- Type : • HTSUS :
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Related:
557701
OT:RR:CTF:EPDR H342573 RD
Category: Entry
Alan Apria, Center Director
U.S. Customs and Border Protection
Electronics Center of Excellence and Expertise
One World Trade Center
Long Beach, CA 90831
Re: Further review of Protest No. 3001-10-100233, Denial of Florence Agreement Application;
California Institute of Technology
Dear Director Apria,
This is in response to an application for further review of protest no. 3001-10-100233,
forwarded to our office on October 21, 2024, which contests the liquidation of an entry (entry no.
xxxxxxx7336) of an “ND: Yag Laser” as dutiable and ineligible for duty-free treatment under
subheading 9810.00.60, Harmonized Tariff Schedule of the United States (HTSUS). We note
that protest no. 2720-10-100016, designated as the “lead protest” involving the same
merchandise and issues was denied as untimely on September 19, 2024.
FACTS:
On January 22, 2008, the California Institute of Technology (Caltech) entered a 2W
Mephisto Lasersystem (also referred to as an “ND: Yag Laser”) under subheading 9810.00.60,
HTSUS, which accords duty-free treatment to scientific instruments and apparatus imported by
public or private nonprofit institutions pursuant to the Educational, Scientific, and Cultural
Materials Importation Act of 1966, Public Law 89-651, 80 Stat. 897 (Oct. 14, 1966) (Florence
Agreement). Caltech filed a Request for Duty-Free Entry of Scientific Instruments or Apparatus
(ITA Form 338P), also called a Florence Agreement application, for the laser on June 30, 2008.
Caltech did not purchase the instrument outright but provided a Memorandum of Understanding
(MOU) between the Laser Interferometer Gravitational Wave Observatory (LIGO) and the
foreign instrument supplier, the Albert Einstein Institute, Max Planck Institute for Gravitational
Physics (AEI). The MOU states that AEI will provide LIGO with a 2W Mephisto Lasersystem
to observe gravitational radiation.
LIGO is comprised of two organizations, LIGO Laboratory, which is a facility for
gravitational wave research primarily operated by Caltech and the Massachusetts Institute of
Technology (MIT), and the LIGO Scientific Collaboration, which according to the MOU is an
“international consortium of academic and research organizations that contribute to data analysis,
the scientific operation of the LIGO observatories, and research and development in support of
upgrades to the LIGO observatories.” The MOU notes that all equipment supplied by AEI for
installation in Advance LIGO will become property of Caltech.
On March 21, 2007, U.S. Customs and Border Protection (CBP) denied the Florence
Agreement application. On May 28, 2009, Caltech sought reconsideration of CBP’s decision
that the agreement between Caltech and its supplier, AEI, was not a “bona fide order” and
highlighted that a purchase is not required for purposes of a “bona fide order” pursuant to the
Florence Agreement and as discussed in Headquarters Ruling (HQ) 557701, dated April 7, 1994.
Caltech pointed to the MOU with AEI and stated there was an agreement between a qualified
institution (Caltech) and a foreign supplier (AEI), thus satisfying the condition that where the
agreement constitutes something less than a purchase, it must be directly between the institution
and the foreign supplier.
On June 19, 2009, CBP denied the request for reconsideration and responded that the
laser was not eligible for duty-free treatment under subheading 9810.00.60, HTSUS, because
Caltech had not placed an order to purchase the instrument. CBP advised Caltech that the files
for HQ 557701, and the letter from CBP to the DOC discussed in that ruling, could not be found.
CBP stated that a copy of the October 15, 1974, letter had been obtained, however, and advised
that the portion cited by Caltech was mere “dicta.” CBP’s denial letter also discussed and
attached several non-public denials of Florence Agreement applications because the “bona fide
order” requirement was not met due to the fact that there was no purchase of the instrument.
CBP’s liquidated Caltech’s entry with duties on February 5, 2010.
