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HQ 112822

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September 20, 1993

VES-5-CO:R:IT:C 112822 GEV

CATEGORY: CARRIER

Robert A. Calandra, Esq.
Sandler, Travis & Rosenberg, P.A.
505 Park Avenue
New York, New York 10022-1106

RE: Harbor Maintenance Fee; In-bond transit; Exportation; 26 U.S.C. 4461 et seq.

Dear Mr. Calandra:

This is in response to your letter dated July 22, 1993, on behalf of your client, Phillips Consumer Electronics Company ("Phillips") of Greeneville, Tennessee, requesting a ruling that certain shipments of cargo are exempt from the Harbor Maintenance Fee (HMF). Our ruling on this matter is set forth below.

FACTS:

Phillips recently began to ship merchandise from the Far East through the United States in bond to Mexico, and then back to the United States. This procedure will result in significant savings on freight costs for Phillips. The merchandise will be shipped to Los Angeles, where it will be unladen and reshipped by rail to El Paso on a Transportation and Exportation Bond. The merchandise will then be trucked to Juarez, Mexico. The entire transaction, from the Far East to Juarez, will be on the same bill of lading. After the shipment arrives in Mexico, the merchandise will be trucked back to the United States on a new bill of lading, without clearing Mexican customs, for distribution to various locations within the United States.

ISSUE:

Whether in-bond shipments of cargo from the Far East through the United States directly to Mexico with the subsequent trucking of the cargo back to the United States are exempt from the payment of the HMF pursuant to 26 U.S.C. 4462(d).

LAW AND ANALYSIS:

The Water Resources Development Act of 1986 (Pub. L. 99-662, 100 Stat. 4082), codified at 26 U.S.C. 4461 et seq., 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 Pub. L. 99-662 are set forth in 19 CFR 24.24.

Specifically, 26 U.S.C. §§4461(a) and (b), as amended by §11214 of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 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.

Although at the outset the exemption set forth in 26 U.S.C. §4461(d) appears applicable to the shipments in question (i.e., to date Mexico imposes no substantially equivalent port use fee on commercial vessels or commercial cargo using Mexican ports nor did the results of a 1987 study pursuant to Pub. L. 99-662 serve to nullify this exemption), it must be emphasized that both the statute and the Customs Regulations promulgated pursuant thereto indicate that only cargo which entered the United States in bond for direct exportation will be exempted from the HMF. In regard to the shipments under consideration, although they will enter the United States at Los Angeles for bonded transportation to Mexico, we note that they will subsequently be trucked back into the United States upon being unladen in Mexico. The return of  - 3 -
these shipments to the United States renders this movement of merchandise 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, since Phillip's shipments do not constitute an exportation from the United States as defined above, they would not be entitled to the exemption from payment of the HMF set forth in 26 U.S.C. 4462(d)(1). While it is correct that the trucking of the cargo in question from Mexico back to the United States does not constitute "port use" as defined in the HMF statute (26 U.S.C. 4462(a)(1)(A)(B)), this does not obviate the required payment of the HMF when the shipments in question are unloaded at the port of Los Angeles.

Parenthetically, we note that aside from not qualifying for the HMF exemption set forth in 26 U.S.C. 4462(d)(1), Phillip's would violate the conditions of any Transportation and Exportation bond issued by Customs to cover the shipments described in this ruling.

HOLDING:

In-bond shipments of cargo from the Far East through the United States directly to Mexico with the subsequent trucking of the cargo back to the United States are not exempt from the payment of the HMF pursuant 26 U.S.C. 4462(d).

Sincerely

Arthur P. Schifflin
Chief
Carrier Rulings Branch

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