Duty-free Stores

HQ H099865 October 19, 2010 WAR-5 OT:RR:CTF:ER H099865 DCC Mr. Sydney H. Mintzer Mayer Brown LLP 1999 K Street, N.W. Washington, D.C. 20006-1101 RE: Duty-free Stores Dear Mr. Mintzer, This is in response to your letter, dated March 18, 2010, for a binding ruling pursuant to 19 C.F.R. § 177.2 on behalf of United Airlines (“UAL”). Your request concerns the disposition of conditionally duty-free merchandise purchased from airport duty-free stores when UAL cancels an outbound international flight. FACTS: UAL provides domestic and international passenger air service. For outbound international flights, UAL’s passengers may purchase duty-free merchandise at duty-free stores located in designated areas inside the international air terminals. Occasionally, UAL cancels an outbound international flight after UAL’s passengers have purchased duty-free merchandise from an airport duty-free store and boarded the aircraft for departure. When a flight is cancelled and there are no later flights on that day, UAL passengers are required to deplane and allowed to leave the airport to wait for the next available flight. ISSUE: Whether UAL is obligated to ensure that duty-free merchandise is not entered into the customs territory of the United States when such merchandise is purchased from an airport duty-free store prior to departure by UAL passengers when an outbound flight is cancelled or aborted and passengers are allowed to leave the airport to wait for the next available flight. LAW AND ANALYSIS: Under the customs statute and CBP’s regulations governing the sale of duty-free merchandise at airports, proprietors of airport duty-free stores are primarily responsible for ensure duty-free merchandise is exported from the United States. Pursuant to section 555(b) of the Tariff Act of 1930, as amended and codified at 19 U.S.C. §1555(b), duty-free store operators are required to “establish procedures to provide reasonable assurance that duty-free merchandise sold by the enterprise will be exported from the customs territory.” 19 U.S.C. §1555(b)(3)(A). Under CBP’s regulations implementing 19 U.S.C. § 1555(b), duty-free merchandise sold at an airport duty-free store must be delivered to the “exit point” for airline passengers departing the customs territory of the United States, not including foreign trade zones. See 19 C.F.R. § 19.1(a)(9). For sales of duty-free merchandise at airports, the CPB statute defines the “exit point” as follows: The term “exit point” means the area in close proximity to an actual exit for departing from the customs territory, including the gate holding area in the case of an airport, but only if there is reasonable assurance that conditionally duty-free merchandise delivered in the gate holding area will be exported from the Customs territory. 19 U.S.C. § 1555(b)(8)(F) (emphasis added). See also, 19 C.F.R. § 19.35(d). To ensure duty-free merchandise is removed from the U.S. customs territory, the customs statute requires proprietors of airport duty-free stores to use certain methods to deliver duty-free merchandise to persons departing the United States. Under the statute, duty-free store proprietors must deliver duty-free merchandise: (I) to the purchaser (or a family member or companion traveling with the purchaser) in an area that is within the airport and to which access to passengers is restricted to those departing from the customs territory; (II) to the purchaser (or a family member or companion traveling with the purchaser) at the exit point of a specific departing flight; (III) by placing the merchandise within the aircraft on which the purchaser will depart for carriage as passenger baggage; or (IV) if the duty-free sales enterprise has made a good faith effort to effect delivery for exportation through one of the methods described in subclause (I), (II), or (III) but is unable to do so, by any other reasonable method to effect delivery; 19 U.S.C. § 1555(b)(3)(F)(i). See also, 19 C.F.R. § 19.39(c). In addition, the duty-free warehouse regulations address the responsibilities of duty-free store operators in the event an outbound international flight is cancelled or aborted, or when a passenger booked on such a flight fails to board the aircraft. In the event an outbound international flight is cancelled or aborted, the regulations provide as follows: (5) Cancelled or aborted flights or no-show passengers— (i) Cancelled or aborted flights. The [duty-free store] proprietor shall, upon request, make available to Customs the purchaser’s name, the purchaser’s airline ticket number and the identity and quantity of the merchandise delivered by the proprietor to the purchaser (if the merchandise was delivered to the airline rather than the passenger, the name of the airline employee to whom the merchandise was delivered), and the date and time of that delivery in lieu of retrieving the merchandise for safekeeping until the purchaser actually departs. (ii) No-show passengers. A proprietor who delivers merchandise directly to an airline for delivery to a passenger who does not board the flight shall establish a procedure to obtain redelivery of that merchandise from the airline. 