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HQ 559802




December 19, 1997

CLA-2 RR:C:SM 559802 DEC

CATEGORY: CLASSIFICATION

TARIFF NO: 9801.00.20

Director
Port of Dallas/Fort Worth
P.O. Box 619050
DFW Airport
Dallas, TX 75261

RE: Application for Further Review of Protest no. 550196100024; duty-free treatment under subheading 9801.00.20, HTSUS; lease or similar use agreement; Werner & Pfleiderer Corp. v. United States, 17 C.I.T. 916 (1993); 19 CFR 10.108.

Dear Sir:

This is in response to a protest and application for further review filed by Sterling International on behalf of their client, Continental Pet Technologies, Incorporated (protestant), concerning a denial of duty-free treatment for certain plastic molds entered at the Port of Dallas/Fort Worth on November 3, 1995. The entry was liquidated on December 22, 1995, and this protest was timely filed on January 12, 1996, in accordance with Part 174, Customs Regulations (19 CFR Part 174).

FACTS:

Your office contends that the parts or molds at issue are ineligible for entry under subheading 9801.00.20, Harmonized Tariff Schedule of the United States (HTSUS), because you contend that testing and evaluation is not a permissible "use" within the meaning of 9801.00.20, HTSUS, and that "[o]nly a lease or rental under contract with some consideration for financial or other compensation is allowed." The evidence in the record indicates that protestant and Sidel, Incorporated (Sidel) have
had an informal agreement to use molds or parts of their machines that were previously imported into the U.S. and duty paid to test new machines and then to return the molds and parts to the United States. Subsequent to the entry at issue, the protestant and Sidel formalized their arrangement in an agreement signed by both parties dated December 4, 1995. The agreement states that the molds or parts will (1) remain the property of the protestant, (2) Sidel will use the parts or molds exclusively for testing or qualifying machines for the protestant and will not use them for financial gain, and (3) Sidel will return these parts or molds to the protestant upon completion of any test or upon demand. The agreement also states that these terms are consistent with the practices between the two companies for the past ten years. In support of their protest, the protestant has submitted a copy of Customs Form (CF) 4455 dated October 11, 1995, on which the protestant has declared that certain plastic molds will be exported to France "for testing purposes on a temporary basis only." In addition, the protestant has stated in writing that the articles at issue are not advanced or improved in value while abroad and that the protestant was the original importer of record.

In addition, the air waybill for the exportation from France back to the U.S. indicates the protestant as the ultimate consignee. The record further reflects that the equipment was reimported into the U.S. by protestant on November 2, 1995. A Customs Form 7501 Entry Summary filed in connection with the entry, dated November 20, 1995, reflects that at the time of entry, protestant claimed duty-free treatment under subheading 9801.00.20, HTSUS. A CF 29 Notice of Action indicates that on November 29, 1995, the entry was rate advanced and was to be liquidated as dutiable unless protestant supplied the documentation necessary to support its 9801.00.20, HTSUS, duty-free claim. Based on your conclusion that the necessary information was not supplied, your office liquidated the subject entry on December 22, 1995, under subheading 8480.79.9010, HTSUS.

In the process of deciding this protest, our office contacted the broker handling this transaction and requested proof that the goods at issue were exported from the U.S. and later reimported pursuant to the terms of a lease or similar use agreement that was in effect at the time of exportation from the U.S. The evidence submitted referred to an agreement that was formalized only after the entry of the merchandise at issue. A sworn affidavit from officials with knowledge of the agreement covering the goods at issue at the time of exportation from the U.S. from officials at both Sidel and the protestant was solicited, but it was not produced.

ISSUE:

Whether the parts or molds were exported under a lease or similar use agreement as required by subheading 9801.00.20, HTSUS.

