customs officials at the Port and make payment of the duty which would have been due at the time of entry (15 CFR 301.9(c)).

The protest (page 6) states that there is no evidence produced (or able to be produced) by Customs to support a finding of commercial use. On the contrary, in addition to the statements of Stanford officials already presented, one need look no further than the material submitted with the protest to find evidence of collaboration with industry. Protestant states on page 6 that "[e]nclosed with this Protest, for review, is a copy of the Thirty-Second Annual Report on Materials Research at Stanford University. The Report compiles a summary of materials research work conducted during calendar year 1992. The report for calendar year 1993 is [still] being compiled..."

The research on superconducting material being conducted by the applicant, Dr. Ann F. Marshall, is described on pages 38 and 39 of the 1992 Report. Following her name as Senior Research Scientist on the project, her "Professional Associate" is listed: one C.B. Eom of AT&T (American Telephone and Telegraph), a for-profit company. AT&T also supplies c-axis YBCO thin films used in the Superconducting Materials Thrust research group (1992 Report, page 23), of which Dr. Marshall is a member (1992 Report, page 22). These c-axis YBCO thin films are also supplied by Hewlett-Packard, another for-profit company (1992 Report, page 23).

Stanford has the right to collaborate with industry or otherwise to conduct research in any way it wishes. However, if, as determined by Customs, the instrument of the duty-free application is intended to be used or is used, for commercial purposes within the meaning of 15 CFR 301.4(a)(3), within 5 years after entry, then the instrument is not eligible for duty-free treatment under subheading 9810.00.60, HTSUS.

As to the question of classification, the importation was erroneously liquidated under subheading 9012.90.00, HTSUS, as parts and accessories of microscopes other than optical microscopes. The proper classification is subheading 9012.10.00, HTSUS, microscopes other than optical microscopes.

HOLDING:

The protest is denied in part. The electron microscope is affirmed to be ineligible for duty-free treatment under subheading 9810.00.60, HTSUS, because it does not satisfy subsection 15 CFR 301.4(a)(3), inasmuch as there is commercial use of the microscope as shown by collaboration with industry in research utilizing the microscope. However, we agree with the protestant's item (2) that the electron microscope is properly classified under the alternative classification 9012.10.00, HTSUS, inasmuch as duty-free entry is denied under subheading 9810.00.60, HTSUS.

In accordance with Section 3A(ll)b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, a copy of this decision should be attached to the Customs Form 19 and mailed by your office to the protestant as part of the notice of action on the protest no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Ruling will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division


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