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HQ 222146

June 6, 1990

FOR-2-03-CO:C:R:E 222146 JR


Mr. Theodore A. Galantowicz
District Director of Customs
7911 Forsyth Blvd., Suite 625
St. Louis, Missouri 63105

RE: Cameras; packaging; combining; FTZ; microscope

Dear Sir:

This is in response to your memorandum dated February 15, 1990 (FILE: FOR-ADD: CO DKH), requesting internal advice concerning the Seiler Instrument & Manufacturing Company's procedure of combining (packaging together) domestic or imported duty-paid cameras with imported microscopes in a foreign trade zone.


Microscopes made in the German Democratic Republic (G.D.R.) are admitted into a foreign trade zone (FTZ) in St. Louis, Missouri in non-privileged foreign status. These microscopes have ports and the other necessary attachments to receive a camera. In the FTZ, Seiler Instruments associates a camera with each G.D.R. microscope. This is accomplished by physically opening each crate containing a microscope and inserting into the crate a packaged camera (either domestic or imported duty-paid).

These microscopes with cameras are subsequently entered for consumption by Seiler under subheading 9011.20.4000, Harmonized Tariff Schedule of the United States (HTS), at the rate of 20% ad valorem. If the camera is of domestic origin, it will not be subject to payment of duty and its value will be deducted from the total value of the microscope-camera combination. If the camera is of foreign origin and has not been previously entered and duty-paid, the camera component of the microscope-camera combination will be dutiable at the rate determined by the classification of the microscope-camera combination.

In any event, following the initial entry for consumption Seiler removes the camera from the microscope-camera combination and returns the camera to the FTZ in domestic status where it is again packaged with another microscope and reentered by Seiler for consumption from the FTZ. Please note that the second time the foreign camera (now imported duty-paid) is entered into the Customs territory, its value is deducted from the total value of the microscope-camera combination like a camera of domestic origin.

Your office has raised the question whether the procedure described above is consistent with the revised Customs FTZ regulations, 19 CFR 146.71(d)(1) (see T.D. 86-16, effective May 12, 1986) and C.S.D. 89-41.


Is the entry for consumption of imported microscopes that have been associated with cameras (domestic or imported duty- paid) by means of packaging in a FTZ considered to be a "sham" when the cameras are repeatedly returned to the FTZ in order to be packaged with other imported microscopes?


The second proviso to section 3 of the Foreign-Trade Zones Act of 1934, as amended, authorizes the Secretary of the Treasury and, by Treasury Order No. 165, Revised (T.D. 53654), the Commissioner of Customs, to make such regulations respecting the identity and the safeguarding of the revenue as necessary with respect to articles entered into the Customs territory and then taken into a zone. By T.D. 86-16, section 146.71, relating to the release and removal of merchandise from a zone, was added to title 19 of the Customs Regulations (CR). As discussed in C.S.D. 89-41, the purpose of section 146.71, in part, was to avoid abuse of the second proviso of 19 U.S.C. 81c by an assortment of schemes designed to circumvent provisions of restriction or limitation in the tariff laws or to secure a benefit that would otherwise not be available.

Section 146.71(d)(1) provides, in part, that where merchandise is removed (transferred) from a zone but does not enter the commerce of the United States in Customs territory and is subsequently readmitted to a zone in domestic status, the district director shall cancel the entry for consumption and restore the merchandise to its last foreign zone status. See 19 CFR 146.71(d)(1).

As was the issue in C.S.D. 89-41, we must decide whether the purpose of the operation as outlined above in the FACTS section is a "sham" transaction prohibited under section 146.71(d)(1), CR, or one permitted by the second proviso to 19 U.S.C. 81c and section 146.71(d)(3), CR. Of course, a determination must be made by the district director as to whether the returning of previously entered articles to the FTZ by the importer to be associated with other imported articles is to circumvent high duty rates or import restrictions.

Applying the six factors listed in C.S.D. 89-41 (and in T.D. 86-16) to this case, we are in agreement with the district director that the purpose of returning the cameras into the FTZ, after having been entered with the other microscopes for consumption, is to circumvent a higher rate of duty. If the microscope is entered without a camera, the microscope is dutiable under subheading 9011.10.8000, HTS, at 45% ad valorem. See Headquarter's Ruling HQ 085754, dated December 26, 1989, FILE: CLA-2:CO:R:C:G, 085754. Clearly, it is to the importer's advantage to enter a camera with a microscope under subheading 9011.20.4000, HTS, in order to be assessed only a 20% duty rate. Further, when a domestic camera is combined with the imported microscope in the FTZ, upon entry, the value of the domestic component (camera) will be omitted from the value of the camera- microscope combination on which the duty is assessed. Despite the number of times a domestic camera is entered into the FTZ, no duty will ever need to be paid on it. When a foreign camera is first entered in Customs territory, duty is paid on the value of the foreign camera under the microscope-camera combination. However, when this camera is readmitted into the Customs territory it is treated in the duty-paid status as the domestic camera.

As we understand the procedure, the cameras and microscopes are entered for consumption from the FTZ. The cameras are then removed from the packages and returned to the zone within a week to be reused. Readmission to the zone is requested by the importer. The importer's intent at the time of entry to seek readmission to the FTZ is evidenced by the fact that the cameras are not physically joined to the microscopes in the FTZ and are easily removed from the crate upon entry in the Customs territory. The rate of duty is substantially higher on a microscope imported alone than on one with a camera. Documentary evidence exists that the microscopes are sold after entry without the cameras (invoices, separate price lists for cameras and microscopes, ...) since the ultimate consumer either has a camera to use with the microscope or prefers to purchase a different brand of camera. There is no intention to sell the cameras after entry. The merchandise is not processed or manufactured outside of the FTZ.

The circumstances lead us to conclude that the intent of the operation described is to circumvent a high rate of duty on the microscope if entered by itself and that no intention exists that the cameras enter the commerce of the United States prior to their readmission into the FTZ to be reused with other microscopes on reentry. Such an operation is considered a "sham" transaction within the meaning of 19 CFR 146.71(d)(1).

In accordance with section 146.71(d)(1), any entries for the subject merchandise which are presently unliquidated should be cancelled and liquidated at the rate of duty applicable to its last foreign status, that is, a microscope under subheading 9011.10.8000, HTS, at the rate of 45% ad valorem. However, Customs may reliquidate those entries which have been liquidated within 90 days from the date of this ruling at the rate chargeable to its last foreign status. Any entries finally liquidated will not be affected unless the district director, in his judgment, based on all relevant circumstances determines that violations of 19 U.S.C. 1592(d) have occurred. Future entries submitted after the date of this ruling shall be rejected or cancelled, as appropriate, and the merchandise restored to its last foreign status.

We will now answer the specific questions the importer asked in his January 31, 1990, letter addressed to your office. Yes, one may combine microscopes purchased in East Germany with domestic cameras in a FTZ. It is permissible for the importer to enter for consumption the microscopes with the cameras. The importer may sell the microscopes individually, combined, or not sell either of them if he so chooses. These same microscopes and/or cameras may be exported. However, these same cameras (or microscopes), as discussed above, cannot be readmitted to the FTZ since there is no intent that the combined articles enter the commerce of the United States prior to their readmission into the FTZ if the sole purpose for these articles being readmitted to the zone is to combine them with other imported microscopes so as to circumvent a higher rate of duty when they are subsequently entered.


The entry for consumption of imported microscopes that has been associated with cameras (domestic or imported duty-paid) by means of packaging in a FTZ is a "sham" transaction within the meaning of 19 CFR 146.71(d)(1) when the cameras are subsequently removed in Customs territory and repeatedly returned to the FTZ in order to be packaged with other imported microscopes.


Stuart Seidel, Acting Director

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