19 C.F.R. § 19.39(c)(5). Significantly, CBP revised 19 C.F.R. § 19.39(c)(5) in 1996 to clarify the responsibilities of duty-free store operators when an international flight is cancelled. See Duty-Free Stores, Final Rule, 62 Fed. Reg. 15,831 (April 3, 1997). As stated in the notice of proposed rulemaking, Duty-Free Stores, Proposed Rule, 61 Fed. Reg. 28,808 (June 6, 1996), CBP provided the following explanation for revising section 19.39(c)(5): A revision of paragraph (c)(5) of § 19.39 is proposed to establish procedures to handle deliveries of duty-free merchandise to passengers whose flights have to be rescheduled by the airline. Customs believes that the rescheduling of a cancelled or aborted flight should not require the proprietor to retrieve the goods until the passenger departs on the rescheduled flight. The Customs Service believes that the revenue risk is minimal because the passenger has no control over rescheduling a flight that is cancelled by the airline. Merchandise would only be delivered to a passenger who has already bought a ticket that usually is far in excess of any possible duty savings. Customs believes that to monitor the period between the cancellation of the passenger’s original flight and the departure of the passenger on the rescheduled flight is wasteful of Customs and trade resources because of that risk assessment. 61 Fed. Reg. at 28,811 (emphasis added). Under the duty-free warehouse regulations, therefore, UAL has no obligation to retrieve the duty-free merchandise when such merchandise is purchased by passengers who board an outbound international flight that is subsequently cancelled and the passengers are permitted to exit the airport to await the next available flight. Unlike the situation when an airline cancels a flight, however, the revised regulations require duty-free store operators to adopt procedures to recover duty-free merchandise for no-show passengers, i.e., ticketed passengers, fail to board their flights. For no-show passengers, the June 6, 1996, proposed rule explains: With respect to merchandise delivered to an airline on behalf of a passenger who fails to board the flight, the proprietor must coordinate with the airline to establish a procedure to retrieve the merchandise because in that situation the passenger has acted contrary to the stated intention to export the goods and there is no reason to believe that the passenger will reschedule a different flight. 61 Fed. Reg. at 28,811 (emphasis added). In the case of no-show passengers, therefore, UAL has an obligation to coordinate with duty-free store operators to develop procedures to enable the duty-free stores to collect the duty-free merchandise when passengers fail to board a flight. Under the customs statute and CBP’s regulations, duty-free store operators are responsible for establishing procedures to provide reasonable assurance that duty-free merchandise will be exported from the customs territory of the United States. See 19 U.S.C. § 1555(b)(3)(A); 19 C.F.R. § 19.35 (procedures for the establishment of a duty-free store); and 19 C.F.R. § 19.36(b) (requirements for duty-free store operations). Consequently, because CBP determined in the 1997 revision of the duty-free warehouse regulations that duty-free store operators are not required to retrieve duty-free merchandise from their customers when their flights are cancelled, and because those operators are the parties responsible for establishing procedures to ensure duty-free merchandise will be exported, we find that UAL is not obligated to retrieve, collect, store, or otherwise ensure such merchandise is not entered into the customs territory of the United States. Pursuant to 19 C.F.R. § 19.39(c)(5)(ii), however, UAL has an obligation to coordinate with the duty-free store operators to establish procedures to allow the duty-free stores to retrieve duty-free merchandise when departing passengers fail to board their flights. HOLDING: Based on the above determinations, we conclude that UAL is not obligated to ensure that duty-free merchandise is not entered into the customs territory of the United States when such merchandise is purchased from an airport duty-free store prior to departure by UAL passengers when the outbound flight is cancelled and passengers are allowed to leave the airport to wait for the next available flight. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division