HQ 230288 - 19 U.S.C. § 1562; 19 U.S.C. § 81c(a); 19 C.F.R. § 146.33; 19 C.F.R. § 141.2; 19 C.F.R. § 146.44(d); Tropicana Food Products, Inc. v. United States, 789 F. Supp. 1154 (Ct. Int’l Trade 1992);manipulation or manufacture in a foreign trade zone; transfer of bonded warehouse inventory to an FTZ - United States International Trade Commision Rulings

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HQ 230288

April 5, 2004

FOR-1 RR:DR:CR 230288 LLB

Category: FOREIGN TRADE ZONE BONDED WAREHOUSE

Sandler,Travis & Rosenberg, P.A.
200 West Madison Street, Suite 2670
Chicago, IL 60606
Attn: Jeremy Ross Page, Esq.

RE: 19 U.S.C. § 1562; 19 U.S.C. § 81c(a); 19 C.F.R. § 146.33; 19 C.F.R. § 141.2; 19 C.F.R. § 146.44(d); Tropicana Food Products, Inc. v. United States, 789 F. Supp. 1154 (Ct. Int’l Trade 1992);manipulation or manufacture in a foreign trade zone; transfer of bonded warehouse inventory to an FTZ

Dear Mr. Page:

This letter is in response to your January 5, 2004, letter requesting a ruling regarding your client, Argo Cargo, Inc.’s, use of a foreign trade zone to manipulate certain merchandise which Argo Cargo currently retains in a bonded warehouse. We have reviewed your ruling request and have made the following decision.

Please note this ruling addresses whether the proposed operation is permissible under CBP statutes and regulations and does not address whether the subject operation is permissible under the statutes and regulations enforced by the Bureau of Alcohol Tobacco and Firearms or the Tax and Trade Bureau.

Facts

In your letter you present the following factual scenario. Argo Cargo (Argo) works with various customers who purchase alcoholic beverages in the United States to prepare them for subsequent exportation outside the Customs territory. The customers purchase the alcohol at their vendor’s bonded warehouses in the United States, after which time they are removed and transferred to Argo for removal of any coding which would otherwise be relied upon by the manufacturer for product identification purposes in anticipation of their subsequent exportation. Argo’s decoding operations takes one of three methods. Each method involves the exterior case being opened and the bottles being removed. After the decoding operation is complete, the bottles are returned to the case. For the first method, the code is wiped off using a rag. The second method involves using a hand held grinder to erase the code and for the third method, the bottles are placed in water, the labels are peeled back, and the code is wiped off using a rag. Argo proposes to accomplish these operations in a FTZ with which it currently has a lease.

Issue

1) Whether the proposed operation may be accomplished in a foreign trade zone

2) Whether the proposed operation is a permissible manipulation under 19 U.S.C. § 1562

Law and Analysis

Issue 1

Generally, goods in a Customs bonded warehouse are not eligible for admission into a foreign trade zone, except under the fourth proviso to 19 U.S.C. § 81c(a), those goods may be admitted in zone-restricted status. See 19 C.F.R. § 146.44(a). Admission in zone-restricted status is limited to storage, destruction, or exportation. Id.; 19 U.S.C. § 81c(a). Insofar as the proposed operation does not fall within the foregoing three exemplars, it would not be eligible for admission as zone-restricted merchandise.

However, pursuant to 19 U.S.C. § 1562, merchandise may be “cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured” and:

. . . imported merchandise which has been entered and which has remained in continuous customs custody may be manipulated in accordance with [19 U.S.C. § 1562] under customs supervision and at the risk and expense of the consignee, but elsewhere than in a bonded warehouse, in cases where neither the protection of the revenue nor the proper conduct of customs business requires that such manipulation be done in a bonded warehouse.

(emphasis added). See also, 19 C.F.R. § 19.11(a)(stating that “ . . the general provisions of the regulations governing warehouses bonded for the storage of imported merchandise shall apply to bonded manipulation warehouses and to other designated places of manipulation.”)(emphasis added).

