BOR-4-04-RR:IT:EC 114160 GEV

F.R. Damm, Esq.
Clark Hill P.L.C.
500 Woodward Avenue
Suite 3500
Detroit, Michigan 48226-3435

RE: Instruments of International Traffic; Canadian-based Trucks; 19 U.S.C.  1322

Dear Mr. Damm:

This is in response to a memorandum dated November 4, 1997, from the Fines, Penalties & Forfeitures (FP&F) Officer, U.S. Customs Service, Detroit, Michigan, forwarding your request for a ruling on behalf of your client, Gerth Transport, Inc. ("Gerth"), with respect to the proposed use of their vehicles in the United States. Our ruling on this matter is set forth below.

FACTS:

Gerth possesses both Canadian (Ontario and Quebec), United States (U.S. Department of Transportation) and Mexican operating authority as a motor carrier. Its business involves the transport of international shipments of freight between Canada, the United States and Mexico. In doing so, it utilizes both Canadian and United States-based equipment and drivers.

On November 30, 1996, and December 5, 1996, Customs officers at the Blue Water Bridge, Port Huron, Michigan, seized two (2) tractors registered to Gerth under the authority of 19 U.S.C.  1594 for engaging in local traffic in the United States in violation of  123.14(c), Customs Regulations (19 CFR  123.14). On December 27, 1996, counsel for Gerth deposited $10,000.00 per tractor for their release. This amount equals the maximum penalty provided for in Part 171, Appendix B,  (C)(1)(c), Customs Regulations.

In response to Customs Seizure and Pre-Penalty Notices, on February 20, 1997, counsel claimed the subject vehicles were not in violation of  123.14(c) and provided information allegedly supporting Gerth's position that the vehicles in question were on regularly scheduled

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trips and any local traffic was incidental to the vehicles' international schedule. By memorandum dated February 24, 1997, from the FP&F Officer, Detroit, to the Chief, Penalties Branch, Customs Headquarters, which was subsequently forwarded to this office for review, internal advice was requested with respect to counsel's response to the Seizure and Pre-Penalty Notices. Upon our review of counsel's position, we determined that the vehicles in question had in fact engaged in local traffic not within the permitted exception set forth in  123.14(c)(1). (Customs memorandum 113875, dated March 20, 1997) This determination was due, in large part, to a lack of clarity with respect to the information Gerth provided to Customs. Counsel was notified of our decision telephonically by the FP&F Officer in Detroit on April 18, 1997, and by letter dated July 7, 1997. Pursuant to a letter dated August 28, 1997, counsel to Gerth informed Customs that Gerth had decided not to pursue its appeal/petition rights on the instant penalties and consented to the retention of the penalty amounts by Customs. However, counsel further stated that Gerth still wished to pursue a ruling with respect to the proposed routes of its vehicles as described in its letters to the FP&F Officer in Detroit dated February 20, 1997, May 23, 1997, and August 26, 1997.

By letter dated September 29, 1997, the FP&F Officer in Detroit advised Gerth that Customs had applied the penalty amounts to the above-referenced penalty cases (Detroit case nos. 1997-3802-0003701 and 1997-3802-0003501) and that those cases were now closed. Furthermore, the letter advised Gerth that their prior submissions requesting a ruling on the proposed use of their vehicles would be forwarded to Customs Headquarters for review. In addition, pursuant to a letter dated October 14, 1997, to the FP&F Officer in Detroit, Customs was notified that the firm of Damm and Tauscher, P.C. which had been representing Gerth in this matter had been dissolved and that the firm of Clark Hill P.L.C. would now act as Gerth's counsel. The letter requested that Customs change its records to reflect same and reiterated the aforementioned ruling request regarding Gerth's proposed routes which are set forth below.

A.

In regard to southbound transportation, the primary points of entry/departure from Ontario, Canada, to the United States are as follows: (1) Detroit/Windsor; (2) Port Huron/Sarnia; (3) Niagara/Niagara and/or Buffalo/Port Erie; and (4) Alexandria Bay/Ivy Lea. Its primary points of entry/departure between the United States and Mexico are at Laredo/Nuevo Laredo and McAllen/ Reynosa. Gerth has in excess of 50 scheduled departures every week from various points in Ontario through Detroit/Windsor or Port Huron/Sarnia to Laredo/Nuevo Laredo and on to customers in Mexico. These are three country moves, from Canada in transit through the United States to Mexico. Departures are on Wednesday, Thursday and Friday, with arrivals in Mexico two or three days later. The general routes used are as follows:

(1) Entry at Detroit/Windsor, S I-75 through MI/OH, W US-24 in OH/IN, S I-69 in IN, W I-70 in IN/IL, S I-57 in IL/MO, S I-55 in

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MO/AR, W I-40 in AR, W I-30 in AR/TX, W I-20 in TX, S US-77 in TX, and S I-35 in TX to Laredo, departure to Nuevo Laredo, Mexico.

(2) Entry at Port Huron/Sarnia, W I-94 in MI, S I-69 in MI, W I-94 in MI/IN/IL, W I-80 in IL, S I-57 in IL/MO, with the remainder of the route as in the prior example.

The above-described loads, after clearance by Mexican Customs, then continue on to their final destination in Mexico.

B.

Gerth likewise has numerous regularly scheduled international shipments from customers in Mexico to consignees in the United States and/or Canada. These northbound departures follow established routes and occur on Monday, Tuesday and Wednesday with subsequent arrival in the northern United States and Canada two or three days later. Examples of such shipments include the following:

(1) Departure from Guanajuato, Mexico, entry at Nuevo Laredo/Laredo, after entry at Nuevo Laredo/Laredo the shipment goes N I-35 to Ft. Worth/Dallas. The driver completing this international shipment would then pick up another international shipment in Ft. Worth/Dallas consigned to Mississauga, Ontario. The route would be N I-30 through TX/AR, N I-40 through AR, N I-55 through AR/MO, N I-57 through MO/IL, E I-70 through IL/IN, N I-69 in IN, E US-24 through OH, N I-75 through OH/MI to departure through Detroit/Windsor and onto Mississauga, Ontario. This is the reverse of the Windsor to Laredo route described above.

(2) Departure from Mexico City, Mexico, entry at Nuevo Laredo/Laredo N I-35 in TX, and US-77 in TX, E I-20 in TX, E I-30 in TX/AR, E I-40 in AR, N I-55 in AR/MO/TN, N US-51 in TN/KY, E via Parkways in KY to Dawson Springs and deliver the international shipment from Mexico. The driver completing this shipment would then continue E on Western Kentucky Parkway and I-65 to Louisville and pick up an international shipment consigned to Waterloo, Ontario; this shipment would go N I-71 through KY/OH, and N on I-75 through OH/MI to Detroit/Windsor and on to Waterloo.

(3) Departure from Monterrey, Mexico, entry at Nuevo Laredo/Laredo, then N I-35 in TX, N US-75 in TX/OK, N US-69 in OK, E I-44 in OK/MO, N I-270 in MO/IL for delivery of a scheduled international shipment to Hart- ford, IL. After delivery of the international shipment in Hartford, IL, the driver

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would be assigned a scheduled international shipment consigned to Ontario, Canada, along the following route: N I-55/I-80 in IL to Chicago Heights to pick up an international shipment consigned to Oakville, Ontario, thereafter E I-90 in IL, E I-94 in IN/MI and entry to Canada at Detroit/Windsor, there- after to delivery at Oakville.

(4) Departure from Monterrey, Mexico, entry at Nuevo Laredo/Laredo, then N I-35 in TX, N US-75 in TX/OK, N US-69 in OK, E I-44 in OK/MO, N I-270 in MO/IL for delivery of a scheduled international shipment to Hartford, IL. After delivery of the international shipment in Hartford, IL, the driver would be assigned a scheduled international shipment consigned to Ontario, Canada, along the following route: N I-55/I-80 in IL to Harvey to pick up an international shipment consigned to Stratford, Ontario, there- after E I-80 in IL/IN, E I-94 in IN/MI, N I-69 in MI and entry to Canada at Port Huron/Sarnia, thereafter to delivery at Stratford.

(5) An international shipment from Apodaca, Mexico, consigned to Channelview, TX, entry at Nuevo Laredo/Laredo, N I-35 TX, E I-10 TX delivery of inter- national shipment. After delivery of this international shipment the driver would pick up an international shipment consigned from Houston, TX to Richmond Hill, Ontario, by the following established route: E I-10 TX/LA, N I-55 LA/MS/TN, E I-40 TN, N I-65 TN/KY, N I-71 KY/OH, N I-75 OH/MI and entry into Canada at Detroit/Windsor, thereafter delivery to Richmond. The above-described Mexico-U.S. shipments, and subsequent U.S.-Canada shipments essentially retrace the southbound Canada-Mexico routes. Other northbound international shipments include the following:

(6) Shipments consigned from Mexico City, Puebla, Tlaquepaque and Guadalajara to metropolitan New York City (Bayshore, Brooklyn, Bronx, and Port Washington). All these consignments from Mexico to metropolitan New York City would depart on Monday, Tuesday and Wednesday along the following route: N I-35 in TX, E I-30 TX/AR, E I-40 AR/TN, N I-81 TN/ VA/WV/MD/PA, E I-78 PA/NJ, E I-278 NJ/NY. Upon delivery of these international shipments, the drivers would be assigned an international ship- ment consigned from Brooklyn, New York to Scarborough, Ontario, said international shipment using the following route: W I-78 NY/NJ, W I-80 NJ/ PA and I-81 PA/NY, W NY-17 in NY, N I-390 in NY, W I-90 to entry to Ontario at Buffalo/Port Erie or Niagara/Niagara for delivery at Scarborough, Ontario.

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(7) Shipments consigned from Mexico City, Puebla, Tlaquepaque and Guadalajara to metropolitan New York City (Bayshore, Brooklyn, Bronx, and Port Washington). All these consignments from Mexico to metropolitan New York City would depart on Monday, Tuesday and Wednesday along the following route: N I-35 in TX, E I-30 TX/AR, E I-40 AR/TN, N I-81 TN/ VA/WV/MD/PA, E I-78 PA/NJ, E I-278 NJ/NY. Upon delivery of these international shipments, the drivers would be assigned an international ship- ment consigned from Brooklyn, New York, to Whitby, Ontario, said inter- national shipment using the following route: N I-78 NY/NJ, W I-80/NJ/PA, N I-81 PA/NY and entry into Ontario at Alexandria Bay/Ivy Lea for delivery in Whitby, Ontario.

(8) Shipments from Zapopan, Mexico, to Tulsa, OK, with entry at Nuevo Laredo/Laredo, N I-35 TX, N US-75 TX/OK, N US-69/Turnpike/US-75 to delivery in Tulsa. Thereafter the driver would be dispatched E I-44/OK- 66 in OK to pick up an international shipment consigned from Claremore, OK, to Cambridge, Ontario. The route of this shipment would be E I-44 OK/MO, N I-255/I-55 MO/IL, E I-80 IL/IN, E I-94 IN/MI and entry into Ontario at Detroit/Windsor and for delivery in Cambridge, Ontario.

C.

Gerth also has international shipments that originate in Mexico for delivery in the southeastern United States. These shipments, which depart on Monday, Tuesday and Wednesday, mesh with international shipments consigned from the same area to Ontario, Canada. The routes used by these shipments would be as follows:

(9) Entry at Nuevo Laredo/Laredo, N I-35 TX, E I-10 TX/LA/MS/AL, N I-65 AL, N I-85 AL/GA and I-285 to McDonough. After delivery of the international shipment, the drivers would be assigned the following international shipment consigned from McDonough, GA to Toronto, Ontario. The route for this international shipment would be N I-75 through GA/TN/KY/OH/MI and entry to Canada at Detroit/Windsor and on to Toronto, Ontario.

