BOR-07-OT:RR:BSTC:CCR H321996 AFM
Harvey Vays
Russell A Farrow Limited
Farrow Consulting
475A Admiral Blvd
Mississauga, ON, L5T 2N1
RE: Instruments of International Traffic; 19 U.S.C. § 1322(a); 19 C.F.R. §§ 10.41a(a)(1), 10.41a(a)(2); HTSUS subheading 9803.00.50; Messer Canada Inc; steel cylinder
Dear Mr. Vays:
This is in response to your July 27, 2021, ruling request on behalf of Messer Canada Inc (“Messer”). In your submission, you request a ruling concerning whether certain reusable cylinders qualify as instruments of international traffic (“IITs”) and are therefore classifiable under subheading 9803.00.50 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Our decision follows.
FACTS
The following facts are from your July 27, 2021, ruling request, as well as your response to a request for additional information dated December 6, 2021. The subject items are reusable cylinders made of Steel SAE 10008 with an anticipated life expectancy of 20 or more years. The cylinders are manufactured in the United States, as are approximately 80% of the valves attached to the cylinders. The remaining valves, MegaTOPs, are from Europe and constitute the valves on approximately 20% of cylinders moving between the U.S. and Canada.
Messer owns the vast majority of the approximately 65,000 cylinders which are filled with various gases in the United States, exported to Canada, and are returned in a “near-empty” condition to the United States, typically within a 365-day period. The remaining 1-5% of the cylinders are owned by various customers.
Messer empties and ships the cylinders primarily from branches in Canada which include Brampton; Montreal; Langley; and Whitby. U.S. ports of entry for the cylinders include Ogdensburg, New York; Alexandria Bay, New York; Buffalo, New York; Blaine, Washington; Area Port of Sweetgrass, Montana; Pembina (Area Port), North Dakota; Portal, North Dakota; Port Huron, Michigan.
The cylinders are barcoded and tracked by Messer for inventory and scrapped container barcodes are recorded monthly. The most frequent repair needed on the containers are valve changes, which are done in both the United States and Canada to ensure safe transport of the compressed gases inside the cylinders. Messer is able to share their records of scrapped containers with CBP.
The following are images of the cylinders, taken from your December 6, 2021, response to our request for additional information:
Cylinders
Valves
Barcodes
ISSUES
Whether these cylinders may be considered IIT?
If these cylinders may be considered IIT, would the cylinders be classified under HTS 9803.00.50?
Would a separate IIT bond be required?
Whether tracking the cylinders by individual barcode or a First In First Out method would be an acceptable inventory method?
Do valve change repairs increase the value of the affected cylinders?
If valve change repairs occur outside the US, does it disqualify the cylinder as IIT?
LAW AND ANALYSIS
Issue 1
Per 19 C.F.R. § 141.4(a), “all merchandise imported into the United States is required to be entered, unless specifically excepted.” The four exceptions to the requirement of entry are listed under 19 C.F.R. § 141.4(b), one of which is instruments of international traffic (“IITs”). 19 C.F.R. § 141.4(b)(3). Subheading 9803.00.50 of the Harmonized Tariff Schedule of the United States (“HTSUS”) provides for the duty-free treatment of:
Substantial containers and holders, if products of the United States (including shooks and staves of United States production when returned as boxes or barrels containing merchandise), or if of foreign production and previously imported and duty (if any) thereon paid, or if of a class specified by the Secretary of the Treasury as instruments of international traffic, repair components for containers of foreign production which are instruments of international traffic, and accessories and equipment for such containers, whether the accessories and equipment are imported with a container to be reexported separately or with another container, or imported separately to be reexported with a container.
(footnote and emphasis added).
Subchapter 98 of the HTSUS only applies to:
(a) Substantial containers or holders which are subject to tariff treatment as imported articles and are:
(i) Imported empty and not within the purview of a provision which specifically exempts them from duty; or
(ii) Imported containing or holding articles, and which are not of a kind normally sold therewith or are entered separately therefrom; and
(b) Certain repair components, accessories and equipment.
