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HQ 116481




July 26, 2005

BOR-4-07-RR:IT:EC 116481 GOB

CATEGORY: CARRIER

Carl D. Cammarata, Esq.
Law Offices of George R. Tuttle
Three Embarcadero Center
Suite 1160
San Francisco, CA 94111

RE: Containers; 19 CFR 10.41a, 10.41b; Instruments of International Traffic

Dear Mr. Cammarata:

This letter is in reply to your letter of May 31, 2005, submitted on behalf of Matson Navigation Company ("Matson"). We have also considered the points raised in a telephone conference on June 29, 2005 and your supplemental submission of July 11, 2005.

FACTS:

In your letter of May 31, 2005, you describe the pertinent facts and your assertions as follows:

Matson is a U.S. domestic ocean carrier principally engaged in transporting containerized freight and automobiles between the U.S. Pacific Coast and Hawaii, Guam, and U.S. possessions in the mid-Pacific.

Currently, Matson imports its foreign built serially numbered substantial holders or containers and utilizes these containers thereafter in its domestic service. These containers have been formally entered through Customs (they are duty-free under 8609.00.00, HTS) and, as required by 19 U.S.C. § 1509(a)(1)(A), Matson maintains its entry records for these imported containers so that Customs may verify the entries.

Matson intends to continue to maintain its present domestic service but it is now planning to implement a new international service between the United States, Guam, and China. In order to facilitate the efficient utilization of all of its containers in both the domestic and international services, Matson plans to use all of its containers interchangeably in both services. These containers will include both its:

Existing containers that have been properly entered and are presently being utilized in its domestic service, and

Approximately 13,000 new, foreign built, serially numbered, substantial holders or containers that it plans to acquire and formally enter through Customs upon their first arrival in the U.S.

By making formal consumption entry for all of its foreign built, serially numbered, substantial holders and containers, and by maintaining these formal entry records, we wish to confirm that Matson will be able to utilize all of these properly entered containers interchangeably between its domestic service and international service without making repeated Consumption Entries for the same container or creating new records to monitor each of the containers' arrival and exit from the United States. Matson will mark these containers in any manner specified by Customs, including those markings set forth in Section 10.41b.

In your letter of July 11, 2005, you state in pertinent part the following:

Domestication Of All Containers. By formally entering all containers at the time of their first arrival in the U.S., Matson's entire fleet of containers are, and will continue to be, domesticated, and Matson has, and will continue to maintain the appropriate entry records for inspection by Customs, as required by 19 C.F.R. § 10.41b(f). Since these containers are all duly entered with Customs, it is requested that once properly entered, they be considered to be of U.S. origin and, as such, would be exempt from further entry under the last proviso of 19 C.F.R. § 10.41a(d). This interpretation would be analogous to registering a personal item under 19 C.F.R. § 148.1 so that the item, such as a foreign made camera, can be brought in and out of the U.S. repeatedly without making entry. The advantage of this procedure is that it would not require any additional entries or recordkeeping requirements.

Customs has authority to exempt these containers pursuant to 19 U.S.C. § 1322(a). . . .

If Customs does not exercise this authority, and requires the containers to be entered repeatedly every time they return from China (as described in 19 C.F.R. § 10.41a(g)(3)), this would appear to cause unnecessary administrative burden for both Customs and Matson, as well as inaccurately inflating the statistics on the actual number of foreign-built containers being imported. For statistical purposes, it will appear that a much greater number of containers are being imported for use in the U.S. than are actually present in the U.S. This is because the same container will be repeatedly imported but for statistical purposes it will appear to be additional containers. Further, there is no revenue loss to the government, as the containers are duty-free and, when imported through an inland port [footnote omitted], there are no harbor maintenance fees payable. Therefore, by not exempting them, there will be a lot more paperwork for both Customs and Matson that will not protect any governmental interest.

Second Proposed Solution. In the event Customs rejects the first procedure set forth above, Matson proposes to file one additional entry each year for its entire fleet of domesticated containers so that it will be certain to have filed an entry on every container that has departed the U.S. within the year, has returned to the U.S. within the year, and has or will remain in the U.S. for longer than that one year. In this manner, all of Matson's containers will be in compliance with Section 10.41b and entry will have been made for all containers that will remain in the U.S. for longer than 365 days as specified in Section 10.41a(g)(3). The advantage to this proposal is that it will require filing only one additional entry per year and recordkeeping will be easy to maintain.

