Zone Status of Duty-Paid Merchandise Admitted into a Foreign Trade Zone (“FTZ”); 19 C.F.R. § 146.43; 19 C.F.R. § 146.44; Transfer of Merchandise from a FTZ; 19 C.F.R. § 146.63; 19 C.F.R. § 146.67.

HQ H258567 June 13, 2017 FOR 2-04 OT:RR:CTF:ER H258567 KF John Fee Alston & Bird950 F St. NW Washington, DC 20004 Re: Zone Status of Duty-Paid Merchandise Admitted into a Foreign Trade Zone (“FTZ”); 19 C.F.R. § 146.43; 19 C.F.R. § 146.44; Transfer of Merchandise from a FTZ; 19 C.F.R. § 146.63; 19 C.F.R. § 146.67. Dear Mr. Fee: This is in response to your ruling request, dated October 7, 2014, on behalf your client, to determine the appropriate zone status for domestically manufactured or imported and duty-paid construction equipment admitted into a Foreign Trade Zone (“FTZ”) in order to remove its filter component; and the zone status of filter removed for transfer into the customs territory of the United States. FACTS: Certain construction equipment used within the United States is manufactured to satisfy emission control standards promulgated by the United States Environmental Protection Agency (“EPA”) by utilizing a diesel particulate filter (“filter”) which enables the equipment to be fueled with ultra-low sulfur diesel (“ULSD”). Some construction equipment is domestically manufactured, on which all applicable internal revenue taxes have been paid, while the majority of the equipment is imported and duty-paid. To render the construction equipment marketable to countries with limited access to ULSD fuel, the filter will be removed prior to exportation and separately sold within the United States. To effect these sales, the construction equipment will be admitted into an FTZ, the filter will be removed on-site at the FTZ, and the operation software for the equipment will be reprogrammed to operate on non-ULSD fuel. Upon the completion of these operations, the construction equipment will no longer satisfy applicable emission control standards. United States Environmental Protection Agency (“EPA”) concurrence, and an exportation exemption, will be sought in order to complete these operations for the purpose of exporting the filter-less construction equipment from the FTZ. The filter-less construction equipment will not be used within the FTZ. The removed filters will be transferred into the customs territory of the United States for purposes of consumption. ISSUES: What is the appropriate zone status for domestically manufactured, and imported and duty-paid, construction equipment admitted into an FTZ for the purpose of rendering the equipment suitable for exportation and removing a component for consumption within the customs territory of the United States? LAW AND ANALYSIS: Merchandise may be admitted into an FTZ under one of four zone statuses: non-privileged foreign, privileged foreign, domestic, and zone-restricted. See 19 C.F.R. § 146.42, § 146.41, § 146.43, § 146.44. Non-privileged foreign and privileged foreign status is applicable to “imported merchandise which has not been properly released from Customs custody in Customs territory,” and is therefore not applicable to domestically manufactured or imported and duty-paid construction equipment. See 19 CFR § 146.1. Domestic status is applicable to domestically manufactured merchandise on which all applicable internal revenue taxes have been paid, imported merchandise on which all duties and taxes owed have been paid, and merchandise previously entered into the customs territory for which no duties or taxes were owed. See 19 C.F.R. § 146.43(a). Zone-restricted status is applicable to merchandise admitted “for the sole purpose of exportation, destruction (except destruction of distilled spirits, wines, and fermented malt liquors), or storage.” See 19 C.F.R. § 146.44(a). The subject construction equipment is stated to have been domestically manufactured, or to have been imported, with payment of all requisite taxes or duties. All components within the equipment have also been domestically manufactured, or imported, with payment of all requisite taxes or duties. We thus find that domestic status is applicable to both the construction equipment and its filter component. Pursuant to 19 C.F.R. § 146.43(b), no application or permit is necessary to admit, manipulate, manufacture, or transfer domestic status merchandise to the customs territory, unless it is mixed or combined with merchandise in a different zone status, or so ordered by the Commissioner of Customs. The proposed operations do not seek to mix or combine domestic status equipment and filters with merchandise in a different zone status; nor has an order been issued by the Commissioner of Customs regarding the subject equipment or proposed operations. Accordingly, we find that no application or permit is necessary to admit the equipment and subject it to the proposed operations. Due to the explicit regulatory approval accorded to manipulating or manufacturing domestic status merchandise within an FTZ, we do not address whether the proposed operations constitute a manipulation or manufacture. We further find that the domestic status filters removed from the equipment as a result of the proposed operations may be returned to the customs territory for purposes of consumption. See 19 C.F.R. § 146.43(c); see e.g. HQ H102097 (February 29, 2012) (finding that no formal entry filing is required to remove domestic status merchandise from a FTZ); CBP.gov, FTZ Manual, 148, 2011 (“FTZ Manual”) (“[e]xcept in the case of domestic status merchandise for which no permit is required under 19 CFR 146.43, no merchandise shall be transferred from a zone without a CBP permit on the appropriate entry form”). We reach no conclusion as to whether the proposed operations in an FTZ for the subject construction equipment are permissible under EPA regulations. However, CBP has held that merchandise which may not be used within, or imported to, the United States pursuant to EPA regulations may be located within an FTZ for the sole purpose of exportation in zone-restricted status, if so permitted by EPA regulations. See 19 C.F.R. § 146.44(a) (stating that zone-restricted status is generally applicable to merchandise admitted for the exclusive purpose of exportation, destruction, or storage); and HQ H119195 (October 19, 2010) (finding that air conditioning equipment barred from importation by the EPA could be stored within an FTZ under zone-restricted status for the exclusive purpose of exportation, if permitted under EPA regulations). We note that an application may be submitted to change the status of merchandise admitted under domestic status, and manipulated or manufactured within an FTZ, to zone-restricted status. See 19 C.F.R. § 146.44(a) (zone restricted “status may be requested at any time the merchandise is located in a zone, but cannot be abandoned once granted”); CBP.gov, FTZ Manual, 59, 2011 (“FTZ Manual”). Although zone-restricted status may be elected for merchandise originally admitted under domestic status, it may not be elected to admit merchandise that will be subjected to operations within an FTZ that constitute a manufacture, process, or manipulation that is distinct from and non-incidental to its exportation. See FTZ Manual at 59-60 (“since zone-restricted status is granted for the sole purpose of storage, exportation, or destruction, merchandise in zone-restricted status may not be manufactured or processed in the zone [; m]erchandise may not be manipulated except to the extent necessary for its exportation… [e.g.] packing, unpacking, repacking, testing or similar operation”). The traditional definition of “manufacture” is a process which generates a new article with a distinctive name, character, or use. See HQ 227500 (November 24, 1998) (citing Hartranft v. Weigmann, 121 U.S. 609, 615 (1887)). The definition of “manufacture” includes a process which “renders a commodity or article fit for a use for which it was not otherwise fit,” or, is necessary to dedicate an article to its intended use. See HQ 224646 (July 19, 1993) (citing United States v. International Paint Co. Inc., 35 C.C.P.A. 87, C.A.D. 376 (1948)); 19 C.F.R § 191.2(q) (defining “manufacture or production” in the context of drawback regulations). We note that the proposed operations for the subject construction equipment are specifically designed to render the equipment suitable for use with a non-ULSD fuel, with which it was not previously compatible. Accordingly, we find that the proposed operations would be impermissible if the equipment was admitted into an FTZ in zone-restricted status. HOLDING: Based on the above, we find that domestically manufactured and imported construction equipment, for which all requisite taxes or duties have been paid, may be entered into an FTZ under domestic zone status to be manipulated or manufactured. We further find that an application may be submitted to subsequently change the status of the equipment to zone-restricted status pending its exportation. We finally find that the domestic status filters removed from the equipment may be transferred into the customs territory of the United States for consumption. Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruing letter, either directly, by reference, or by implication, is accurate and complete in every material respect.” If any fact in the transaction varies from the facts stipulated to herein, this decision shall not be binding on CBP, as provided for in 19 C.F.R. § 177.9(b). Sincerely, Monika R. Brenner Acting Chief Entry Process & Duty Refunds Branch