BOR-7-04-CO:R:IT:C 111548 GEV
Robert L. Cope, Esq.
Grove, Jaskiewicz and Cobert
1730 M Street, N.W.
Washington, D.C. 20036-4579
RE: Instruments of International Traffic; Local Traffic;
Trucks; Positioning of Trailers; LTL Movements; Replace-
ment of Tractor; Backhauls/Lateral Movements; Base of
Operations; 19 U.S.C. 1322
Dear Mr. Cope:
This is in response to your letter dated February 20, 1991,
requesting clarification of the status of certain operations of
your client when handling international shipments between points
within the United States. Our ruling on these operations is set
forth below.
FACTS:
TransX is a Canadian-based for hire motor carrier with
terminal facilities at various locations in the United States.
TransX operates in domestic Canadian commerce, international
commerce between the United States and Canada, and in domestic
United States commerce. TransX holds appropriate operating
licenses from, among others, the Interstate Commerce Commission
(ICC) authorizing the described operations.
TransX currently conducts extensive regularly scheduled
services on commodities moving between the United States and
Canada in international traffic, and involving such ports of
entry as Detroit, Michigan; Buffalo, New York; Pembina, North
Dakota; and Blaine, Washington. These services involve the
transportation of Canadian-origin goods to U.S. destinations and
U.S.-origin goods to Canadian destinations. Transx operates
terminal facilities in the United States at Chicago (Addison and
Lincolnshire, Illinois) and Eagan and Roseville, Minnesota, among
other locations. TransX has several Canadian terminal
facilities, including Toronto, Ontario. Its principal place of
business is 2595 Inkster Blvd., Box 36, Group 200, R.R. 2,
Winnipeg, Manitoba, Canada R3C 2E6.
TransX's U.S.-Canada international operations have recently
been called into question by the District Director of Customs,
Pembina, North Dakota. In view of this, TransX's operations are
being internally reviewed and restructured to ensure future
compliance with all applicable Customs laws and regulations.
Accordingly, the transactions set forth for review constitute
identical, recurring future transactions for which TransX is
seeking a ruling as to their compliance with all applicable
Customs regulations.
TransX's regularly scheduled international service between
the United States and Canada is often performed with a Canadian
tractor and Canadian trailer bringing an import shipment to a
consignee in the United States. To a lesser degree, U.S.-based
equipment is also used in this service. Upon unloading of the
trailer at the consignee's facility, the empty Canadian trailer
must be repositioned to another shipper's facility on TransX's
route for loading of export merchandise destined to Canada.
Less than trailer load (LTL) shipments are an important part
of TransX's operations. LTL shipments may be involved in import
and export movements between the United States and Canada, or in
domestic point-to-point movements. The most economical and
efficient method for TransX to handle these shipments is to
consolidate LTL shipments in one trailer at one or more locations
in the United States.
During the course of TransX's service, situations arise
where, after clearing Customs at the border and before reaching
the consignee at the final U.S. destination of the imported
merchandise, a TransX Canadian tractor hauling a loaded Canadian
trailer is unable to complete the shipment for one of a variety
of reasons (e.g., equipment breakdown or accident; driver
illness; family problems; or termination). TransX then
dispatches another tractor and driver to pick up the trailer,
continue the movement, and complete delivery to the U.S.
importer.
On occasion, TransX, after completing a regularly scheduled
import movement to the United States, will have an export
shipment to Canada for the regularly scheduled return trip of
TransX's Canadian-based equipment. The consignors of these
shipments may be located to the east, west, or south of TransX's
U.S. terminals. In order to pick up these shipments and move
them to Canada, TransX's tractors and trailers will have to
travel away from Canada to obtain the freight, and then make the
scheduled return trip to Canada. For example, on some shipments,
TransX will deliver an import shipment to a consignee in
Springfield, Illinois, then proceed to St. Louis, Missouri, to
pick up the export shipment to Canada. In other circumstances,
TransX will deliver to Springfield, and then pick up the export
shipment in Indianapolis.
In regard to the above scenarios, the question has arisen as
to what criteria Customs considers in determining a carrier's
principal base of operations within the meaning of 123.14(a).
