HQ 0556451 - Reconsideration of HRL 084926; eligibility of science lab kits for duty-free treatment under the GSP; T.D. 91-7; sets; 555999 - United States International Trade Commision Rulings

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HQ 556451

January 28, 1992

CLA-2 CO:R:C:S 556451 WAW

CATEGORY: CLASSIFICATION

Chief, National Import Specialist Branch 3 U.S. Customs
New York Region
Suite 716
6 World Trade Center
New York, N.Y. 10048-0945

RE: Reconsideration of HRL 084926; eligibility of science lab kits for duty-free treatment under the GSP; T.D. 91-7; sets; 555999

Dear Sir:

This is in response to your memorandum dated November 4, 1991, requesting reconsideration of Headquarters Ruling Letter (HRL) 084926 dated September 20, 1989, issued to Tasco Quality Optics, which determined that a junior science kit and an energy lab kit were eligible for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466).

FACTS:

The "toy junior science lab kit" is a chemistry kit for children. The kit includes a microscope, candle holder, copper sulfate, eye dropper, filter paper, measuring spoons, plastic slides, sea sand, sodium ferrocyanide, specimen slides, steel wool, stones, tannic acid, test tubes, a holder, a rack and zinc metal. All of these articles are of Israeli origin except the microscope, eye dropper and slides which are of Taiwanese origin. This kit is designed to teach children how to use a microscope. The total value of the goods originating from Taiwan is $2.68, while the total value of the kit is $6.35.

The "toy energy and you lab kit" is designed for teaching children how to control, transform and use various forms of energy. The kit and accompanying instruction booklet enable children to perform over 120 experiments concerning how to construct windmills, levers, cars, and batteries. All of the approximately 60 articles in the set, except for a magnifier and an eye dropper are produced in Israel. The magnifier and eye dropper are produced in Hong Kong and Taiwan, respectively. The value of the magnifier is $0.25, the value of the eye dropper is $0.08, and the total value of the kit is $10.85. ISSUE:

Whether the toy chemistry kits from Israel containing components produced in Israel and materials originating from non-beneficiary developing countries, are eligible for duty-free treatment under the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product or manufacture of a designated developing beneficiary country (BDC) which are imported directly into the customs territory of the U.S. from the 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).

As stated in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA), Israel is a designated BDC. You apparently do not dispute the tariff classification of the sets in subheading 9503.70.80, HTSUSA, which provides for "Other toys, put up in sets or outfits, and parts and accessories thereof: Other: Other." This subheading is a GSP eligible provision, and, therefore, the toy chemistry sets will be entitled to duty-free treatment if the entire set is considered to be a "product of" Mexico and the 35% value-content requirement is met.

Prior to August 20, 1990, the GSP program differed from the Caribbean Basin Economic Recovery Act (CBI) and U.S.-Israeli FTA programs in that the latter programs included a "product of" requirement, while the GSP did not. This requirement means that to receive duty-free treatment, an article either must be made entirely of materials originating in the beneficiary country or, if made of materials from a non-beneficiary country, those materials must be substantially transformed in the beneficiary country into a new or different article of commerce. In Madison Galleries, Ltd. v. United States, 688 F. Supp. 1544 (CIT 1988), aff'd 870 F.2d 627 (Fed. Cir. 1989), the court concluded that, under the GSP statute, it is unnecessary for an article to be a "product of" a GSP country to be eligible for duty-free treatment under that program. However, section 226 of the Customs and Trade Act of 1990 (Public Law 101-382) included an amendment to the GSP statute requiring an article to be a "product of" a GSP country for it to receive duty-free treatment. This amendment was effective for articles entered, or withdrawn from warehouse for consumption, on or after August 20, 1990. See T.D. 91-7 dated January 16, 1991 (25 Cust. Bull. 6).

At the time HRL 084926 was issued, there was no "product of" requirement in the GSP statute. Therefore, the ruling was correct in stating that the toy chemistry sets were eligible for duty-free treatment under the GSP provided the 35% value-content and "imported directly" requirements of the GSP were satisfied. However, since the issuance of HRL 084926, the GSP statute has been amended to require a "product of" requirement. Therefore, the issue presented here is whether, in view of the amendment to the GSP statute and the rulings that we have issued on this subject, the toy sets are eligible for duty-free treatment under the GSP.