See U.S. Note 1, et seq., Chapter 98, HTSUS.
Pursuant to 19 U.S.C. § 1322(a), IITs shall be excepted from the application of the Customs laws to the extent that such terms and conditions are prescribed in regulations or instructions. The relevant CBP regulations implementing that statute are found at 19 C.F.R. § 10.41a(a)(1) which provides in pertinent part:
Lift vans, cargo vans, shipping tanks, skids, pallets, caul boards, and cores for textile fabrics, arriving (whether loaded or empty) in use or to be used in the shipment of merchandise in international traffic are hereby designated as “instruments of international traffic” [. . .] The Commissioner of Customs [now CBP] is authorized to designate as instruments of international traffic […] such additional articles or classes of articles as he shall find should be so designated.
19 C.F.R. § 10.41a(a)(1) (emphasis added).
Such instruments may be released without entry or the payment of duty, subject to the provisions of this section.
To qualify for entry-free and duty-free treatment as IITs under the aforementioned statutory and regulatory authority, the article must be a substantial container or holder. As stated above, CBP is authorized to designate as an IIT such additional articles not specifically noted in 19 C.F.R. § 10.41a(a)(1). To qualify as an IIT within the meaning of 19 U.S.C. § 1322(a) and 19 C.F.R. § 10.41a(a)(1), an article used as a container or holder must be: (1) substantial, (2) suitable for and capable of repeated use, and (3) used in significant numbers in international traffic. See HQ H291037 (Jan. 9, 2018); HQ H016491 (Oct. 1, 2007); HQ 114150 (Dec. 12, 1997); HQ 107545 (May 7, 1985); Treas. Dec. 71-159, Cust. B. & Dec. 296 (June 18, 1971); 99 Treas. Dec. 533, No. 56247 (Aug. 26, 1964).
The subject cylinders are substantial as they are made of steel and have a life expectancy of 20 or more years. These cylinders are also suitable for and capable of repeated use in that they are typically reused annually throughout their life expectancy. There are also a significant number of cylinders in international traffic, with approximately 65,000 cylinders moved between the United States and Canada per year.
In the present case, the subject cylinders hold merchandise independent of the shipping containers in which they are transported because they are filled with gases to be transported to Canada. As a result, we find that the Messer cylinders are substantial holders or containers and may accordingly be classified as IITs.
Issue 2
Inasmuch as the Messer cylinders qualify as IITs and are substantial containers or holders, Messer may classify the cylinders under HTS 9803.00.50.
Issue 3
As outlined above, 19 C.F.R. § 10.41a(a)(1) provides that certain items used in the “shipment of merchandise in international traffic” are IITs. 19 C.F.R. § 10.41a(c) requires that IITs designated under 19 C.F.R. § 10.41a(a) require a bond to be filed on Customs Form 301 containing the bond conditions outlined in 19 C.F.R. § 113.66 prior to their release.
19 C.F.R. § 10.41b(a) provides that “holders and containers in this section may be released without entry or the payment of duty, subject to the provisions of this section.” 19 C.F.R. § 10.41b(b) provides, in part:
Subject to the approval of a port director pursuant to the procedures described in this paragraph, certain foreign- or U.S.-made shipping devices arriving from Canada or Mexico, including racks, holders, pallets, totes, boxes and cans, need not be serially numbered or marked if they are always transported on or within either intermodal and similar containers or containers which are themselves vehicles or vehicle appurtenances and accessories such as twenty and forty foot containers of general use and “igloo” air freight containers.
19 C.F.R. § 113.66 outlines IIT bond conditions. As the cylinders may be categorized as IIT, they may be released without entry or the payment of duty, but still must file a Customs bond. Therefore, the cylinders would require that an IIT bond is filed.
Issue 4
In your December 6, 2021, response to our request for additional information, you state that the cylinders are barcoded and tracked by Messer for inventory. Additionally, the barcodes of scrapped container are recorded monthly in records that Messer is able to share with CBP. Therefore, as Messer has demonstrated the capacity to do so, Messer should track the cylinders by individual barcode and report the location of each cylinder, as well as the barcode numbers of any scrapped containers to CBP on a monthly basis.
