Interpretation ID: nht89-3.50

TYPE: INTERPRETATION-NHTSA

DATE: 12/05/89

FROM: RICHARD A. KULICS

TO: TAYLOR VINSON -- NHTSA

TITLE: REQUEST FOR RULING IMPORTING VEHICLES MODIFIED IN FTZ AS "CONFORMING"

ATTACHMT: ATTACHED TO LETTER DATED 02/22/90 FROM STEPHEN P. WOOD -- NHTSA TO RICHARD A. KULIGS; RE REQUEST FOR RULING IMPORTED VEHICLES - FTZ; REDBOOK A35; PART 591; VSA 108

TEXT: This letter is written on behalf of Mr. Peter DiBernardi, a principal of the entities "Liphardt Associates" and "Pierre Enterprises, Inc.", located at 15 Trade Zone Drive, Ronkonkoma, New York 11779. Liphardt Associates is an Independent Commercial Impo rter ("ICI") under the EPA regulations. The vehicles imported under Liphardt's certificate are modified at Pierre Enterprises, 15 Trade Zone Drive, Ronkonkoma, New York 11779. (Liphardt/Pierre Enterprises will be applying for status as "Registered Impo rters" under 49 CFR 592). The location is within the LI/MacArthur FTZ #52 (Islip FTZ Authority). Pierre Enterprises has been approved as a bonded cartman, i.e., a "Custodian" of bonded merchandise, by the U.S. Customs Service. (Exhibit 1)

The method of operation of Liphardt/Pierre Enterprises (hereafter "L/PE) is as follows: (1) Nonconforming vehicles are unladen from vessel; (2) Vehicles are transported directly into Foreign Trade Zone as "nonprivileged foreign" merchandise (Exhibit 2 , FTZ entry); (3) Appropriate modifications are performed on the vehicles in order to bring them into conformity with U.S. law; (4) Consumption entry filed (as "nonconforming" vehicle), bond posted, conformity package submitted to DOT; (5) After release by EPA and DOT, custody of vehicle given to owner.

REQUEST

L/PE requests you to rule that it be allowed to submit conformity packets to your agency prior to the submission of the consumption entry package, i.e., upon submission of the FTZ entry (step 2, above), so that it may enter the vehicles as "conforming ".

SUPPORT FOR REQUEST

The obvious reason for the request is to eliminate the costs associated with posting a special bond purely for DOT purposes. It would also have the effect of speeding up the process of importation, thus reducing the costs associated with storage.

The purpose of the bond is to "assure that he vehicle has been or will be brought into conformity." (DOT HS 807 144, rev. 12/87, at 3). It is a "promise that you will modify the vehicle to Federal Standards". (id., 5). In regard to DOT, the obligat ion of the importer is to bring the vehicle into conformity and submit an appropriate statement of conformity when it is due (id. 5). If this is not accomplished, Customs is required to issue a redelivery notice (id., 5).

It is apparent, then, that the obligation is to either conform the vehicle or return it to Customs custody. The bond is the method of enforcing that obligation. What L/PE proposes is that it be allowed to close out the obligation while the vehicle i s still in the custody of the Customs Service.

Though established under the Foreign Trade Zones Act (19 U.S.C. 81a), and generally under governed by 15 CFR 400 ("Foreign Trade Zones Board"), for purposes of this request, the appropriate regulatory language is contained in 19 CFR 146 ("Foreign Trad e Zones", i.e.. "admission of merchandise into a foreign trade zone, manipulation, manufacture, or exhibition in a zone; exportation of the merchandise from a zone; and transfer of merchandise from a zone into Customs territory).

146.2 states the "district director [of Customs] in whose district the zone is located shall be in charge of the zone as the representative of the Board. Section 146.4 outlines the criteria for supervision, storage and handling of merchandise by the o perator of the zone. He must permit any customs officer access to a zone, he must maintain records, he must scure the merchandise in accordance with Customs standards and specifications. He must provide guard service. He is also responsible for comply ing with all requirements for "admission, manipulation, manufacture, exhibition or destruction, shortage or overage . . . transfer to Customs territory, and "other requirements as spcified in this part."

146.10 provides:

The district director may cause any merchandise to be examined before or at the time of admission to a zone, or at any time thereafter, if the examination is considered necessary to facilitate the proper administration of any law, regulation, or instr uction which Customs is authorized to enforce.

146.31 Conditionally admissible merchandise provides "the admission of this merchandise into a zone is subject to the regulations of the Federal agency concerned.

There is no question, then, that should DOT want to physically inspect the vehicles on the premises of L/PE, they could readily do so.

It cannot be overemphasized that the entire time the vehicles are in the foreign trade zone, they are under the custody and control of the U.S. Customs Service. They cannot be moved out of the zone unless a consumption entry is filed or a special per mit allows movement for a particularized purpose. Even then they must be moved via a Customs bonded carrier.

Regulations are one thing, however, and sometimes reality is another. Please look at the established integrity of L/PE when reviewing this proposal. L/PE have been conforming vehicles for years. They have had no outstanding claims for liquidated da mages. They are one of the very few entities that is not required to post triple value bonds for nonconforming vehicles. This is because they have established a "track record". They are recognized as an ICI, permitted to import vehicles for EPA purpos es. They have qualified to be issued a warranty policy by their insurance company to meet their EPA obligations. Your own records should reflect that they have been conforming a huge number of vehicles in the most professional manner. They are able to withstand the most stringent scrutiny by the three government agencies with which they have constant contact-DOT, EPA and Customs.

PROPOSED METHODOLOGY OF OPERATION

The current method of operation would remain substantially intact, save for the following: L/PE would prepare an HS-7 at the time of filing the FTZ entry. Each HS-7 would have a unique number (provided by L/PE's Customhouse Broker), which would also b e placed in block 17 of the FTZ entry (Form 214). This number could probably be the same as the actual Customs Entry Number if you feel that is necessary. This HS-7 would be submitted to DOT along with a conformity package. DOT would then review the p ackage and issue a release letter, if appropriate.

When the actual consumption entry is filed, the vehicle would be entered as a "conforming" vehicle, with the release letter attached to the entry. No bond need be posted specifically for DOT purposes. (In most cases, save for an "informal" entry, a bond would be posted anyway, to assure compliance with all other requirements. There is quite a difference in cost, however, between a bond for a "conforming" as opposed to a "nonconforming" vehicle.

Please consider this request and issue a ruling as soon as possible. This is essentially a duplicate of a request I had prepared earlier which somehow became lost. Since L/PE fully intends to be a registered importer under your new regulations, we t rust any ruling you issue would have future application under the new regulations.

Please send any response to this office at the address indicated in the letterhead. [ATTACHED CUSTOMS BOND FORM OMITTED]