Import Administration
September 2001:   New FTZ Mailing Address  
last update: September 2002 
                          
                           DEPARTMENT OF THE TREASURY 
                                Customs Service 
           AGENCY: U.S. Customs Service, Department of the Treasury. 
 
                                19 CFR Part 146 
           Interpretation of Exportation for Purpose of Foreign-Trade 
                                   Zones Act 
 
                                  [T.D. 89-4] 
 
                                  53 FR 52411 
 
                               December 28, 1988 
 
 
ACTION: Final interpretive rule. 
 
 
SUMMARY: This document gives notice of Customs final determination that 
imported merchandise cannot be considered to be exported pursuant to the 
Foreign-Trade Zones Act when it is sent to a foreign-trade zone in the 
United States for manufacturing. Accordingly, two Customs rulings, C.S.D. 
84-97, republished as C.S.D. 85-10, as well as ORR letter ruling 218551, 
which permitted this expressly to obtain the payment of duty drawback or 
to cancel a temporary importation bond, are revoked as being without 
support in the law.  
 
 
EFFECTIVE DATE: February 27, 1989. 
 
 
FOR FURTHER INFORMATION CONTACT: William G. Rosoff, Entry Rulings 
Branch (202-566-5856). 
 
TEXT: SUPPLEMENTARY INFORMATION: 
 
 
Background 
 
   Foreign-trade zones (zones) are secured areas within the United States 
to which certain foreign and domestic merchandise may be brought for some 
purposes without being subject to the Customs laws of the United States. 
Their purpose is to attract and promote international trade and commerce. 
The Foreign-Trade Zones Act of 1934, as amended (19 U.S.C. 81 a-u) ("the 
FTZA") provides for the establishment and regulation of foreign-trade zones
in the U.S. Section 3 of the Act (19 U.S.C. 81c), allows foreign and 
domestic merchandise to be brought into a zone without being subject to the 
Customs laws of the U.S. The fourth proviso to that section expressly 
provides that for the purpose of the drawback laws, the warehousing laws 
and the laws on temporary importations under bond, merchandise may be 
considered exported, when admitted into a zone for the sole purpose of 
exportation, destruction or storage. Part 146, Customs Regulations (19 CFR 
Part 146), governs the admission of merchandise into a zone; the 
manipulation, manufacture, destruction, or exhibition of merchandise in a 
zone; the exportation of merchandise from a zone; and the transfer of 
merchandise from a zone into the customs territory. 
 
   Schedule 8, Part 5, Subpart C, Tariff Schedules of the United States 
(TSUS; 19 U.S.C. 1202), provides for temporary importations under bond 
(TIB's). Under these provisions, merchandise to be repaired, altered or 
processed in the U.S., may be admitted into the U.S. under bond without the
payment of duty, provided the merchandise is exported within one year from
the date of importation. If merchandise entered under a TIB is not exported
before the expiration of the bond period, liquidated damages in the amount
of the bond may be assessed against the importer. 
 
   Section 313, Tariff Act of 1930, as amended (19 U.S.C. 1313), provides 
for the refund of customs duty on certain imported merchandise. This refund
is known as "drawback," and is generally dependent on exportation of the 
imported merchandise or an article manufactured from the imported 
merchandise.  
 
   Section 101.1(k), Customs Regulations (19 CFR 101.1(k)), defines 
"exportation" as a severance of goods from the mass of things belonging to
this country with the intention of uniting them with the mass of things 
belonging to some foreign country.  

   On June 22, 1984, Customs issued ORR ruling letter 216727, which held
that merchandise that is imported under a temporary importation bond (TIB),
processed in the customs territory of the U.S. as defined in General 
Headnote 2, TSUS, and @ 101.1(e), Customs Regulations (19 CFR 101.1(e)), 
and then transferred into a U.S. zone for manufacturing is "considered" 
exported. Accordingly, merchandise manufactured in a zone may be entered 
from the zone for consumption upon payment of proper duty. It is implicit 
in this ruling that because shipment of merchandise to a zone for the 
purpose of manufacture is considered an exportation, a TIB covering such 
merchandise could be cancelled or a claim for drawback perfected upon the 
transfer of the merchandise.  
 
   The ruling was published as C.S.D. 84-97 on June 24, 1984 (18 Cust. Bull.
1069), and republished on February 13, 1985 (19 Cust. Bull. 509), as C.S.D. 
85-10. ORR letter ruling 218551 dated January 29, 1986, also followed the 
reasoning of C.S.D. 84-97/C.S.D. 85-10, for purposes of duty drawback.  
 
