HQ 227654 - Foreign-Trade Zones; Retail Trade; Exportation; Swan and Finch Co. v. U.S.; Witco Chemical Corp. v. U.S.; Nissan Motor Manufacturing Corp. U.S.A. v. U.S.; The Conqueror; Roehl Transport Inc. v. Wisconsin Division of Hearings and Appeals; Roland Electric Co. v. Walling, Wage and Hour Administrator; 19 U.S.C. 81c(a); 19 U.S.C. 81o(d); 19 U.S.C. 1309; 19 U.S.C. 1322(a); 19 CFR 101.1; 19 CFR 146.66; diesel fuel; sale for consumption; Export Clause; instruments of international traffic; International Fuel Tax Agreement; zone-restricted status; HQs 223828, 224935 - United States International Trade Commision Rulings

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HQ 227654

December 2, 1997

FOR-2-03-RR:IT:EC 227654 LTO

CATEGORY: FOREIGN TRADE ZONE

Mr. Marshall V. Miller
Miller & Company P.C.
4929 Main Street
Kansas City, Missouri 64112

RE: Foreign-Trade Zones; Retail Trade; Exportation; Swan and Finch Co. v. U.S.; Witco Chemical Corp. v. U.S.; Nissan Motor Manufacturing Corp. U.S.A. v. U.S.; The Conqueror; Roehl Transport Inc. v. Wisconsin Division of Hearings and Appeals; Roland Electric Co. v. Walling, Wage and Hour Administrator; 19 U.S.C. 81c(a); 19 U.S.C. 81o(d); 19 U.S.C. 1309; 19 U.S.C. 1322(a); 19 CFR 101.1; 19 CFR 146.66; diesel fuel; sale for consumption; Export Clause; instruments of international traffic; International Fuel Tax Agreement; zone-restricted status; HQs 223828, 224935

Dear Mr. Miller:

This is in response to your letter dated August 1, 1997, requesting, on behalf of Detroit International Bridge Company, a ruling regarding whether the proposed activity constitutes "retail trade," which is prohibited from foreign-trade zones (FTZs). We have also considered your additional submissions of August 21, October 16 and November 22, 1997.

FACTS:

The Greater Detroit Foreign-Trade Zone, Inc., filed an application with the Foreign-Trade Zones Board (FTZB) for FTZ No. 70. FTZB Order No. 176, dated July 21, 1981, authorized the establishment of the zone (see Federal Register, July 30, 1981). An Expansion Application for a new general-purpose FTZ site at the Ambassador Bridge at Foreign-Trade Zone No. 70 was approved by FTZB Order No. 843, dated August 26, 1996.

An Application for Activation has been filed with the Port Director, Detroit Customs, for the storage and shipment for export only of diesel fuel exclusively for commercial truck vehicles. You state that the facility will be physically
isolated and secured from any other pedestrian traffic or passenger automobiles at the Bridge. The fuel will be available only to commercial vehicles with monthly accounts on a wholesale contract basis. It will be placed in the fuel tank of a truck to be consumed by the truck in its operation, rather than to be transported for delivery or resale. No leaded or unleaded gasoline of the type used in passenger automobiles for personal use will be held at the facility.

The fuel admitted to the general-purpose site will originate in other countries or U.S. refineries with or without subzone status. All merchandise admitted to the facility will be held in zone restricted status. You state that no merchandise will be available for Customs entry and use in the United States. Because of the facility's proximity to the privately-owned Ambassador Bridge, the only means of exiting the isolated and secured zone site will be a dedicated, privately-owned exit road that requires travel on the Ambassador Bridge to Canada. No exit ramps will be available to allow vehicles to re-enter the United States. Most trucks fueled at the site will have a Trip Manifest which lists their destination as Canada.

ISSUE:

1. Whether the sale for consumption of diesel fuel from an FTZ constitutes prohibited retail trade.

2. Whether the placing of diesel fuel in a truck's fuel tank in an FTZ to be consumed by the truck destined for Canada constitutes an "exportation."