On August 4, 2010, Caltech protested the liquidation of an entry of the laser as dutiable
on the grounds that the Florence Agreement does not require an actual purchase in order to
obtain duty-free treatment under subheading 9810.00.60, HTSUS. Subsequently, CBP
reconsidered its position upon reviewing Caltech’s protest. CBP sent Caltech’s application to the
U.S. Department of Commerce (Commerce) for consideration. On August 14, 2025, Commerce
approved Caltech’s Florence Agreement application. See 90 Fed. Reg. 39181 (Aug. 14, 2025).
ISSUE:
Whether a Florence Agreement applicant must demonstrate that the qualifying institution
intends to purchase the imported instrument or apparatus.
LAW AND ANALYSIS:
As an initial matter, we find that, pursuant to 19 U.S.C. § 1514(c)(3)(A), this protest was
timely filed on August 4, 2010, within 180 days after the liquidation of the protested entry on
February 10, 2010. We also find that, pursuant to 19 U.S.C. § 1514(a)(1), a protestable issue
was raised by challenging CBP’s decision regarding “the classification and rate and amount of
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duties chargeable” for the ND: Yag Laser. Finally, pursuant to 19 C.F.R. § 174.24(b), we find
that further review of this protest is warranted because it involves questions of law and fact
which have not previously been ruled upon – specifically, whether the entered merchandise is
eligible for duty-free treatment under subheading 9810.00.60, HTSUS.
The Florence Agreement endeavors to promote international understanding and peace by
lowering barriers to the exchange of cultural, scientific, and educational materials. The United
States became a full party to the agreement when it enacted implementing legislation in 1966.
Educational, Scientific, and Cultural Materials Importation Act of 1966, Public Law 89-651, 80
Stat. 897 (Oct. 14, 1966). Pursuant to subheading 9810.00.60, HTSUS, scientific instruments or
apparatus can be entered duty free if such instruments or apparatus are not being manufactured in
the United States.
Generally, the application process is conducted jointly between CBP and Commerce.
U.S. Note 6(b)-(c), Subchapter X, Chapter 98, HTSUS; 19 C.F.R. § 10.114; 15 C.F.R.
§ 301.3(b)-(c). The applicant “must be a public or private nonprofit institution which is
established for educational or scientific purposes and which has placed a bona fide order or has a
firm intention to place a bona fide order for a foreign instrument within 60 days following a
favorable decision on the institution’s application.” 15 C.F.R. § 301.3(a); U.S. Note 6(b) & 6(e),
Subchapter X, Chapter 98, HTSUS. The application is made on Commerce form ITA-338P and
filed with CBP. 15 C.F.R. § 301.3(b). CBP reviews the application to determine whether the
applicant is a qualifying institution, whether the instrument or apparatus falls within the classes
of instruments eligible for duty-free entry consideration, and whether the instrument or apparatus
is for the exclusive use of the applicant institution and is not intended to be used for commercial
purposes. See 15 C.F.R. § 301.4(a). If appropriate, CBP will forward the application to
Commerce for review and a determination as to whether the instrument or apparatus is being
manufactured in the United States. See 15 C.F.R. §§ 301.4(b); 301.5. Commerce subsequently
forwards each decision to the applicant and to the Federal Register for publication. 15 C.F.R.
§ 301.5(f).
Among other qualifying requirements, the institution making an application for duty free
treatment under subheading 9810.00.60, HTSUS, must provide a statement “that either the
institution has already placed a bona fide order for the instrument or apparatus or has a firm
intention.” U.S. Note 6(b), Subchapter X, Chapter 98, HTSUS; 15 C.F.R. § 301.3(a). The term
“bona fide order” is not defined in the Florence Agreement, the legislative history of the
Florence Agreement, the article description for subheading 9810.00.60, HTSUS, the U.S. Notes
for Chapter 98 of the HTSUS, or the implementing CBP Regulations.
