HQ 225837 - Applicability of textile quotas to duty-free sales; Duty-free stores; 19 U.S.C. 1555(b)(1); 19 CFR 19.35(a); 19 CFR 144; 7 CFR 6.20; 7 CFR 6.21(o); 7 U.S.C. 624; Subchapter IV, HTSUS; Article 4, paragraph 2 Agreement on Agriculture of Uruguay Round Agreements Act; 7 U.S.C. 1854; Exec. Order No. 11,651. - United States International Trade Commision Rulings

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HQ 225837

November 20, 1995

WAR-5-R:I:EC 225837 AJS

CATEGORY: WAREHOUSES

Mr. Frank R. Samolis
Patton Boggs, L.L.P
2550 M Street, N.W.
Washington, D.C. 20037-1350

RE: Applicability of textile quotas to duty-free sales; Duty-free stores; 19 U.S.C. 1555(b)(1); 19 CFR 19.35(a); 19 CFR 144; 7 CFR 6.20; 7 CFR 6.21(o); 7 U.S.C. 624; Subchapter IV, HTSUS; Article 4, paragraph 2 Agreement on Agriculture of Uruguay Round Agreements Act; 7 U.S.C. 1854; Exec. Order No. 11,651.

Dear Mr. Samolis:

This is in reply to your request of November 28, 1994, concerning DFS Group and the applicability of textile quotas to duty-free sales.

FACTS:

Your request states that DFS brings merchandise into the United States under bond and sells the merchandise to travelers departing from the U.S. from its duty-free stores, located at or near international airports. Your request also states that DFS has established procedures to assure that the duty-free merchandise it sells is exported from the customs territory. In its airport operations, for example, you state that DFS delivers duty-free merchandise to its customers in a restricted area as they are boarding departing international aircraft. Similarly, you state that DFS restricts sales to each of its customers of duty-free merchandise to personal use quantities. Your request additionally states that DFS duty-free sales operations are structured to assure that little or none of the duty-free merchandise it sells from outlets in the U.S. will reenter the customs territory.

Your request states that DFS's U.S. outlets are overwhelmingly patronized by foreign travelers. Your request also states that the vast majority of the duty-free merchandise DFS sells from outlets located within the U.S. is sold to foreign tourists or other travelers who are returning
to their home countries. DFS claims that at least 95% by value of the duty free merchandise it sells from U.S. outlets is sold to non-U.S. residents. Moreover, of the small amount of DFS's total duty-free sales to U.S. residents, your request claims that only two percent consists of textile products (ties, scarves and mens' and womens' apparel, excluding leather goods).

Your request additionally states that DFS displays notices prominently in its duty-free stores which state that any duty-free merchandise will be subject to Federal duty and tax if it is brought back into the U.S.

ISSUE:

Whether the withdrawal for exportation from a duty-free store (class 9 warehouse) of a textile product entered under bond for warehouse is exempt from the textile quotas provided in Subchapter IV, Harmonized Tariff Schedule of the United States (HTSUS), as well as the limitations on the importation of textiles and textile products authorized pursuant to 7 U.S.C. 1854.

LAW AND ANALYSIS:

19 U.S.C. 1555(b)(1) states that duty-free sales enterprises may sell and deliver for export from the customs territory of the United States duty-free merchandise in accordance with this subsection and such regulations as the Secretary of the Treasury may prescribe to carry out this subsection.

19 CFR 19.35(a) provides that "[a] class 9 warehouse (duty-free store) may be established for exportation of conditionally duty-free merchandise by individuals departing the Customs territory, inclusive of foreign trade zones, by aircraft, vessel, or departing directly by vehicle or on foot to a contiguous country." This section states that the term "conditionally duty-free merchandise" means merchandise sold by a duty-free store on which duties and/or internal revenue taxes (where applicable) have not been paid. It also provides that generally, the procedures for bonded warehouses apply to duty-free stores.

The procedures for bonded warehouses generally provide that any merchandise subject to duty may be entered for warehousing except for perishable merchandise and explosive substances (other than firecrackers). 19 CFR 144.1. The entry documentation required by 19 CFR 142.3 shall be filed at the time of entry for warehouse entries. 19 CFR 144.11. The entry summary, Customs Form (CF) 7501, shall show the value, classification, and rate of duty as approved by the district director at the time the entry summary is filed. 19 CFR 144.12. However, no deposit of estimated duties shall be required until the merchandise is withdrawn for consumption. Id. This procedure is different from the standard entry summary procedure in which estimated duties are
generally required to be deposited with the entry summary. 19 CFR 142.12(c). In addition, quota-class merchandise may generally not be released upon delivery of entry documentation before presentation of an entry summary for consumption or withdrawal for consumption with the estimated duties attached. 19 CFR 142.13. These procedures serve to emphasize the distinction between merchandise entered for warehouse for which Customs is still protected in some manner (e.g., proprietor's bond or joint custody as mentioned in 19 U.S.C. 1555(a)) and thus estimated duties are not yet needed, and merchandise entered or withdrawn for consumption for which Customs is no longer protected in the same manner and thus estimated duties are needed.

