HQ 558983

June 29, 1995

CLA-2 R:C:S 558983 WAS

CATEGORY: Classification

U.S. Customs Service

District Director

477 Michigan Avenue

Room 200

Detroit, MI 48226

RE: Application for Further Review of Protest No. 3801-94-106710
concerning the applicability of subheading 9801.00.10, HTSUS, to Ford
Taurus Station Wagons; detrimental reliance; uniform and established
practice; 19 U.S.C. 1315(d); Article 509; NAFTA

Dear Sir/Madame:

This is a decision on an application for further review of the
above-referenced protest which was timely filed by Steuart & Parker, on
behalf of Mr. Philip Trupiano, of Auto Enterprises, Inc., against your
decision regarding denial of duty-free treatment under subheading
9801.00.10, HTSUS, of Ford Taurus Station Wagons (1994 models). The
subject merchandise was entered on March 29, 1994 through the port of
Detroit and was liquidated on August 19, 1994. We had an opportunity to
meet with counsel on March 10, 1995, to further discuss this matter.
Counsel submitted additional information dated April 11, 1995, which was
considered in rendering our decision. Our decision follows.

FACTS:

The merchandise which is subject to this protest consists of 1994 Ford
Taurus model vehicles imported from Canada. Protestant submits that the
vehicles were assembled in U.S. foreign trade zones (\"FTZ\") (assembly
plant in Chicago, Illinois, foreign trade subzone 22B) and then shipped
directly from the FTZ to Canada where they were used primarily as rental
vehicles prior to being imported into the U.S. Upon entry into the U.S.,
the vehicles were classified under heading 8703, HTSUS, and assessed a
duty rate of 2.5 percent ad valorem. Protestant claims that the vehicles
should be eligible for duty-free treatment under subheading 9801.00.10,
HTSUS, when they are returned to the U.S. and contests Customs denial of
duty-free treatment for the subject entries.

Protestant states that the vehicles entered into the commerce of Canada
in many cases as a result of purchases by rental car companies for
incorporation into their fleets. Protestant further states that after a
certain period of time many of these vehicles are then purchased by U.S.
Department of Transportation-licensed importers, such as protestant, for
reimportation into the U.S. These vehicles are then serviced to satisfy
U.S. DOT standards and sold for use in the U.S. market.

Protestant submits that there is no legal basis which allows Customs to
advance the rate of duty for these vehicles. Furthermore, protestant
claims that there is no legal basis which disallows the payment of a
lower duty rate and that in accordance with U.S. law, the North American
Free Trade Agreement and the NAFTA Implementation Act, the vehicles of
this protest are not vehicles to which the 2.5 percent ad valorem rate
of duty should apply. Protestant claims that upon the importation of the
subject vehicles back to the U.S., duty should be assessed only on the
vehicle\'s foreign content, and not on the value of the entire vehicle.
Protestant contends that the only foreign content which is incorporated
into the subject vehicles is the radio which comprises less than one
percent of the total value of each vehicle.

ISSUES:

\(1\) Whether the vehicles which are produced in a foreign trade zone
from U.S. and foreign components exported directly from the FTZ to
Canada and then imported into the U.S. are entitled to duty exemption
under the NAFTA or under subheading 9801.00.10, HTSUS.

\(2\) Whether there is a uniform and established practice to provide
duty-free treatment under subheading 9801.00.10, HTSUS, to vehicles
which are produced in a FTZ from U.S. and foreign components, exported
directly from the FTZ and then imported into the U.S.

\(3\) Whether protestant has substantiated its claim for detrimental
reliance.

LAW AND ANALYSIS:

I. Duty-free Treatment

A. NAFTA Eligibility

The sixth proviso to section 3 of the Foreign Trade Zone Act (\"FTZA\")
of June 18, 1934 (49 Stat. 9) as amended, states as follows:

That articles produced or manufactured in a zone and exported therefrom
shall on subsequent importation into the customs territory of the United
States be subject to the import laws applicable to like articles
manufactured in a foreign country, except that articles produced or
manufactured in a zone exclusively with the use of domestic merchandise,
the identity of which has been maintained in accordance with the second
proviso of this section may, on such importation, be entered as American
goods returned. (Emphasis added).