   In response to a petition from three domestic trade associations, 
comprised of U.S. steel and automotive parts manufacturers, which requested
the revocation of these rulings as being contrary to law and prejudicial to
their members' competitive posture, Customs decided that comments should 
first be solicited before making a final determination in this matter. 
Consequently, on March 4, 1988, Customs published a notice of this effect 
in the Federal Register (53 FR 6996), and by subsequent notice on May 11, 
1988 (53 FR 16730), the comment period was extended until June 17, 1988.
 
 
Discussion of Comments 
 
   In all, 98 comments from the public were received in response to the 
notice, 90 of which advocate the retention of the rulings, seven advocating
their revocation. Substantial Congressional interest was also generated on 
both sides of this issue. One comment, which is beyond the scope of the 
notice, recommends that the term "exportation" in the Customs Regulations 
be expanded for drawback purposes to include imported duty-paid merchandise
sent to the Virgin Islands. Comments Favoring Retention 
 
   Virtually all those commenting in favor of retention state that the 
rulings promote the underlying policy of the Foreign-Trade Zones Act, as 
amended, 19 U.S.C. 81a-u (FTZA), to encourage domestic manufacturing and 
employment, and that revocation of the rulings could have the opposite 
effect. In particular, motor vehicle manufacturers located in special-
purpose zones, or subzones, contend that they could be forced to transfer 
to foreign plants certain operations now performed on their behalf in this
country by companies not using zones. The consequence of revocation 
according to this view would, if anything, be the importation directly to
zones of more elaborate components already finished. 
 
   Although a number of commenters insist that no legal issue is involved,
only one of "policy," various legal arguments in support of the rulings are
advanced by several commenters. It is initially asserted that the rulings 
find justification, as they themselves set forth, in the plain general 
language of section 3 of the FTZA, as amended, 19 U.S.C. 81c(a), which 
allows foreign and domestic merchandise of every description, except that 
prohibited by law, to be brought to a zone and manufactured; merchandise 
entered under a temporary importation bond (TIB) for initial processing, 
could thus lawfully be sent to a zone for manufacturing, and would thereby
be considered exported, as required to satisfy the statutory bond 
requirement; and duty-paid merchandise would similarly be considered 
exported as necessary for drawback purposes if placed in a zone subject to 
the third proviso to section 3, which requires that domestic, including 
duty-paid, merchandise be treated as foreign, if its identity in the zone 
is lost. 
 
   These commenters also perceive the rulings as founded upon a concept of 
actual exportation, albeit as modified by Customs, which has been done from
time to time assertedly to accommodate changing technology and business 
conditions. For example, merchandise sent to the Trust Territory of the 
Pacific Islands, T.D. 56545(3), and merchandise assembled into a 
communications satellite sent into permanent orbit in outer space, T.D. 
68-206(1), have been stated to be exported for drawback purposes, 
notwithstanding that neither destination constitutes a foreign country, and 
@ 101.1(k), Customs Regulations (19 CFR 101.1(k)), in line with long 
settled judicial precedent, dictates, in part, that to be exported there 
be an intent to unite the goods with the commerce of "some foreign country."
 
   In any event, these commenters distinguish the fourth proviso to section 
3 of the FTZA, which expressly allows merchandise to be regarded as 
exported, by declaring that this proviso is limited to its specific 
purposes (exportation, storage or destruction), and that is not concerned 
with merchandise intended for manufacture in a zone. 
 
   In addition, the following arguments are made: inasmuch as the FTZA was 
amended in October 1984, subsequent to C.S.D. 84-97 (85-10), and again in 
October 1986, subsequent to ORR Ruling 218551, without adverse impact on 
either ruling, Congress has impliedly acquiesced in and accepted them; it 
has not been demonstrated that the rulings are "clearly wrong" as required 
by @ 177.10(b), Customs Regulations (19 CFR 177.10(b)); the March 4, 1988, 
notice of reconsideration (53 FR 6996) does not give the public a fair 
opportunity to understand the issues and comment meaningfully -- it should 
be withdrawn and a new notice published. 
 
 
Comments Favoring Revocation 
 
   Those commenting in favor of revocation state that the rulings are 
without foundation in the FTZA, that, indeed, the only authority for 
considering merchandise exported under the Act is contained in the fourth 
proviso to section 3 thereof, which limits the merchandise so sent to 
exportation, storage or destruction, and prohibits its manufacture. Some of
these commenters also observe that the rulings in effect confer de facto 
zone status upon domestic (nonzone) businesses which supply zone users, 
without an application for zone status having been approved by the Foreign-
Trade Zones (FTZ) Board at the Department of Commerce, as required by law. 
 
   Also, the three trade associations comprised of steel and automotive 
parts manufacturers, which originally petitioned for revocation, contend 
that the rulings facilitate the importation and domestic consumption of 
foreign steel and automotive parts at lower rates of duty than would 
otherwise be possible, at variance with the Congressional intent underlying
both the TIB provisions and the drawback statute, and adversely affecting
their members' competitive posture. 
 