LAW AND ANALYSIS:

1. Retail Trade

You contend that the proposed activity does not fall within the definition of "retail trade," which is prohibited within an FTZ by Section 15(d) of the Foreign-Trade Zones Act (19 U.S.C. 81o(d)). See 19 CFR 146.14. 19 U.S.C. 81o(d) provides that "[n]o retail trade shall be conducted within the zone except under permits issued by the grantee and approved by the Board. Such permittees shall sell no goods except such domestic or duty-paid or duty-free goods as are brought into the zone from the customs territory."

"Retail trade" is not specifically defined in the Foreign-Trade Zones Act. Based on various court decisions (Witco

Chemical Corp. v. United States, 742 F.2d 615 (CAFC 1984); Roland Electric Co. v. Walling, Wage and Hour Administrator, 326 U.S. 657 (1946)), you argue that the sale under consideration is not retail but wholesale, and therefore, is not prohibited retail trade. The cases cited, however, did not address the use of the term "retail" in the context of the FTZ law.

In Witco Chemical Corp., the CAFC defined the term "retail" in the context of a provision of the federal tax code (I.R.C. 613A, Limitations on Percentage Depletion in Case of Oil and Gas Wells). Id. at 617. The court found that, because there was no statutory definition given nor any indication that Congress intended to ascribe a special meaning to the term, it must be presumed that Congress intended "retail" to have been used in its ordinary and common meaning. Id. at 620-621. The common meaning for "retail," according to the court, was as follows: "sales made in small quantities to ultimate consumers to meet personal needs, rather than for commercial or industrial uses of the articles sold" (citing Roland Electric Co., which defined the term in the context of the Fair Labor Standards Act). Id. A similar definition can be found in the U.S. Customs Service Foreign-Trade Zones Manual, Customs Publication No. 559 (October 1996) (which provides that "retail trade" is "generally, sales or offers to sell goods or services in small quantities directly to consumers or to individuals for personal use"). See also C.D. 3210-23, dated May 11, 1987 (wherein "retail trade" was defined as "generally, sales or offers to sell goods or services to individuals for personal use").

Unlike the legislative history for the statute in Witco Chemical Corp., the legislative history for the Foreign-Trade Zones Act does provide evidence of Congress' intent regarding the use of the term "retail trade." Although not specifically defined, "retail trade" was the subject of consideration and discussion in Congressional documents even before the passage of the Foreign-Trade Zones Act. A report of the Tariff Commission, Free Zones in Ports of the United States, published as S. Doc. No. 239, 67th Cong., 2nd Sess (1922), stated that the intent of the bill as drafted, and in accord with the amendments suggested by the Commission, was that there should be no privilege granted within the zone as concerns imported goods not equally shared by the Customs territory. This went to the extent of preventing the use of imported equipment, foodstuffs, ships' stores, etc., without payment of duty. The Commission further stated that for the effective protection of the revenue no imported goods should be consumed therein unless duties are paid. S. Doc. 239, 67 Cong. 30 (1922).

In hearings before the Subcommittee of the Committee on Finance on S. 3170, entitled "Free Zones in Ports," 66th Cong., 1st Sess. 85 (October 21, 1919), Mr. William Kent of the Tariff Commission discussed the retail trade prohibition which, prior to the hearing had been identical to that in H.R. 9724, 66th Cong., 1st Sess. That is, the provision allowed only two types of sales, required such sales to be done only by special permittees and required that the goods come from the Customs territory. The language of S. 3170 at the time of the hearings had been amended to eliminate the limitations of ships' stores and zone employees' food. Mr. Kent noted the change and said that as long as all of these goods are to be brought in from the Customs territory there was no need to limit the items to ships' stores and food.

In a letter incorporated into the record of the hearings, Commerce Secretary William C. Redfield argued that the provision for all foreign dutiable goods to have paid duty be stricken from the bill. "Free Zones in Ports Hearings," op. cit., at pages 124 and 125. Secretary Redfield argued that the amount of foreign articles consumed in a zone would be insignificant and the loss of revenue would be small in comparison to the cost of enforcing the provision.

