Subheading 9801.00.10, HTSUS; Merchandise warehoused in FTZs; Exported to Canada and returned to United States

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H301412 December 16, 2020 OT:RR:CTF:VS H301412 tmf CATEGORY: Valuation Tina Jansen Vice President- Compliance & Import Services Noatum Logistics (formerly MIQ Logistics) 8550 W. Bryn Mawr Avenue, Suite 400 Chicago, IL 60631 RE: Subheading 9801.00.10, HTSUS; Merchandise warehoused in FTZs; Exported to Canada and returned to United States Dear Ms. Jansen: This is in response to a request for a prospective ruling on behalf of your client, Long Tall Sally Limited (“LTS”) of London, England, United Kingdom, dated October 11, 2018 concerning the eligibility of certain merchandise under subheading 9801.00.10, Harmonized Tariff Schedule of the United States (“HTSUS”). FACTS: LTS markets and sells its merchandise from U.S stores, and online to Canada from its website. It purchases merchandise either directly from overseas suppliers or, based on the Incoterm delivered duty paid (“DDP”) from third-party importers. The merchandise is warehoused in a Foreign Trade Zone (“FTZ”) in Atlanta, Georgia, and then subsequently distributed to stores in the United States, and/or directly to consumers in the U.S. and Canada via online sales. The merchandise enters the FTZ as either domestic status (previously imported, duty paid) or privileged foreign status (imported, but not entered for consumption, i.e., no duty paid). At that time, the merchandise is received and inventoried by SKU numbers. The merchandise is not subject to any process of manufacture, alteration or change in condition while in the FTZ. The store inventory orders and direct internet sales to consumers are identified by SKU and assembled weekly. Merchandise designated privileged foreign is either processed for transportation and exportation to Canada under bond, or entered for consumption to the U.S. and duty-paid. A consumer purchase may be refunded if the consumer returns the merchandise in the condition received, along with the order documentation within 30 days. Canadian returns are forwarded to a third-party logistics provider who will identify returned merchandise by SKU and original order number, and consign these goods in weekly shipments from Canada to the Atlanta facility adjacent to the FTZ warehouse. Counsel states in the submission that the importer is able to document the original date of export from the FTZ to Canada because the order fulfillment and 30-day return process are managed at the SKU-level. ISSUE: Whether the merchandise exported from the FTZ and returned to the United States qualifies for duty-free treatment under subheading 9801.00.10, HTSUS. LAW AND ANALYSIS: Prior to the enactment of Section 904(b) of the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), Pub. L. 114-125, February 24, 2016, subheading 9801.00.10, HTSUS provided for the duty-free treatment of “[p]roducts of the United States when returned after having been exported without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.” TFTEA amended subheading 9801.00.10, HTSUS, to include “any other products,” whether of the United States or not, which are returned without having been advanced in value or improved in condition within 3 years after having been exported. In full, subheading 9801.00.10, HTSUS, now provides for the duty-free treatment of: Products of the United States when returned after having been exported, or any other products when returned within 3 years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad. Prior to this statutory change by TFTEA, only products of the United States were afforded duty free treatment after being returned without advancement in value or improvement in condition while abroad. The change enacted by TFTEA now affords that same duty-free treatment to “any other products,” meaning products that are not “of the United States.” Thus, LTS is seeking to understand how its merchandise that enters the FTZ, exported to Canada, and returned to the United States will be treated under the new TFTEA-amended provision. You state LTS will export the merchandise from the Atlanta FTZ to Canada in bond. You also state that the merchandise will either be previously imported and entered with duty paid (i.e., domestic status), or imported without duty paid (i.e., foreign privileged status). While the plain language of the statutory amendment does not expressly speak to whether these two scenarios should be treated differently under subheading 9801.00.10, HTSUS, the legislative history, as discussed above, indicates that Congress intended to “reduce[] record-keeping burdens on goods returned to the United States without improvement abroad so that duties are not assessed twice.” H.R. Rep. No. 114-376, at 217 (2015). This statement indicates an expectation that duties are paid once on “any other products” imported and entered for consumption in the United States Accordingly, in the situation where a consumer in Canada purchases merchandise from LTS and returns the merchandise in the condition received, whether that merchandise is eligible for duty-free treatment under the provisions of subheading 9801.00.10, HTSUS, depends upon the status with which it was admitted into the FTZ by LTS. If, for example, merchandise is entered in the FTZ in domestic status (previously imported, duty paid) and then merely stored in an FTZ prior to exportation to Canada, the merchandise may be returned to the United States duty-free to the Atlanta facility adjacent to the FTZ warehouse, provided that the provisions of subheading 9801.00.10, HTSUS, have been met. If the duty-paid goods were exported to Canada and returned without having been advanced in value or improved in condition, and then imported to the United States within three years, assessing duties for the second time upon return of the merchandise would run counter to the legislative intent that the modifications to TFTEA ensure that “duties are not assessed twice.” Merchandise that is admitted into the FTZ in privileged foreign status (imported, but not entered for consumption, i.e., no duty paid), however, does not qualify for duty-free treatment under subheading 9801.00.10, HTSUS, when it is returned to the United States from Canada and entered for consumption and placed at the Atlanta facility adjacent to the FTZ warehouse. FTZs are secure areas under CBP’s supervision that are generally considered outside U.S. customs territory upon activation. Under zone procedures, the usual formal entry procedures and payment of duties are not required on the foreign merchandise unless and until it enters the territory of the United States for domestic consumption. 19 U.S.C. § 81c(a). Accordingly, merchandise that LTS admits into an FTZ in foreign privileged status without duty having been paid and then withdrawn from an FTZ and exported to Canada in bond, will not be eligible for subheading 9801.00.10, HTSUS, duty-free treatment upon return to the United States and entered for consumption. Please note that because the merchandise will be exported to Canada, we must also consider the duty drawback restrictions (i.e., the “lesser of” duty rule) of the United States-Mexico-Canada Agreement (“USMCA”) in the situation where LTS chooses to use a duty deferral program and admits the merchandise into the FTZ in privileged foreign status. CBP’s regulations, 19 C.F.R. § 181.53(a)(2)(i)(A), explains that when a good is imported in the United States pursuant to a duty-deferral program and is subsequently withdrawn from the duty-deferral program for exportation to Canada or Mexico . . . and provided that the good is a ‘good subject to NAFTA drawback’ within the meaning of 19 U.S.C. 3333 . . . the documentation required to be filed under this section in connection with the exportation of the good . . . shall constitute an entry or withdrawal for consumption and the exported good shall be subject to duty . . . . FTZ’s constitute a “duty-deferral program,” 19 C.F.R. § 181.53(a)(1)(ii), and this provision remains unchanged under the USMCA. The merchandise, however, may fall within one of the exceptions enumerated under 19 U.S.C. § 3333 (e.g., if the merchandise is exported to Canada in the same condition as when it was imported or if the merchandise qualifies as originating under the rules of origin). 19 U.S.C. §§ 3333(a)(2) & 3333(a)(5); see also 19 U.S.C. §§ 4534(a)(2) & 4534(a)(5). If, however, the merchandise does not fall within one of the enumerated exceptions, a consumption entry would need to be filed and duties would be owed upon exportation to Canada. HOLDING:     Based on the information presented, merchandise admitted into the FTZ in domestic status that is withdrawn from an FTZ and exported to Canada in bond, is eligible for subheading 9801.00.10, HTSUS, treatment upon return to the United States. Merchandise, however, that is admitted into the FTZ in privileged foreign status and withdrawn from an FTZ and exported to Canada in bond, without payment of duties to the United States, will not be eligible for subheading 9801.00.10, HTSUS, duty-free treatment upon return to the United States and entered for consumption. Sincerely, Monika Rice Brenner, Chief Valuation and Special Programs Branch