HQ 111480: Instruments of International Traffic; IIT; Satellites; Communication Satellites; Components; Diversion; Withdrawal; INTELSAT; 19 U.S.C. 1322; 19 C.F.R. 10.41a.

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 111480

                        October 22, 1991

BOR-7-07   CO:R:IT:C  111480  JBW

CATEGORY:   Carriers

David B. Meltzer, Esquire
INTELSAT
3400 International Drive, N.W.
Washington, D.C. 20008-3098

RE:  Instruments of International Traffic; IIT; Satellites;
     Communication Satellites; Components; Diversion; Withdrawal;
     INTELSAT; 19 U.S.C. 1322; 19 C.F.R. 10.41a.

Dear Mr. Meltzer:

     This letter is in response to your letter of January 15,
1991, in which you request a ruling on the status of
communication satellites as instruments of international traffic
when, subsequent to their release as instruments of
international traffic, the launch site is changed to a site
outside of the United States.

FACTS:

     The International Telecommunications Satellite Organization
(INTELSAT) is an international organization established by treaty
to provide to all regions of the world on a commercial, non-
discriminatory basis telecommunications satellites and ground
facilities required for international public telecommunications.
Agreement Relating to the International Telecommunications
Satellite Organization, Aug. 20, 1971, art. III, 23 U.S.T. 3813,
3819, T.I.A.S. 7532.  Over one hundred nations, including the
United States, are parties to the agreement.

     In furtherance of its mandate, INTELSAT contracted with
Hughes Aircraft Company (Hughes) to construct five communications
satellites in the INTELSAT VI series.  These satellites were
denominated F-1 through F-5 and, given their size, could be
launched only on the United States Space Shuttle or the European
Ariane 4 rocket.  The INTELSAT-Hughes contract required
international participation; companies in seven countries
supplied the components used to construct the satellites.

     INTELSAT intended the F-2 to be the first satellite launched
and contracted with NASA for launch of the satellite on the Space
Shuttle.  Components of the satellite were imported between July,
1984, and December, 1985.  These components were released by the
Customs Service as instruments of international traffic (IIT's)
pursuant to Treasury Decision 70-178, which recognized as
instruments of international traffic "communication satellites
and components and parts for such satellites, to be launched in
the United States...."  T.D. 70-178, 4 Cust. B. &  Dec. 489
(1970).

     Two subsequent events would affect the satellite components
released in the United States as instruments of international
traffic for the construction of the INTELSAT F-2 and other
satellites.  First, in 1984, the Congress statutorily revoked the
authority extended to the Secretary of the Treasury to designate
communication satellites as instruments of international traffic.
Trade and Tariff Act of 1984, Pub. L. No. 98-573, 124(c), 98
Stat. 2948, 2956 (1984);  see 19 U.S.C. 1322(a).  Thus, any
communication satellite or component "entered" on or after
January 1, 1985, would no longer enjoy instrument of
international traffic status and would be subject to entry and
payment of duty.  Trade and Tariff Act of 1984, Pub. L. No. 98-
573, 195(b)(1), 98 Stat. 2948, 2972 (1984).

     Second, the CHALLENGER accident of January 28, 1986,
required INTELSAT to reconsider launching alternatives for the F-
2 satellite.  Following CHALLENGER, the Director General of
INTELSAT referred to the Board of Governors for approval the
change of launch vehicles from the Space Shuttle to the Ariane
for the first two INTELSAT VI satellites.  This request was based
on the need to meet "operational requirements";  these
operational requirements derive from obligations by INTELSAT to
the signatory countries to maintain in space a sufficient number
of satellites to meet the communication needs of the signatories.
Given the operational life span of the satellites in orbit in
1986, the operational requirements would not have been met by
NASA because of an anticipated delay of over one year in the
Space Shuttle program.  INTELSAT considered other  United States
launch options and subsequently contracted with Martin Marietta
to launch two of the INTELSAT VI satellites on Titan III rockets.
However, the record shows that, given the information available
in 1986, the Ariane would provide the earliest launch date for
the F-2.  The F-2 was exported to French Guiana in April, 1989,
and launched in November, 1989.

     Following exportation and launch of the F-2 satellite, the
Los Angeles office of the Customs Service directed Hughes to file
entries and pay duties on components of the F-2 that were
released as instruments of international traffic.  Hughes sought
a ruling from this office in a letter dated June 14, 1990.
Hughes's request for ruling was premised on the understanding
that exportation of the satellite would constitutes a "diversion"
of the components released as instruments of international
traffic.  From this premise, Hughes requested that we establish
the date of diversion, the date of importation, and the
eligibility of components for drawback.  In dictum, this office
accepted the premise of the Hughes letter that the exportation of
the components, which had been treated as instruments of
international traffic, constituted a diversion and ruled on the
three questions raised by Hughes.  Headquarters Ruling Letter
111107, dated February 22, 1991 (C.S.D. 91-8, 25 Cust. B. & Dec.
No. 22, 15, 17 (May 22, 1991)).  INTELSAT and Hughes now
challenge the premise of the previous correspondence by
contending that the components retained their status as
instruments of international traffic when they were exported to a
launch site outside of the United States.