Section 15(d) of the Act of June 18, 1934, Pub. L. 73-397 (the Foreign-Trade Zones Act) changed the language slightly to add the words "domestic or duty-paid or duty-free" as the type of goods that were subject to the provision. The change was made during the House-Senate conference and no express reason was given for the change. H.R. 9322, 73d Cong., 2nd Sess (May 31, 1934); H. Rept. 1521, 73d Cong, 2d Sess. 5 (May 9, 1934); and H. Rept. 1884, 73d Cong., 2d Sess. (June 4, 1934). In any event, the purpose of the provision is reflected in the statement (at page 5 of H. Rept. 1521 that section 15(d) of H.R. 9322) limiting retail trade to goods brought in from the Customs territory. There is no suggestion that the change in language signified a change in intent.

The legislative history for the Foreign-Trade Zones Act shows that the concept of consumption for tariff purposes was included within the concept of retail trade. This is particularly evident in Secretary Redfield's letter to the Finance Committee, described above, in which he argued that Congress ought to allow such consumption because it would have an insignificant effect on the revenue. Congress, in enacting the provision, rejected that argument. Accordingly, sales for consumption constitute retail trade.

In light of this legislative history, the definitions provided in other contexts (i.e., Witco Chemical Corp. and Roland Electric Co.), are not persuasive when interpreting the "retail trade" prohibition of 19 U.S.C. 81o(d). Moreover, the "general" definitions provided in the FTZ Manual and in C.D. 3210-23 must be read in light of this legislative history.

You argue that the proposed activity is identical in all material respects for the purpose of what constitutes "retail trade" to jet fuel sales for export to commercial airlines. The sale of jet fuel for export to commercial airlines is covered by 19 U.S.C. 1309(a), which provides an exemption from customs duties and internal-revenue tax for supplies for certain vessels and aircraft upon their withdrawal from a customs bonded warehouse, from continuous customs custody elsewhere than in a bonded warehouse, or from an FTZ. Section 1309(a) covers aircraft registered in any foreign country and engaged in foreign trade or trade between the United States and any of its possessions, or between Hawaii and any other part of the United States or between Alaska and any other part of the United States (although the provisions for free withdrawals does not apply to petroleum products for vessels or aircraft in voyages or flights exclusively between Hawaii or Alaska and any U.S. airport or Pacific coast seaport).

The legislative history for 19 U.S.C. 1309(a) provides that "the original and main purpose for the exemption from duty and taxes of ships' supplies was to place U.S. vessels engaged in foreign trade on an equal footing with foreign vessels. Such exemption extends back to 19th century tariff acts and was eventually extended to aircraft." S. Rep. 1491 (1960), U.S.Cong. & Adm.News 1960 - 175, pg. 2785. The reason U.S. vessels and aircraft engaged in foreign trade were at a disadvantage with foreign vessels and aircraft was due to the assessment of duties and taxes on supplies removed from a bonded warehouse or an FTZ. In the absence of 19 U.S.C. 1309, the removal of supplies from a bonded warehouse or an FTZ in the manner described would have had duty implications.

19 U.S.C. 1309 does not cover motor vehicles, nor is there a similar exemption elsewhere for supplies for motor vehicles. Further, Congress was well aware of the long-standing "retail trade" prohibition when it added FTZs to 19 U.S.C. 1309 in 1953. See Customs Simplification Act of 1953 (August 8, 1953). Thus, the promulgation of 19 U.S.C. 1309 cannot constitute evidence that similar transactions involving motor vehicles are permitted, and, in fact, the lack of a similar provision for vehicles is evidence that such transactions are not permitted.

Interestingly, the International Fuel Tax Agreement (IFTA), which you have cited to show that the fuel has been "exported" when it enters Canada, treats such a transaction as a "retail sale." The IFTA, which is discussed in greater detail below, "is designed to facilitate the collection of state fuel taxes from interstate motor carriers." See Roehl Transport Inc. v. Wisconsin Division of Hearings and Appeals, Slip Op. 97-0211 (Wisc. App. 1997). The IFTA currently counts the 48 contiguous states and ten Canadian provinces as members.