Thus, the question presented by this protest is whether the “bona fide order” requirement
is a requirement that the applicant purchase the imported equipment as opposed to something
less than a purchase, such as a lease, loan, or gift of the imported instrument or apparatus. We
find that the plain meaning of the term and the purpose of the Florence Agreement dictate that a
bona fide order does not require the purchase or sale of the instrument or apparatus. This
decision is consistent with the only published ruling by CBP on the meaning of the term and is
not undermined by unpublished ruling letters to the contrary.
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In 1994, CBP published the only ruling that addresses the term “bona fide order” in the
context of the Florence Agreement. Headquarters Ruling Letter (HQ) 557701 (Apr. 7, 1994). In
that ruling, CBP cited to an October 15, 1974, unpublished decision letter to Commerce
(hereinafter “October 1974 Letter”). In the October 1974 Letter, we opined that:
a bona fide order is made when there has been a firm agreement reached between
two parties, a qualified institution and a foreign supplier or manufacturer of
instruments, under which the institution is to receive an instrument for a use
required by [9810.00.60, HTSUS]. The fact that the agreement may constitute a
gift, loan, lease, rental, or purchase is of no consequence, as long as no commercial
benefit will inure therefrom in this country. There is no requirement in the law that
an institution must purchase the instrument . . . However, when the agreement
constitutes something less than a purchase, it must be directly between the nonprofit
institution and the foreign supplier or manufacturer. Domestic distributors could
assist as agents in the arrangements made, but in no case could any profits inure to
their benefit. . . . . It is our opinion that this interpretation is clearly within the
intendment and spirit of [the Florence Agreement].
HQ 557701 (Apr. 7, 1994) (quoting the October 1974 Letter). Accordingly, CBP stated that a
“bona fide order” did not require the purchase of the instrument or apparatus, but did address
concerns that a commercial benefit should not accrue to a party in this country. CBP ultimately
denied the application in HQ 557701, however, because a lease between the nonprofit entity and
a third party (that was not the manufacturer or foreign supplier) resulted in an impermissible
commercial benefit inuring to the third party.
The definition of “bona fide order,” and analysis of the definition as appearing in HQ
557701 (Apr. 7, 1994), is consistent with the plain meaning of the term “bona fide order.” An
“order,” as defined by Black’s Law Dictionary (12th Edition, 2024) is a “command, direction, or
instruction.” By definition, the term “order” thus does not equate to or necessitate a purchase.
The term “bona fide” is defined as “[m]ade in good faith; without fraud or deceit.” Id.
Accordingly, the plain language of “bona fide order” generally means, to provide an instruction
or make a directed request in good faith. While the legislative history of the Florence Agreement
does not provide insight as to the exact reasoning for the bona fide order requirement, in practice
it serves to ensure that applications for importations are submitted when the requesting
institution has the firm intention to acquire such equipment and agency resources are not
expended reviewing applications that are merely hypothetical in nature.
The plain meaning of “bona fide order” is in line with the spirit of the Florence
Agreement. Congress stated that the “purpose of th[e] Act is to enable the United States to . . .
contribut[e] to the cause of peace through the freer exchange of ideas and knowledge across
national boundaries.” Pub. L. 89-651 (Oct. 14, 1966). The Florence Agreement seeks to
encourage the “freer exchange of ideas and knowledge across national boundaries” by enabling
non-profit institutions to import necessary scientific equipment without duties so long as such
equipment is not produced in the United States. The instrument or apparatus must be for the
exclusive use of the applicant institution and not intended to be used for commercial purposes.
15 C.F.R. § 301.4(a)(3). We find that it is contrary to the spirit of the agreement to require the
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purchase of such equipment when it is otherwise being offered on loan or in exchange for data.
Requiring an outright purchase or sale would hinder the freer exchange of scientific ideas, by
placing an unwarranted restriction on the acquisition of necessary scientific equipment.
In HQ 557701, CBP held that a “bona fide order,” consistent with the spirit of the
Florence Agreement, does not dictate that a purchase of the instrument or apparatus is required.