The procedures for bonded warehouses further provide that a bond on CF 301, containing the bond conditions set forth in 19 CFR 113.62 shall be filed in the amount required by the district director to support the entry documentation. 19 CFR 144.13. When the above mentioned entry summary and bond have been filed, with limited exceptions, the merchandise shall be sent to the bonded warehouse. 19 CFR 144.14. A withdrawal for either direct or indirect exportation shall be filed on CF 7506 (Warehouse Withdrawal Conditionally Free of Duty, and Permit). 19 CFR 144.37(a). Merchandise in a duty-free store may be withdrawn for any of the purposes set forth in this subpart. 19 CFR 144.37(h)(1). However, only conditionally duty-free merchandise in a duty-free store intended for exportation or for delivery to persons and organizations set forth in 19 CFR 148 will be eligible for withdrawal under the sales ticket procedure. Id. Sales tickets withdrawals are required to be made under a blanket permit to withdraw as described in 19 CFR 19.6(d). These type of withdrawals also require a CF 7506 to be prepared. See 19 CFR 19.6(d)(4).

A withdrawal for consumption of merchandise is treated differently than an entry for warehouse of merchandise. Withdrawals for consumption from bonded warehouses shall be filed on CF 7505 (Warehouse Withdrawal for Consumption-Duty Paid). 19 CFR 144.38(a). This form is different than the CF 7506 required above. The "time of entry" for merchandise withdrawn from warehouse for consumption is when the CF 7505 is executed in proper form and filed together with any required related documentation, and any required estimated duties have been deposited. 19 CFR 141.68(g). Each withdrawal shall show in the case of merchandise subject to quota, or textiles and textile products subject to levels of restraint, any correction to the description of the merchandise reported after filing of the warehouse entry. 19 CFR 144.38(c). Estimated duties on the merchandise being withdrawn shall be deposited at this time. 19 CFR 144.38(d). Textiles and textile products subject to quota, visa or export license requirements in their condition at the time of importation may not be withdrawn from warehouse for consumption if during the warehouse period there has been a change by manipulation or other means: in the country of origin of the merchandise, to exempt from quota or visa or export license requirements, or from one textile category to another textile category. 19 CFR 144.38(f). The question is whether an entry for warehouse is an entry within 7 CFR 6.20.

7 CFR 6.20 provides that "[p]art 3 of the appendix to the Tariff Schedules of the United States [currently the Subchapter IV, HTSUS], which contains the quantitative limitations [i.e., quotas] on certain articles imported into the United States proclaimed by the President pursuant
to Section 22 of the Agricultural Adjustment Act (AAA), as amended (7 U.S.C. 624), provides that certain articles may be entered only by or for the account of a person or firm to which a license has been issued by or under the authority of the Secretary of Agriculture and only in accordance with the terms of such license as set forth in this regulation." (emphasis added). 7 CFR 6.21(o) states that enter means to make entry, or withdrawal from warehouse, for consumption by deposit with, and acceptance by, the appropriate Customs officer of the properly executed entry documents, including invoices, bills of lading and payment of estimated duties (emphasis added). These two provisions indicate that quotas only apply to articles that are withdrawn from warehouse for consumption and not merely articles that are entered for warehouse. Therefore, textile products subject to 7 U.S.C. 624 entered for warehouse are not subject to quota as long as they are not subsequently withdrawn for consumption. This conclusion is also supported by the previously discussed distinction in the Customs Regulations between an entry for warehouse and a withdrawal from warehouse for consumption. Specifically, it is supported by the requirement that estimated duties for an entry for warehouse do not have to be deposited until the entry is withdrawn for consumption, and the "time of entry" for such an entry is not until the entry is withdrawn for consumption.

Subsequent to your request, the Uruguay Round Agreements Act (URAA) (Pub. L. No. 103-465, 108 Stat. 4809 (December 8, 1994)) was enacted. Article 4, paragraph 2 of the Agreement on Agriculture (as approved by section 101 of the URAA) requires the U.S. to not maintain, resort to, or revert to quantitative import restrictions which are required to be converted into ordinary customs duties. In carrying out this provision, the U.S. will convert to tariff-rate quotas all quantitative restrictions maintained under 7 U.S.C. 624. URAA, Statement of Administration Action, 56. Therefore, this ruling is subject to any changes required to be made in order to implement the URAA.

Section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854), authorizes the President to negotiate agreements with foreign governments limiting the exportation of textiles and textile products to the United States and to promulgate regulations to carry out such agreements. Therefore, the importation of textiles and textile products into the United States may also be limited under this provision. As with section 22 of the AAA, this provision also applies to products entered, or withdrawn from warehouse, for consumption. The President's authority under this section, as it pertains to the implementation of textile trade agreements, was delegated to the Committee for the Implementation of Textile Agreements (CITA). Exec. Order No. 11,651, sect. 1(a), 3 CFR 676 (1971-75), reprinted as amended in 7 U.S.C. 1854 note at 950. The Executive Order further provides that Customs must take such actions as CITA recommends "to carry out all agreements and arrangements entered into by the United States pursuant to Section 204 of the Agricultural Act of 1956 . . . with respect to entry, or withdrawal from warehouse, for consumption in the United States of textiles and textile products." (emphasis added). Id. sect. 2(a). The URAA contained the Agreement on Textiles and Clothing (ATC).

The ATC was approved by Congress and entered into force effective January 1, 1995, pursuant to 19 U.S.C.A. 3511(a)-(b), (d)(4). In conforming with the URAA, Congress amended the second sentence of section 204 but continued to apply the provision to textiles and textile products entered, or withdrawn from warehouse, for consumption. Therefore, limitations on the importation of textiles and textile products authorized pursuant to 7 U.S.C. 1854 also do not apply to articles that are entered for warehouse.

HOLDING:

The withdrawal for exportation from a duty-free store (class 9 warehouse) of a textile product entered under bond for warehouse is exempt from the textile quotas provided for within Subchapter IV, HTSUS, as well as limitations on the importation of textiles and textile products authorized pursuant to 7 U.S.C. 1854.

Sincerely,

Director
International Trade Compliance Division

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