Third Proposed Solution. In the event that Customs rejects both of the above proposed solutions, it is requested that Customs allow Matson to file one entry per month for its entire fleet of previously entered containers. In that manner, Matson will be certain to have filed an entry within the specified monthly time period set forth in Section 10.41a(g)(3) on every container that has departed the U.S. within a year, has returned to the U.S. within a year, and will remain in the U.S. for longer than one year. As with the proposals above, all of Matson's containers will be in compliance with Section 10.41b, and entry will have been made for all containers that will remain in the U.S. for longer than 365 days as specified in Section 10.41a(g)(3). This procedure will require filing only twelve additional entries per year and the recordkeeping will be easily maintained.

Filing monthly appears to be specifically authorized in this regulation. It provides that:

When entry is required under this section, any containers considered removed from international traffic in the same month may be listed on one entry. [Emphasis added in original.]

Matson considers all of its returning containers to be removed from international traffic, as they are primarily intended for use domestically. It is only the 900 per week, out of approximately 37,000, that are used foreign in any week. Further, the bond provision in 19 C.F.R. § 113.66(a) seems to support the viability of using this procedure. [Emphasis in original.]

ISSUE:

The treatment of certain foreign-manufactured containers under the relevant customs laws and U.S. Customs and Border Protection ("CBP") regulations.

LAW AND ANALYSIS:

Title 19, United States Code, section 1322(a) provides in pertinent part:

Vehicles and other instruments of international traffic, of any class specified by the Secretary . . . , 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 . . .

The CBP Regulations issued under the authority of 19 U.S.C. 1322 are contained in section 10.41a, CBP Regulations (19 CFR 10.41a). Section 10.41a(a)(1) designates lift vans, cargo vans, shipping tanks, skids, pallets, caul boards, and cores for textile fabrics as instruments of international traffic.

Section 10.41a(a)(1) also authorizes the Commissioner of CBP to designate as instruments of international traffic such additional articles or classes of articles as he shall find should be so designated. Instruments so designated may be released without entry or the payment of duty, subject to the provisions of 19 CFR 10.41a. Instruments so designated are also stated to be duty-free in subheading 9803.00.50, Harmonized Tariff Schedule of the United States ("HTSUS").

Section 10.41a(d) provides in pertinent part that if an instrument of foreign origin is released under section 10.41a and is subsequently diverted to point-to-point local traffic within the United States, or is otherwise withdrawn in the United States from its use as an instrument of international traffic, it becomes subject to entry and the payment of any applicable duties. The final sentence of 19 CFR 10.41a(d) provides: "An instrument of United States origin which has not been increased in value or improved in condition by a process of manufacture or other means while abroad and which is released under this section shall not be subject to entry or the payment of duty if it is so diverted or otherwise withdrawn."

Section 10.41a(e) provides in pertinent part that the person who filed the application for release under 19 CFR 10.41a(a)(1) shall make the appropriate notification to a port director if the instrument of international traffic is diverted or withdrawn, in which event he shall file a consumption entry and pay duties due.

Section 10.41a(g)(1) provides that a container that is designated as an instrument of international traffic is deemed to remain in international traffic provided the container exits the U.S. within 365 days of the date on which it was admitted. Section 10.41a(g)(2) provides that the person who filed the application for release under 19 CFR 10.41a(a)(1) is responsible for keeping and maintaining such records otherwise generated and retained in the ordinary course of business, as may be necessary to establish the international movements of the containers. Such records shall be made available for inspection by CBP officials upon reasonable notice. Section 10.41a(g)(3) provides that if the container does not exit the U.S. within 365 days of the date on which it is admitted under section 10.41a, such container shall be considered to have been removed from international traffic, and entry for consumption must be lade within 10 business days after the end of the month in which the container is deemed removed from international traffic. Section 10.41a(g)(3) further provides that when such entry is required, any containers considered removed from international traffic in the same month may be listed on one entry.

Section 10.41b(a) provides that the containers described in this section may be released without entry or the payment of duty, subject to the provisions of section 10.41b.

Section 10.41b(d)(1) provides for the serial numbering of certain containers for which free clearance is requested under subheading 9803.00.50, HTSUS.

Section 10.41b(f) provides that the owner shall keep adequate records open to inspection by CBP officers. The records shall show the current status of the serially numbered containers in service and the disposition made of such containers taken out of service.

U.S. Note 3 to Subchapter III, Chapter 98, HTSUS, provides in pertinent part as follows:

In order to facilitate the prompt clearance at ports of entry of substantial containers and holders provided for in this subchapter, the Secretary . . . is authorized:

(a) To permit the admission thereof without entry if readily identifiable as meeting the conditions of free entry set forth in this subchapter; . . .

U.S. Note 4 to Subchapter III, Chapter 98, HTSUS, provides in pertinent part as follows:

Instruments of international traffic, such as containers, lift vans, rail cars and locomotives, truck cabs and trailers, etc. are exempt from formal entry procedures but are required to be accounted for when imported and exported into and out of the United States, respectively, through the manifesting procedures required for all international carriers by the United States Customs Service [now CBP].

Subheading 9803.00.50, HTSUS provides for duty-free treatment for:

Substantial containers and holders, if products of the United States . . . or if of foreign production and previously imported and duty (if any) thereon paid, or if a class specified by the Secretary . . . as instruments of international traffic, repair components for containers of foreign production which are instruments of international traffic, and accessories and equipment for such containers . . .

It is our position that Matson may handle the scenario presented in three different manners.

If Matson makes entry (duty-free) of the containers under subheading 8609.00.00, HTSUS, the containers are deemed exported when they leave the U.S. for a foreign country and are subject to entry upon each subsequent importation into the U.S. Matson may continue to make duty-free entry under subheading 8609.00.00, HTSUS, upon each importation. Records must be retained pursuant to 19 U.S.C. 1508 and 1509. Normal manifesting requirements apply.

As a second option, Matson may make the first entry of the containers duty-free under subheading 8609.00.00, HTSUS, or subheading 9803.00.50, HTSUS. For subsequent importations of the containers, Matson may use 19 CFR 10.41b, under which the containers may be released without entry or the payment of duty (subject to the terms of section 10.41b), and request free clearance under subheading 9803.00.50, HTSUS, pursuant to section 10.41b(d)(1). Under this alternative, the containers must be serially numbered as provided in section 10.41b(d) and records must be kept pursuant to section 10.41b(f). You state in your letter of July 11, 2005 that ". . . Matson has, and will continue to maintain the appropriate entry records for inspection by Customs, as required by 19 C.F.R. § 10.41b(f)." In your letter of May 31, 2005, you state that "Matson will mark these containers in any manner specified by Customs, including those markings set forth in Section 10.41b."

As a third option, Matson may treat the containers as instruments of international traffic (IIT's) within the meaning of 19 U.S.C. 1322(a), 19 CFR 10.41a, and Note 4 to Subchapter III, Chapter 98, HTSUS. As such, they are exempt from entry and the payment of duty. Records must be maintained pursuant to 19 CFR 10.41a(g)(2), described above. Please note also the manifesting requirements stated in Note 4, excerpted above. The IIT containers may be used between Matson's domestic and international services provided Matson complies with the pertinent regulations, including 19 CFR 10.41a(g)(1), described above, which provides that such containers are deemed to remain in international traffic provided the container exits the U.S. within 365 days of the date of its admission.

We are not able to approve your second and third proposed solutions, i.e., that Matson be permitted to file one additional entry each year for its entire fleet of domesticated containers or that it be permitted to file one entry per month for its entire fleet of previously entered containers. The use of these methods would not reflect the actual movement of the containers and would not be consistent with the longstanding reporting requirements.

We are not able to grant your request that the containers, after entry, be considered to be of U.S. origin for the purpose of the final sentence of 19 CFR 10.41a(d) because the containers are of foreign origin.

With respect to your question involving the valuation of the containers, please contact the Chief, Valuation and Special Programs Branch of this office.

HOLDING:

Matson may handle the scenario presented in three different manners.

If Matson makes entry (duty-free) of the containers under subheading 8609.00.00, HTSUS, the containers are deemed exported when they leave the U.S. and are subject to entry upon each subsequent importation into the U.S. Matson may continue to make duty-free entry under subheading 8609.00.00, HTSUS. Thus, in this method, Matson must "keep track of" these containers and file the necessary entries. Normal manifesting requirements apply.

As a second option, Matson may make the first entry of the containers duty-free under subheading 8609.00.00, HTSUS, or subheading 9803.00.50, HTSUS. For subsequent importations of the containers, Matson may use 19 CFR 10.41b, under which the containers may be released without entry or the payment of duty (subject to the terms of section 10.41b), and request free clearance under subheading 9803.00.50, HTSUS, pursuant to section 10.41b(d)(1). Under this alternative, the containers must be serially numbered as provided in section 10.41b(d) and records must be kept pursuant to section 10.41b(f).

As a third option, Matson may treat the containers as instruments of international traffic (IIT's) within the meaning of 19 U.S.C. 1322(a), 19 CFR 10.41a, and Note 4 to Subchapter III, Chapter 98, HTSUS. As such, they are exempt from entry and the payment of duty. Records must be maintained pursuant to 19 CFR 10.41a(g)(2), described above. Please note also the manifesting requirements stated in Note 4, excerpted above. The IIT containers may be used between Matson's domestic and international services provided Matson complies with the pertinent regulations, including 19 CFR 10.41a(g)(1), described above, which provides that such containers are deemed to remain in international traffic provided the container exits the U.S. within 365 days of the date of its admission.

Sincerely,

Glen E. Vereb
Chief

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