TransX is seeking guidance from Customs in this regard.
ISSUES:
1. Whether a Canadian-based tractor is operating in local
traffic in violation of 19 CFR 123.14(c)(1) when, after hauling a
Canadian-based trailer into the United States, and after the
trailer's subsequent unloading, the tractor is then used to
position the empty trailer at a different United States point
for the loading of export merchandise, then proceeds to haul it
to Canada.
2. Whether a Canadian-based tractor is operating in local
traffic in violation of 19 CFR 123.14(c)(1) when, after hauling a
Canadian-based trailer into the United States to its point of
unloading, it is subsequently used to position a different empty
Canadian-based trailer between two United States points for
subsequent loading with an export shipment to Canada.
3. Whether the use of a United States-based tractor to
position an empty Canadian-based trailer between two points in
the United States for the subsequent loading of an export
shipment to Canada constitutes a movement in local traffic in
violation of 19 CFR 123.14(c)(1).
4. Whether the use of a Canadian-based tractor to position
an empty United States-based trailer between two points in the
United States for the subsequent loading of an export shipment to
Canada constitutes a movement in local traffic in violation of 19
CFR 123.14(c)(1).
5. Whether the use of a Canadian-based tractor-trailer unit
in picking up LTL export cargo destined to Canada at various
United States locations along its regularly scheduled
international route constitutes a movement in local traffic in
violation of 19 CFR 123.14(c)(1).
6. Whether the loading and transporting of an LTL export
shipment in one Canadian-based tractor-trailer unit used in
international traffic between two points in the United States for
subsequent consolidation at a United States point not located
along the international route in a different trailer for export
to Canada constitutes a movement in local traffic in violation of
19 CFR 123.14(c)(1).
7. Whether the loading of domestic and export LTL cargo in
the same Canadian-based tractor-trailer unit for a movement
from one United States point to another for subsequent
deconsolidation of the shipment and continuation of only the
export LTL cargo to Canada constitutes a violation of 19 CFR
123.14(c)(1).
8. Whether the replacement of a Canadian-based tractor by
another such tractor after it enters the United States hauling a
Canadian-based trailer but prior to the transportation of the
loaded trailer to its United States destination and the
subsequent completion of the route by the replacement tractor
constitutes a violation of 19 CFR 123.14(c)(1).
9. Whether local traffic incidental to a regularly
scheduled international trip within the meaning of 19 CFR
123.14(c)(1) is required to be in the general direction of the
country or destination point of the import or export.
10. Whether there are specific criteria which Customs
reviews in determining a vehicle's "principal base of operations"
within the meaning of 19 CFR 123.14(a).
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), it is 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)).
Generally speaking, 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)). It should be
noted, however, that in regard to truck tractors, whether they
stay connected to their respective trailers or separate, the same
restrictions set forth in the aforementioned regulatory authority
would nonetheless apply.
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.
Section 123.14(c)(2), Customs Regulations, 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 return to the country
from which it entered the United States. 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.
We note that 10.41a(f), Customs Regulations (19 CFR
10.41a(f)) is repeatedly cited by counsel in the ruling request.
In this regard we refer to 10.41a(a)(3) which provides:
"As used in this section, 'instruments of
international traffic' includes the normal
accessories and equipment imported with any
such instrument which is a 'container' as
defined in Article 1 of the Customs Convention
on Containers."
Pursuant to Article 1(b)(v) of the Customs Convention on
Containers, "...the term 'container' includes neither vehicles
nor conventional packing..."
Furthermore, 10.41(a), Customs Regulations provides:
"Locomotives and other railroad equipment,
trucks, buses, taxicabs, and other vehicles
used in international traffic shall be subject
to the treatment provided for in Part 123 of
this chapter."
Accordingly, 10.41a(f) is not applicable to the TransX
operations in question. That section of the Customs Regulations
is inapplicable to vehicles whose treatment as instruments of
international traffic is provided for in 10.41(a), 10.41(d) and
Part 123, Customs Regulations.
Section 10.41(d), Customs Regulations, which 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; 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.
