CBP Rules Against Use of Section 321 Exemption for Consolidated Shipments Broken Up in FTZs

The Section 321 entry exemptions do not apply to bulk shipments sent to foreign-trade zones that are broken up for individual consumption entries below the $800 de minimis level prior to a consumer order, CBP said in May 8 ruling the agency released on July 17. Much of the decision hinges on the definition of "importation," as expected (see 1806050049). The ruling came in response to an internal advice request from Jim Swanson, CBP director-cargo and conveyance security and controls, it said. CBP recently said the new Section 301 tariffs won't apply to Section 321 entries (see 1807050033).

Following the 2016 increase in de minimis value, "merchants have expressed their desire to apply the de-minimis value exemption to withdrawals from FTZs," CBP said. Goods below the $800 de minimis value entered under Section 321 are duty free but are limited to an aggregate value of $800 per person per day. Some companies argued to Swanson that the restrictions on Section 321 do not apply to merchandise when it's admitted to an FTZ subzone because such goods aren't subject to U.S. customs laws. "These companies contend" that this "results in the requirements of Section 321 being applied when the merchandise is withdrawn from the FTZ and entered into the customs territory," CBP said.

While FTZs are considered outside the U.S. customs territory, "they are not completely exempt from CBP laws and regulations," CBP said. Here, "it is necessary to ascertain who is importing the subject merchandise, when this importation occurs, and whether the importation by that importer exceeds $800 on one day," the agency said. Past CBP rulings "established that importation occurs prior to the admittance of merchandise into an FTZ," the agency said.

While other requirements, such as country of origin marking, are in some cases allowed an exemption to CBP regulations when admitted to an FTZ, the Section 321 issue is different, CBP said. "Admittance into the FTZ is not the reason that the marking requirement does not apply"; it is instead "due to the exception from marking due to the substantial transformation" while at the FTZ, it said. "In the context of de minimis value, there is no such exception that permits CBP to ignore the Section 321 requirement that merchandise is valued under $800 at the time of importation."

Additionally, "one of the key factors preventing duty free entry is that the individual purchasers of the merchandise are unknown when the goods leave the country of export and are imported," the agency said. That's why in the case of "orders of merchandise worth $800 or less [that] are ordered online or through a catalog and are delivered directly to the purchaser, such goods may enter duty free," it said. Here the goods are not going directly to the ultimate purchaser and the "the merchants are acting as the importers, importing the goods as one consolidated shipment into an FTZ, and the ultimate purchaser is unknown at the time of importation," it said. As a result, "the shipments and transactions proposed, valued over $800, do not qualify for duty-free treatment and informal entry under the administrative exception of Section 321."