In the June 19, 2009, denial of Caltech’s application, CBP dismissed the October 1974 Letter and
HQ 557701 as mere dicta. CBP also cited to and attached a series of unpublished decision letters
from 1978 to 2003, that seemingly contradict the October 1974 Letter and HQ 557701 ruling
stating that a bona fide order does not require the purchase of the instrument or apparatus. Upon
review of the unpublished decision letters relied upon in denying CalTech’s application, we find
that many of these decision letters were consistent with the definition of “bona fide order” as set
out in the October 1974 Letter and HQ 557701.
For example, in a decision letter dated August of 1979, CBP did not deny the application
based on the fact that the arrangement was for the lease of the instrument, but rather ultimately
sought more information from the applicant. The letter identified the concern that a commercial
benefit does not inure to the leasing company and noted, however, that “a conditional sales
contract whereby the purchasing institution pays installments towards the purchase of the
instrument involved would qualify” under the Florence Agreement. Accordingly, this letter does
not support the assertion that there must be a purchase order but rather supports the fact that each
agreement must be analyzed on a case-by-case basis to determine if an impermissible
commercial benefit to a third-party results from the agreement.
Additionally, in a decision letter dated May of 2003, CBP denied an application under a
lease agreement because the lease was between the qualifying institution and a third-party
financial institution, rather than the foreign supplier or manufacturer. This decision is consistent
with HQ 557701, whereby the bona fide order, when something less than a purchase order, must
be directly between the nonprofit institution and the foreign supplier or manufacturer.
In two other decision letters, dated November of 1978 and February of 1985, CBP denied
the applications for not meeting the requirement for a bona fide order with little discussion. One
such letter erroneously cited the relevant implementing language as requiring a “bona fide
purchase order” (emphasis added) but neither letter analyzes the requirements applicable to
evidencing a “bona fide order.” Further, these decision letters do not address the existence of
HQ 557701. Accordingly, we find that these unpublished decision letters are unpersuasive and
inconsistent with the legal holding established in HQ 557701.
Consistent with HQ 557701, we thus find that an applicant is not required to provide
proof of purchase (or pending purchase) of the instrument or apparatus. Pursuant to the plain
meaning of the term “bona fide order,” we find that a bona fide order is evidenced by a firm
agreement between two parties, a qualified institution and a foreign supplier or manufacturer of
instruments, under which the institution is to receive an instrument for a use required by
subheading 9810.00.60, HTSUS. The fact that the agreement may constitute a gift, loan, lease,
rental, or purchase is of no consequence, so long as no commercial benefit will inure therefrom
in this country. There is no requirement in the law that an institution must purchase the
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instrument that is the subject of the agreement. However, when the agreement constitutes
something less than a purchase order, it must be directly between the nonprofit institution and the
foreign supplier or manufacturer.
Here, Caltech offers an MOU between LIGO and the foreign supplier of the instrument
as a bona fide order. The MOU states that “all equipment supplied by AEI under this MOU for
installation in the Advanced LIGO detectors will become property of Caltech” in the effort to
“observe gravitational radiation.” Therefore, the MOU is evidence of a firm agreement between
AEI and Caltech for the provision of an instrument for a use required by subheading 9810.00.60,
HTSUS. Further, the MOU does not contemplate any commercial benefit that will inure
therefrom in this country. Accordingly, the MOU is a bona fide order and the Florence
Agreement was improperly denied by CBP.
HOLDING:
The denial of Cal Tech’s Florence Agreement application was improper. The protest is
hereby GRANTED in full, and entry no. xxxxxxx7336 should be reliquidated because the ND:
Yag Laser is eligible for duty-free treatment under subheading 9810.00.60, HTSUS.
You are instructed to notify the Protestant of this decision no later than 60 days from the
date of this decision. Sixty days from the date of this decision, the Office of Trade, Regulations
and Rulings will make the decision available to CBP personnel and the public on the Customs
Rulings Online Search System (“CROSS”) at https://rulings.cbp.gov/, or other methods of public
distribution.
Sincerely,
Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division
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