(10) Entry at Nuevo Laredo/Laredo, N I-35 TX, E I-10 TX/LA/MS/AL, N I-65 AL, N I-85 AL/GA and I-285 to Atlanta. After delivery of the international shipment the drivers would be assigned the following international shipment consigned from Lithia Springs, GA (in the western metropolitan Atlanta area) to Waterloo, Ontario. The route for this ship- ment would be N I-75 through GA/TN/KY/OH/MI and entry to Canada at Detroit/Windsor and on to Waterloo, Ontario.

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Gerth also has international shipments consigned from Mexico City to Miami, Florida. The routes for these shipments are as follows:

(11) Entry at Nuevo Laredo/Laredo, N I-35 TX, E I-10 TX/LA/MS/FL, S I-75 FL Turnpike/I-95 to Miami, then delivery of the international shipment from Mexico City. A direct northbound route would be driven without a load as follows: N I-95 FL, N FL Turnpike, N I-75 FL/GA to Lithia Springs. The driver would then pick up an international shipment consigned from Lithia Springs, GA to Waterloo, Ontario. The route would be as follows: Pick up of international shipment in Lithia Springs, GA, N I-75 GA/TN/KY/OH/MI and entry to Ontario at Detroit/Windsor and on to Waterloo for delivery.

(12) Entry at Nuevo Laredo/Laredo, N I-35 TX, E I-10 TX/LA/MS/FL, S I-75 FL Turnpike/I-95 to Miami, then delivery of the international shipment from Mexico City. A direct northbound route would be driven without a load as follows: N I-95 FL, N FL Turnpike, W FL-60/US-98 to Lakeland, FL. The driver would then pick up an international shipment consigned from Lakeland, FL to Kitchener, Ontario. The route would be as follows: Pick up of international shipment in Lakeland, FL, E I-4 FL, N I-95 FL/GA/SC, W I-26 SC, N I-77 SC/MC/BA/WB, N US-19 WB, N I-79 WB/PA, E I-90 PA/NY and entry to Canada at Buffalo/Port Erie with delivery to Kitchener, Ontario.

(13) Entry at Nuevo Laredo/Laredo, N I-35 TX, E I-10 TX/LA/MS/FL, S I-75 FL Turnpike/I-95 to Miami, then delivery of the international shipment from Mexico City. A direct northbound route would be driven without a load as follows: N I-95 FL/GA to Brunswick, GA. The driver would then pick up an international shipment consigned from Brunswick, GA to Toronto, Ontario. The route would be as follows: Pick up of international shipment in Brunswick, GA, W I-26 SC, N I-77 SC/MC/ BA/WB, N US-19 WB, N I-79 WB/PA, E I-90 PA/NY and entry to Canada at Buffalo/Port Erie with delivery to Toronto, Ontario.

In regard to the above-described shipments, all involve either the import or export of merchandise from one country to another (Canada, Mexico or the United States), in sealed trailers, with through bills of lading and other title and/or customs documentation demonstrating that the goods are traveling from one country to another without any additions, deletions, transshipments, loading or unloading of the merchandise. With respect to those itineraries involving Nuevo Laredo/ Laredo, many of the local customs brokers/forwarders physically shepard trailers across the border resulting in delivery of the trailers to the customs brokers/ forwarders in one of Laredo's four foreign trade zones (FTZ). The Gerth driver will subsequently pick up these trailers within the FTZ for delivery.

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ISSUE:

Whether the use of Canadian-based trucks as described in the above scenarios is violative of 19 CFR  123.14(c).

LAW AND ANALYSIS:

Section 141.4, Customs Regulations (19 CFR  141.4), provides that entry as required by title 19, United States Code,  1484(a) (19 U.S.C.  1484(a)), shall be made of every importation whether free or dutiable and regardless of value, except for intangibles and articles specifically exempted by law or regulations from the requirements for entry. Since the foreign-based equipment in question is not within the definition of intangibles as shown in General Note 4, Harmonized Tariff Schedule of the United States (HTSUS; 19 U.S.C.  1202, as amended), they are subject to entry and payment of any applicable duty if not specifically exempted by law and regulations.

