HQ 221577: Status of certain vehicles entered for consumption from a foreign trade zone and subsequently returned to the foreign trade zone

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 221577

                        February 7, 1990


FOR-2-06-CO:R:C:E  221577 L

CATEGORY: Other

Lewis E. Leibowitz, Esq.
Hogan & Hartson
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109

RE: Status of certain vehicles entered for consumption from a
    foreign trade zone and subsequently returned to the
    foreign trade zone

Dear Mr. Leibowitz:

     Your July 11, 1989, inquiry requested a ruling concerning
the status of certain vehicles entered for consumption from a
foreign trade zone (FTZ) and subsequently returned to the FTZ.

FACTS:

     The operator and user of a FTZ manufactures automobiles.
The completed automobiles are sold to an affiliated corporation
and delivered to a marshalling yard, which is located within the
FTZ as granted, but outside of the activated area of the FTZ, in
preparation for shipment.  The vehicles are said to be entered at
the time of sale under Harmonized Tariff Schedule of the United
States (HTS) subheading 8703.23.00, dutiable at the rate of 2.5%
ad valorem, with the intent that they become an integral part of
United States commerce or that they be exported.  Some vehicles,
however, have been found to contain defects which are not
identified until after the vehicle has been transferred to the
marshalling yard and is awaiting shipment.  In these situations,
the manufacturer needs to return the automobiles to its factory
for investigation or repairs because the marshalling yard does
not have adequate facilities for such tasks.  In this connection,
it is stated that only a very small number of the vehicles
require inspection or repair.

     Repairs that occur in the subzone once the entered vehicle
is returned do not result in a change of the vehicle from one
tariff classification to another or in the payment of a lower
duty.


ISSUE:

     May automobiles manufactured in a FTZ and subsequently
transferred from the zone and entered for consumption be returned
in domestic status to the FTZ for repairs when such return is not
intended to and does not circumvent any tariff laws of the United
States?

LAW AND ANALYSIS:

     The second proviso to section 3 of the Foreign-Trade Zones
Act of 1935, as amended, authorizes the Secretary of the Treasury
and, by Treasury Department Order No. 165, Revised (T.D. 53654),
the Commissioner of Customs, to make such regulations respecting
identity and the safeguarding of the revenue as necessary with
respect to articles entered into 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
the Customs Regulations.  As pertinent here, and as discussed in
Headquarters Ruling Letter 218898, 219003, 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.

     C.S.D. 89-41 also noted that where articles were transferred
from a zone, entered for consumption, and subsequently returned
to a zone for further manufacture, a judgement would have to be
made in each case as to the purpose of the transaction.  It was
intended that this judgement be made by the district director,
the person most cognizant of the actual operations occurring in a
zone.  A number of factors to be considered in making that
judgement were set out in T.D. 86-16 and repeated in C.S.D. 89-
41; but those factors are not all-inclusive.  The aim is to
attempt to determine the reason for returning previously entered
articles to the FTZ.  If it appears that the purpose is to
circumvent the law or to obtain a benefit not otherwise
available, section 146.71(d)(1) provides for cancellation of the
entry and the restoration of the article to its last foreign
status; if the purpose appears otherwise, section 146.71(d)(3)
provides for admission of the article in domestic status.


     On the basis of the information submitted by the inquirer,
it appears that the purpose of the return of the vehicles from
the marshalling yard to the manufacturing subzone is to correct
relatively minor manufacturing defects which are detected after
the vehicles arrive in the marshalling yard following sale but
before shipment for distribution.  The repairs performed appear
to be in the nature of "warranty" repairs rather than further
manufacture of the vehicles even though the repairs may involve
manufacturing operations.

     On these facts, we would conclude that there is bona fide
purpose for the return of the vehicles to the subzone not
involving circumvention of the law, and that section
146.71(d)(3), Customs Regulations, providing for admission in
domestic status, would be applicable.  Nevertheless, the final
determination of the applicability of section 146.71(d) will be
made by the district director.

HOLDING:

     Automobiles manufactured in a FTZ, entered for consumption,
sold and delivered to a marshalling yard in preparation for
shipment may be returned to the FTZ in domestic status pursuant
to section 146.71(d)(3), Customs Regulations, for repair of
manufacturing defects where the district director determines
there is no intent to circumvent, and the return in domestic
status does not circumvent, provisions of restriction or
limitation in the tariff laws or result in a benefit that would
otherwise not be available to the parties.

     This holding does not extend to repairs that would result in
extensive changes or modifications of the automobiles nor does it
remove the requirement for a permit to manufacture and an entry
for consumption for the repaired automobile if articles in
foreign status are used in the repair of the vehicle, pursuant to
sections 146.43(b) and 146.63(a), Customs Regulations.

                               Sincerely,




                               John Durant, Director
                               Commercial Rulings Division