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HQ 559873



February 4,
1997
CLA-2 RR:TC:SM 559873 BLS

CATEGORY: CLASSIFICATION

Port Director
U.S. Customs Service
P.O. Box 1490
St. Albans, VT. 05478

RE: Application for Further Review of Protest No. 0201-96-100169; subheading 9801.00.10, HTSUS; Foreign Trade Zone; C.S.D. 95-3; General Note 3(d); Article 509

Dear Sir:

This is in reference to the above-captioned Application for Further Review, timely filed on behalf of De La Bruere Auto Sales Inc., protesting your decision to deny duty-free treatment under subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to a 1995 Ford Windstar. The vehicle was entered through St. Albans on November 7, 1995, and was liquidated on February 9, 1996.

FACTS:

The subject vehicle was imported from Canada, and entered under subheading 8703.24.0090. However, upon protest, duty-free entry was claimed under subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), or, in the alternative, (duty-free treatment) under the North American Free Trade Agreement (NAFTA).

Based on the VIN number, and information received from Customs Headquarters, the concerned import specialist believes that the 1995 Ford Windstar was produced in a FTZ in the U.S., and therefore cannot be entered duty-free under subheading 9801.00.10, HTSUS, or NAFTA. Ford Motor Company officials have confirmed by telecommunication that the subject vehicle was produced in a FTZ.

ISSUE:

1) Whether the 1995 Ford Windstar is eligible for duty-free treatment under
subheading 9801.00.10, HTSUS, or under the NAFTA.

2) Whether the 1995 Ford Windstar qualifies for assessment of duty based solely on its applicable foreign value content, as provided in General Note 3(d), HTSUS.

LAW AND ANALYSIS:

1) Subheading 9801.00.10

Subheading 9801.00.10, HTSUS, provides for the free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad, provided the documentary requirements of section 10.1 Customs Regulations (19 CFR 10.1), are met. Moreover, compliance with section 10.1(a) is mandatory and a condition precedent to recovery unless compliance has been waived or is impossible. Maple Leaf Petroleum, Ltd. v. United States, 25 CCPA 5, T.D. 48976 (1937). The basis of waiver of the required documentation is predicated upon the port director being satisfied by the production of other evidence as to the U.S.-origin of the merchandise and its eligibility under subheading 9801.00.10, HTSUS. See 19 CFR 10.1(d).

The sixth proviso to section 3 of the Foreign Trade Zones Act (19 U.S.C. 81c(a)), states as follows:

That articles produced or manufactured in a zone and exported therefrom shall on subsequent importation into the customs territory of the United States be subject to the import laws applicable to like articles manufactured in a foreign country, except that articles produced or manufactured in a zone exclusively with the use of domestic merchandise, the identity of which has been maintained in accordance with the second proviso of this section may, on such importation, be entered as American goods returned.

Customs has interpreted the sixth proviso to section 3 of the FTZA to mean that any good which is exported from a zone without the payment of duty on the foreign merchandise incorporated into the good is fully dutiable upon any subsequent importation into the U.S. See C.S.D. 95-3, 29 Cust. Bull. 11 (February 8, 1995).
Moreover, a good which is produced in a FTZ will not be considered a good of U.S. origin unless the good is exported, duty paid from a zone, prior to being reimported
into the U.S., or unless the good produced in the FTZ is comprised wholly of domestic materials. C.S.D. 95-3. Therefore, if the subject vehicle was produced in a FTZ, it will not be eligible for duty-free treatment under subheading 9801.00.10,
HTSUS, unless the foregoing requirements are satisfied.

Since there is no evidence in this case that duty on the foreign components was paid upon exportation of the Ford Windstar from the FTZ, the vehicle is not eligible for duty-free treatment under subheading 9801.00.10, HTSUS.

