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HQ 226812





March 20, 1997

BOR-7-07-RR:IT:EC 226812 CC

CATEGORY: CARRIER

Jeremy Ross Page, Esq.
Sandler, Travis & Rosenberg
The Waterford
5200 Blue Lagoon Drive
Miami, FL 33126-2022

RE: Instruments of International Traffic; 19 U.S.C. ? 1322(a); 19 CFR ? 10.41a

Dear Mr. Page:

This is in response to your letter of March 13, 1996, on behalf of The Procter & Gamble Distributing Company (P&G), requesting that we designate certain pallets as instruments of international traffic (IIT's). You also requested that we determine whether the proposed use of the pallets constitutes a diversion.

FACTS:

You state that the pallets at issue are made of softwood and are rented to P&G for use in its cross-border movements of a variety of finished P&G products. In total, there are 5.5 million pallets available for usage by P&G, each with an expected life in excess of five years.

P&G's basic procedures call for the rental of the pallets on an "as needed" basis. Various P&G products are packed on the pallets prior to importation from Canada, with the merchandise then shipped first to the appropriate P&G warehouse, and then to the retail store where the product is unloaded. At all stages the imported product remains on the same pallet on which it was entered. Once emptied, the pallets are returned to the rental company's U.S. location where they are placed in a "pallet pool" for future use. That use could be either in subsequent U.S.-Canada cross-border movements or in domestic movement in the U.S.

ISSUES:

Whether the subject pallets may be designated as instruments of international traffic within the meaning of 19 U.S.C. ? 1322(a) and 19 CFR ? 10.41a.

Whether the proposed use of the pallets constitutes a diversion under the applicable regulations.

LAW AND ANALYSIS:

Section 322(a), Tariff Act of 1930, as amended (19 U.S.C. ? 1322(a)) provides that "[v]ehicles and other instruments of international traffic, of any class specified by the Secretary of the Treasury, shall be excepted from the application of the customs laws to such extent and subject to such terms and conditions as may be prescribed in regulations or instruction of the Secretary of the Treasury."

The Customs Regulations issued under the authority of section 322(a) are contained in section 10.41a (19 CFR ? 10.41a). Paragraph (a)(1) of section 10.41a designates lift vans, cargo vans, shipping tanks and certain other named articles as IIT's and states that other articles may be designated as IIT's by the Commissioner of Customs in a decision to be published in the weekly Customs Bulletin. Once designated as IIT's, these items may be released without entry or the payment of duty, subject to the provisions of section 10.41a.

To qualify as an instrument of international traffic within the meaning of 19 U.S.C. ? 1322(a) and the regulation promulgated pursuant thereto (19 CFR ? 10.41a et. seq.), an article must be used as a container or holder. The article must be substantial, suitable for and capable of repeated use, and used in significant numbers in international traffic. See, subheading 9803.00.50, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), and former Headnote 6(b)(ii), Tariff Schedules of the United States (TSUS), as well as Headquarters Ruling Letters (HQs) 104766, dated August 22, 1988; 109665, dated September 12, 1988; and 109702, dated September 30, 1988.

Upon review of the request, we are of the opinion that the containers in question are substantial, suitable for and capable of repeated use, and used in significant numbers in international traffic. Consequently, we find that the subject pallets qualify as IIT's pursuant to 19 U.S.C. ? 1322(a).

You also ask whether the placement of the pallets in the pallet pool subsequent to their return by P&G, coupled with the potential usage of the pallets in domestic U.S. movement, constitutes a diversion. The Customs Regulations provide that an article that is released as an IIT and is subsequently diverted to point-to-point local traffic within the United States, or is otherwise withdrawn in the United States from its use as an IIT becomes subject to entry and the payment of any applicable duties. 19 CFR 10.41a(d).

In Headquarters Ruling Letter (HQ) 112705, dated May 21, 1993, we found that articles shipped on a pallet to the U.S. from another country, taken to a warehouse and shipped on the same pallet to a retail store, is a use of the pallet that the regulations contemplate as an IIT. When a pallet that is not the identical pallet on which the merchandise being transported entered the U.S. is used to move merchandise in local traffic from a U.S. point to another U.S. point, a diversion occurs. We note that in HQ 112705, the reusable pallets were returned to an established pool, of which a significant number were returned to a foreign country. We also note that we have determined that the storing or stockpiling of containers would not necessarily constitute a withdrawal from international traffic.

Based on the foregoing precedent, we find that the proposed use of the subject pallets, bringing them into the U.S., proceeding to warehouse and then to a retail store, and then placing the empty pallets in a pallet pool, does not constitute a diversion, provided that the merchandise delivered to a retail store is on the same pallet that it entered the U.S. If a pallet is thereafter employed in domestic movement in the U.S., rather then being returned to Canada, a diversion would occur. The filer of the bond to secure release of the pallets as IIT's, which you state is your client, would then be liable for liquidated damages under its bond if the pallets were not entered and applicable duty paid.

HOLDING:

The subject pallets qualify as instruments of international traffic and may be released pursuant to 19 CFR ? 10.41a. The proposed use of the pallets does not constitute a diversion unless they are employed in domestic movement after the empty pallets are placed in the pallet pool.

Sincerely,

Acting Chief
Entry and Carrier Rulings Branch

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