United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1991 HQ Rulings > HQ 0555426 - HQ 0555590 > HQ 0555522

Previous Ruling Next Ruling


HQ 555522


November 26, 1990

CLA-2 CO:R:C:V 555522 KCC

CATEGORY: CLASSIFICATION

District Director of Customs
P.O. Box 9516
El Paso, Texas 79985

RE: Internal Advice Request #IA 22-89 concerning GSP eligibility of a set containing toy articles.Imported directly; 19 CFR 10.175; 728811; 729505; 554674; U.S. packaging; 544294

Dear Sir:

This is in response to your memorandum of May 8, 1989, forwarding a request for internal advice, initiated by Phillips, Lytle, Hitchcock, Blaine & Huber on behalf of Fisher-Price, concerning the eligibility of a set of toy articles entitled "Silver Bells Wedding Chapel" of the "World of Precious Places" for duty-free treatment under the Generalized Systems of Preferences (GSP) (19 U.S.C. 2461-2466). A Sample was submitted for examination.

FACTS:

Fisher-Price is importing toy sets from the "World of Precious Places" toy series. The various sets are similar in composition and packaging, but the set of primary interest and the representative subject of this ruling is Fisher-Price's "Silver Bells Wedding Chapel" (wedding set). The wedding set includes two figures manufactured in the People's Republic of China, a church, archway, walkway, and plastic key manufactured in Macau, and the retail packaging box and printed insert materials manufactured in the U.S.

The figures are shipped to Macau where the wedding set is bulk packaged. The bulk packaging involves placing pieces of the wedding set into various plastic bags:

1 bag: Base of church.
2 bags: Other features such as the roof, steeple and church sign are divided between these two plastic bags.
1 bag: Two figures, church gable, and decals. 1 bag: Walkway and key.

After the five bags are individually prepared, the first four bags (base of church, other features, and the figures) are packed into another large plastic bag entitled the "church set." The church set bags are then bulk packaged together in one box, and the other plastic bags containing the walkway and key (parts bag) are bulk packaged together in another box. At the time the bulk packaged boxes are shipped from Macau, the shipment would contain an equal number of church set bags and parts bags.

The bulk packaged boxes are shipped to the U.S. Fisher- Price then sends the merchandise on consignment and under bond to a Maquiladora plant in Mexico where they are repackaged for retail sale. In Mexico, one church set bag and one parts bag is placed into a U.S. retail box with U.S. printed inserts. Fisher-Price supplies the Mexican packer with the U.S. origin packaging material and pays the Mexican packer for the labor costs involved in the repacking operation. These retail boxes are then packaged for shipment to the U.S.

Customs has previously ruled in New York Ruling Letter (NY) 535580 dated January 25, 1989, that the retail packed "Precious Places" series toys are classified under General Rule of Interpretation (GRI) 3(b), Harmonized Tariff Schedule of the United States (HTSUS), as sets, with the essential character being the large structure contained therein. Therefore, the "Silver Bells Wedding Church" set is classified under subheading 9503.90.6000, HTSUS, which provides for other toys (except models), not having a spring mechanism and dutiable at a rate of 6.8 percent ad valorem. This is a GSP eligible provision.

ISSUE:

Whether the wedding set is entitled to duty-free treatment under the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product or manufacture of a beneficiary developing country (BDC) which are imported directly into the customs territory of the U.S. from a BDC may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BDC, plus 2) the direct costs of the processing operation in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See, 19 U.S.C. 2463(b).

The wedding set in this case is an "eligible article" for purposes of the GSP since the tariff provision under which the set is classified provides for a GSP free rate of duty.

Section 503(b) of the Trade Act of 1974 (19 U.S.C. 2463(b)), recently amended by the "Customs and Trade Act of 1990" (Public Law 101-382), effective on August 20, 1990, now reads as follows: "(b)(1) The duty-free treatment provided under section 501 shall apply to any eligible article which is the growth, product or manufacture of a BDC." The "product of" requirement means that to receive duty-free treatment the article must be wholly the growth, product, or manufacture of the BDC, or must be a new or different article of commerce which has been grown, produced or manufactured in the BDC. However, articles entered prior to August 20, 1990, are not subject to this "product of" requirement. See, Madison Galleries, LTD. v. United States, 688 F. Supp. 1544, (CIT 1988), affirmed, 870 F.2d 627 (Fed.Cir. 1989).

