MAR-05 RR:TC:SM 560827 BLS

Steven S. Weiser, Esq.
Arthur W. Bodek, Esq.
Siegel, Mandell & Davidson, P.C.
One Astor Plaza
1515 Broadway
New York, New York 10036-8901

RE: Applicability of subheadings 9801.00.10 and 9801.00.20, HTSUS, to returning samples

Gentlemen:

This is in reference to your letter dated January 23, 1998, on behalf of Esprit de Corp ("Esprit"), requesting a ruling concerning the applicability of subheadings 9801.00.10 and 9801.00.20, Harmonized Tariff Schedule of the United States (HTSUS), to certain samples to be returned from abroad.

FACTS:

Esprit expects that several times each year it will send abroad, as baggage, samples of company merchandise (primarily apparel and accessory items), for the purpose of soliciting orders therefor, accompanied by members of its U.S.-based sales representatives. In connection with this program, the sales representative will transport the samples to localities outside of the customs territory of the U.S., including various foreign countries and Guam. Each sales representative will be required to sign Esprit's "Standards for Overseas Use of Sales Samples by Esprit Sales Representatives", included as an attachment. In such document (hereinafter, the "Use Agreement"), the sales representative acknowledges its understanding that he or she is acting as the designated agent of Esprit in effectuating Esprit's exportation of the samples and that the articles are entrusted to the sales representative only for the duration of each sales trip and only for the purpose of soliciting order(s) in the locale covered by such trips.

Some of the samples will be of U.S.-origin while others will be of foreign origin. You state that all of the foreign articles will have been previously imported by Esprit with

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duties deposited and, where applicable, textile visas presented. The sales representatives will return to the customs territory of the United States with the samples (which will not be mutilated), either through the same port from which they departed or, possibly, through a different port.

ISSUES:

1) Whether the U.S.-origin samples transported abroad are eligible for entry under subheading 9801.00.10, HTSUS, upon return to the U.S.

2) Whether the foreign-origin samples transported abroad are eligible for entry under subheading 9801.00.20, HTSUS, upon return to the U.S., and exempt from quota and visa requirements.

LAW AND ANALYSIS:

1) Applicability of Subheading 9801.00.10

Subheading 9801.00.10, HTSUS, provides for the free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. While some change in the condition of the product is permissible abroad, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. See Border Brokerage Company v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 57 CCPA 165 (1970).

Shipment to Guam The Supreme Court has ruled that "exportation" is the severance of goods from the mass of things belonging to [the United States] with the intention of uniting them to the mass of things belonging to some foreign country. Swan & Fitch Co. v. United States, 190 U.S. 143 (1903). See also 19 CFR 101.1. As the samples will be transported by the sales representatives to various foreign countries and the U.S. territory of Guam, the issue we must address is whether Guam is considered a foreign country for purposes of determining whether there is an exportation.

In Rothschild & Co. v. United States, 16 Ct. Cust. App. 442, 446, T.D. 43190 (1929), the Customs Court defined "exportation" as the transportation of goods from this

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country to a foreign country. The court went on to find that U.S. territories such as the Virgin Islands, Guam, etc., are not foreign countries within the meaning of that definition. In Mitsubishi International Corp. v. United States, Cust. Ct. 319, 324, C.D. 2597 (1965), a more recent Customs Court case, the court, citing Rothschild, held that while U.S. territories (such as Guam) might sometimes be recognized as distinct from the states under certain Customs laws (tariff duties, for instance), shipments to those territories nonetheless do not constitute exportation to a foreign country. The issue in that case concerned an application for drawback. (See also Customs Service Decision (C.S.D.) 79-77, 13 Cust. Bull. 1114.) Based on the foregoing, we find that in the instant case there will be no exportation of the samples, as Guam is not considered a foreign country. Thus, these articles will not be eligible for the duty exemption under subheading 9801.00.10, HTSUS, upon return of the merchandise to the U.S. However, inasmuch as no exportation has taken place in this instance, the subject articles transported to Guam are not considered imported when returned to the U.S. In order to support the determination that an exportation did not occur, documentation will be required to verify that the returning articles are the same articles transported to Guam.

Shipment to Foreign Countries

As the transported articles are only displayed and not subject to any further manufacturing or processing operations, these articles are not advanced in value or improved in condition. See Headquarters Ruling Letter (HRL) 560630 dated September 10, 1997.

Accordingly, the U.S.-origin samples transported to foreign countries for soliciting orders will be eligible for duty-free treatment under subheading 9801.00.10, HTSUS, upon return to the U.S., provided the documentation requirements of 19 CFR 10.1 are satisfied.

2) Applicability of Subheading 9801.00.20

Subheading 9801.00.20, HTSUS, provides duty-free treatment for:

[a]rticles, previously imported, with respect to which the duty was paid upon such previous importation ... if (1) reimported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, after having been exported under lease or similar use agreements, and (2) reimported by or for the - 4 - account of the person who imported it into, and exported it from, the United States. Section 10.108, Customs Regulations (19 CFR 10.108), provides, in relevant part, that free entry shall be accorded under subheading 9801.00.20, HTSUS, whenever it is established to the satisfaction of the port director that the requirements of the subheading have been met.

Shipment to Guam

Inasmuch as the articles shipped to Guam do not undergo an "exportation" (see discussion above), they are not eligible for the duty exemption under subheading 9801.00.20, HTSUS, upon return to the U.S. Such articles will not be considered imported when returned to the U.S.

Shipment to Foreign Countries

As previously noted, you state that prior to entry, each of the foreign-origin articles will have been previously imported by Esprit and duties paid. In this regard, you state that Esprit will provide the appropriate import documentation upon request by the port director. As also noted above with respect to U.S.-origin articles, the foreign-origin samples will not be advanced in value or improved in condition while abroad. Further, as the articles will be returned directly to Esprit, the samples will be reimported by, or for the account of, the person who imported it into, and exported it from, the United States. The remaining issue is whether the samples will be exported pursuant to a lease or similar use agreement.

The predecessor of subheading 9801.00.20, HTSUS, was item 801.00 of the Tariff Schedules of the United States (TSUS). That particular provision was amended in 1984 to provide for articles that had been exported under "similar use agreements" and leases to entities other than foreign manufacturers. Trade and Tariff Act of 1984, Pub. L. No. 98-573, 118, 98 Stat. 4922 (1984). Before the amendment, duty-free treatment applied only to merchandise that had been exported under lease to foreign manufacturers. In Werner & Pfleiderer Corporation v. United States, 17 C.I.T. 916 (1993), a case interpreting the amended language of item 801.00, TSUS, the Court of International Trade stated that "the provision concerning goods exported under lease, in particular, is not the sort of exemption from duties which must be narrowly construed." At issue was whether or not a temporary loan arrangement was the type of "similar use agreement" contemplated by item 801.00, TSUS. In holding that a loan was a "similar use agreement," the court opined that if the drafters of that provision

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intended the provision to encompass nothing broader than a lease, then the language "similar use agreement" would not have been added to the provision.

In HRL 560630 dated September 10, 1997, various articles of merchandise, primarily apparel, accessories, and shoes, were exported to the United Kingdom under cover of a carnet, for display at a company fashion show. It was stated that all import duties with respect to previously imported articles had been paid and, where applicable, all textile export visas were presented. The articles were to be loaned to a related company in the U.K. pursuant to a use agreement which provided that title to the property was to remain with the importer and that the articles were to be returned to the company in the U.S. after the conference. In that case, we found that the articles were exported to the United Kingdom from the U.S. pursuant to a lease or similar use agreement. See also HRL 222863 dated July 1, 1991.

The facts in this case are analogous to HRL 560630, in that the articles are samples to be exhibited for purposes of soliciting orders, and title is retained by the importer. While in this case the "user" under the use agreement is a sales agent of Esprit, and not a third party, we find that this type of transaction is the type of "similar use agreement" contemplated by the drafters of the statute. See Werner & Pfleiderer, supra. Therefore, the articles will qualify for duty-free treatment under subheading 9801.00.20, HTSUS, provided Esprit previously imported the foreign-origin articles and paid duty thereon, the articles are reimported by Esprit or for its account, and the documentary requirements of 19 CFR 10.108 are satisfied. Textile and apparel products imported under this tariff provision are not subject to visa/quota requirements. See 59 FR 14392 (March 28, 1994).

HOLDING:

1) U.S.-origin articles transported by Esprit's sales representatives to foreign countries for purposes of soliciting orders will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, provided the documentary requirements of 19 CFR 10.1 are satisfied. Shipment of U.S.-origin articles to Guam is not considered an "exportation", inasmuch as Guam is not a foreign country. Therefore, these articles will not be eligible for the duty exemption under subheading 9801.00.10, upon return to the U.S. As such articles will not be exported to Guam, they will not undergo an importation into the U.S. upon return from Guam.

2) Foreign-origin articles transported to foreign countries for purposes of soliciting orders will be eligible for the duty exemption under subheading 9801.00.20, HTSUS,

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when returned to the U.S. provided, they are reimported by or for the account of Esprit, Esprit previously imported the merchandise and paid duty thereon, and the documentary requirements of 19 CFR 10.108 are satisfied. Textile and apparel products imported under this tariff provision are not subject to visa/quota requirements. See 59 FR 14392 (March 28, 1994). Since shipment of samples to Guam is not considered an "exportation", the articles returning from Guam will not be eligible for the duty exemption under subheading 9801.00.20, HTSUS. As the articles are not exported to Guam, they will not undergo an importation into the U.S. upon return from Guam. A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director
Commercial Rulings Division