 
Customs Analysis 
 
   After a thorough review of the Foreign-Trade Zones Act, its plain meaning
as well as legislative history, Customs is constrained to agree that the 
fourth proviso to section 3 of the Act, as amended, 19 U.S.C. 81c(a), 
contains the exclusive authority thereunder for considering merchandise sent
to a zone as exported, as required either for cancelling a temporary 
importation bond (TIB) (Schedule 8, Part 5, Subpart C, item 864.05, TSUS; 
19 U.S.C. 1202), or for obtaining the payment of duty drawback under 19 
U.S.C. 1313. The rulings under reconsideration are therefore without support
in the law, and they will be revoked. 
 
 
"Considered" Exported 
 
   Section 3 of the FTZA was amended in 1950 by Pub. L. 81-566 to authorize 
manufacturing in a zone, and to add a fourth proviso whereby merchandise 
sent to a zone could be considered to be exported in part "for the purpose
of -- * * * the drawback, warehousing, and bonding * * * provisions of the 
Tariff Act of 1930 * * *". 
 
   To obtain the benefits of the fourth proviso, however, requires 
compliance with its restrictions. Merchandise may not be entered from the 
zone for domestic consumption absent a finding of public interest by the 
FTZ Board, and then only upon payment of a duty equal to that from which 
the proviso relieved the merchandise. S. Rept. 81-1107, reprinted in, 
1950 U.S. Code Cong. & Admin. News 2533, 2537-2538. In addition, merchandise
subject to the proviso is confined solely to being exported, destroyed or 
stored in the zone. On its plain face, the proviso precludes manufacturing,
and this is so even if merchandise subject thereto were destined for actual
exportation. "The benefits would not extend to articles taken into a zone 
for manipulation or manufacture prior to exportation." Ibid., 2537. 
 
   Nevertheless, the rulings interpret the FTZA as generally allowing 
merchandise to also be considered exported for item 864.05 TIB or drawback
purposes, if sent to a zone for manufacturing, following which the products
could be entered for consumption upon payment of "applicable" duty, which 
could be considerably less than the duty from which the rulings relieved 
the merchandise. 
 
   It is Customs' view that the rulings are inconsistent with the 
prohibition against manufacturing, and to this extent the other restrictions
inherent as well, in the fourth proviso. As such, the rulings result in 
the effective partial repeal of the proviso, which runs contrary to "the 
elementary canon of construction * * * that a statute * * * be interpreted
so as not to render one part inoperative." Colautti v. Franklin, 439 U.S. 
379, 392 (1979); and cf., United States v. United Continental Tuna Corp., 
425 U.S. 164, 169 (1976).  
 
   Consequently, except for the fourth proviso, TIB merchandise, because it
must either be exported or destroyed (19 U.S.C. 1557(c)), would be 
"prohibited by law" from admission to a zone. See C.S.D. 81-71. 
 
   Duty-paid merchandise, though, may ordinarily be admitted to a zone. If 
it loses its identity therein, the third proviso prescribes that it be 
treated as foreign. But this does not permit such merchandise to be 
treated as exported. On the contrary, foreign merchandise in a zone is 
imported, and, other than under the fourth proviso, is correctly considered
as such, a fact routinely recognized by Congress in the legislative history
of the statute, and by Customs in its regulations and rulings. See, e.g., 
S. Rept. 905, 73d Cong., 2d Sess., 2 ("[A foreign-trade zone] aims to 
foster the dealing in foreign goods that are imported * * *" (emphasis 
added)); 19 CFR 146.1(b)(11); C.S.D. 83-21; ORR Ruling 76-0067. Moreover, 
a party may not "choose" foreign status for such merchandise pursuant to 
the third proviso, as ORR Ruling 218551 improperly allows. See C.S.D. 
82-112. 
 
 
Actually Exported 
 
   The rulings in question, C.S.D. 84-97 (85-10), and ORR Ruling 218551, 
are not properly founded, in that there is no authority in the FTZA for 
"considering" merchandise exported if sent to a zone for manufacturing; 
they do not rely upon any notion of actual exportation as defined in the 
Customs Regulations, @ 101.1(k), whether modified or otherwise. Even if 
the rulings did depend upon a concept of actual exportation, their 
attempted justification on this basis would be equally without merit. It 
would be fundamentally incompatible with the Congressional and 
administrative recognition, supra, that foreign merchandise placed in a 
zone is actually imported, not exported, these naturally being mutually 
exclusive propositions.  
 