Pursuant to 19 C.F.R. § 146.44(d), merchandise that is entered for warehousing and transferred to a FTZ does not have the status of zone-restricted merchandise, if the transfer of the merchandise is temporarily for manipulation and is returned to Customs territory pursuant to 19 C.F.R. § 146.33. Section 146.33, provides:

Imported merchandise for which an entry has been made and which has remained in continuous Customs custody may be brought temporarily to a zone for manipulation and return to Customs territory under Customs supervision, pursuant to section 562, Tariff Act of 1930, as amended (19 U.S.C. 1562), and § 19.11 of this chapter. That merchandise will not be considered within the purview of the Act but will be treated as though remaining in Customs territory. No zone form or procedure will be considered applicable, but the merchandise will remain subject to any requirements necessary for the enforcement of section 562 and other Customs laws while in the zone.

Thus, pursuant to § 146.33, merchandise may be temporarily deposited in a zone for manipulation and is treated as though it never left the bonded warehouse. However, the manipulation must meet the requirements of 19 U.S.C. § 1562 See discussion infra, Issue 2. and although the operation occurs physically inside FTZ geographical limits, the manipulation operation is considered as being performed in the bonded warehouse. As such, pursuant to the regulations promulgated under the authority of § 1562, 19 C.F.R. § 19.11, which regulates manipulation in bonded warehouses, applies. Specifically, 19 C.F.R. § 19.11(d) provides:

The application to manipulate, which shall be filed on Customs Form 3499 with the port director having jurisdiction of the warehouse or other designated place of manipulation, shall describe the contemplated manipulation in sufficient detail to enable the port director to determine whether the imported merchandise is to be cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured, within the meaning of section 562, Tariff Act of 1930, as amended. If the port director is satisfied that the merchandise is to be so manipulated, he may issue a permit on Customs Form 3499, making any necessary modification in such form. The port director may approve a blanket application to manipulate on Customs Form 3499, for a period of up to one year, for a continuous or a repetitive manipulation. The warehouse proprietor must maintain a running record of manipulations performed under a blanket application, indicating the quantities before and after each manipulation. The record must show what took place at each manipulation describing marks and numbers of packages, location within the facility, quantities, and description of goods before and after manipulation. The port director is authorized to revoke a blanket approval to manipulate and require the proprietor to file individual applications if necessary to protect the revenue, administer any law or regulation, or both. Manipulation resulting in a change in condition of the merchandise, which will make it subject to a lower rate of duty or free of duty upon withdrawal for consumption, is not precluded by the provisions of such section 562.

(emphasis added).

In conclusion, the subject merchandise may be placed in a FTZ pursuant to 19 U.S.C. § 1562 as implemented by 19 C.F.R. § § 19.11 and 146.44, for the purpose of manipulation.

Issue 2

Argo asserts that the proposed operation, is a manipulation and not a manufacture. Pursuant to 19 U.S.C. § 1562, merchandise may be “cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured.” In Tropicana Food Products, Inc. v. United States, 789 F. Supp. 1154 (Ct. Int’l Trade 1992), the Court of International Trade (CIT) discussed the meaning of the term "manufactured" as it relates to 19 U.S.C. § 1562. The CIT held that while the term "manufactured" commonly connotes a "transformation" of an import to a "new and different article", for purposes of § 1562, a low threshold of transformation satisfies the meaning of "manufactured." 789 F. Supp. at 1158-59. The CIT referred to the evident legislative intent of the statute to permit only very minor or rudimentary manipulations in bonded warehouse-akin to the exemplars (cleaning, sorting and repacking). Id.

Here, bottles of alcohol will be temporarily deposited into the FTZ so that codes, located beneath the labels, may be removed. In essence, the label is being slightly altered. Customs has determined that labeling of merchandise in a bonded warehouse is a permissible manipulation. HQ 224957 (Nov. 12, 1993) (labeling customer logo on mask straps is a permissible manipulation); HQ 225203 (June 29, 1994)(marking wearing apparel with country of origin similar to labeling and thus, a permissible manipulation). Although relabeling or alteration of the label is distinguishable from the foregoing rulings, it is similarly a very minor or rudimentary manipulation and would fall within the repacking exemplar. As such, we conclude that the subject decoding operation, as described herein, is a permissible manipulation under 19 U.S.C. § 1562.

Holding

1) The bottles of alcohol in a bonded warehouse may be temporarily deposited, in a foreign trade zone pursuant to 19 C.F.R. § 146.33, to be repacked as permitted by 19 U.S.C. § 1562 and 19 C.F.R. § 19.11, et seq.

2) The decoding process described herein is a manipulation as repacking.

Sincerely,

Myles B. Harmon, Director

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