2) NAFTA Preference

In C.S.D. 95-3, Customs stated that an automobile produced in a FTZ and exported without the payment of duty on the foreign components does not qualify for duty-free treatment under the NAFTA. In that case, the argument was made by the importer that the words "be subject to the import laws applicable to like articles manufactured in a foreign country" should be construed to mean like articles made in the specific country from which the article is sent back to the U.S. so that an article made in a zone with foreign components would become an article of the country of reexportation simply by passing through that country. Customs found, however, that this proposed interpretation would lead to the erroneous result whereby the exportation to Canada would convert Japanese components which had been assembled to produce the vehicle, on which no duty was ever paid, into a Canadian-origin automobile which would be entitled to be entered duty-free under the NAFTA. Customs further stated that such an automobile could be exported from a zone into Canada and then re-imported into the United States free of duty. Another possible consequence that could arise under this scenario was that such an automobile could be made in a zone, exported to France, duty-free and then re-imported into the United States through Canada, again free of duty. Customs also held in C.S.D. 95-3 that the NAFTA did not contemplate that goods which meet the applicable rule of origin by virtue of operations performed in a United States FTZ will be regarded as "originating" for purposes of receiving preferential treatment. Thus, the operations which are performed in the FTZ will not render the vehicles originating based on the change in tariff classification that occurs therein to the non-originating materials.

Based on our holding in C.S.D. 95-3, we find in the instant case that vehicles which are manufactured in a FTZ using both U.S. and foreign-origin components, exported to Canada, without any duty having been paid on the foreign-origin
components, and subsequently reimported into the U.S. are not considered Canadian-origin vehicles or "originating" goods for purposes of receiving preferential treatment under the NAFTA. Therefore, protestant's claim for preferential treatment under the NAFTA is denied.

3) General Note 3, HTSUS

As determined above, automobiles produced in FTZs that are exported directly to Canada or Mexico and not formally entered for consumption in the U.S., generally are subject to duty on the full value (i.e., both foreign and domestic content) of the automobile when they re-enter the U.S. General Note 3(d), HTSUS, which was added by section 19 of the Miscellaneous Trade and Technical Corrections Act of 1996, Pub. L. 104-295, 110 Stat. 3514 (October 11, 1996), however, provides, in part, as follows with respect to the calculation of duties on the foregoing vehicles when appropriate information is presented:

[n]ot withstanding any other provision of law, the duty imposed on a qualified article shall be the amount determined by multiplying the applicable foreign value content of such article by the applicable duty rate for such article.

General Note 3(d)(ii), HTSUS, defines a "qualified article" as an article that is:

(A) classifiable under any of subheadings 8702.10 through 8704.90 of the [HTSUS],

(B) produced or manufactured in a foreign trade zone before January 1,
1996,

(C) exported therefrom to a NAFTA country (as defined in section 2(4) of the [NAFTA] Implementation Act (19 U.S.C. 3301(4)), and

(D) subsequently imported from that NAFTA country into the customs territory of the United
States--

(I) on or after the effective date of this subdivision, or

(II) on or after January 1, 1994, and before such effective date, if the entry of such article is unliquidated, under protest, or in litigation, or liquidation is otherwise not final
on such effective date.

In this case, the article is a Ford Windstar classified under heading 8703, HTSUS. The entry documentation indicates that the vehicle was entered into the U.S. on November 7, 1995. As noted, the vehicle was produced in a U.S. FTZ. Therefore, provided protestant presents (within a specified period of time) sufficient information to establish the "applicable foreign value content" as well as "the FTZ percentage" required under General Note 3(d), duty is payable only on the foreign content contained in the vehicle. See Fact Sheet 7346071 dated December 11, 1996. To the extent that the Ford Windstar at issue qualifies for the reduced duties under General Note 3(d), this protest should be granted in part.

HOLDING:

The Ford Windstar produced in a FTZ from U.S. and foreign components which is exported directly from the FTZ into Canada and then imported into the U.S., is not entitled to duty-free entry under either the NAFTA or subheading 9801.00.10, HTSUS. However, if sufficient information is presented to establish that the vehicle qualifies for reduced duties under General Note 3(d), as added by Pub. L. 104-295, 110 Stat. 3514 (October 11, 1996), duty is only payable on the applicable foreign content contained in the vehicle, and the protest should be granted in part in accordance with this decision.

In accordance with Section 3A (11) (b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant 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 Rulings will take steps to make the decision available to Customs personnel via the Customs Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant,

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