Congressional Acquiescence 
 
   The amendments to the FTZA in October 1984 (19 U.S.C. 81c(b), as amended;
19 U.S.C. 81o(e), as amended; Pub. L. 98-573) and in October 1986 (19 U.S.C.
81c(c), as amended; Pub. L. 99-514), and accompanying legislative history 
(reprinted in 1984 U.S. Code Cong. & Admin. News 4910; 1986 U.S. Code Cong.
&   Admin. News 4075), did not to any extent reference or discuss the subject
matter currently under review. In the face of a silent Congressional record,
as here exists, administrative action would, at a minimum, have to be long-
standing before it could be fairly inferred that Congress has acquiesced in
it, and, in this connection, Customs has concluded that the decisions in 
C.S.D. 84-97 (85-10), dated June 22, 1984, and ORR Ruling 218551, dated 
January 29, 1986, were not "long-standing" at the time of the March 4, 
1988, official notice of reconsideration (53 FR 6996). Compare, Toyota 
Motor Sales U.S.A., Inc. v. United States, 7 CIT 178, 193-194 (1984), 
aff'd., 3 Fed. Cir. 93 (1985) (three-year practice not long-standing).  
   Moreover, where an agency interpretation of existing legislation is 
plainly erroneous, as in the present instance, it is well settled that 
Congress must give express consideration or make some specific reference to
the interpretation in the later legislation, in order to ratify it. See, 
Kristensen v. McGrath, 179 F.2d 796, 803-804 (D.C. Cir. 1949), aff'd., 340 
U.S. 162; United States v. Missouri Pacific Railroad Co., 278 U.S. 269, 
280 (1929). Implied repeal, which, as already noted, would otherwise be 
the case here, is not a preferred principle of statutory construction. 
Jones v. Alfred H. Mayer Co., 392 U.S. 409, 437 (1968). 
 
 
Policy Considerations 
 
   While a general purpose, or policy, of the FTZA may be said, at least 
partly, to be to assist American business and labor through the 
encouragement of manufacturing, it must be remembered that the purpose of a
law may properly be achieved only within its established statutory 
framework, Moragne v. State Marine Lines, Inc., 398 U.S. 375, 392 (1970), 
and cannot sanction the disregard of specific statutory requirements (in 
this case, those of the fourth proviso) merely because they are perceived 
as inimical or unsuited to achieving this purpose in a particular case. 
Commissioner of Internal Revenue v. Gordon, 391 U.S. 83, 91-93 (1968). In 
this regard, the rulings under review amount, in fact, to a legislative 
amendment, rather than an interpretation, of the FTZ law currently in force,
which is the exclusive province of Congress. Accord, e.g., Petri v. F.E. 
Creelman Lumber Co., 199 U.S. 487, 495 (1905).  
 
 
"Clearly Wrong" Standard 
 
   The rulings are not subject to the "clearly wrong" standard of @ 177.10(b)
because they are not rulings regarding a rate of duty or charge within the 
contemplation of this regulation, accord, American Air Parcel Forwarding Co.
v. United States, 7 CIT 231, 234-235 (1984) (a ruling relating to the 
valuation of merchandise, and not to its classification, held not covered 
by @ 177.10(b)); Old Republic Ins. Co. v. United States, 645 F. Supp. 943, 
948 (CIT 1986). Nonetheless, it is Customs' view that because the Rulings 
are without support in the law, the "clearly wrong" standard would be met 
if it were applicable.  
 
   There is no need for the publication of another notice of 
reconsideration. In addition to the fact that the March 4, 1988, Federal 
Register notice (53 FR 6996) fully and fairly articulated the subject 
matter concerned, as evidenced by the depth and detail of the many comments
submitted by those participating in this administrative process, another 
notice would be unwarranted and pointless in any event because "comments 
from the public at large cannot change the essentially legally correct 
result." National Juice Products Association v. United States, 628 F. Supp.
978, 994 (CIT 1986).  
 
Conclusion 
 
   In view of the foregoing, and following careful consideration of the 
comments received and further review of the matter, Customs has determined 
to revoke C.S.D. 84-97, C.S.D. 85-10 and ORR letter ruling 218551, inasmuch
as there is no authority in the Foreign Trade Zones Act permitting imported
merchandise to be considered exported when it is sent to a foreign trade 
zone in the United States for manufacturing. 
 
 
Drafting Information 
 
   The principal author of this document was Russell A. Berger, Regulations
and Disclosure Law Branch, U.S. Customs Service. However, personnel from 
other offices participated in its development. 
 
 
William von Raab, 
 
   Commissioner of Customs. 
 
   Approved: November 18, 1988. 
 
 
John P. Simpson, 
 
   Acting Assistant Secretary of the Treasury. 
[FR Doc. 88-29718 Filed 12-27-88; 8:45 am] 
 
   BILLING CODE 4820-02-M