It should be noted that the ICC licenses held by TransX and
the applicable Customs Regulations are easily reconciled. The
former authorizes a carrier to transport general commodities
between points in the United States while the latter applies the
statutory requirements that govern such movements.
The record is devoid of any evidence regarding the base of
operations and schedules of the vehicles in question. Assuming,
arguendo, that the vehicles in the scenarios under consideration
are based as stated in the ruling request, and that they are in
fact operating pursuant to regularly scheduled international
trips, our findings are as set forth below. It should be noted,
however, that should a specific question regarding TransX's
operations arise at a future date (e.g., the possible assessment
of a penalty for a point-to-point violation), the facts
surrounding that particular incident will be reviewed on their
own merits notwithstanding the holdings of this ruling.
In regard to the first issue, the arrival of the Canadian-
based tractor-trailer unit into the United States with import
merchandise, the delivery of the merchandise to the point of
unloading, the positioning of the empty trailer, the reloading of
merchandise and subsequent hauling of the loaded trailer to
Canada does not constitute a diversion of the vehicles from
international traffic to illegal local traffic provided this
operation occurs along the truck's regularly scheduled
international route. The leg of the trip between the point of
unloading to the point of reloading is merely concomitant to the
return of the vehicle to its point of origin (i.e., Canada) after
the delivery of the cargo. The tractor-trailer unit, which
remains intact throughout this scenario, is not transporting
merchandise between United States points. The empty trailer is
not considered to be merchandise for purposes of 123.14 in view
of the fact that the focus of both the commercial transaction and
the tractor's itinerary is the delivery of the cargo in the
trailer, not the movement of the trailer between two United
States points. Accordingly, the Canadian-base tractor is not
operating in local traffic in violation of 123.14(c)(1),
Customs Regulations.
The rationale and holding of Issue 1 above is also
applicable to Issue 2, provided the positioning by the Canadian-
based tractor of a different empty Canadian-based trailer occurs
along the tractor's regularly scheduled international route.
Absent meeting these criteria the tractor in question is engaging
in illegal local traffic. Accordingly, since no merchandise is
being transported between two United States points there is no
diversion from international traffic to local traffic and no
violation of 123.14(c)(1), Customs Regulations.
Issues 3 and 4 involve the positioning discussed above
albeit with combinations of U.S. and Canadian-based equipment.
In Issue 3 the use of a U.S.-based tractor to reposition an empty
Canadian-based trailer does not constitute an illegal point-to-
point movement. It should be noted, however, that although
123.14 is inapplicable to the U.S.-based tractor (it applies to
foreign-based equipment), the prohibition against foreign-owned
vehicles from engaging in illegal domestic traffic set forth in
10.41(d), Customs Regulations, may apply. In other words, a
U.S.-based, Canadian-owned tractor would come within the purview
of 10.41(d). We further note that the provisions of
123.14(c)(2) would apply to the Canadian-based trailer under
consideration.
In Issue 4, the use of a Canadian-based tractor to position
an empty U.S.-based trailer between two points in the United
States would not constitute a movement in local traffic in
violation of 123.14(c)(1), provided the positioning occurs
along the tractor's regularly scheduled international route.
Issue 5 involves the use of a Canadian-based tractor-trailer
unit in picking up LTL export cargo destined to Canada at various
United States locations along its regularly scheduled
international route. The consolidation of export cargo in this
scenario involves no movement of merchandise in local traffic in
violation of 123.14(c)(1), Customs Regulations.
The consolidation described in Issue 6, however, differs
from that described in Issue 5 in that rather than consolidating
the LTL shipments in one truck at various stops along TransX's
regularly scheduled international route, the consolidation occurs
at TransX's U.S. terminal facilities (which, from the ruling
request, appear not to be located on the aforementioned route)
where the export cargo is transferred to another Canadian-based
trailer containing other export shipments destined to Canada.
The second trailer containing the consolidated export shipments
then continues its movement to Canada. The first trailer is
subsequently used for another export shipment.