ISSUE:

     Whether communication satellites and components of
communication satellites that were released in the United States
duty-free as instruments of international traffic are subject to
entry and payment of duty if the satellites or components are
exported for launch to a site outside of the United States.

LAW AND ANALYSIS:

     Title 19, United States Code, section 1322(a), provides:

          Vehicles and other instruments of
          international traffic, of any class specified
          by the Secretary of the Treasury, shall be
          excepted from the application of the customs
          laws to such extent and subject to such terms
          and conditions as may be prescribed in
          regulation or instructions of the Secretary
          of the Treasury.

19 U.S.C. 1322(a) (1988).  The Customs regulations issued under
the authority of this section are contained in 19 C.F.R. 10.41a
(1991).  The regulations specifically designate lift vans, cargo
vans, shipping tanks, skids, pallets, caul boards, and cores for
textile fabrics as instruments of international traffic.  19
C.F.R. 10.41a(a)(1).  The regulations also authorize the
Commissioner of Customs to designate other items as instruments
of international traffic.  Id.

     Under this delegated authority, the Commissioner of Customs
designated as instruments of international traffic "communication
satellites and components and parts for such satellites, to be
launched in the United States...."  T.D. 70-178, 4 Cust. B. &
Dec. 489 (1970).  This Treasury Decision provided for the release
of these articles under the procedures established in 19 C.F.R.
10.41a.  Further, components and parts could be stored under
special bond.  T.D. 70-214(1), 4 Cust. B. & Dec. 699 (1970).  In
1984, however, the Congress statutorily revoked the authority
extended to the Secretary of the Treasury to designate
communication satellites as instruments of international traffic.
Trade and Tariff Act of 1984, Pub. L. No. 98-573, 124(c), 98
Stat. 2948, 2956 (1984);  see 19 U.S.C. 1322(a).   Thus, after
January 1, 1985, which was the effective date of the amendment,
no communication satellite or component could be released in the
United States as an instrument of international traffic.  This
amendment did not affect the status of satellites or components
already released in the United States.

     Eligibility for release of a communication satellite or
component as an instrument of international traffic was
conditioned on some demonstration that the article was "to be
launched in the United States."  Consequently, the Customs
Service excluded from the scope of the articles specified in T.D.
70-178 equipment associated with the design, construction, and
control of communication satellites, but that would not be
launched.  Headquarters Ruling Letter 101232, dated November 5,
1974.  Further, communication satellite parts that were to be
launched in Japan were denied release as instruments of
international traffic.  Headquarters Ruling Letter 104310, dated
November 28, 1979; Headquarters Ruling Letter 105535, dated June
22, 1982.  Each of these rulings considered the prospective
eligibility of communication satellites and components for
release as instruments of international traffic.  The Customs
Service has never considered the question of how a communication
satellite or component released as an instrument of international
traffic would lose such status.

     The Customs Regulations establish the circumstances under
which instruments of international traffic lose such status after
release.  The regulations provide that an article that is
released as an instrument of international traffic and "is
subsequently diverted to point-to-point local traffic within the
United States, or is otherwise withdrawn in the United States
from its use as an instrument of international traffic [] becomes
subject to entry and the payment of any applicable duties."  19
C.F.R. 10.41a(d).  The application of the principles of
diversion to point-to-point local traffic becomes strained in the
general context of satellite parts and do not appear applicable
in this case where the components were exported to another
country for launch.

     There is precedent in these narrow circumstances for the
exportation of the article without entry and payment of duty.
The Customs Service has ruled that "[a]rticles described in
Treasury Decision 70-178 which have not been damaged are not
subject to entry or payment of duty if exported."  Headquarters
Ruling Letter CR 542.112 R, dated September 24, 1971.  The
articles in question are among those so discussed in that
Treasury decsion.  Thus, the satellite components under
consideration could be exported without liability for entry or
the payment of duty.  Once exported, the legislative change would
prohibit the subsequent re-entry of the satellite components in
the United States as instruments of international traffic.

HOLDING:

     The communication satellite components that were released
in the United States as instruments of international traffic for
construction of the INTELSAT VI F-2 communication satellite are
not subject to entry and payment of duty because of the change
of the launch site to a site outside of the United States.
Duties that have been paid on these components should be
refunded.

     This holding modifies Headquarters Ruling Letter 111107,
dated February 22, 1991 (C.S.D. 91-8, 25 Cust. B. & Dec. No. 22,
15, 17 (May 22, 1991)) insofar as Holding I of that ruling is
premised on a determination that the subject satellite components
were diverted or withdrawn.  The other holdings remain unchanged.



                              Sincerely,



                              B. James Fritz
                              Chief
                              Carrier Rulings Branch