While the term "retail sale" is not specifically defined in the IFTA, the agreement does differentiate between retail and bulk sales. Under Section VII(A) of IFTA's Articles of Agreement, "[j]urisdictions may require payment of motor fuels taxes on retail sales of motor fuels delivered into the fuel tank which propels the motor vehicle (emphasis added)." See IFTA, Articles of Agreement, Section VII(D) (regarding tax payments on fuel delivered into or withdrawn from bulk storage). Under the IFTA, if a vehicle licensed under the IFTA in Oklahoma buys fuel in Nebraska, the licensee will receive a refund/credit for the tax on the fuel paid at the pump in Nebraska when the licensee files the quarterly IFTA tax return to Oklahoma on the fuel consumed by the vehicle.

To reiterate, the proposed transaction involves the sale of diesel fuel, which will be placed in the fuel tanks of trucks bound for Canada. The fuel will be consumed by the trucks (rather than transported for delivery or resale) during their operation. Such a transaction constitutes prohibited "retail trade" under 19 U.S.C. 81o(d).

2. Exportation

In addition to finding that the proposed activity constitutes prohibited "retail trade," we believe that the placement of diesel fuel in a truck's fuel tank to be consumed by the truck in its operation, rather than to be transported for delivery or resale, does not constitute an "exportation." As stated above, under 19 U.S.C. 81c(a), foreign merchandise may be brought into an FTZ, manufactured and later exported therefrom without the payment of duty. "Exportation" was defined by the U.S. Supreme Court in Swan & Finch Co. v. United States, 190 U.S. 143 (1903), and then adopted in 19 CFR 101.1 (see T.D. 84-213, 49 FR 41170, Oct. 19, 1984), as follows: "a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country . . . ." See 17 Op. Attys. Gen. 579, 583 (July 2, 1883).

The Court in Swan & Finch dealt with a circumstance similar to the case at hand. In that case, lubricating oils manufactured in the United States from imported, duty paid, rape seed, were placed on board a vessel bound for a foreign port. Swan & Finch Co. v. United States, 37 Ct. Cl. 101 (1901). The claimant claimed a drawback of the duties paid on the imported rape-seed used in the manufacture of the oils. Id. at 102. The Court found that the oils, which were to be consumed by the vessel during its voyage, rather than shipped to foreign countries and there landed, were not "exported" for purposes of the drawback statute (then, section 22 of the act of August 28, 1894, reenacted as section 30 of the act of July 27, 1897). Swan & Finch, 190 U.S. at 145.

You argue that the Swan & Finch decision does not apply for several reasons. First, you claim that the Court "defined 'exportation' based upon that term's use in the drawback statute, and its precedential value should be weighed accordingly." As your client has no intention of claiming drawback on the diesel fuel, you claim that Swan & Finch is not controlling. This argument, of course, ignores the verbatim adoption of the definition used by the Court, as first quoted in the Attorney General's decision cited above, in the Customs Regulations. For cases where the Swan & Finch definition was favorably cited, see, e.g., Hugo Stinnes Steel and Metals Co. v. United States, 453 F. Supp. 94 (Cust. Ct. 1980); National Sugar Refining Co. v. United States, 488 F. Supp. 907 (Cust. Ct. 1980).

Second, you correctly point out that the Court considered the purpose of the drawback statute and found that drawback was a "governmental grant of a privilege or benefit" (Id. at 146), and was therefore to be construed in favor of the government and against the party claiming the grant. The FTZ law, however, also is a governmental grant of a privilege or benefit--it provides a duty deferral and exemption on the admission and withdrawal of goods (for exportation) from an FTZ.

In HQ 223828, dated July 1, 1992, we explained:

Liability for duty arises upon importation (19 CFR 141.1). An importation is the arrival of goods at a United States port from a foreign port or place with intent then and there to unlade them [cases cited therein]. Merchandise admitted into [an FTZ] has been imported. The contention that duty cannot be imposed on goods admitted into a FTZ because [an] FTZ is considered to be outside the customs territory
was rejected as an overbroad reading of the [FTZ] statute. Nissan Motor Manufacturing Corp. U.S.A. v. United States, [884 F.2d 1375 (CAFC 1989)].

