1. What purposes do FTZs serve? Why did Congress establish them? 

2. What were the advantages to Nissan by assembling automobiles in an FTZ? How many can you list? 

3. Why could Nissan not bring manufacturing equipment into its zone duty-free? Do you think this case applies to office chairs or personal computers? Explain. 

4. Assume that you import merchandise subject to annual quotas. You have a shipment arriving, but the quota has filled. How might an FTZ help you? 

Nissan operated a foreign trade zone subzone at its automotive manufacturing and assembly plant located in Smyrna, Tennessee. Nissan imported production machinery for use in the subzone consisting of industrial robots, automated conveyor systems, and a computerized interface. The machinery was to be assembled and tested in the zone, and if it proved unsatisfactory it was to be replaced, redesigned, or scrapped. Customs ruled that production equipment was not “merchandise” as defined under the FTZ act and was therefore dutiable. Duties were assessed at $3 million, and Nissan filed a protest. On denial, the Court of International Trade ruled that the equipment was dutiable, and this appeal was filed. 

The activities performed by Nissan in the foreign trade zone subzone with the imported equipment are not among those permitted by a plain reading of the statute. Section 81c provides that merchandise brought into a foreign trade zone may be “stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured… .” The act does not say that imported equipment may be “installed,” “used,” “operated” or “consumed” in the zone, which are the kinds of operations Nissan performs in the zone with the subject equipment. Alternative operations of a different character should not be implied when Congress has made so exhaustive a list. 

Nissan relies upon the case of Hawaiian Independent Refinery v. United States, 460 F. Supp. 1249 (Cust. Ct.1978) in support of its position. The merchandise there involved was crude oil which was entered into a foreign trade zone for manufacture into fuel oil products. This, of course, is an activity delineated by the act and entry into the zone was exempted from Customs duties. Thereafter, a portion of the crude oil was consumed in the manufacturing process and Customs assessed duty on the theory that there had been a “constructive” entry into the Customs territory of the United States. In holding that the assessment was improper, the Court of International Trade did not have to deal with the question at issue here of whether the initial entry into the zone was exempt. Clearly, in that case the crude oil was exempt at the time of entry. Thus, the Court of International Trade properly concluded that the Hawaiian Independent Refinery case was not dispositive of this case. We are convinced that the Court of International Trade correctly determined that the importation by Nissan of the machinery and capital equipment at issue into the foreign trade zone subzone was not for the purpose of being manipulated in one of the ways prescribed by the statute. Instead it was to be used (consumed) in the subzone for the production of motor vehicles. Under the plain language of the 1950 amendment to the act and the legislative history of that amendment, and Customs’ published decision interpreting the act as amended, such a use does not entitle the equipment to exemption from Customs duties. Accordingly, the judgment of the Court of International Trade is affirmed. 

Decision. The decision of the lower court was affirmed. Machinery entered into a foreign trade zone for use in the manufacture and assembly of automobiles is not “merchandise” under the act and may not be entered duty-free.