Issue 5
Central to the question of whether valve change repairs increase the value of the affected cylinders is the definition of the word “repair.” In United States v. Admiral Oriental Line et al., 18 C.C.P.A. 137, 141 (Oct. 15, 1930), the Court cited definitions of “repair” in Funk & Wagnalls New Standard Dictionary, the first of which defined “repair” as:
“The process of repairing; restoration after decay, waste, injury, or partial destruction; supply of loss; reparation; as, the repair of a building; often in the plural; as, to make repairs on a roof.”
The Court quoted Gagnon v. United States, 193 U.S. 451, 457 (Mar. 21, 1904), where the United States Supreme Court stated:
“The word ‘repair,’ as the word ‘amend,’ contemplates an existing structure which has become imperfect by reason of the action of the elements, or otherwise.”
Section 904(b) of the Trade Facilitation and Trade Enforcement Act of 2015 (Pub. L. 114-125, February 24, 2016) amended subheading 9801.00.10, HTSUS, to include any products which are returned within 3 years after having been exported. Previously, subheading 9801.00.10, HTSUS, only applied to products of the United States. Subheading 9801.00.10, HTSUS, now provides for the duty-free treatment of:
“Products of the United States when returned after having been exported, or any other products when returned within 3 years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.”
In HQ H555754 (Feb. 4, 1991), Customs found that U.S.-origin spools restored in Mexico were entitled to duty-free treatment because they were merely restored to their exported condition. Consequently, the spools were not advanced in value or improved in condition. Similarly, valve change repairs to cylinders, whether done in the U.S. or abroad, which merely restore cylinders to the condition they were in when exported would not advance the value of the cylinders.
The subject gas cylinders and their contemplated valve replacements would be items which have been made imperfect through wear and tear. Replacing the valves with new valves which only serve to restore the cylinders to their original condition after “decay, waste, injury, or partial destruction,” would not increase the value of the cylinders. Therefore, valve change repairs to the subject cylinders which do not improve the cylinders in condition, but only serve to restore the cylinders to their original condition after “decay, waste, injury, or partial destruction” would not increase the value of the repaired cylinders.
Issue 6
In HQ 278564 (Sept. 8, 2016), Customs ruled that U.S.-origin products exported in a new condition and then processed abroad to keep the product in operable and serviceable conditions are still entitled to duty-free treatment upon their return to the U.S. Similarly, in addressing whether valve change repairs occurring outside the US would disqualify the cylinders as IITs, if the repairs merely serve to restore the cylinders to their pre-export condition “after decay, waste, injury, or partial destruction,” the contemplated valve repairs would not disqualify the cylinders as IITs. Rather, the valve repairs would serve to preserve the cylinders’ function as IITs, as the cylinders would not be able to serve as IITs without functioning valves. Such a valve repair made while the cylinder is abroad would not improve the cylinder’s condition by “any process of manufacture or other means.” Therefore, valve change repairs of the subject cylinders occurring outside the U.S. would not disqualify the cylinders from consideration as IITs.
HOLDING
The subject reusable cylinders are IITs within the meaning of 19 U.S.C. § 1322(a) and 19 C.F.R. § 10.41a(a)(1). An IIT bond must be filed for the cylinders. Messer should track the cylinders by individual barcode and report the location of each cylinder, as well as the barcode numbers of any scrapped containers to CBP on a monthly basis. Valve change repairs to the subject cylinders which do not improve the cylinders in condition, but only serve to restore the cylinders to their original condition after “decay, waste, injury, or partial destruction” would not increase the value of the repaired cylinders. Valve change repairs of the subject cylinders occurring outside the U.S. done to restore the cylinders’ pre-export condition would not disqualify the cylinders from consideration as IITs.
Sincerely,
W. Richmond Beevers
Chief, Cargo Security, Carriers and Restricted Merchandise Branch
Office of Trade, Regulations and Rulings
U.S. Customs and Border Protection