CBP: MOUs Can Count as Evidence of Bona Fide Order Under Florence Agreement
A memorandum of understanding may serve as a bona fide order if an instrument was imported under the Florence Agreement, CBP said in a recent ruling that overturned a previous CBP decision.
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The ruling, HQ H342573, involves the California Institute of Technology, which entered a 2W Mephisto Lasersystem on Jan. 22, 2008, under subheading 9810.00.60, which accords duty-free treatment to scientific instruments and apparatus imported by public or private nonprofit institutions pursuant to the Educational, Scientific, and Cultural Materials Importation Act of 1966, which implemented the international Florence Agreement.
According to an MOU provided by Caltech, foreign instrument supplier Albert Einstein Institute, Max Planck Institute for Gravitational Physics (AEI) provided the Laser Interferometer Gravitational Wave Observatory (LIGO) with the laser system to observe gravitational radiation. LIGO operated a laboratory overseen by Caltech, the Massachusetts Institute of Technology and the LIGO Scientific Collaboration. The MOU noted that the equipment would become property of Caltech.
However, CBP denied Caltech's Florence Agreement application in March 2007, and when Caltech asked for a reconsideration of CBP's decision in May 2009, CBP ultimately determined in June 2009 that the laser wasn't eligible for duty-free treatment under subheading 9810.00.60 because Caltech had not placed an order to purchase the instrument. Since Caltech didn't purchase the instrument, the bona fide order requirement under the Florence Agreement wasn't met, according to CBP.
Caltech filed a protest, saying in August 2010 that the liquidation of an entry of the laser was dutiable on the grounds that the Florence Agreement doesn't require an actual purchase to obtain duty-free treatment under subheading 9810.00.60. CBP eventually reconsidered its position, and it sent Caltech's application to the Commerce Department, which approved Caltech's Florence Agreement application on Aug. 14, 2025.
As CBP reviewed an application for further review of the protest forwarded to the agency in October 2024, the agency sought to answer whether a Florence Agreement applicant must demonstrate that the qualifying institution intends to purchase the imported instrument or apparatus.
In analyzing the issue, CBP found that the plain meaning of "bona fide order" and the purpose of the Florence Agreement dictate that a bona fide order doesn't require the purchase or sale of the instrument or apparatus. This interpretation is consistent with the only published ruling by CBP on the meaning of the term, CBP said.
"The plain meaning of 'bona fide order' is in line with the spirit of the Florence Agreement. ... We find that it is contrary to the spirit of the agreement to require the purchase of such equipment when it is otherwise being offered on loan or in exchange for data," CBP said. "Requiring an outright purchase or sale would hinder the freer exchange of scientific ideas, by placing an unwarranted restriction on the acquisition of necessary scientific equipment."
CBP looked at other rulings dealing with the Florence Agreement and determined that each agreement must be analyzed on a case-by-case basis to ascertain if an impermissible commercial benefit to a third-party results from the agreement.
"There is no requirement in the law that an institution must purchase the instrument that is the subject of the agreement. However, when the agreement constitutes something less than a purchase order, it must be directly between the nonprofit institution and the foreign supplier or manufacturer," CBP said.
In this proceeding, Caltech presented the MOU between LIGO and the foreign supplier of the instrument as a bona fide order. This MOU serves as evidence of a firm agreement between AEI and Caltech for the provision of an instrument for a use required by subheading 9810.00.60, CBP said.
"The MOU does not contemplate any commercial benefit that will inure therefrom in this country. Accordingly, the MOU is a bona fide order and the Florence Agreement was improperly denied by CBP," CBP said. It also said the entry should be reliquidated because the laser system is eligible for duty-free treatment under subheading 9810.00.60.