Foreign articles while in an FTZ are not duty-free, but conditionally free. See HQ 224935, dated September 17, 1993 (wherein we found that the shipment of cable between U.S. points rather than to a foreign country was not an "exportation," and consequently, duty was payable when the manufactured cable was withdrawn from the FTZ). In Nissan, the CAFC made it clear that duty is simply deferred while the merchandise is in the zone and that the deferral applies only with strict compliance to the statute ("Congress signalled its intention to make the imposition of immediate duties dependent on the operations that occur in [an FTZ] when it listed the activities that could be performed on merchandise brought into a zone [19 U.S.C. 81c]." Id. at 1377). Thus, both the drawback and FTZ statutes provide a means to avoid the payment of duty, either by refund or exemption. Moreover, the definition found in the Customs Regulations for the term "exportation" applies to both the drawback and FTZ laws.

Third, you argue that the proposed activity qualifies as an exportation under the Export Clause of the U.S. Constitution, which reads, "[n]o Tax or Duty shall be laid on Articles exported from any state." U.S. Const., Art. 1, sect. 9, cl. 5. You cite several cases where the U.S. Supreme Court "broadly" defined the term "exported." The Court, however, in rendering its decision in Swan & Finch, considered the applicability of the Export Clause, and approved the definition now found in the Customs Regulations. The Court specified that the term "cannot mean simply a carrying out of the country" (Id. at 145), yet this is basically the interpretation that you now request.

As stated above, in discussing the Nissan Motor Manufacturing Corp. U.S.A. decision, liability for the duty laid on the diesel fuel arose at importation. Such duty was, however, deferred while the merchandise remained in the zone. Once removed from the zone, the deferral would remain in place only upon strict compliance with the statute--in this case, only if the diesel fuel was exported. A review of the court decisions on the Export Clause shows that the imposition of duty in this instance does not violate the Export Clause.

In Aguirre v. Maxwell, 1 Fed. Cases 212 (No. 101)(CC.SD.NY 1853), a special tonnage duty on Spanish vessels coming to the United States from Cuba or Puerto Rico, then Spanish possessions, was imposed. The payment was due before the vessel cleared for a
return voyage to either island. The court held that the Export Clause has no application to the imposition of a tax on a foreign vessel arriving in the United States. The court found that requiring the payment before departure did not turn the import duty into an export tax or duty.

In Cornell v. Coyne, 192 U.S. 418 (1904), the Supreme Court considered a tax imposed on the manufacture of filled cheese and on the importation of such cheese. The plaintiffs asserted that the failure of the tax law to provide for a remission of either tax if the cheese was made for exportation and was exported constituted a violation of the Export Clause. The Court disagreed, and stated (at page 426), its understanding of the scope of the Export Clause: "this means that no burden shall be placed on exportation and does not require that any bounty be given therefor." The Court further stated (at page 427):

The true construction of the Constitutional provision is that no burden by way of tax or duty can be cast upon the exportation of articles, and does not mean that articles exported are relieved from the prior ordinary burdens of taxation which rest upon all property similarly situated. The exemption attaches to the export, and not to the article before its exportation . . . .

In Dooley v. United States, 183 U.S. 151, 156 (1901), the Supreme Court noted the difference between duties on imports and duties on exports. A duty due as a consequence of importation need not be refunded on exportation to avoid violating the Export Clause. See also Turpin v. Burgess, 117 U.S. 504 (1886); A.G. Spaulding & Bros. v. Edwards, 262 U.S. 66 (1923); William E. Peck & Co. v. Lowe, 247 U.S. 165 (1918); Liggett & Myers Tobacco Co. v. United States, 77 F.2d 65 (3rd Cir. 1935); Moon v. Freeman, 379 F.2d 382, 388, 390 (9th Cir. 1967); International Business Machines Corp. v. United States, 59 F.3d 1234, 1236, 1238-1239 (CAFC 1995); United States v. Hvoslef, 237 U.S. 1 (1915).

The duty applicable to the diesel fuel when withdrawn from the zone is not laid on the fuel because it is exported from a state, but because it is not. Thus, in accordance with Dooley v. United States, requiring duty on such an action, as a consequence of importation, is not violative of the Constitution's Export Clause.

It is our opinion that the definition for "exportation" found in 19 CFR 101.1, as derived from Swan & Finch, is
controlling in the context of 19 U.S.C. 81c(a). As stated above, the diesel fuel will be placed in a fuel tank of a truck to be consumed by the truck in its operation, rather than to be transported for delivery or resale. Like the oils in Swan & Finch, there is no intent to join the shipped article to the commerce of the country of shipment.