Instruments of international traffic may be entered without entry and payment of duty under the provisions of 19 U.S.C.  1322. To qualify as instruments of international traffic, trucks having their principal base of operations in a foreign country must be arriving in the United States with merchandise destined for points in the United States, or arriving empty or loaded for the purpose of taking merchandise out of the United States (see 19 CFR  123.14(a)). Further-more, certain foreign-based vehicles engaged, in whole or in part, in the domestic carriage of merchandise that either originates from a location outside the United States or will be sub- sequently moved to a destination outside the United States, or such vehicles moving without a payload between two points in the same country, shall be considered as engaged in international traffic. (See Customs Bulletin of October 1, 1997, Vol. 31, No. 40, at pp. 7-13.)

A foreign truck tractor which arrives in the United States in international traffic towing a foreign trailer, either empty or loaded, constitutes a foreign "truck" as that term is used in  123.14(a), (b), and (c)(1), Customs Regulations (19 CFR  123.14(a), (b), and (c)(1)).

Section 123.14(c), Customs Regulations, states that with one exception, a foreign-based truck, admitted as an instrument of international traffic under  123.14, shall not engage in local traffic in the United States. The exception, set out in  123.14(c)(1), states that such a vehicle, while in use on a regularly scheduled trip, may be used in local traffic that is directly incidental to the international schedule.

A carrier may be considered as engaged in regularly scheduled service whether trips are scheduled hourly, daily, weekly, etc., provided the trips are regular, not varied, and are over an established route. Trips made if and when a load is available do not qualify.

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Section 123.14(c)(2), Customs Regulations (19 CFR  123.14(c)(2)), provides that a foreign-based truck trailer admitted as an instrument of international traffic may carry merchandise between points in the United States on the return trip as provided by  123.12(a)(2) which allows use for such transportation as is directly incidental to its economical and prompt departure for a foreign country. Section 123.14(c)(2) applies only to trailers and not to tractor-trailer units which, as was stated earlier, are considered trucks as that term is used in the Customs Regulations.

Section 10.41(d), Customs Regulations provides, in part, that any foreign-owned vehicle brought into the United States for the purpose of carrying merchandise between points in the United States for hire or as an element of a commercial transaction, except as provided for in  123.14(c), is subject to treatment as an importation of merchandise from a foreign country and a regular Customs entry therefore shall be made. Section 123.14(d), Customs Regulations provides that any vehicle used in violation of  123.14, is subject to forfeiture under  592, Tariff Act of 1930, as amended (19 U.S.C.  1592).

Whether the use of an instrument of international traffic constitutes a diversion from international traffic is based on the facts in each case. The transportation of merchandise in international traffic is the key. In those instances where merchandise has either not originated from outside the United States or will not be moved to a destination outside the United States, or where there is no movement without a payload between two points in the United States, the domestic movement of merchandise must be secondary to the international movement and meet other criteria. There must be a regular international schedule and the domestic movement must follow the same basic route as the merchandise moving in international traffic.

With respect to your inquiry, upon reviewing the use of Gerth's Canadian-based vehicles as described in the scenarios you pose, we note that all of these vehicles would be engaged, in whole or in part, in the carriage of merchandise originating in one country and terminating in another. As such, these vehicles are considered to be engaged in international traffic. (See Customs Bulletin of October 1, 1997, Vol. 31, No. 40, at pp. 7-13). Furthermore, the proposed use of the subject vehicles in the United States does not constitute "local traffic" within the meaning of  123.14(c) since none of the vehicles would be involved in the transportation of merchandise between any two points in the United States when such merchandise has not had a prior movement from an origin (i.e., point of loading) outside the United States or will not be subsequently moved to a destination (i.e., point of delivery) outside the United States. Id. at p. 11.

Accordingly, the use of Gerth's vehicles as proposed would not be prohibited by Customs administration of 19 CFR  123.14.

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HOLDING:

The use of Canadian-based trucks as described in the above scenarios is not violative of 19 CFR  123.14(c).

Sincerely,


Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch