Tuesday, April 04, 2017

Ruling of the Week: 2017.8: To Drawback, And Beyond!

ORIGINALLY POSTED MARCH 22, 2017.
UPDATED APRIL 4, 2017.


The customs implications of space travel have always interested me. NASA has confirmed, at least according to this article, that astronauts have to make customs declarations on returning to earth. It is not exactly clear to me whether that would be the case for an orbital flight that departs the U.S. and returns to the U.S. without an intervening stop at the International Space Station or elsewhere. In fact, the Apollo 11 customs entry seems to have been something of a joke, even if it was "official."

The future is certainly going to be filled with questions about this sort of thing. What will happen, from a customs-perspective, the first time someone starts a commercial asteroid mining operation? Will we need to expand the notion of "country of origin."

The obvious analogy is to ships at sea. Today, the law is clear with respect to fish caught in international waters. According to the Court of International Trade, in a case called Koru North America v. U.S.:

On the high seas, the country of origin of fish is determined by the flag of the catching vessel. Procter & Gamble Mfg. v. United States, 60 Treas. Dec. 356, T.D. 45099 (1931), aff'd, 19 CCPA 415, C.A. D. 3488, cert. denied, 287 U.S. 629, 53 S.Ct. 82, 77 L.Ed. 546 (1932). In international law, a ship on the high seas is considered foreign territory, functionally, "a floating island of the country to which [it] belongs." Thompson v. Lucas, 252 U.S. 358, 361, 40 S.Ct. 353, 64 L.Ed. 612 (1920). See also Robbins (Inc.) v. United States, 47 Treas. Dec. 261, T.D. 40728 (1925) (fish are characterized by their first taking).
That means an asteroid or portion thereof brought to the earth by a U.S.-registered space vessel will have a U.S. country of origin.

The folks who negotiated NAFTA thought this through. According to Article 415 of the Agreement, "goods taken from outer space, provided they are obtained by a Party or a person of a Party and not processed in a non Party" are considered to be "wholly obtained or produced" in North America. For you NAFTA nerds out there, that means they qualify as originating under Preference Criterion A.

What about going the other way? What if I import some fuel and send it out into orbit? Does that constitute exportation for purposes of drawback? That is the question presented in HQ H282698 (Feb. 24, 2017).

The law permits an importer receive drawback on duties, taxes, and fees paid on imported merchandise that it unused in the united stated and then exported or destroyed within five years of importation. There are lots of documentary requirements and procedures that need to be followed to secure drawback, so don't assume that I just explained all the ins and outs to you.

Merchandise is still unused if it has been repacked or subjected to other operations specified in the law. Again, don't try this at home without getting legal advice. In this case, about 66% of the fuel is loaded onto the satellite to power its thrusters in orbit. The remainder is exported from the U.S. According to CBP, transferring the unused propellant to a container for export is repacking and does not constitute use. It is, therefore, eligible for drawback.

The propellant loaded into the satellite is a different story. According to CBP, it is "used at the moment of its injection into a satellite thruster system." It is, therefore, not eligible of "unused merchandise" drawback.

Customs, however, provides a helpful alternative. It is also possible to secure drawback on imported materials used to manufacture goods in the U.S. CBP has previously applied that to parts of a satellite manufactured in the U.S. and exported to China for launch. That export to China was the relevant export for drawback purposes, not the launch into space. But, other rulings had determined that "merchandise assembled into a communications satellite sent into permanent orbit in outer space" is exported for drawback purposes. In this recent ruling, CBP reaffirmed that decision and held that launch to permanent orbit is an exportation for drawback purposes.


UPDATE:

Yesterday was the brokers exam. I had an opportunity to review the questions and I realized this post might be viewed by some as incomplete. So, let me say that I am aware that 19 U.S.C. § 1484a exempts certain items returned from space from entry requirements.

If you took the test, I am referring to Question 39 about whether goods brought into the customs territory of the United States by NASA from space or from a foreign country require an entry. As I read that provision, it applies to items previously launched into space from the customs territory of the United States and which remain in the control of United States persons on United States owned vessels. It does not exempt items obtained in space and brought into the customs territory of the United States nor does it apply to goods that were launched into space from a foreign country and then brought from space to the U.S. I think the question is a bit of a mess. If the goods were obtained in space or launched into space from a foreign country, I think a formal entry is required; probably a type 52 government entry (but I have not checked that). If the goods were launched from the U.S., and the other requirements of the statute are met, no entry would be required.

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