HQ 223114: Quota of milk under the Canada Free Trade Agreement for milkentered into a foreign trade zone or bonded manufacturingwarehouse; Article 404, Canadian Free Trade Agreement

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 223114

                       September 18, 1991

FOR-2-03: WAR-2-01: QUO-2; ENT-7-07-CO:R:C:E  223114  SR

CATEGORY:  Entry/Quota/FTA/FTZ

Mr. David O. Elliott
Barnes, Richardson & Colburn
475 Park Avenue South
New York, N.Y. 10016

RE:  Quota of milk under the Canada Free Trade Agreement for milk
entered into a foreign trade zone or bonded manufacturing
warehouse; Article 404, Canadian Free Trade Agreement

Dear Mr. Elliott:

     This is in reference to your letter dated April 1, 1991,
concerning quota under the Canada Free Trade Agreement (FTA) for
milk entered into a Foreign Trade Zone (FTZ) or bonded
manufacturing warehouse.

FACTS:

     The merchandise at issue is Canadian milk in skim or
condensed form that is admitted into a foreign trade zone or
entered into a bonded warehouse.  This milk is used in the
manufacture of infant formula.  Some of the infant formula is
exported to Canada.  

ISSUE:

     Whether Canadian milk in a U.S. foreign trade zone will be
subject to quota under the Canadian Free Trade Agreement if it is
reexported to Canada.

LAW AND ANALYSIS:

     The FTA does not bestow any change to the laws unless the
change is specifically stated in the Agreement.  There is no
general language in the FTA that would affect the application of
quota to goods imported from Canada.  The quotas on dairy
products have remained the same under the FTA; however, in future
negotiations, where subsidy and quota programs are addressed,
dairy quotas may change.
                               -2-



     You question the meaning of the language in Article 404, of
the Free Trade Agreement.  Article 404 provides as follows:

     1.  Goods imported into the territory of a Party (including
     goods imported in bond or qualifying for benefit under a
     foreign trade zone, inward processing, or similar program)
     and subsequently exported to the territory of the other
     Party, or incorporated into, or directly consumed in the
     production of, goods subsequently exported to the territory
     of the other Party, shall be subject to the customs duties
     of the Party applicable to goods entered for consumption in
     the customs territory of that Party prior to their export to
     the territory of the other Party.  Such duties shall not be
     reduced, eliminated or refunded by reason of such
     exportation, and their payment shall not be deferred upon
     such exportation.
     
     3.  Goods exported to the territory of the other Party from
     a foreign trade zone or similar area shall be subject to the
     applicable customs duties of the Party maintaining the
     foreign trade zone or similar area as though the goods were
     withdrawn for domestic consumption.

     4.  Paragraphs 1, 2 and 3 do not apply to: . . .

     c)  dutiable goods originating in the territory of the other
     Party that are imported into the territory of the Party and
     subsequently re-exported to the territory of the other
     Party, or incorporated into, or directly consumed in the
     production of goods subsequently exported to the territory
     of the other Party.

     Article 404, of the FTA, does not address the issue of
quota.  Paragraph 1 of Article 404, FTA, provides that goods from
a third country that are entered into the U.S. (or Canada) which
are manufactured into another product cannot receive drawback (or
other benefits) if they are exported to Canada (or the U.S.). 
This is to prevent a company from importing an article and
manufacturing it into another article which could enter Canada
free of duty as an American good, and also receive drawback on
the article.  If this were allowed duty would never be paid on
the original article.  This rule prevents foreign manufacturers,
primarily auto manufacturers, from using the zones to circumvent
tariffs that would, in effect, provide a subsidy for foreign
parts entering the Canadian market.  

     Paragraph 3, of Article 404, offers similar protection
concerning goods in Foreign Trade Zones.  Duty must be paid to
the U.S. on goods in a U.S. Foreign Trade Zone that are exported
to Canada.  This is to prevent goods from circumventing tariffs. 
                               -3-

However, neither of these paragraphs apply to the facts at issue
because paragraph 4(c) provides that paragraphs 1 and 3, of
Article 404, FTA, do not apply to goods that originate in Canada
that are imported into the U.S. (or vice versa) that are re-
exported to Canada.

     You also questioned the meaning of the language in the
Statement of Administrative Action (SAA), House Document 100-
216, page 180, which reads as follows:

          3.  Drawback

       Article 404 ends duty drawback on exports between the
     United States and Canada as of January, 1, 1994, with
     limited exceptions.  These exceptions include goods exported
     in essentially the same condition on exportation as on
     importation, and dutiable goods originating in the United
     States or Canada if they are incorporated into, or directly
     consumed in the production of, goods subsequently exported
     back to the other FTA partner.  This latter provision is
     transitional, since the duties to which it applies are
     scheduled to be phased out. . . .

     The first exception mentioned is for goods imported from a
third country that would be applicable to receive same condition
drawback.  These goods can receive drawback in the United States
because they could not be considered American goods and would pay
duty upon entry to Canada (or vice versa).  The second exception
is for goods originating in Canada or the U.S. that are exported
to the other country and are eligible to receive manufacturing
drawback upon return to their country of origination.  These
goods are still eligible for manufacturing drawback.  However,
since duties are to be phased out, then drawback will no longer
be applicable.  

HOLDING:

     Article 404 of the FTA does not change the status of goods
entered into a FTZ if the goods originated from Canada.  Only
goods that have been imported into the U.S. from a third party,  
                               -4-


that are to be exported to Canada are to be considered as though
they are withdrawn for consumption

                                   Sincerely,




                                   John Durant
                                   Director
                                   Commercial Rulings Division