HQ 0555398 - GSP Eligibility of Black Pepper Grown in India or Indonesia - United States International Trade Commision Rulings

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HQ 555398
December 13, 1989

CLA-2 CO:R:CV:V 555398 BJO

CATEGORY: CLASSIFICATION

Vincent Bowen, Esq.
Willkie, Farr & Gallagher
1155 21st Street, N.W.
Washington, D.C. 20036

RE: GSP Eligibility of Black Pepper Grown in India or Indonesia

Dear Mr. Bowen:

This is in response to your letters of May 19, 1989, November 1, 1989, and December 8, 1989, on behalf of the McCormick Stange Flavor Division of McCormick & Company, Incorporated, in which you request a ruling that black pepper oleoresin produced in Singapore from black pepper grown in India or Indonesia is eligible for duty-free treatment under the Generalized System of Preferences (GSP)(19 U.S.C. 2461-2466).

FACTS:

The importer will purchase whole black pepper grown in India or Indonesia, and ship it to Singapore for processing into oleoresin. The black pepper grown in India will be kept separate throughout the processing operation from that grown in Indonesia. The processing involves cleaning and grinding the pepper, and mixing it with a solvent, such as ethylene dichloride, to extract the essential oil and color of the spice. The solvent is then withdrawn, leaving the black pepper oleoresin. The importer will ship the oleoresin produced from Indian-grown pepper to India, and the oleoresin extracted from Indonesian-grown pepper to Indonesia. Both shipments will then be shipped to the U.S. You state that the sole purpose of the shipments to India and Indonesia prior to the U.S. is to comply with the "imported directly" requirement of the GSP, and that the oleoresin will not undergo any processing or otherwise enter the commerce of those countries. You further state that the oleoresin will not be removed from the ships once laden in Singapore until the vessel reaches the U.S.

ISSUE:

Whether an article is "imported directly" for purposes of the GSP if shipped from a non-BDC to the U.S. through the territory of a BDC.

LAW AND ANALYSIS:

Title 19, United States Code, section 2463(b) provides:

"(b) The duty-free treatment provided [to articles from beneficiary developing countries (BDC)] with respect to any eligible article shall apply only-

(1) to an article which is imported directly from a [BDC] into the customs territory of the United States; and

(2) If the sum of (A) the cost or value of the materials produced in the [BDC] or any 2 or more countries which are members of the same association of countries which is treated as one country under section 2462(a)(3) of this title, plus (B) the direct costs of processing operations performed in such [BDC] or such member countries is not less than 35 percent of the appraised value of such articles at the time of its entry into the customs territory of the United States."

Although there is little discussion in the GSP legislative history of the meaning of the "imported directly" requirement, it does appear that it and the 35 percent value-content requirement were conceived as separate and distinct country of origin requirements, although with an overlapping purpose:

"Once an article is designated eligible for generalized tariff preferences, imports of the article must meet specific rules of origin requirements...in order to actually receive preferential treatment. 1. The articles must be "imported directly" from a [BDC] into the customers [sic] territory of the United States. 2. The value added in the [BDC]...must equal or exceed a minimum percentage not less than 35 percent[.] These rules are designed to ensure that the benefits of generalized tariff preferences actually accrue to [BDC's]. The Trade Act of 1973: Hearings on H.R. 10710 Before the Senate Committee on Finance, 93rd Cong., 2nd Sess. 326 (1974)(statement of William D. Eberle, U.S. Special Representative for Trade Negotiations).

That the importer must meet both the 35 percent value-content requirement and the "imported directly" requirement is also evident from the structure of the statute, in which the two requirements are set out in separate subparagraphs.

Merchandise which is shipped directly from a BDC to the U.S. without passing through the territory of any other country will, of course, clearly be "imported directly" to the U.S. from the BDC. See 19 CFR 10.175(a). Recognizing the exigencies of trade and transportation, however, Customs has by regulation defined the term "imported directly" to also include:

(1) A shipment from a BDC to the U.S. through the territory of any other country, if the merchandise in the shipment does not enter into the commerce of any other country while en route to the U.S., and the invoice, bills of lading, and other shipping documents show the U.S. as the final destination. 19 CFR 10.175(b). This provision allows, for example, overland transshipment in bond from landlocked BDC's through neighboring countries to the U.S. See HQ 071696, dated May 30, 1984.

(2) A shipment from a BDC to the U.S. through a free trade zone in a second BDC, even though the invoice and shipping documents do not show the U.S. as the final destination, and even if the merchandise is purchased and resold within the free trade zone, other than at retail, for export, provided the merchandise does not enter into the commerce of the country maintaining the free trade zone, and the articles undergo no operations other than (i) sorting, grading, or testing, (ii) packing, unpacking, changes of packing, decanting or repacking into other containers, (iii) affixing marks, labels, or other like distinguishing signs on articles or their packing, if incidental to the foregoing operations, and (iv) operations necessary to ensure the preservation of merchandise in its condition as introduced into the free trade zone. 19 CFR 10.175(c). This provision allows BDC's to transship merchandise through countries with developed entrepot trade, and thus use to its advantage developed commercial trading institutions and facilities that may not be available in the BDC.

(3) A shipment from a BDC to the U.S. through the territory of any other country, if such shipment remains under the control of the customs authority of the intermediate country, does not enter into the commerce of the intermediate country except for the purpose of sale other than at retail, and the district director is satisfied that the importation results from the original commercial transaction between the importer and the producer and the latter's sales agent; and the merchandise is not subject to operations other than loading and unloading, and other activities necessary to preserve the articles in good condition. 19 CFR 10.175(d). This provision was added in order to encompass within the meaning of "imported directly" the traditional marketing procedure established for Cameroon wrapper tobacco. See T.D. 83-144 (1983).

You claim that the black pepper oleoresin is "imported directly" from a BDC within the meaning of 19 CFR 10.175(a), because it is shipped directly to the U.S. from India and Indonesia, both of which are BDC's, after being returned from processing in Singapore, a non-BDC. In our view, however, the black pepper oleoresin is not "imported directly" to the U.S. from India or Indonesia, but from Singapore. Neither the Customs Regulations nor any previous ruling define what it means to import directly from a BDC. The word "from," in its ordinary sense, indicates a starting point, a point or place of where an actual physical movement has its beginning, or the place of origin. See Websters Third International Dictionary (Unabridged), 913 (1971). Clearly, the origin or starting point of the shipment here is Singapore, where the black pepper oleoresin is produced, placed upon a vessel, and destined for the U.S. The merchandise does not leave the vessel in India or Indonesia and has no connection with those countries, other than by being aboard a vessel that transits their ports. Under these facts, the shipment will be considered to have been "imported directly" from Singapore, not India or Indonesia.

We believe that this result is consistent with the statute and Customs Regulations. To accept your claim would render the statutory direct shipment requirement meaningless, for it would allow merchandise to be "imported directly" from the last foreign port at which the transporting vessel stops before reaching the U.S. You state that your claim is premised on the fact that Congress and the administration intended black pepper products meeting the 35 percent requirement to receive the benefits of the GSP program. As set forth above, however, the "imported directly" requirement is a country of origin requirement separate and distinct from the 35 percent value added requirement, and we find no evidence in the legislative history that Congress intended that an article receive duty-free treatment if it satisfied one requirement but not the other.

Customs Regulations clearly contemplate that if an article is merely transshipped through a country, it is not "imported directly from" that country, but from the country from which the shipment originates. For example, if the black pepper oleoresin was processed and put aboard a vessel in India or Indonesia, and transshipped through the port of Singapore to the U.S., then the black pepper oleoresin would be considered to have been "imported directly" from the BDC's India and Indonesia. See 19 CFR 10.175(b). To find that the merchandise is "imported directly" from the country through which the merchandise is merely transshipped would be, at best, inconsistent with the Customs Regulations defining the term.

Although not expressly stated in the GSP legislative background materials as its purpose, the direct shipment requirement may act to reduce the possibility that materials or articles of non-GSP countries will be commingled or mixed with GSP eligible articles. You state that this policy will not be compromised because the importer will be able to prove that the entered merchandise complies with the applicable country of origin criteria, and was not commingled with any ineligible merchandise at any time. Congress did not, however, provide that the direct shipment requirement may be waived if the importer can prove that the merchandise was not commingled with ineligible articles en route to the U.S. Assuming the policy is as you suggest, Congress provided that the only sufficient proof that the eligible merchandise is not commingled with ineligible merchandise while en route to the U.S. is proof of direct shipment from the BDC.

You note that we have twice previously addressed this issue, and reached a different result. First, in C.S.D. 79-315, dated November 6, 1978 (HQ 055618), we ruled that Yugoslavian-produced glassware which had been imported into Canada for processing, but then returned to Yugoslavia for credit when the Canadian processor ceased operations, may receive duty-free treatment under the GSP if shipped (again) directly to the U.S. We noted that the glassware was not substantially transformed in Canada, but that it had entered into the commerce of that country. Second, in Customs response to comments on proposed regulations implementing the Caribbean Basin Initiative (19 U.S.C. 2701- 2706), we stated:

"Under the CBI statute the Virgin Islands is not treated as a beneficiary country for the purpose of the direct importation requirement. Consequently, the Virgin Islands will be prevented from engaging in tail-end processing operations unless the article is returned to a beneficiary country prior to final exportation to the U.S." T.D. 84- 237, 18 Cust.Bull. 761, 769 (1984).

You claim that this statement, and the ruling, allow the importer here to return the article to India and Indonesia prior to shipment to the U.S. to claim GSP benefits.

We do not find C.S.D. 79-315, or the comments made in T.D. 84-237, to be controlling here. First, it is unclear that our statement in T.D. 84-237 would allow a shipment which merely transits the port of a BDC, as here, to be considered a return to the BDC. The shipment at issue in C.S.D. 79-315 appears to have been actually imported and entered into the commerce of the BDC upon return from Canada. In any event, both the ruling and our comments on the CBI regulations contemplate return of the same article that is the product of the BDC. In both cases, the article is not substantially transformed after the original export from the BDC. Here the article exported from India or Indonesia, namely, black pepper, is not returned to those countries. Rather, the article that is shipped to India and Indonesia from Singapore is black pepper oleoresin, a new and different article of commerce. See HQ 047092, dated February 1, 1977 (an oleoresin made in Singapore from black pepper berries shipped from the Malagasy Republic and Indonesia is a product of Singapore for purposes of the GSP). We find, therefore, that the article originally exported from India or Indonesia is not returned to those countries within the meaning of C.S.D. 79-315 or T.D. 84-237.

CONCLUSION:

Black pepper oleoresin produced in Singapore from black pepper purchased in India or Indonesia, and shipped from Singapore through the territory of India or Indonesia, is not "imported directly" to the U.S. from a BDC. Therefore, the black pepper oleoresin will not be eligible for duty-free treatment under the GSP.

Sincerely,

John Durant, Director

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