Those tractor-trailer units which pick up LTL cargo at U.S.
locations and then proceed to TransX's U.S. terminal facilities
for consolidation of the cargo into another trailer are
considered to have diverted from international traffic to local
traffic. This subsequent diversion would result in a violation
of section 123.14(c)(1) inasmuch as the domestic movement (pick
up point to U.S. terminal facilities) does not follow the same
route as the merchandise moving in international traffic (U.S.
terminal facilities to Canada) therefore it cannot be said that
this local use is directly incidental to the regularly scheduled
international route.
Issue 7 is essentially the same situation as Issue 5 except
that in addition to export LTL cargo being picked up along the
route, domestic LTL cargo is transported by the same tractor-
trailer unit between U.S. points along the Canadian-based truck's
regularly scheduled international route. This movement does not
constitute a violation of 19 CFR 123.14(c)(1).
Issue 8 addresses the replacement of a Canadian-based
tractor after it has entered the United States hauling a
Canadian-based trailer with import merchandise but before it
reaches its United States point of destination. Under these
circumstances it is our view that at the point in the United
States where the tractor is switched or replaced, the tractor
being replaced is no longer considered to be transporting
merchandise in international traffic. Furthermore, the
replacement tractor is not arriving with merchandise destined to
points in the United States, nor is it arriving empty or loaded
for the purpose of taking out merchandise pursuant to 123.14(a).
Accordingly, the tractors' subsequent use in local traffic
constitutes a violation of 123.14(c)(1) absent evidence to show
they were used on a regularly scheduled trip and their use in
local traffic was directly incidental to the international
schedule. In regard to the trailer, it is our view that it
remains in international traffic until it reaches its point of
complete unlading on the inward trip.
In regard to the replacement tractor discussed above, it
should be noted that Customs has held that foreign truck tractors
may arrive in the United States to replace and continue the trips
of similar foreign tractors which have become disabled while
properly engaged in international traffic in the United States
without being considered to be engaging in local traffic in
violation of the Customs Regulations (Customs Circular: BOR-7-
DB, dated January 23, 1962). However, absent any case involving
a bona fide breakdown of the tractor, or the exceptions for
engaging in local traffic noted above, the replacement scenario
described in Issue 8 constitutes a use in local traffic in
violation of 123.14(c)(1), Customs Regulations. It should be
noted, however, that the replacement of a tractor due to
circumstances purportedly constituting an emergency other than a
breakdown as discussed above may, upon Customs review, suffice as
a mitigating factor in the resolution of any penalty assessed.
Issue 9 covers the parameters within which local traffic may
be considered "incidental" to the regularly scheduled
international route. Customs has no specific criteria regarding
this matter; each case is determined on an individual basis. We
reiterate, however, that the domestic movement must follow the
same basic route as merchandise moving in international traffic.
Furthermore, it should be noted 123.14(c)(2) regarding local
traffic permitted a foreign-based truck trailer references
123.12(a)(2) pertaining to local traffic of foreign railroad
equipment. Section 123.12(a)(2) states that such local traffic
is permitted if it is "reasonably incidental to its economical
and prompt departure for a foreign country." Customs has
interpreted this to mean in the general direction of the country
of origin, or to the home route junction point, over a route
which the equipment would otherwise travel empty. Accordingly,
"backhauls" or "lateral" movements would not be considered
incidental to the international route for purposes of
123.14(c), Customs Regulations.
Issue 10 pertains to the criteria Customs uses in
determining a vehicle's "base of operations" as set forth in
123.14(a), Customs Regulations. Customs has no specific
criteria for determining a vehicle's base of operations. As
long as an operator has the intention to establish his base of
operations in a certain place and operate out of that location,
and presents sufficient evidence to support this intention,
Customs will consider that as his base of operations. It should
be noted that although such determinations are made on a case-by-
case basis, Customs has ruled that a trailer that is Canadian-
owned, U.S.-leased and U.S.-registered creates a rebuttable
presumption that its principal base of operations is in the
United States. (ruling 110785, dated October 12, 1990) We have
also held that a Canadian company which purchases trailers in the
U.S. in the name of a U.S. corporation which has them licensed in
the U.S. creates a rebuttable presumption that the trailers are
based in the United States. However, the keeping of these
trailers in Canada for periods of up to six months or more
constitutes sufficient evidence to rebut the aforementioned
presumption (ruling 111285, dated October 21, 1990) Furthermore,
we have held that truck tractors which are Canadian-owned and
registered and bear license plates of Canadian provinces but are
dispatched out of the U.S. indicate that the owner's intention is
to base the operations of these vehicles in the U.S. and not in
Canada.