In T.D. 91-7, Customs held that as a general rule, a collection classifiable in one subheading pursuant to the GRI's will receive CBI treatment only if all of the items or components in the collection are considered "products of" the beneficiary country. To illustrate the application of the "product of" requirement to sets under the CBI, we used the example of a hairdressing set consisting of a comb, brush, and scissors manufactured in Jamaica from materials originating in Jamaica, as well as an electric hair clipper manufactured in Taiwan (a non- BC country) and imported into Jamaica for packaging with the other items of the set. We also stated that in cases where the entire imported set is not the "product of" a BDC, as required by the CBI statute, neither the set nor any part thereof would be entitled to duty-free treatment under this program. The above requirements also exist under the GSP statute with respect to articles entered on or after August 20, 1990.

We have previously held that although a toy set may be properly classifiable under GRI 1, the merchandise must still satisfy the "product of" requirement to be eligible for duty- free treatment pursuant to the GSP. In Headquarters Ruling Letter 555999 dated November 20, 1991, we held that toy farm sets from Mexico, consisting of Mexican-origin components and Chinese farm animals which are simply packaged together in Mexico, are not entitled to duty-free treatment since the "product of" requirement has not been met. See 19 U.S.C. 2463(b)(2) (no article of a BDC shall be eligible for GSP treatment by virtue of having merely undergone simple combining or packaging operations). In that ruling we stated the following:

We see no justification, from either a legal or policy standpoint, for treating sets classifiable under GRI 1 any differently than sets classifiable under GRI 3(b) in determining their eligibility for GSP treatment. Moreover, it is our opinion that construing the GSP "product of" requirement as applying only to those sets classified pursuant to GRI 3, would lead to inconsistent results.

Because the "toy junior science lab kit" includes component parts which are sourced outside of Israel, it is clear that these parts are not wholly the growth, product, or manufacture of that BDC. The mere packaging of the Taiwanese-origin components with the other items in the set clearly will not substantially transform the non-Israel components into "products of" Israel. Furthermore, one of the Taiwanese components -- the microscope - - constitutes an integral part of the set in which it is included. Therefore, because the entire imported toy chemistry kit is not a "product of" Israel, as required by the GSP statute, neither the set nor any part thereof is entitled to duty-free treatment under this program. The issue of whether the "toy junior science lab kit" will satisfy the 35% value-content requirement under the GSP is not relevant in this case since the set does not meet the "product of" requirement.

However with respect to the "toy energy and you lab kit," although the magnifier and eye dropper are produced in Hong Kong and Taiwan respectively, it is clear that the two components represent merely a de minimus portion of the set in which they are included. They do not constitute integral components of the entire set without which the set is rendered inoperable, and the components represent only two of the approximately 60 total items in the set. Moreover, the value of these two components ($0.33) represents approximately 3 percent of the value of the entire set ($10.85). Therefore, we conclude that the presence of the magnifier and eye dropper in the set will not render the entire set ineligible for duty-free treatment under the GSP. In view of these findings, it is our determination that the imported "toy energy and you lab kit" is a "product of" Israel. Accordingly, if the importer can show that the toy energy and you lab kit will satisfy the 35% value-content and "imported directly" requirements, the set will be eligible for duty-free treatment under the GSP.

HOLDING:

The toy chemistry sets are properly classified under subheading 9503.70.8000, HTSUSA, the provision for other toys, put up in sets or outfits, and parts and accessories thereof, other, other. The applicable rate of duty is 6.8 percent ad valorem.

Because the entire imported "toy junior science lab kit" is not a "product of" Israel, as required under the GSP statute, neither the set nor any of the components in the set are entitled to duty-free treatment under this program. With regard to the "toy energy and you lab kit," we believe that the set is a "product of" Israel, as required under the GSP statute, and therefore, the entire set is entitled to duty-free treatment under this program provided that the 35% value-content and "imported directly" requirements are met. The portion of HRL 084926 relating to the GSP issue is hereby modified accordingly. In a separate letter, we have notified the importer, Tasco Quality Optics, of our decision to modify HRL 084926.

Sincerely,

John Durant, Director

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