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HQ 560127




January 3, 1997

CLA-2 RR:TC:SM 560127 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10

Port Director
U.S. Customs Service
477 Michigan Avenue
Detroit, MI 48226

RE: Application for Further Review of Protest No. 3801-95-100754; Denial of duty exemption under HTSUS subheading 9801.00.10 to Vehicles; General Note 3(d); uniform and established practice; NAFTA; Article 509; FTZ

Dear Sir:

This is in reference to a protest and application for further review filed by
Autohaus of Minneapolis, contesting the denial of the duty exemption of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to certain vehicles.

FACTS:

The vehicles (1991, 1992, and 1994 Toyota Previa; 1988 BMW 735; 1993 Toyota Camry; 1994 Toyota 4 Runner; 1989 SAAB 9000S; 1992 Nissan Pathfinder; 1990 Mercury Sable; 1991 and 1992 Plymouth Voyager; and 1992 Chevrolet Sport) were entered on July 28, 1994, and August 3 and 10, 1994, and were liquidated either on November 4, 14, or 25, 1994, or December 24, 1994. The application for further review of protest no. 3801-95-100754 was timely filed on January 31, 1995. The protestant states that the vehicles were made in a U.S. FTZ, and upon importation into the U.S. were subjected to the column 1 duty rate. It is claimed that the vehicles should have been allowed entry duty-free as a U.S. goods under subheading 9801.00.10, HTSUS, and that a uniform and established practice was in existence for such entries at all ports.

ISSUES:

I. Whether the vehicles imported into the U.S., are entitled to duty-free entry under subheading 9801.00.10, HTSUS, or preferential duty treatment under the NAFTA, and whether there is a uniform and established practice to provide such duty treatment.

II. Whether the vehicles qualify for a duty on their applicable foreign value content, as provided in General Note 3(d), HTSUS.

LAW AND ANALYSIS:

I. Duty-Free Treatment

A. Subheading 9801.00.10, HTSUS

Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are satisfied. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. Border
Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970). 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 for waiver of the required documentation is predicated upon the port director being satisfied by the production of other evidence as to the American origin of the merchandise and its eligibility under subheading 9801.00.10, HTSUS.

In Headquarters Ruling Letter (HRL) 553240 dated March 5, 1985, a truck was assembled in a FTZ, using both "privileged domestic" and "privileged foreign parts." The truck was withdrawn from the FTZ on a weekly formal entry covering the production of additional trucks. Duties were paid on the assembled foreign merchandise having privileged foreign zone status upon withdrawal of the truck from the FTZ for domestic consumption during 1982. The truck was subsequently exported to Germany and reimported into the U.S. Customs held in HRL 553240 that since the truck was first transferred to the Customs territory of the U.S., and duties were paid on the foreign components, prior to being exported to Germany, upon return to the U.S., the truck was eligible for duty-free treatment under the American Goods Returned provision. The foreign merchandise used in the assembly of the truck had lost its foreign character and was considered to have been substantially transformed by being merged into the assembled truck. "The merger occurred in the FTZ located in the U.S. and the substantial transformation was complete when the truck was entered for consumption in the U.S. and duties paid on the privileged foreign merchandise." This position was followed in HRL 556976 dated June 9, 1994, in which Customs concluded that engines produced as a result of a substantial transformation of foreign and domestic parts in a FTZ established in the U.S. and entered from the FTZ for consumption before being exported to Japan were considered "article[s] manufactured within the Customs territory of the U.S.," and, therefore, "products of the U.S." for purposes of subheading 9802.00.80, HTSUS, and
19 CFR 10.12(e). Even assuming arguendo that the subject vehicles were produced in a U.S. FTZ, as there is no evidence that the vehicles in the instant case were exported, duty paid from the FTZ prior to being reimported into the U.S., the vehicles are not considered a good of U.S.-origin for purposes of eligibility under subheading 9801.00.10, HTSUS.

B. NAFTA Eligibility

In C.S.D. 95-3, 29 Cust. Bull. 11 (February 8, 1995), Customs addressed the issue concerning the dutiable status of automobiles made in part with foreign components in a FTZ that were imported after having been exported from the FTZ. The automobile parts were admitted into the FTZ in either privileged foreign status or non-privileged foreign status. After manufacture, the automobiles were exported to Canada without any duty having been paid on those parts. After that exportation, the automobiles were imported into the U.S. The issue in C.S.D. 95-3 was whether the sixth proviso to section 3 of the FTZA (19 U.S.C. 81c(a)) requires duty to be assessed on the full value of an automobile made in a FTZ exported and then returned to the U.S. In short, in C.S.D. 95-3 Customs held that the automobile is dutiable on its full value at the appropriate most-favored nation rate of duty on its importation back into the U.S. Therefore, even assuming arguendo that the subject vehicles were produced in a FTZ located in the U.S., such an automobile still does not qualify for duty-free treatment under the NAFTA. C.S.D. 95-3 is herein incorporated by reference. See also HRL 558983 dated June 29, 1995, which is also herein incorporated by reference, finding that no established and uniform practice under subheading 9801.00.10, HTSUS, was created pursuant to 19 U.S.C. 1315(d) for vehicles produced in a FTZ located in the U.S.

II. 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]otwithstanding 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 rate of duty 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, it is indicated that the articles are various vehicles, model years 1988 through 1994. The entry documentation for the vehicle entered on July 28, 1994, which was submitted, indicates that the vehicle was classified under heading 8703, HTSUS. The documentation also indicates that the vehicle was entered into the U.S. from Canada. It is also alleged that the automobile was produced in a U.S. FTZ. However, the first digit of the vehicle identification number (VIN) for the entry submitted is a "J" which means that the vehicle was produced in Japan. Therefore, as the documentation indicates that the vehicle was not produced in a U.S. FTZ, the vehicle does not qualify for the reduced duties provided by General Note 3(d), HTSUS.

Since documentation was not submitted for the other vehicles, we are unable to determine whether they may have been produced in a U.S. FTZ. To the extent that protestant presents (within a specified period of time) sufficient information to establish the "applicable foreign value content" as well as "the FTZ percentage" for the other vehicles at issue, as required under General Note 3(d), duty will only be payable on the foreign content contained in such vehicles. See Fact Sheet 7346071 dated December 11, 1996. Provided some of the vehicles covered by this protest qualify for the reduced duties under General Note 3(d), this protest should be granted and denied in part.

HOLDING:

Based on the information provided, the subject vehicles exported from Canada and imported into the U.S., are not entitled to duty-free treatment under either the NAFTA or subheading 9801.00.10, HTSUS. Since the evidence indicates that one vehicle was produced in Japan, the protest with respect to this vehicle is denied. To the extent that the remaining vehicles at issue were produced in a U.S. FTZ and protestant presents (within a specified period of time) sufficient information to establish the "applicable foreign value content" as well as "the FTZ percentage" for these vehicles, they will qualify for reduced duties under General Note 3(d), as added by Pub. L. 104-295, 110 Stat. 3514 (October 11, 1996). Therefore, provided such information is presented, this protest should be granted in part and denied in part.

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 attached to Customs Form 19, Notice of Action, and 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 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
Tariff Classification Appeals

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