HQ 222146

June 6, 1990

FOR-2-03-CO:C:R:E 222146 JR

CATEGORY: Entry/Liquidation

Mr. Theodore A. Galantowicz

District Director of Customs

7911 Forsyth Blvd., Suite 625

St. Louis, Missouri 63105

RE: Cameras; packaging; combining; FTZ; microscope

Dear Sir:

This is in response to your memorandum dated February 15,

1990 (FILE: FOR-ADD: CO DKH), requesting internal advice

concerning the Seiler Instrument & Manufacturing Company\'s

procedure of combining (packaging together) domestic or imported

duty-paid cameras with imported microscopes in a foreign trade

zone.

FACTS:

Microscopes made in the German Democratic Republic (G.D.R.)

are admitted into a foreign trade zone (FTZ) in St. Louis,

Missouri in non-privileged foreign status. These microscopes

have ports and the other necessary attachments to receive a

camera. In the FTZ, Seiler Instruments associates a camera with

each G.D.R. microscope. This is accomplished by physically

opening each crate containing a microscope and inserting into the

crate a packaged camera (either domestic or imported duty-paid).

These microscopes with cameras are subsequently entered for

consumption by Seiler under subheading 9011.20.4000, Harmonized

Tariff Schedule of the United States (HTS), at the rate of 20% ad

valorem. If the camera is of domestic origin, it will not be

subject to payment of duty and its value will be deducted from

the total value of the microscope-camera combination. If the

camera is of foreign origin and has not been previously entered

and duty-paid, the camera component of the microscope-camera

combination will be dutiable at the rate determined by the

classification of the microscope-camera combination.

In any event, following the initial entry for consumption

Seiler removes the camera from the microscope-camera combination

and returns the camera to the FTZ in domestic status where it is

again packaged with another microscope and reentered by Seiler

for consumption from the FTZ. Please note that the second time

the foreign camera (now imported duty-paid) is entered into the

Customs territory, its value is deducted from the total value of

the microscope-camera combination like a camera of domestic

origin.

Your office has raised the question whether the procedure

described above is consistent with the revised Customs FTZ

regulations, 19 CFR 146.71(d)(1) (see T.D. 86-16, effective

May 12, 1986) and C.S.D. 89-41.

ISSUE:

Is the entry for consumption of imported microscopes that

have been associated with cameras (domestic or imported duty-

paid) by means of packaging in a FTZ considered to be a \"sham\"

when the cameras are repeatedly returned to the FTZ in order to

be packaged with other imported microscopes?

LAW AND ANALYSIS:

The second proviso to section 3 of the Foreign-Trade Zones

Act of 1934, as amended, authorizes the Secretary of the Treasury

and, by Treasury Order No. 165, Revised (T.D. 53654), the

Commissioner of Customs, to make such regulations respecting the

identity and the safeguarding of the revenue as necessary with

respect to articles entered into the Customs territory and then

taken into a zone. By T.D. 86-16, section 146.71, relating to

the release and removal of merchandise from a zone, was added to

title 19 of the Customs Regulations (CR). As discussed in C.S.D.

89-41, the purpose of section 146.71, in part, was to avoid abuse

of the second proviso of 19 U.S.C. 81c by an assortment of

schemes designed to circumvent provisions of restriction or

limitation in the tariff laws or to secure a benefit that would

otherwise not be available.

Section 146.71(d)(1) provides, in part, that where

merchandise is removed (transferred) from a zone but does not

enter the commerce of the United States in Customs territory and

is subsequently readmitted to a zone in domestic status, the

district director shall cancel the entry for consumption and

restore the merchandise to its last foreign zone status. See 19

CFR 146.71(d)(1).

As was the issue in C.S.D. 89-41, we must decide whether

the purpose of the operation as outlined above in the FACTS

section is a \"sham\" transaction prohibited under section

146.71(d)(1), CR, or one permitted by the second proviso to 19

U.S.C. 81c and section 146.71(d)(3), CR. Of course, a

determination must be made by the district director as to whether

the returning of previously entered articles to the FTZ by the

importer to be associated with other imported articles is to

circumvent high duty rates or import restrictions.

Applying the six factors listed in C.S.D. 89-41 (and in T.D.

86-16) to this case, we are in agreement with the district

director that the purpose of returning the cameras into the FTZ,

after having been entered with the other microscopes for

consumption, is to circumvent a higher rate of duty. If the

microscope is entered without a camera, the microscope is

dutiable under subheading 9011.10.8000, HTS, at 45% ad valorem.

See Headquarter\'s Ruling HQ 085754, dated December 26, 1989,

FILE: CLA-2:CO:R:C:G, 085754. Clearly, it is to the importer\'s

advantage to enter a camera with a microscope under subheading

9011.20.4000, HTS, in order to be assessed only a 20% duty rate.

Further, when a domestic camera is combined with the imported

microscope in the FTZ, upon entry, the value of the domestic

component (camera) will be omitted from the value of the camera-

microscope combination on which the duty is assessed. Despite

the number of times a domestic camera is entered into the FTZ, no

duty will ever need to be paid on it. When a foreign camera is

first entered in Customs territory, duty is paid on the value of

the foreign camera under the microscope-camera combination.

However, when this camera is readmitted into the Customs

territory it is treated in the duty-paid status as the domestic

camera.

As we understand the procedure, the cameras and microscopes

are entered for consumption from the FTZ. The cameras are then

removed from the packages and returned to the zone within a week

to be reused. Readmission to the zone is requested by the

importer. The importer\'s intent at the time of entry to seek

readmission to the FTZ is evidenced by the fact that the cameras

are not physically joined to the microscopes in the FTZ and are

easily removed from the crate upon entry in the Customs

territory. The rate of duty is substantially higher on a

microscope imported alone than on one with a camera. Documentary

evidence exists that the microscopes are sold after entry

without the cameras (invoices, separate price lists for cameras

and microscopes, \...) since the ultimate consumer either has a

camera to use with the microscope or prefers to purchase a

different brand of camera. There is no intention to sell the

cameras after entry. The merchandise is not processed or

manufactured outside of the FTZ.

The circumstances lead us to conclude that the intent of the

operation described is to circumvent a high rate of duty on the

microscope if entered by itself and that no intention exists

that the cameras enter the commerce of the United States prior to

their readmission into the FTZ to be reused with other

microscopes on reentry. Such an operation is considered a \"sham\"

transaction within the meaning of 19 CFR 146.71(d)(1).

In accordance with section 146.71(d)(1), any entries for the

subject merchandise which are presently unliquidated should be

cancelled and liquidated at the rate of duty applicable to its

last foreign status, that is, a microscope under subheading

9011.10.8000, HTS, at the rate of 45% ad valorem. However,

Customs may reliquidate those entries which have been liquidated

within 90 days from the date of this ruling at the rate

chargeable to its last foreign status. Any entries finally

liquidated will not be affected unless the district director, in

his judgment, based on all relevant circumstances determines that

violations of 19 U.S.C. 1592(d) have occurred. Future entries

submitted after the date of this ruling shall be rejected or

cancelled, as appropriate, and the merchandise restored to its

last foreign status.

We will now answer the specific questions the importer

asked in his January 31, 1990, letter addressed to your office.

Yes, one may combine microscopes purchased in East Germany with

domestic cameras in a FTZ. It is permissible for the importer to

enter for consumption the microscopes with the cameras. The

importer may sell the microscopes individually, combined, or not

sell either of them if he so chooses. These same microscopes

and/or cameras may be exported. However, these same cameras (or

microscopes), as discussed above, cannot be readmitted to the FTZ

since there is no intent that the combined articles enter the

commerce of the United States prior to their readmission into the

FTZ if the sole purpose for these articles being readmitted to

the zone is to combine them with other imported microscopes so as

to circumvent a higher rate of duty when they are subsequently

entered.

HOLDING:

The entry for consumption of imported microscopes that has

been associated with cameras (domestic or imported duty-paid) by

means of packaging in a FTZ is a \"sham\" transaction within the

meaning of 19 CFR 146.71(d)(1) when the cameras are subsequently

removed in Customs territory and repeatedly returned to the FTZ

in order to be packaged with other imported microscopes.

Sincerely,

Stuart Seidel, Acting Director

Commercial Rulings Division