In regard to the instant case, all of the items in the wedding set are manufactured in Macau (a BDC), except the two figures which are manufactured in the People's Republic of China (a non-BDC). Because the mere packaging of the figures with the other items, in Macau, will not result in the substantial transformation of the figures into "products of" Macau, the entire imported entity (the set) would not be considered the "product of" Macau. Therefore, with respect to those sets entered on or after August 20, 1990, neither the sets nor any parts thereof would be entitled to GSP treatment.

However, in regard to those sets entered before August 20, 1990, the fact that the two figures are not the "product of" Macau will not, in and of itself, preclude GSP treatment for the sets. Nevertheless, we should note that no costs relating to the two Chinese figures may be counted toward the GSP 35% requirement.

It remains for us to consider whether those sets entered before August 20, 1990, were imported directly into the U.S. from a BDC. According to section 10.175(c), Customs Regulations (19 CFR 10.175(c)), the words "imported directly" mean:

[i]f shipped from the BDC to the U.S. through a free trade zone in a beneficiary developing country, the merchandise shall not enter into the commerce of the country maintaining the free trade zone, and
(1) The eligible articles must not undergo operations other than:
(i) . . . .
(ii) Packaging, unpacking, changes of packing, decanting or repackaging into other containers. . . .

A free trade zone is a predetermined area or region declared and secured by or under governmental authority, where certain operations may be performed with respect to articles, without such articles having entered into the commerce of the country maintaining the free trade zone. See, 19 CFR 10.175(c)(5). We have previously held that in bond plants maintained under Mexican law as the Maquiladora program qualify as free trade zones within the meaning of 19 CFR 10.175(c). See, Headquarters Ruling Letter (HRL) 728811 dated December 13, 1985.

We have also held that repackaging of eligible articles in a free trade zone does not disqualify the articles from GSP treatment. See, HRL 728811 (shipping toys or games from Macau to Mexico for repackaging and then to the U.S. is deemed to be a direct shipment and, therefore, eligible for GSP treatment); and HRL 729505 dated June 18, 1986. Cf., HRL 554674 dated July 29, 1987, which held that combining of eligible articles with non- eligible articles to produce a kit in a Mexican free trade zone is not a permissible packaging operation under the regulations, and, therefore, the kit will not be considered to be imported directly into the U.S. for GSP purposes.

In this case, we are of the opinion that the wedding set is imported directly into the U.S. for GSP purposes. There is no combining of eligible articles and non-eligible articles in Mexico, as in HRL 554674. All the components necessary for the set are packaged in Macau and then shipped in bulk under bond to a Maquiladora plant in Mexico where the set is simply repackaged for retail sale. Thereafter, the set will be imported into the U.S. Furthermore, a GSP Form A (included with the request for internal advice) obtained in Macau expressly states that the sets' final destination is the U.S.

We note that if packing material of U.S. origin is separately classified as American goods returned under subheading 9801.00.10, HTSUS, no legal authority exists for also treating this packing as part of the appraised value of the imported article. See, HRL 544294 dated July 7, 1989. Subheading 9801.00.10, HTSUS, provides for duty-free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad.

We also note that although your memorandum of May 8, 1989, does not request advice concerning the appraised value of the wedding sets, the Chief, National Import Specialist Branch 3, in a memorandum to Headquarters dated June 19, 1990, (copy enclosed) raises certain appraisement issues. If you wish this office to address these issues, please submit another request.

HOLDING:

Based on the information and samples submitted, we find that those wedding sets entered on or after August 20, 1990, are not entitled to duty-free treatment under the GSP as they are not "products of" Macau. However, the wedding sets entered before August 20, 1990, are considered to be "imported directly" into the U.S. from Macau when transported through Mexico for a packaging operation in a Maquiladora plant. These sets are entitled to GSP treatment if they satisfy the 35% value-content requirement.

Sincerely,

John Durant, Director

Previous Ruling Next Ruling

See also: