HQ 0556341 - Protest No. 490991100009 concerning the eligibility of artificial flowers from Macau for duty-free treatment under the GSP - United States International Trade Commision Rulings

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HQ 556341

January 27, 1992

CLA-2 CO:R:C:S 556341 WAW

CATEGORY: CLASSIFICATION

District Director
U.S. Customs Service
La Puntilla #1
Old San Juan, PR 00903

RE: Protest No. 490991100009 concerning the eligibility of artificial flowers from Macau for duty-free treatment under the GSP

Dear Sir:

This is a decision on an Application for Further Review of the above-referenced protest filed by George R. Tuttle, A.P.C., on behalf of First American Flowers against the assessment of duties on artificial flowers imported into the U.S. from Macau. We have considered the protest and our decision follows.

FACTS:

The protestant claims that the subject artificial flowers should be entitled to duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466) since they are manufactured by two companies Fabrica De Flores Artificials Tai Keong aka Great Strong Artificial Flower Factory and Fabrica De Flores Artificials "Hip Wai" both located in Macau and are classifiable under a GSP eligible provision. In the protestant's declaration of the manufacturing and/or processing operations of the artificial flowers, the protestant states that Macau is the country where these operations took place. The two entries the subject of this protest were entered on July 9, 1990 and April 24, 1990, and liquidated duty-free on October 19, 1990 under the GSP as a product of Macau. The protestant further claims that other ports have allowed products from these suppliers in Macau to be entered and liquidated free of duty under subheading 6702.90.40, HTSUSA. Your office, however, subsequently amended the entry summary to reflect a change in the country of origin of the artificial flowers and consequently reliquidated the entries dutiable at 9 percent ad valorem.

ISSUE:

Whether the artificial flowers from Macau are entitled to duty-free treatment under the GSP?
LAW AND ANALYSIS:

Under the GSP, eligible products the growth, product of manufacture of a designated beneficiary developing country (BDC) which are imported directly into the U.S. qualify for duty-free treatment if the sum of (1) the cost or value of the material produced in a BDC, plus (2) the direct costs involved in processing the eligible article in the BDC, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See section 10.176(a), Customs Regulations (19 CFR 10.176(a)).

As stated in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA), Macau is a designated BDC for the purposes of the Generalized System of Preferences (GSP). In addition, it appears from your description of the merchandise that at the time of importation, the products at issue were classified under subheading 6702.90.40, HTSUSA, which provides for artificial flowers of man-made fibers. Articles classified under this subheading are eligible for duty- free treatment under the GSP provided they satisfy all of the requirements.

The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).

Pursuant to INV 8-02 CO:TO:C RG, dated January 22, 1991, the Assistant Commissioner of Commercial Operations instructed the Regional Commissioners that all entries of artificial flowers claimed to be manufactured in Macau by any of the 15 factories which are listed in the memorandum should be denied GSP treatment and, rather, should be rate advanced via the issuance of a Proposed Notice of Action (CF 29). Tai Keong and Hip Wai are two of the factories which have been precluded from receiving duty- free treatment under the GSP pursuant to this memorandum. In addition, the memorandum states that the SCR/Hong Kong has also issued reports of investigation concerning the alleged transshipment of PRC-origin artificial flowers via Macau, which indicate that the named factories were either "not manufacturing artificial flowers in Macau, or were incapable of manufacturing them in the quantities exported to the U.S." Therefore, the Assistant Commissioner instructed all Regional Commissioners that in the absence of "compelling evidence" to the contrary, protests filed on the liquidation of entries from any of the factories enumerated in the memorandum should be denied. The Assistant Commissioner also recommended that any evidence submitted on behalf of an importer of artificial flowers from Macau must be forwarded to the Commercial Compliance Branch for their analysis and review before any action is taken.

With regard to the instant case, the protestant has not submitted any independent evidence to the District Director in your office to substantiate his claim for duty-free treatment pursuant to the GSP. Accordingly, without sufficient information to confirm that the artificial flowers are manufactured in Macau (i.e., cutting, dying, texturizing, and injection molding machinery, personnel, electric bills, etc.), we cannot agree with the protestant's claim that the artificial flowers were manufactured in Macau. Therefore, absent compelling evidence to the contrary, the artificial flowers in this case will not be eligible for duty-free treatment under the GSP.

HOLDING:

Therefore, based on the foregoing discussion, this protest should be denied in full. A copy of this decision should be attached to Form 19 to be returned to the protestant.

Sincerely,

John Durant, Director

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