Customs recently addressed the issue concerning the dutiable status of
articles made with foreign components in a Foreign Trade Zone that are
imported after having been exported from the zone in C.S.D. 95-3, 29
Cust. Bull. 11 (February 8, 1995). In this case, automobiles were made
in a foreign trade zone using some parts of foreign origin. Those parts
were admitted into the zone in either privileged foreign status or
non-privileged foreign status. After manufacture, the automobiles were
exported to Canada without any duty having been paid on those parts.
After that exportation, the automobiles were imported into the U.S. The
issue in C.S.D. 95-3 was whether the sixth proviso to section 3 of the
Foreign Trade Zones Act (19 U.S.C. 81c(a)) requires duty to be assessed
on the full value of an automobile made in a zone exported and then
returned to the U.S. In this decision, Customs held that the automobile
is dutiable on its full value at the appropriate most-favored nation
rate of duty on its importation back into the U.S. Customs further
stated that such an automobile does not qualify for duty-free treatment
under the North American Free Trade Agreement.

The argument was made by the importer in C.S.D. 95-3 that the words \"be
subject to the import laws applicable to like articles manufactured in a
foreign country\" should be construed to mean like articles made in the
specific country from which the article is sent back to the U.S. so that
an article made in a zone with foreign components would become an
article of the country of reexportation simply by passing through that
country. Customs found, however, that this proposed interpretation would
lead to the erroneous result whereby the exportation to Canada would
convert Japanese components which had been assembled to produce the
vehicle, on which no duty was ever paid, into a Canadian-origin
automobile which would be entitled to be entered duty-free under the
NAFTA. Customs further stated that, such an automobile could be exported
from a zone into Canada and then re-imported into the United States free
of duty. Another possible consequence that could arise under this
scenario was that such an automobile could be made in a zone, exported
to France, duty-free and then re-imported into the United States through
Canada, again free of duty.

Based on our holding in C.S.D. 95-3, we find in the instant case that
vehicles which are manufactured in a FTZ using both U.S. and
foreign-origin components, exported to Canada, without any duty having
been paid on the foreign-origin components, and subsequently reimported
into the U.S. are not considered Canadian-origin vehicles. We are of the
opinion that the exportation to Canada does not convert the vehicle
which is made in a FTZ using foreign-origin components into a
Canadian-origin vehicle merely by passing through that country.

Protestant also argues that the vehicles which are subject to this
protest meet the requirements under Section 202(a)(2) of the NAFTA for
\"originating goods.\" Section 202(a) of the North American Free Trade
Agreement provides, in pertinent part, as follows:

Sec. 202 RULES OF ORIGIN

\(A\) ORIGINATING GOODS\--

\(1\) IN GENERAL\-- For purposes of implementing the tariff treatment
and quantitative restrictions provided for under the Agreement, except
as otherwise provided in this section, a good originates in the
territory of a NAFTA country if \-\--

(B)(I) each nonoriginating material used in the production of the
good\--

\(I\) undergoes an applicable change in tariff classification set out in
Annex 401 of the Agreement as a result of production occurring entirely
in the territory of one or more of the NAFTA countries; or

\(II\) where no change in tariff classification is required, the good
otherwise satisfies the applicable requirement 50 for such Annex; and

\(ii\) the good satisfies all other applicable requirements of this
section;

© the good is produced entirely in the territory of one or more of the
NAFTA countries exclusively from originating materials;

In this instance, it is argued that the operations performed in the FTZ
will qualify the vehicles under Section 202(a)(1) of the NAFTA. However,
there is specific statutory language which governs the tariff treatment
of goods under these circumstances. Section 202(a)(2)(A) provides as
follows:

\(2\) SPECIAL RULES\--

\(A\) FOREIGN TRADE ZONES \-- Subparagraph (8) of paragraph (1) shall
not apply to a good produced in a foreign trade zone or subzone
(established pursuant tot eh Act of June 18, 1934, commonly known as the
Foreign Trade Zones Act) that is entered for consumption in the customs
territory of the United States.

With regard to the issue of whether the vehicles which are entered into
the U.S. from Canada are considered \"originating goods\" and thus
entitled to preferential tariff treatment under the NAFTA, Customs held
in C.S.D. 95-3,

The statute contemplates that goods which meet the applicable rule of
origin by virtue of operations performed in a United States Foreign
Trade Zone will not be regarded as originating upon entry for
consumption into the United States. In this case, it is clear that the
operations which are performed in the zone will not render the vehicles
originating based on the change in tariff classification that occurs to
the nonoriginating materials in the zone.

Therefore, protestant\'s claim that the vehicles which are the subject
of this protest meet the requirements for \"originating goods\" under
the NAFTA is based on an incorrect interpretation of the statute.

Protestant further maintains that the limitation in Section 202(a)(2)(A)
is not applicable in this case. Specifically, protestant claims that
since the non-originating components in the vehicle represent less than
seven percent, the non-originating components are \"de minimis\" under
Section 202(e), and the car should be considered \"originating\" for
purposes of receiving NAFTA treatment. Section 202(e) implements Article
405.1 of the Agreement which, in pertinent part, provides:

a good shall be considered to be an originating good if the value of all
non-originating materials used in the production of the good that do not
undergo an applicable change in tariff classification set out in Annex
401 is not more than seven percent of the transaction value of the good,
adjusted to a F.O.B. basis, or, if the transaction value of the good is
unacceptable under Article 1

of the Customs Valuation Code, the value of all such non-originating
materials is not more than seven percent of the total cost of the good.
. .

Under the terms of the above provision, the \"de minimis\" concept
operates only where the materials which are claimed to be de minimis do
not undergo an applicable change in tariff classification as set forth
in Annex 401. Protestant argues that a foreign radio assembled into a
vehicle in a FTZ remains a radio and does not undergo an acceptable
tariff shift in the zone. We are of the opinion, however, that the radio
enters the zone properly classified as a radio and after it is assembled
with other components into the finished vehicle, it leaves the zone as
part of a vehicle. Therefore, in the instant case, the nonoriginating
materials clearly undergo the requisite change in tariff classification
and are therefore, not eligible to be regarded as \"de minimis\"
components under the terms of Section 202(e) of the NAFTA.

B. Subheading 9801.00.10, HTSUS, Eligibility

Subheading 9801.00.10, HTSUS, provides for the free entry of U.S.
products that are exported and returned without having been advanced in
value or improved in condition by any means while abroad, provided the
documentary requirements of section 10.1, Customs Regulations (19 CFR
10.1), are met. The courts have held that, while some change in the
condition of the product while it is abroad is permissible, operations
which either advance the value or improve the condition of the exported
product render it ineligible for duty-free entry upon return to the U.S.
Border Brokerage Co, Inc. v. United States, 65 Cust. Ct. 50, C.D. 4052,
314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970). Moreover,
compliance with section 10.1(a) is mandatory and a condition precedent
to recovery unless compliance has been waived or is impossible. Maple
Leaf Petroleum, Ltd. v. United States, 25 CCPA 5, T.D. 48976 (1937). The
basis for waiver of the required documentation is predicated upon the
district director being satisfied by the production of other evidence as
to the U.S.-origin of the merchandise and its eligibility under
subheading 9801.00.10, HTSUS.

