HQ 0556654 - Protest No. 4501-91-100097 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 556654

October 1, 1992

CLA-2 CO:R:C:S 556654 WAW

CATEGORY: CLASSIFICATION

District Director
U.S. Customs Service
Suite 625
7911 Forsythe Blvd
St. Louis, MO 63105

RE: Protest No. 4501-91-100097 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 Sharretts, Paley, Carter & Blauvelt, on behalf of K Mart, 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 the "Luen Fat" factory 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 entry which is the subject of this protest was filed on August 7, 1990, and liquidated duty-free on October 11, 1991, under the GSP as a product of Macau. 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 entry 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 or 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 materials produced in the 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)).

Protestant's request for further review may be summarily disposed of. The scope of review in this protest is on the administrative record, and protestant has not presented any evidence in support of its assertions. The Customs Service will not grant further review of a blanket protest. Protestant must comply with the statutory and regulatory requirements. Under 19 U.S.C. section 1514(c)(1), a protest of a decision must set forth distinctly and specifically each decision as to which protest is made. See generally, United States v. Parksmith Corp., 514 F.2d 1052, 62 C.C.P.A. 76 (1975); American Commerce Co. v. United States, 173 F. Supp. 812 (Cust. Ct. 1959); United States v. E.H. Bailey & Co., 32 C.C.P.A. 89 (1945).

Pursuant to INV 8-02 CO:TO:C JRD, dated October 31, 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 named factories listed in the memorandum should be denied GSP treatment and instead, should be rate advanced via the issuance of a Proposed Notice of Action (CF 29). The Luen Fat factory is one of the factories which has 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.

We are of the opinion that the protestant has not submitted sufficient independent evidence to your office in support of its contention that the artificial flowers produced in the Luen Fat factory should be granted duty-free treatment under the GSP. Protestant simply asserts that the importer relied on the supplier's representations and the GSP Form A to show that the merchandise was manufactured in Macau. By letter dated July 8, 1992, we requested counsel for protestant to provide specific information concerning the manufacturing operations performed at the Luen Fat factory as well as the direct costs of processing relating to the shipment. Counsel has been unable to provide this information.

We, however, note that the report of the Customs' investigation into the manufacturing processes of the Luen Fat factory, indicates that artificial flowers were neither produced by Luen Fat in their Macau factory, nor assembled in the PRC from components produced in Macau. Specifically, it was reported that some of the machines in Luen Fat had been installed for a very short period of time and were either non-operational or showed little or no sign of recent use. Additionally, the Senior Customs Representative/Hong Kong received information from employees of flower factories in Macau stating that shipments of finished artificial flowers were delivered to the Macau factories from the PRC for repackaging before they were shipped to the U.S. It was decided that the only manufacturing process being performed in Macau was the cutting of the imported fabric into shapes, and that the remainder of the manufacturing operations, such as texturizing, coloring, plastic extrusion, formation of stems, and the final assembly of the flowers, were performed in the PRC.

In sum, without sufficient evidence to confirm that the artificial flowers in the instant case were manufactured in Macau by the Luen Fat factory, we cannot determine whether the materials imported into Macau and used in the production of the artificial flowers have undergone a double substantial transformation, so that the cost or value of these materials may be included in the GSP 35% value-content requirement. Therefore, in view of the absence of compelling evidence to rebut the findings in reports of investigation on Luen Fat, 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 the Customs Form 19 to be returned to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director

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