LAW AND ANALYSIS:

Subheading 9801.00.20, HTSUS, provides duty-free treatment for:

[a]rticles, previously imported, with respect to which the duty was paid upon such previous importation or which were previously free of duty pursuant to the Caribbean Basin Economic Recovery Act or Title V of the Trade Act of 1974, if (1) reimported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, after having been exported under lease or similar use agreements, and (2) reimported by or for the account of the person who imported it into, and exported it from, the United States.

Section 10.108, Customs Regulations (19 CFR 10.108), provides, in relevant part, that free entry shall be accorded under subheading 9801.00.20, HTSUS, whenever it is established to the satisfaction of the port director that the article for which free entry is claimed was duty paid on a previous importation, is being reimported by or for the account of the person who previously imported it into, and exported it from the U.S., and was exported from the U.S. under lease or similar use agreement.

Your office does not expressly dispute that the molds at issue were previously imported into the U.S. and duty paid on them by protestant. Nor does your office refute that protestant was the party who exported and subsequently reimported the parts or molds. The CF 4455 Certificate of Registration filed on the exported molds indicate the protestant as the exporter of record. Further, the CF 4455 indicates that the equipment was to be returned to the U.S. In addition, the air waybill for the exportation from France to the U.S. also indicates the protestant as the ultimate consignee.

Your office does dispute, however, that the parts or molds were exported under a lease or similar use agreement as required by subheading 9801.00.20, HTSUS. In Werner & Pfleiderer Corp. v. United States, 17 C.I.T. 916 (1993), a case interpreting item 801.00, Tariff Schedules of the United States (TSUS) (the precursor provision to subheading 9801.00.20, HTSUS), the Court of International Trade stated that "the provision concerning goods exported under lease, in particular, is not the sort of exemption from duties which must be narrowly construed." At issue was whether or not a loan arrangement was the type of "similar use agreement" contemplated by item 801.00, TSUS. The court noted that the general definitions of a loan and a lease are identical except for the requirement of consideration in a valid lease for purposes of item 801.00, TSUS. The court went on to state that

Although a lease must be supported by consideration, a loan is "[a]nything furnished for temporary use to a person at his request, on condition that it shall be returned, or its equivalent in kind, with or without compensation for its use."

Id. at 918, citing Black's Law Dictionary.

Furthermore, the court opined that if the drafters of that provision intended the provision to encompass nothing broader than a lease, then the language "similar use agreement" would not have been added to the provision. As a result, loan arrangements were found to be valid "similar use agreements" for purposes of item 801.00, TSUS, and its successor, subheading 9801.00.20, HTSUS.

Based on the evidence of record, we are not satisfied that the protestant and Sidel had a "similar use agreement" in place at the time of exportation from the U.S. with respect to the molds at issue. The formal agreement evidenced by the December 4, 1995, document subsequent to the entry at issue stated that (1) the molds will remain the property of the protestant, (2) Sidel will use the parts or molds exclusively for testing or qualifying machines for the protestant and will not use them for financial gain, and (3) Sidel will return these parts or molds to the protestant upon completion of any test or upon demand. This agreement was entered into only after the merchandise at issue had been entered and classification under subheading 9801.00.20, HTSUS, had been denied. While this agreement stated that these terms are consistent with the practices between the two companies for the past ten years, it did not expressly state that it covered the goods at issue in this protest. We are of the opinion that there is insufficient evidence under section 10.108, Customs Regulations, to satisfy protestant's 9801.00.20, HTSUS, claim that there was a loan or similar use agreement between the importer and Sidel at the time the goods at issue were exported from the U.S.

HOLDING:

It is our opinion that the goods at issue are not eligible for duty-free treatment under subheading 9801.00.20, HTSUS. In order to receive duty-free treatment under this tariff provision, the importer must establish to Customs satisfaction that the statutory requirements have been met. It is our opinion that the information submitted is insufficient to establish that the articles at issue were previously imported into the U.S. and duty paid, were exported under a lease or similar use agreement, were not advanced in value or improved in condition while abroad, and were reimported by or for the account of the person who imported them into and exported them from the United States. Accordingly, the protest should be denied in full.

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

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