January 9, 2008 CBP Bulletin Notice Proposes to "Greatly Narrow" 9801.00.20 Duty-Free Treatment For Duty-Paid Reimports
In the January 9, 2008 issue of the U.S. Customs and Border Protection Bulletin (Vol. 42, No. 3), CBP published a notice proposing to modify seven rulings, revoke 16 rulings, and revoke a treatment as follows:
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Proposed modification/revocation of 23 rulings. CBP is proposing to modify seven rulings and revoke 16 rulings with respect to treatment under HTS 9801.00.20.
Proposed revocation of treatment (including reliance on ruling of third party). CBP is also proposing to revoke any treatment it has previously accorded to substantially identical transactions. This treatment may, among other reasons, be the result of:
the importer's reliance on a ruling issued to a third party,
CBP personnel applying a ruling of a third party to importations of the same or similar merchandise, or
the importer's or CBP's previous interpretation of the Harmonized Tariff Schedule.
CBP states that any person involved in substantially identical transactions should advise CBP by February 8, 2008, the date that written comments on the proposed rulings and actions are due. An importer's failure to advise CBP of substantially identical transactions or of a specific ruling not identified in this notice, may raise issues of reasonable care on the part of the importer or its agent for importations subsequent to the effective date of the final notice of this proposed action.
Proposed Narrowing of 9801.00.20 eligibility. HTS 9801.00.20 provides duty-free treatment in certain circumstances where goods are imported into the U.S. and duty paid, then exported from the U.S. underlease or similar use agreements, and the goods are reimported into the U.S. without having been advanced in value or improved in condition by any process of manufacture or other means while abroad. The goods must also be reimported by or for the account of the person who imported them into, and exported them from, the U.S.
It is CBP's proposed view that its current interpretation of HTS 9801.00.20 is overly broad with respect to similar use agreements.
CBP proposes that a "similar use agreement" must involve a "use" similar to a lease. CBP now proposes that a "similar use agreement" must at a minimum involve a "use," which is similar in nature to a lease.
A "lease" is defined in Black's Law Dictionary (1990) as: "a contract by which one owning . . . property grants to another the right to possess, use and enjoy it for specified period of time in exchange for periodic payment." While CBP continues to take the position that payment is not a requirement for eligibility, an agreement providing for use of the merchandise is a requirement.
Examples of acceptable "similar use agreements" are provided, (1) in the precedent case Werner & Pfleiderer Corp. v. U.S., which held that an arrangement for testing was acceptable as a "use" similar in nature to a lease, and (2) in HQ H019446 which is proposed to modify HQ 222863, and states that an agreement for "use" for exhibition is acceptable as a similar use agreement.
Mere warehousing, packaging, not an acceptable "use." HQ H019800 proposes to modify HQ 546561 to make products stored and re-packaged in Mexico ineligible. In this instance a US company is paying a facility in Mexico to store and repackage products. CBP proposes that this is not a "use" similar to a lease because the Mexican facility is not using the goods for any purpose (e.g. testing, exhibition). HQ H019801 proposes to modify HQ 560511 to make goods repackaged in Dominican Republic ineligible for similar reasons. CBP proposes that there must be an agreement under which the merchandise was exported and that the agreement provide for the merchandise to be used, not merely held for resale.
Payment is not required; bailment is not part of the statutory language. CBP is proposing to continue its view that payment is not required for HTS 9801.00.20 eligibility. CBP states state that addressing whether the language "lease or similar use agreement" encompasses a "bailment" is unimportant as that term is not part of the statutory language of HTS 9801.00.20. An agreement providing for "use" of the merchandise is the key issue.
As a result of the above, CBP is proposing to issue HQ H019446, HQ H019799, HQ H019800, and HQ H019801 in order to modify HQ 222863, HQ 562343, HQ 546561, and HQ 560511, respectively. CBP is also proposing to modify HQ 964960, HQ H016586, and NY L81087, to reflect this new analysis.
In addition CBP proposes to revoke the following 16 rulings: NYK89371, NY L89361, NY M80904; NY M85334; NY M85607; NY M85619; NY M86009; NY M86159; NY M87375; NY N003900; NY N004153; NY N004253; NY N005187; NY N005700; N006857; and NY R02752.
January 9, 2008 CBP Bulletin (Vol. 42, No. 3) available athttp://www.cbp.gov/xp/cgov/toolbox/legal/bulletins_decisions/bulletins_2008/