HQ H005096

March 12, 2007

BOR-4-07-RR:BSTC:CCI H005096 rb

CATEGORY: Carriers

Robert Shapiro

Thompson Coburn LLP

1909 K Street, NW., Suite 600

Washington, D.C. 20006-1167

RE: Instruments of international traffic; Accessories; Tamper-Resistant

Embedded Controller (TREC); 19 U.S.C. 1322(a); 19 CFR 10.41a

Dear Mr. Shapiro:

In your letter of January 5, 2007, on behalf of your client,
International Business Machines Corporation (IBM), you in effect request
a reconsideration of Headquarters ruling (HQ) 116684, dated August 17,
2006. Essentially, in HQ 116684, IBM's Tamper-Resistant Embedded
Controller (TREC) device was designated as an instrument of
international traffic (IIT) under 19 CFR 10.41a(a)(3). However, HQ
116684 also noted that the TREC would be subject to entry, where
required by 19 CFR 10.41a(a)(2). It is this entry requirement to which
the company takes exception. Our response to your request follows.

FACTS:

International Business Machines Corporation (IBM) (the company) has
developed a device known as a Tamper-Resistant Embedded Controller
(TREC). In brief, the TREC is an enhanced container-security, monitoring
and tracking device. Once installed, the device collects, analyzes and
reports data as to the status, condition and location of the container
and its contents. The TREC is designed to be mounted on new containers,
or retrofitted into containers already in circulation. It is envisioned
that the TREC may arrive installed in a container, or separately, to be
so installed.

ISSUE:

\(1\) Whether the TREC may be designated as an instrument of
international traffic (IIT) under 19 CFR 10.41a(a)(1), as the company
requests.

\(2\) Whether the TREC would be subject to compliance with 19 CFR
10.41a(a)(2), in order to be duty-free as an IIT accessory, if imported
separately from the IIT.

LAW AND ANALYSIS:

To be eligible in and of itself for designation as an instrument of
international traffic (IIT), an article must be used as a substantial
container or holder of merchandise. Subheading 9803.00.50, Harmonized
Tariff Schedule of the United States (HTSUS), is the controlling
provision herein, and it reads in pertinent part as follows:

[Substantial containers and holders]{.underline}, if products of the
United States\..., or if of foreign production

and previously imported and duty (if any) thereon paid, or [if of a
class specified by the]{.underline}

[Secretary\...as instruments of international traffic]{.underline}
\[IITs\]\...and accessories and equipment for

\[containers of foreign production which are IITs\]\...Free

Emphasis added. Under 19 U.S.C. 1322(a), these IITs may be excepted from
the application of the customs laws to such an extent and under such
terms and conditions as may be prescribed in regulations. The applicable
regulation which implements section 1322(a) is 19 CFR 10.41a, and both
this law and regulation must perforce be construed consistently with
HTSUS subheading 9803.00.50.

**Substantial Container or Holder; 19 CFR 10.41a(a)(1)**

Specifically, in § 10.41a(a)(1), certain containers and holders are
designated as IITs under section 1322(a), with the Commissioner having
the authority "to designate as \[IITs\]\...such additional articles or
classes of articles as he shall find should be so designated." Articles
designated as IITs under § 10.41a(a)(1) are exempt from entry. However,
given the constraints imposed by subheading 9803.00.50, HTSUS,
[supra]{.underline}, articles designated as IITs under section 1322(a),
and pursuant to § 10.41a(a)(1), have been strictly limited to
substantial containers and holders. Articles which do not qualify as
substantial containers or holders have consistently been refused
designation as IITs under § 10.41a(a)(1). [E.g.]{.underline}, HQ 114872,
of December 15, 1999 (cardboard boxes not sufficiently substantial
containers); C.S.D. 90-45 (steel wire slings not used as holders in
international traffic); HQ 108493, of August 13, 1986 (information
letter) (sweat absorber sheet used to protect cargo in transit did not
appear to be "containers or holders"); C.S.D. 79-395 (steel cargo slings
used only to lade/unlade cargo).

**The Company's Basic Contentions**

Nevertheless, the company believes that: its TREC device is an IIT under
19 CFR 10.41a(a)(1); the designation of the TREC in HQ 116684 (August
17, 2006) as an IIT under 19 CFR 10.41a(a)(3) automatically entitles it
to exemption from entry if imported separately; § 10.41a(a)(2), which
requires that a container accessory be entered if imported separately,
applies only to "non-IIT accessories" (accessories not designated as
IITs); the Customs Convention on Containers, 1972, Articles 6 and 11(2),
unequivocally directs that container accessories be admitted without
customs documentation (entry); and the entry requirement for a TREC
imported separately

conflicts with the World Customs Organization Framework of Standards to
Secure and Facilitate Global Trade (WCO Framework), and the
Customs-Trade Partnership Against Terrorism (C-TPAT).

The company's foregoing contentions, and related conclusions, are
without legal merit. First, as explained above, the TRECs cannot be
designated as IITs under

§ 10.41a(a)(1) because the TRECs are not substantial containers or
holders of merchandise. Such devices, however, may be employed as
accessories for use with intermodal containers, and, in fact, the
company's own literature describes the device as a "container
accessory."

**Accessories for IIT Container; 19 CFR 10.41a(a)(3) & (a)(2)**

With respect to accessories for IIT containers, 19 CFR 10.41a(a)(3)
provides that:

\[a\]s used in \[§ 10.41a\], 'instruments of international traffic'
\[IITs\] includes the [normal accessories]{.underline}

> and equipment [imported with any such instrument which is a
> 'container']{.underline} as defined in Article 1 of

the Customs Convention on Containers.

Emphasis added. Hence, any "designation" made under § 10.41a(a)(3) (that
an article is a normal accessory of an IIT container) would entitle the
accessory to the same exemption from customs entry as the IIT container
itself [only]{.underline} to the extent that the accessory is "imported
with" the container.

Accordingly, the company infers entirely too much from the finding in HQ
116684, [supra]{.underline}, that the TREC was an IIT container
accessory, and thereby subsumed under the term "instruments of
international traffic," in § 10.41a(a)(3). As already indicated, under
the plain language of § 10.41a(a)(3), [supra]{.underline}, this finding,
or designation, would exempt the TREC from entry [only]{.underline} to
the extent that the TREC was "imported with" the IIT container. At the
same time, as further noted in HQ 116684, this designation would enable
the TREC to be entered, duty-free, if imported separately, in accordance
with

§ 10.41a(a)(2).^1^ To this end, § 10.41a(a)(2) reads in relevant part as
follows:

\...[accessories]{.underline}, and equipment [for any container of
foreign production which is an \[IIT\]]{.underline} may be

entered\...for consumption without the deposit of duty if the person
making the entry\...files a

declaration\...that the accessory or equipment is for a container of
foreign production which is an

\[IIT\]. The port director must be satisfied that the importer of
the\...accessory\...had the declared

intention at the time of importation.

(^1^ Thus, in addition to HQ 116684, the company also misinterprets HQ
116288, of August 12, 2004.

HQ 116288 designated container security units (CSUs) as IITs under §
10.41a(a)(3) (as opposed to

§ 10.41a(a)(1)), and held that this designation would cover those CSUs
imported separately (without IIT containers). However, HQ 116288 did not
even address, let alone find inapplicable, the entry requirement in §
10.41a(a)(2) as to those units that might be separately imported in
bulk.)

Emphasis added. Quite obviously, the concept of a so-called "non-IIT
accessory" as asserted by the company finds no legal support whatever in
the clear text of

§ 10.41a(a)(2). Nor does such a concept comport with the rulings cited
by the company in this regard.^2^ Plainly, the accessories in §
10.41a(a)(2) are the same as those involved in § 10.41a(a)(3). The
operative distinction is that under § 10.41a(a)(3), the IIT accessory is
exempt from entry when imported with an IIT container; and, under

§ 10.41a(a)(2), the IIT accessory is subject to entry, duty-free, when
imported separately for use with such a container.

**Containers of Foreign Production; 19 CFR 10.41a(a)(2)**

The company adverts to the added requirement in § 10.41a(a)(2) that the
entry filer submit a declaration of intent confirming that the device is
"for a container of foreign production." The company insists that such a
declaration would involve "a determina- tion that is nearly impossible
to make when the TREC may not be deployed for up to a year after
importation." Such an acknowledgment by the company highlights the need
for the entry and attendant declaration of intent mandated by §
10.41a(a)(2). The device may not lawfully be admitted under subheading
9803.00.50, HTSUS, if it might be employed thereafter in domestic
commerce, or for use otherwise than in international traffic.^3^

**1972 Container Convention; WCO Framework; C-TPAT**

The company speculates that since § 10.41a(a)(2) does not contain
procedures for TRECS intended for use with 'containers of domestic
production,' TRECS so intended upon importation would be eligible for
"entry-free importation under \[§ 10.41a(a)(1)\], as no other regulatory
provision applies." The company labors under a fundamental
misunderstanding as to the scope of § 10.41a in this respect.^4^

In short, if the TREC devices should be imported individually or in bulk
(without IIT containers), a customs entry would be required, whether
under 19 CFR 10.41a(a)(2), or as otherwise provided by law and/or
regulation ([see]{.underline} 19 CFR 141.4(a) & (b)(3)).

(^2^ Again, the company misreads the rulings it cites to support its
concept of a "non-IIT accessory" in

§ 10.41a(a)(2). For example, one such ruling, HQ 116575, of January 26,
2006, resolved that "shock/ climate measuring devices \[were\]
[accessories of IITs]{.underline} \[[i.e.]{.underline}, intermodal
containers\] of foreign production" (emphasis added) (the devices were
not accessories of the pallets placed in the containers, as mistakenly
concluded by the company). As a result, HQ 116575 ruled that the devices
could be imported separately, duty-free, for such containers, under §
10.41a(a)(2).)

(^3^ It is noteworthy that the company obtained a ruling from the
National Commodity Specialist Division (NY M86830, dated September 26,
2006) separately classifying under the HTSUS TRECS not intended "at the
time of entry" for use in international traffic (subheading
8525.20.9080, HTSUS (Transmission apparatus for radiotelephony, etc.);
at present, the rate of duty thereunder is free).)

(^4^ [See]{.underline}, [e.g.]{.underline}, 19 CFR 10.41b(d)(2), which
provides, inter alia, for duty-free entry under HTSUS subheading
9803.00.50, for containers of domestic production; no provision is made
thereunder for accessories.)

By way of background, before the 1972 Customs Convention on Containers
was implemented pursuant to section 127 of the Trade and Tariff Act of
1984 (Public Law 98-573, November 12, 1984), separately-imported
accessories for IIT containers could not be accorded IIT status at all.
Such accessories had to be entered, duty-paid (if applicable), under the
specific classification for the article in the tariff schedule
([see]{.underline}, [e.g.]{.underline}, HQ 104421, of December 31, 1979
(clip-on units for use with refrigerated containers);^5^
[see]{.underline} [also]{.underline}, H. Rept. No. 98-1015, 1984 U.S.
Code Cong. & Admin. News 4960, at 4985 ("Under current law, there is no
allowance for the temporary duty-free admission of
container\...accessories and equipment").

However, section 127 of the Trade and Tariff Act of 1984 provided for
"the duty-free [entry]{.underline} of\... accessories and equipment of
'temporarily admitted containers,'" thereby bringing United States
customs treatment into conformity with Article 11(1) of the Customs
Convention on Containers, 1972 ([ibid]{.underline}.) (emphasis added).
Notably, under U.S. law, such "temporarily admitted containers" have
been correctly recognized as "containers of foreign production" which
have been designated as IITs (subheading 9803.00.50, HTSUS ("\...repair
components for containers of foreign production which are \[IITs\], and
accessories and equipment for such containers\... Free")).^6^

The company also refers to Articles 6 and 11(2) of the 1972 Container
Convention, as compelling, without exception, the admission of IIT
container accessories free of customs entry documentation. Yet, the
company overlooks the fact that Articles 6 and 11(2) are carefully
qualified in this context by Article 8 of the Convention, to wit:

Each Contracting Party shall retain the right, when the provisions of
article 6 cannot be applied, to

require the furnishing of a form of security and/or the production of
Customs documents on the

importation or re-exportation of the container.

Article 8, 1972 Container Convention. Moreover, as specifically concerns
the temporary admission of container accessories, Article 11(2)
similarly states that "\[t\]he provisions of articles\...6\... and 8
shall be applicable\...to the temporary admission of accessories and
equipment of containers, referred to in \[Article 11(1)\]" (emphasis
added).

Consequently, the 1972 Container Convention does not preclude an entry
requirement as a pre-requisite for the temporary admission of
accessories for temporarily admitted containers ([i.e.]{.underline},
containers of foreign production) which have been designated as IITs;
and it is observed that the provisions of the Convention are only
effective insofar as they has been enacted into U.S. law
([see]{.underline} C.S.D. 80-62). Furthermore, neither the

(^5^ "\[S\]ince the clip-on units did not arrive in the United States in
use as \[IITS\]\...the clip-on units cannot be released without entry or
payment of duty as \[IITs\].")

(^6^ Section 127 of the Trade and Tariff Act of 1984, and subheading
9803.00.50, HTSUS, together formed the basis for the amendment of 19 CFR
10.41a(a)(2) as it currently exists (see T.D. 85-123).)

WCO Framework of Standards nor the C-TPAT program furnishes any legal
foundation for waiving or disregarding any entry requirement otherwise
duly mandated under U.S. law and/or regulation.

HOLDING:

\(1\) The TRECs may not be designated as instruments of international
traffic (IITs) under 19 CFR 10.41a(a)(1).

\(2\) The TRECs would be subject to entry, and the filing of a
declaration, in order to enable their duty-free admission as accessories
for IIT containers of foreign production, as prescribed in 19 CFR
10.41a(a)(2), should the devices be imported separately from the
containers.

EFFECT ON OTHER RULINGS:

HQ 116684 is affirmed.

Sincerely,

Virginia L. Brown

Director

Border Security and Trade Compliance Division