In the event a vehicle is not found to be foreign-based
thereby rendering 123.14 inapplicable, it may nevertheless be in
violation of 10.41(d), Customs Regulations, if it is foreign-
owned and carrying merchandise between points in the United
States for hire or as an element of a commercial transaction
without having made a formal Customs entry. Failure to make
entry in this situation, just as in the case of failure to enter
a foreign-based vehicle before use in local traffic, is subject
to penalty under 19 U.S.C. 1592.
HOLDINGS:
1. A Canadian-based tractor is not operating in local
traffic in violation of 19 CFR 123.14(c)(1) when, after hauling a
Canadian-based trailer into the United States, and after the
trailer's subsequent unloading, the tractor is then used to
position the empty trailer at a different United States point
for the loading of export merchandise, then proceeds to haul it
to Canada, provided the positioning takes place along the
tractor-trailer's regularly scheduled international route.
2. A Canadian-based tractor is not operating in local
traffic in violation of 19 CFR 123.14(c)(1) when, after hauling a
Canadian-based trailer into the United States to its point of
unloading, it is subsequently used to position a different empty
Canadian-based trailer between two United States points for
subsequent loading with export merchandise to Canada, provided
the positioning takes place along the tractor's regularly
scheduled international route.
3. The use of a United States-based tractor to position an
empty Canadian-based trailer between two points in the United
States for subsequent loading of an export shipment to Canada
does not constitute a movement in local traffic in violation of
19 CFR 123.14(c)(1).
4. The use of a Canadian-based tractor to position an empty
United States-based trailer between two points in the United
States for the subsequent loading of an export shipment to Canada
does not constitute a movement in local traffic in violation of
19 CFR 123.14(c)(1), provided the positioning occurs along the
tractor's regularly scheduled international route.
5. The use of a Canadian-based tractor-trailer unit in
picking up and consolidating LTL export cargo destined to Canada
at various United States locations along that truck's regularly
scheduled international route does not constitute a violation of
19 CFR 123.14(c)(1).
6. The loading and transporting of an LTL export shipment
in one Canadian-based tractor-trailer unit between two points in
the United States for subsequent consolidation at a United States
point not located along the international route in a different
trailer for export to Canada does constitute a violation of 19
CFR 123.14(c)(1). The truck picking up the cargo is considered
to have diverted to local traffic inasmuch as the merchandise
moving in local traffic is not following the same route as the
merchandise moving in international traffic and therefore the
domestic movement cannot be said to be incidental to a regularly
scheduled route.
7. The loading of domestic and export LTL cargo in the same
Canadian-based tractor-trailer unit for a movement from one
United States point to another for subsequent deconsolidation of
the shipment and continuation of only the export LTL cargo to
Canada does not constitute a violation of 19 CFR 123.14(c)(1)
provided it occurs along the truck's regularly scheduled
international route.
8. The replacement of a Canadian-based tractor by another
such tractor after it enters the United States hauling a
Canadian-based trailer but prior to the transportation of the
loaded trailer to its United States destination and the
subsequent completion of the route by the replacement tractor
constitutes a violation of 19 CFR 123.14(c)(1), absent the
original tractor's becoming disabled or evidence that the
replacement was pursuant to the replacement tractor's regularly
scheduled international trip.
9. Local traffic incidental to a regularly scheduled
international route within the meaning of 19 CFR 123.14(c)(1),
although decided on an individual basis, must follow the same
basic route as merchandise moving in international traffic.
10. Customs has no specific criteria in determining a
vehicle's "principal base of operations" as set forth in 19 CFR
123.14(a). As long as an operator has the intention to establish
his base of operations in a certain place and operates out of
that location, and presents sufficient evidence to support this
intention, Customs will consider that as his base of operations.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch