228931 RND

Port Director
1000 Second Avenue
Suite 2100
Seattle, Washington 98104
Attn: Nancy Johnson

RE: Application for Further Review of Protest number 3001-00-100227; 19 U.S.C. § 1515(c); Nufarm Limited; 19 C.F.R. §181.53; temporary importation under bond; 19 U.S.C. §3333;

Dear Ms. Johnson:

This letter is in response to your memorandum of August 14, 2000, requesting a Further Review of Protest number 3001-00-100227. We have considered the evidence provided and the points raised by your office and the protestant. Our decision follows.


The Protestant, Nufarm Limited (“NUFARM”), imported chemical products into the United States under subheading 9813.00.05. Consequently, the goods entered the U.S. duty-free temporarily, under bond. These chemical products were processed into a new product in Montana. The new product resulting from this processing was subsequently exported to Canada. No duty was owed or paid upon the entry into Canada.

After exporting the new chemical product to Canada, Nufarm filed fifteen consumption entries for the imported chemical products and paid the duty required. These fifteen entries were liquidated on February 18, 2000, and are the subject of this Protest. The Protestant requests a refund of the fees and duties paid in connection with the subject entries. Nufarm contends that “the requirement under 19 C.F.R. § 181.53 to file a consumption entry and to pay duty upon the export of merchandise imported temporarily under bond violates the Export Clause of the U.S. Constitution and is therefore illegal.”

The Protestant filed this Protest, number 3001-00-100227 on May 18, 2000. The Protest was denied on August 8, 2000. The port’s denial did not address the constitutional issue but states that per 19 C.F.R. § 181.53 the duty was “assessed as if the exported goods had been withdrawn for domestic consumption and are assessed on the goods based on the condition at the time of importation into the United States.” On August 14, 2000, the Protest was forwarded to this office along with a Request for Further Review. It is stated that the Protest “has met the criteria for further review.”


Does the requirement, under 19 C.F.R. § 181.53, to file a consumption entry and to pay duty upon the export of merchandise imported temporarily under bond violate the Export Clause of the U.S. Constitution?


We note initially that the instant Protest was timely filed, i.e., within 90 days of the liquidation of the entries (19 U.S.C. § 1514(c)(3)(B)). Under 19 U.S.C. § 1514(a) “decisions of the Customs Service, including the legality of all orders and findings entering into the same, as to . . . the liquidation or reliquidation of an entry . . . are final unless a protest of that decision is filed within 90 days of the decision (19 U.S.C. §1514(c)(3)(B)). The Protest was filed on CF 19 on May 18, 2000 and according to the Protestant, the subject entries were liquidated on February 18, 2000.

The criteria required for granting a request for further review are set forth in 19 C.F.R. § 174.24, which states, inter alia,

Further review of a protest which would otherwise be denied by the port director shall be accorded a party filing an application for further review which meets the requirements of §174.25 when the decision against which the protest was filed: (b) Is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee or by the Customs courts; Therefore, further review will be accorded to the party filing an application for further review which meets the requirements of § 174.25 and at least one of the criterion in § 174.24. It is the opinion of your office that this Protest meets the criteria for further review. This office does not disagree.

The Protestant, Nufarm, bases its Protest on the contention that 19 C.F.R. §181.53 is unconstitutional because it violates the Export Clause and is therefore unlawful. As an administrative agency, we have no authority to declare an enactment of the Congress as unconstitutional. The issue of whether the laws of Congress are constitutional is reserved for the courts. However, as this is the only issue raised by the Protestant we will address it here.

The Export Clause of the United States Constitution states: "No Tax or Duty shall be laid on Articles exported from any State" (U.S. Const., Art. I, § 9, cl. 5). We are of the opinion that the requirements of 19 C.F.R. § 181.53 do not constitute a duty on exports. The Temporary Importation under Bond classification is a special program under the tariff schedule. The requirements of 19 C.F.R. § 181.53, among others, are permissible conditions placed upon the option to temporarily defer duty by importing goods under bond for specific enumerated purposes (see Subchapter XIII, Chapter 98, (HTSUS)). An importer at the time of entry may choose either to present the merchandise under a TIB provision and post a bond or make a consumption entry and pay the duty. Moreover, the TIB bond calculation is based on an ordinary consumption entry as stated in 19 C.F.R. § 10.31(f). The basis for the computation of the amount of a temporary importation bond is the estimated duties determined in accordance with §§ 141.90 and 141.103 of the Customs Regulations. The posting of a bond and the calculation of estimated duties evidences the nature of a TIB as a temporary deferral of duty, which deferment may terminate and cause the duty to become payable.

The legislative history to the North American Free Trade Agreement (NAFTA) indicates that the Parties, Canada, Mexico and the U.S., intended to restrict drawback and duty deferral programs between the Parties. See H. Rept. 103-361, 103d Cong., 1st Sess. (1993). Section 203(a) of the NAFTA provides that all goods imported into the United States are subject to NAFTA drawback restrictions except if otherwise specifically exempted. TIB entries, such as was used to import the subject chemicals, are in fact treated as a form of “drawback” under the NAFTA provisions.

Title 19, Part 181 of the Code of Federal Regulations implement the NAFTA Implementation Act (107 STAT. 2057). Subpart E of Part 181 contains the regulations providing restrictions on drawback and duty-deferral programs. According to § 181.41, "[e]xcept in the case of § 181.42(d), the provisions of this subpart apply to goods which are imported into the United States and then subsequently exported from the United States to Canada on or after January 1, 1996, . . . ." (see also the comment and response on this provision in Treasury Decision (T.D.) 95-68, the Final Rule promulgating Part 181, in which "Customs agree[d] that the subpart covers all exports to Canada or Mexico ..."). Section 181.42(d) deals with unused merchandise substitution drawback and is irrelevant here. Since the chemicals at issue were imported into the United States and subsequently exported to Canada after January 1, 1996, Subpart E of Part 181 applies to these goods.

General Note 1, Harmonized Tariff Schedule of the United States (“(HTSUS)”), dictates that all merchandise imported into the United States is subject to duty unless specifically exempted therefrom. Therefore, the chemicals imported into the U.S. by Nufarm were subject to duty upon importation except when specifically exempted from the applicable duty. Goods may be exempted from duty completely or the duty may simply be deferred. Subheading 9813.00.05, ((HTSUS)), provides for duty-free entry, under bond, for merchandise imported into the United States, for a temporary period, for repair, alteration, or processing. In effect, subheading 9813.00.05 provides for a narrow, temporary exception to the automatic duty upon importation and imposes conditions for this duty-free entry: the entry must be temporary, under bond and the merchandise may only be imported for certain operations, i.e. repair, alteration, or processing.

In addition, pursuant to U.S. Notes 1(a) and (c) of Subchapter XIII of Chapter 98, (HTSUS), which contains subheading 9813.00.05, articles to be repaired, altered or processed, including processes which result in articles manufactured or produced in the United States, may enter into the United States temporarily free of duty under a Temporary Importation Under Bond (TIB) for exportation within one year from the date of importation. It was under this provision that the Protestant entered the chemical products into the United States, temporarily free of duty under a TIB. The chemicals were then processed into new products within the U.S. and subsequently shipped to Canada. Shipping the chemicals to Canada triggered the assessment per 19 C.F.R. § 181.53 of import duties based on the chemicals’ importation into the U.S.

19 C.F.R. § 181.53(a)(2)(i)(A) states,

Where a good is imported into the United States pursuant to a duty-deferral program and is subsequently withdrawn from the duty-deferral program for exportation to Canada . . . , and provided that the good is a “good subject to NAFTA drawback” within the meaning of 19 U.S.C. 3333 and is not described in § 181.45 of this part, the documentation required to be filed under this section in connection with the exportation of the good shall, for purposes of this chapter, constitute an entry or withdrawal for consumption and the exported good shall be subject to duty which shall be assessed in accordance with paragraph (b) of this section.

The chemicals imported into the United States under TIB by Nufarm were imported into the United States pursuant to a duty-deferral program because per 19 C.F.R. § 191.53(a)(1)(ii) entry under TIB constitutes duty-deferral. In addition, the subject chemicals are “good[s] subject to NAFTA drawback” within the meaning of 19 U.S.C. § 3333(a) because the chemicals do not fall within any of the exceptions therein. Thus, duty is assessable pursuant to 19 C.F.R. §181.53(b)(5) when – not because – the chemicals were exported to Canada. 19 C.F.R. § 181.53(b)(5) provides in pertinent part,

where a good, regardless of its origin, was imported temporarily free of duty for repair, alteration or processing (subheading 9813.00.05, Harmonized Tariff Schedule of the United States) and is subsequently exported to Canada or Mexico, duty shall be assessed on the good on the basis of its condition at the time of its importation into the United States.

The duty on the chemicals resulted from their importation into the U.S. and is based on their condition when they were imported. The duty was merely deferred until such time as the chemicals were exported to Canada.

19 C.F.R. § 181.53(b)(5) further provides,

Such duty shall be paid no later than 60 calendar days after either the date of exportation or the date of entry into a duty-deferral program of Canada or Mexico, except that, upon filing of a proper claim under paragraph (a)(3) of this section, the duty shall be waived or reduced in an amount that does not exceed the lesser of the total amount of duty payable on the good under this section or the total amount of customs duties paid to Canada or Mexico.

Hence, the duty payable on the chemicals was also eligible to be reduced by either of two amounts: the duty imposed by U.S. Customs or the duty payable to Canada, whichever was less. Nufarm paid the applicable duties required by the U.S. on the chemicals, however there was zero duty paid upon entry of the chemicals into Canada. Therefore, the U.S. duty was reduced by the lesser of the two amounts, the amount of duty paid upon entry into Canada, which was zero. This “lesser of the two rule” is also contained in U.S. Note 1(c), Chapter 98, Subchapter XIII, (HTSUS) (as amended by Presidential Proclamation 6780 of March 23, 1995 (published in the Federal Register on March 27, 1995 (60 FR 15845, 15853)), which provides:

For purposes of this subchapter, if an article imported into the United States under heading 9813.00.05 is withdrawn for exportation to the territory of Canada or of Mexico, the duty assessed shall be waived or reduced in an amount that does not exceed the lesser of the total amount of duty payable on the article that would have been payable on importation under chapters 1 through 97, inclusive of the Harmonized Tariff Schedule of the United States or the total amount of customs duties paid to Canada or Mexico on the exported article, unless such article is covered by section 203(a)(1) through 203(a)(8), inclusive, of the NAFTA Implementation Act. The amount of duties or refunds calculated on such articles pursuant to this note shall be adjusted to take into account any subsequent claim for preferential tariff treatment made to another NAFTA country. This note shall apply to shipment to Canada on or after January 1, 1996, and to Mexico on or after January 1, 2001.

As stated above, liability for the duty laid on the chemicals arose at importation. Such duty was, however, deferred while the merchandise remained in the U.S. temporarily. Once removed from the U.S., the deferral would remain in place only upon strict compliance with the statute--in this case, only if the chemicals were not exported to Canada.

To support its position that §181.53 is unconstitutional Protestant cites United States v. United States Shoe Corp., (523 U.S. 360, 367 (1998)) in which the Supreme Court was called upon to determine whether the Harbor Maintenance Tax (HMT), to the extent it was assessed on export cargoes, was a tax on exports or a user fee. In that case the Court stated,

The crucial question is whether the HMT is a tax on exports in operation as well as nomenclature or whether, despite the label Congress has put on it, the exaction is instead a bona fide user fee.

From this sentence the Protestant extrapolates a two pronged test, operation and nomenclature, for determining that the duty imposed by 19 C.F.R. § 181.53(b)(5) is a duty on exports. However, the duty assessed on the chemicals at issue here, in sharp contrast to the HMT, is neither a tax nor a user fee. The analogy, therefore, is inapplicable to the instant case. Further, regardless of the characterization (26 USC § 4462(f)(2)) that the HMT “should be treated as if it were a customs duty for administrative, enforcement, and jurisdictional purposes,” it remains clear that the HMT was not in fact a customs duty, but a tax and was described as such by Supreme Court (523 U.S. 360, 369).

Moreover, a further review of the court decisions on the Export Clause shows that the imposition of duty under 19 C.F.R. § 181.53 does not violate the Export Clause. The Supreme Court has stated,

[t]he true construction of the Constitutional provision is that no burden by way of tax or duty can be cast upon the exportation of articles, and does not mean that articles exported are relieved from the prior ordinary burdens of taxation which rest upon all property similarly situated. The exemption attaches to the export, and not to the article before its exportation . . . .

Cornell v. Coyne, 192 U.S. 418, 427 (1904)). In Dooley v. United States, 183 U.S. 151, 156 (1901), the Supreme Court noted the difference between duties on imports and duties on exports and stated, “A duty due as a consequence of importation need not be refunded on exportation to avoid violating the Export Clause.” See also Turpin v. Burgess, 117 U.S. 504 (1886); A.G. Spaulding & Bros. v. Edwards, 262 U.S. 66 (1923); William E. Peck & Co. v. Lowe, 247 U.S. 165 (1918); Liggett & Myers Tobacco Co. v. United States, 77 F.2d 65 (3rd Cir. 1935); Moon v. Freeman, 379 F.2d 382, 388, 390 (9th Cir. 1967); International Business Machines Corp. v. United States, 59 F.3d 1234, 1236, 1238-1239 (CAFC 1995); United States v. Hvoslef, 237 U.S. 1 (1915).


Assessment of duty per 19 C.F.R. § 181.53 was in accordance with law and regulations. The protest should be DENIED IN FULL.

In accordance with Section 3A (11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with this decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make this decision available to Customs personnel, and to the public via the Customs Home Page on the World Wide Web, the Freedom of Information Act, and other public distribution channels.


John Durant, Director
Commercial Rulings Division