Customs has interpreted the sixth proviso to section 3 of the FTZA to
mean that any good which is exported from a zone that has not had duty
paid on the foreign merchandise incorporated into the good is fully
dutiable upon any subsequent importation into the U.S. Moreover, a good
which is produced in an FTZ will not be considered a good of U.S. origin
unless the good is exported, duty paid from a zone, prior to being
reimported into the U.S., or unless the good produced in the FTZ is
comprised wholly of domestic materials. In Headquarters Ruling Letter
(HRL) 553240, a truck was assembled in a foreign trade zone, using both
\"privileged domestic\" and \"privileged foreign parts.\" The truck was
withdrawn from the foreign trade zone on a weekly formal entry covering
the production of additional trucks. Duties were paid on the assembled
foreign merchandise having privileged foreign zone status upon
withdrawal of the truck from the FTZ for domestic consumption during
1982. The truck was subsequently exported to Germany and reimported into
the U.S. We held in HRL 553240 that since the truck was first
transferred to the Customs territory of the U.S., and duties were paid
on the foreign components, prior to being exported to Germany, upon
return to the U.S., the truck was eligible for duty-free treatment under
the American Goods Returned provision. Customs concluded that the
foreign merchandise used in the assembly of the truck had lost its
foreign character and was considered to have been substantially
transformed by being merged into the assembled truck. \"The merger
occurred in the FTZ located in the U.S. and the substantial
transformation was complete when the truck was entered for consumption
in the U.S. and duties paid on the privileged foreign merchandise.\"
This position was followed in HRL 556976 dated June 9, 1994, in which
Customs concluded that engines produced as a result of a substantial
transformation of foreign and domestic parts in an FTZ established in
the U.S. and entered from the FTZ for consumption before being exported
to Japan were considered \"article\[s\] manufactured within the Customs
territory of the U.S.\", and, therefore, \"products of the U.S.\" for
purposes of subheading 9802.00.80, HTSUS, and section 10.12(e), Customs
Regulations (19 CFR 10.12(e)). Accordingly, as there is no evidence that
the vehicle in the instant case was exported, duty paid from the zone
prior to being reimported into the U.S., the vehicle which is produced
in the zone from U.S. and foreign-origin components is not considered a
good of U.S.-origin for purposes of eligibility under subheading
9801.00.10, HTSUS.

II\. Uniform and Established Practice

Protestant alleges that Customs has failed to comply with the
requirements of 19 U.S.C. 1315(d) which concerns the effective date of
administrative rulings resulting in higher rates. Section 1315(d)
provides as follows:

No administrative ruling resulting in the imposition of a higher rate of
duty or charge than the Secretary of Treasury shall find to have been
applicable to imported merchandise under an established and uniform
practice shall be effective with respect to articles entered for
consumption or withdrawn from warehouse for consumption prior to the
expiration of thirty days after the date of publication in the Federal
Register of notice of such ruling; but this provision shall not apply
with respect to the imposition of anti-dumping duties or the imposition
of countervailing duties under section 1303 of this title.

Protestant maintains that for the ten years prior to June, 1994, FTZ
produced vehicles, such as the vehicles subject to this protest, were
reentered from Canada as American Goods Returned, under subheading
9801.00.10, HTSUS, and not subject to duty. Protestant claims that since
no notice of Customs\' ruling of the change in treatment from granting
duty-free treatment pursuant to the American goods returned provision
has been published in the Federal Register, no change can take effect
with respect to articles entered for consumption until after 30 days
from the date of publication of such ruling. Therefore, protestant
claims that the vehicles assembled in the FTZ which are the subject of
this protest should be treated as American goods returned and eligible
for duty-free treatment, upon reentry into the U.S.

As previously stated, entries of articles which are claimed to be
duty-free pursuant to subheading 9801.00.10, HTSUS, must satisfy certain
documentation requirements. 19 CFR 10.1 requires the following documents
to be filed in connection with the entry: (1) a declaration by the
foreign shipper in which he/she declares that the articles are products
of the U.S. and that they were exported from the U.S. from the port of X
country and returned without having been advanced in value or improved
in condition; and (2) a declaration by the owner, importer, consignee,
or agent having knowledge of the facts regarding the claim for free
entry. Prior to the amendment of 19 CFR 10.1 by T.D. 94-47, 28 Cust.
Bull. 1 (May 25, 1994), importers were also required to file a Customs
Form 3311 with the entry to show whether drawback was claimed or paid on
the merchandise covered by the certificate and, if any was paid, the
amount thereof. However, T.D. 94-47, eliminated the use of Customs Form
3311 for articles which are entered under subheading 9801.00.10, HTSUS,
after June 16, 1994. As the vehicles subject to this protest were
entered prior to June 16, 1994, the submission of Customs Form 3311 is
still required with the entry.

With regard to the applicability of American Goods Returned (subheading
9801.00.10, HTSUS), to goods that are manufactured in a foreign trade
zone from both foreign and domestic-origin materials, Customs has not
deviated from its long-standing position which is clearly stated in HRL
553240 dated March 5, 1985, as previously discussed in this protest
decision. Customs position is that goods which are produced in a FTZ
from both U.S. and foreign components are not considered \"products of\"
the U.S., unless duty has been paid on the value of the foreign
components when exported from the zone, or the good is comprised wholly
of domestic components or materials. In the instant case, duty has not
been paid on the value of the foreign components when exported from the
zone to Canada, and the vehicles are clearly not comprised wholly of
U.S.-origin components, therefore, the vehicles are not considered
\"products of\" the U.S. within the meaning of subheading 9801.00.10,
HTSUS.

Furthermore, we believe that a uniform and established practice cannot
exist for entries which are claimed to be duty-free under subheading
9801.00.10, HTSUS. In order for an entry to be free of duty under this
provision, certain documentation requirements must be satisfied, or the
District Director must be satisfied that all of the requirements for
eligibility under this provision have been satisfied so that the
documentation requirements may be waived. Therefore, the fact that a
Ford Taurus may enter into the U.S. at a free rate of duty under
subheading 9801.00.10, HTSUS, does not necessarily mean that a similar
Ford Taurus is eligible to enter into the U.S. duty-free under
subheading 9801.00.10, HTSUS. We recognize that the courts have found
that a section 1315(d) \"established and uniform practice\" can be
predicated on uniform classifications and liquidations at various ports
over a period of time. Heraeus-Amersil, Inc. v. United States, 617 F.
Supp. 89, 9 CIT 412 (1985), (where the court found that a uniform and
established practice had been established with regard to the
classification of fused quartz/fused silica under items 540.11 and
540.41, TSUS). The facts at issue in this case, however, do not involve
the question of whether or not a certain tariff classification applies,
but rather whether the subject vehicles have satisfied all of the
requirements for duty-free eligibility under a Chapter 98, HTSUS,
provision. Entries under subheading 9801.00.10, HTSUS, are fact
specific; each entry stands on its own particular fact situation. Hence,
liquidations covering the same type of merchandise at a free rate of
duty are not enough to establish a uniform and established practice
under subheading 9801.00.10, HTSUS.

III\. Detrimental Reliance

Protestant further maintains that Customs\' publication of C.S.D. 95-3
has the effect of formally modifying Customs\' long-standing treatment
of vehicles in substantially identical transactions. It is further
claimed that this modification is in violation of 19 CFR 177.9(e)(1),
which concerns ruling letters which have the effect of modifying past
Customs treatment of transactions not covered by ruling letters.
According to 19 CFR 177.9(e)(1):

The Custom Service will from time to time issue a ruling letter covering
a transaction or issue not previously the subject of a ruling letter and
which has the effect of modifying the treatment previously accorded by
the Customs Service to substantially identical transactions of either
the recipient of the ruling letter or other parties covering a
transaction or issue not previously the subject of a ruling letter has
the effect of modifying the treatment previously accorded by Customs.

In such circumstances, pursuant to 19 CFR 177.9(e)(1), the Customs
Service may delay the effective date of the ruling letter, and continue
the treatment previously accorded the substantially identical
transaction, for a period of up to 90 days from the date the ruling
letter is issued. However, in situations where a party has relied, not
on a previously issued ruling letter, but on past Customs treatment,
Customs requires that the affected party submit an application
requesting a delay in the effective date of a ruling letter. In these
situations, 19 CFR 177.9(e)(2), sets forth specific requirements for
such applications. According to this provision, the applicant must
demonstrate to the satisfaction of the Customs Service that the
treatment previously accorded relates to substantially identical
transactions, and was sufficiently consistent and continuous that the
party reasonably relied on the past treatment in the arrangement of
future transactions.

Specifically, section 177.9(e)(2) requires that the applicant must
submit evidence of past treatment by the Customs Service covering the
2-year period immediately prior to the date of the ruling letter,
listing all substantially identical transactions by entry number. In
addition, the applicant must provide the quantity and value of
merchandise covered by each such transaction, the ports of entry, and
the dates of final action by the Customs Service. Section 177.9(e)(2)
further notes that, \"The evidence of reliance shall include contracts,
purchase orders, or other materials tending to establish that the future
transactions were arranged based on the treatment previously accorded by
the Customs Service.\" Finally, in order to grant a delay pursuant to
177.9(e)(1), the Regulations require that Customs examine all relevant
factors regarding the issue of reliance. Section 177.9(e)(3) requires
that Customs carefully review the past transactions on which reliance is
claimed to determine whether there was an examination of merchandise by
Customs. Furthermore, in making the determination to delay, the weight
accorded to the documented history of consistent and continuous Customs
treatment, will be diminished in the following instances: transactions
involving small quantities or values, informal entries, and situations
where Customs, in the interest of commercial facilitation and
accommodation, processes expeditiously and without examination and/or
import specialist review. See 19 CFR 177.9(e)(3).

Protestant submits that it was mislead by Customs and that it reasonably
relied to its detriment (for 10 to 15 years protestant built a business
predicated on the cost of the cars which were duty-free) and that
Customs knew that the protestant was relying on Customs\' actions, and
thus, protestant has satisfied its claim for detrimental reliance.
Protestant states that Customs was apprised in writing that each car at
issue was manufactured in a U.S. foreign trade zone, because the serial
number for each car contained the identity code for the manufacturing
plant, as indicated by the eleventh digit. Protestant further submits
that this code was constructed by the government for the purpose of
providing exactly this type of information.

It is clear that under the facts in this case, protestant has not
established a claim for detrimental reliance. Protestant has failed to
demonstrate to the satisfaction of the Customs Service that the entries
which were previously liquidated free of duty are substantially
identical transactions to the entries involved in this protest. Mere
evidence of liquidation of a vehicle at a free rate under subheading
9801.00.10, HTSUS, is not sufficient to establish that the transaction
was substantially identical to the subject entries. In order to be
eligible for duty-free treatment under this provision, each entry must
satisfy the documentation requirements or the district director must be
satisfied that all of the requirements for eligibility are satisfied so
that the documentary evidence may be waived. In the instant case, there
is also no indication that the district director waived production of
the documentary requirements. Therefore, even if protestant could
produce evidence that vehicles manufactured in a foreign-trade zone were
exported directly from the FTZ to Canada and subsequently imported into
the U.S. free of duty under subheading 9801.00.10, HTSUS, this would not
mean that future entries of vehicles will be entitled to enter into the
U.S. free of duty. As previously indicated, the requirements for
eligibility under subheading 9801.00.10, HTSUS, must be satisfied for
each article at the time of its importation, and cannot be based upon
prior importations of similar articles. In any case, however, Customs
does not know and protestant has not established whether the prior
entries which were accorded duty-free treatment involved the exact same
circumstances as the entries which are the subject of this protest.

IV\. Summary

Accordingly, as the vehicles are not eligible for duty-free treatment
under subheading 9801.00.10, HTSUS, or NAFTA (General Note 12), they are
subject to duty upon the full dutiable value of the vehicle at the MFN
(Column 1) rate for foreign merchandise. Inasmuch as these entries were
not made directly from the FTZ to the U.S. for consumption, Customs does
not have the authority to apply a duty rate on only the value of the
foreign materials incorporated therein.

HOLDING:

Based on the information provided, the subject vehicles made from U.S.
and foreign components which are produced in a FTZ, exported directly
from the FTZ into Canada and then imported into the U.S. are not
entitled to duty-free treatment under either the NAFTA or subheading
9801.00.10, HTSUS. Furthermore, we do not find that protestant has
demonstrated that either an established and uniform practice was created
pursuant to 19 U.S.C. 1315(d), or a claim for detrimental reliance is
warranted within the meaning of 19 CFR 177.9(e). Accordingly, we
conclude that the subject vehicles are fully dutiable at the MFN
(Column 1) rate for foreign merchandise, and 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 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

Commercial Rulings Division