You contend that, even if Swan & Finch applies, (1) the fuel joins the commerce of Canada as evidenced by the fact that the fuel consumed in Canada is taxed in accordance with the IFTA, (2) the fuel is "deemed" exported because of its status in the zone, and/or (3) that the exportation requirement is moot. First, you argue that.

Pursuant to 49 U.S.C. 31701(3), the IFTA is "the interstate agreement on collecting and distributing fuel use taxes paid by motor carriers, developed under the auspices of the National Governors' Association." A "fuel use tax" is "a tax imposed on or measured by the consumption of fuel in a motor vehicle." 49 U.S.C. 31701(2).

According to Section I of IFTA's Articles of Agreement, the purpose of the IFTA is:

B. [T]o promote and encourage the fullest and most efficient possible use of the highway system by making uniform the administration of motor fuels use taxation laws with respect to motor vehicles operated in multiple member jurisdictions.
C. [T]o enable participating jurisdictions to act cooperatively and provide mutual assistance in the administration and collection of motor fuels use taxes.
D. [T]o establish and maintain the concept of one licence and administering base jurisdiction for each licence, and to provide that a licensee's base jurisdiction will be the administrator of this Agreement and execute all its provisions with respect to such licensee.

"Jurisdiction," as used in the IFTA, means "a State of the United States, the District of Columbia or a Province or Territory of Canada." IFTA, Articles of Agreement, Section II(I). However, no State, Province or territory is required to become a part of the IFTA. Recently, Vermont, New Hampshire and Maine (leaving only Hawaii and Alaska as non-members, in the

United States), and Ontario (leaving only the territories as non-members, in Canada), became members of the IFTA (January 1997).

Under the IFTA, a carrier no longer has to apply for a fuel use permit, file individual reports and remit tax payments to every state (or province) in which it operates. Now, the carrier may make a single filing and payment (or application for refund) to the appropriate agency of its home state (or province). The carrier receives a fuel tax license from its home state, as well as, decals for each of the carrier's vehicles. These credentials are then honored by the others within the IFTA jurisdiction. The state (or province) processes the carrier's quarterly tax return and apportions the payment to other states (or provinces) according to the carrier's reported miles. See, generally, Transport Topics, Thomas M. Strah, "IFTA Turns Into the Homestretch."

The taxable event, according to Section III(A) of IFTA's Articles of Agreement, "is the consumption of motor fuels used in the propulsion of qualified motor vehicles . . . ." However, as stated in Roehl Transport Inc., the IFTA does not exist to impose taxes (citing Section I(B) of IFTA's of Agreement). Id. at 13. Rather, "[t]he IFTA is an agreement among states and provinces to simplify the reporting of fuel use taxes by interstate motor carriers. The IFTA reduces the paperwork and compliance burdens for fuel tax reporting. The IFTA does not impose taxes but allows interstate motor carriers to report their fuel use taxes to a base state on a uniform basis." Id. at 14. Finally, the court stated that the "manifest purpose of the tax . . . is to charge interstate motor carriers for operating commercial vehicles on highways built, paid for and maintained by the people of [in this case] Wisconsin." Id. at 16. Like the payment of fees charged by customs for the arrival of commercial vessels and trucks under 19 U.S.C. 58c(a), which does not lead to the conclusion that these vessels and trucks have been exported to the United States, the payment of the IFTA use tax to Canada does not evidence an intent to unite the fuel with the commerce of Canada. See also 19 CFR 24.24(a)(regarding the Harbor Maintenance Fee charged on a percentage of the value of cargo unloaded at a port from commercial vessels).

You state that the vehicles under consideration may be licensed, for IFTA purposes, in the United States. Thus, the carrier of each particular vehicle will prepare a quarterly tax return (for its fleet) and will pay the amount due to the state in which the carrier is licensed. That state will then apportion the amount paid to the other states or provinces (in this case, a
province of Canada) according to the amount of fuel consumed by each carrier in each of those states or provinces.

The fact that the fuel tax is paid by a state to a Canadian province for the fuel consumed in that province does not persuade us to believe that the fuel has been exported. This fuel is no more a part of Canada than Canadian fuel consumed in an IFTA state charging a state tax for its consumption is a part of the United States. Moreover, the IFTA tax is equally applicable to a vehicle going from state to state, yet the payment of the tax does not indicate that the fuel has been exported from one state to another. We cannot conclude therefore that the fuel is united to the mass of things belonging to Canada, particularly where the IFTA does not bind Canada but simply those provinces or territories who chose to become members of the agreement.

Second, you argue that "[t]he fact that the fuel will be exported is reflected in the admission of the fuel on a CF 214 into the [FTZ] in zone restricted status." Under 19 U.S.C. 81c(a), articles which have been taken into an FTZ for "the sole purpose of exportation, destruction . . . or storage" shall be considered to be exported for the purpose of drawback and certain other provisions. See 19 CFR 146.66. Articles taken into a FTZ under this statute are given what is called "zone-restricted status."

However, the fact that an article has been, in effect, "deemed" exported, does not mean that the article has been actually exported. A "deemed" export is not an export unless it meets all of the statutory criteria. Merchandise placed in an FTZ in zone-restricted status that is later shipped to Cleveland is not considered exported simply because of its status in the zone. As stated above, the fuel in the proposed activity is not exported in accordance with Swan & Finch and 19 CFR 101.1. This determination is not effected by the fuel's zone-restricted status.

Third, you argue that the fuel can be considered to be an inseparable part of trucks that are instruments of international traffic (IITs), pursuant to 19 U.S.C. 1322(a). You contend that fuel in a truck's tank for consumption by the truck is not subject to entry and duty under this provision. Accordingly, you believe that, based upon the designation of the trucks as IITs, "the question of whether their fuel is 'exported' becomes moot and the duty free treatment of the fuel is established." We disagree.

19 U.S.C. 1322(a) provides that "[v]ehicles and other instruments of international traffic, of any class specified by the Secretary of the Treasury, shall be excepted from the application of the customs laws to such extent and subject to such terms and conditions as may be prescribed in regulations or instructions of the Secretary of the Treasury (emphasis added)." 19 CFR 10.41(a) provides that trucks used in international traffic shall be subject to the treatment provided for in part 123 of this chapter. 19 CFR 123.14(a) provides that trucks "however owned, which have their principal base of operations in a foreign country and which are engaged in international traffic, arriving with merchandise or passengers destined to points in the United States, or arriving empty or loaded for the purpose of taking out merchandise or passengers, may be admitted without formal entry or the payment of duty. Such vehicles shall not engage in local traffic except as provided in paragraph (c) of this section (emphasis added)."

In accordance with 19 U.S.C. 1322(a) and 19 CFR 123.14, IITs are neither imported nor exported. IITs are not, nor are they intended to be, united to the mass of things belonging to a foreign country. See The Conqueror, 166 U.S. 110, 115 (1897) (wherein the Court determined that "[v]essels certainly have not been treated as dutiable articles, but rather as the vehicles of such articles, and . . . are never charged duties when entering our ports . . . ."; see also 19 U.S.C. 1313(g), which provides that "materials imported and used in the construction and equipment of vessels built for foreign account and ownership, or for the government of any foreign country, notwithstanding that such vessels may not within the strict meaning of the term be articles exported (emphasis added)"). Accordingly, fuel placed on IITs, which are not exported when they leave the United States, does not unite with the mass of things belonging to a foreign country.

Finally, we note that in the absence of 19 U.S.C. 1309, the removal of supplies from an FTZ in the manner described in that section would not only be considered prohibited retail trade (see above), but would not have been considered an exportation. As stated above, 19 U.S.C. 1309 does not cover motor vehicles, nor is there a similar exemption elsewhere for supplies for motor vehicles.

HOLDING:

The sale for consumption of diesel fuel from a foreign trade zone constitutes prohibited retail trade under 19 U.S.C. 81o(d).

Moreover, the placing of diesel fuel in a truck's fuel tank in a foreign trade zone to be consumed by the truck destined for Canada does not constitute an "exportation" under 19 U.S.C. 81c(a).

Sincerely,

John Durant, Director

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