HQ 557761 - Application for Further Review of Protest No. 2904-93- 100225; Denial of duty-free treatment of toys from Macau under the Generalized System of Preferences (GSP); direct costs of processing - United States International Trade Commision Rulings

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HQ 557761

May 27, 1994

CLA-2 CO:R:C:S 557761 WAS

CATEGORY: CLASSIFICATION

District Director
U.S. Customs Service
Federal Building, Rm. 198
511 N.W. Broadway
Portland, OR 97209

RE: Application for Further Review of Protest No. 2904-93- 100225; Denial of duty-free treatment of toys from Macau under the Generalized System of Preferences (GSP); direct costs of processing

Dear Sir:

This is in reference to a protest and application for further review filed by Wham Distributing, contesting the denial of duty-free treatment of toys from Macau under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466).

FACTS:

The protestant originally entered certain toys under subheading 9503.90.60 and 9503.80.20, Harmonized Tariff Schedule of the United States (HTSUS), which are GSP-eligible provisions. Your office advanced the rate as dutiable at 6.8 percent because the protestant did not provide a complete breakdown along with supporting documentation, i.e., bills of material and invoices for material used in the manufacturing process, utility and transportation invoices, etc., to verify its claim that the merchandise satisfies the GSP 35% value-content requirement.

In a Request for Information dated June 4, 1993, your office asked for the Macau manufacturer's commercial invoices for toys listed on invoice 93/0004109C and 93/00419B. These invoices indicate that the toys were made in Macau and were sold to Lanard Toys Ltd, located in Hong Kong, and then consigned to Wham Distributing, in California. In another Request for Information dated July 1, 1993, your office stated that in past shipments, the sales prices between Lanard (purchaser in Macau) and their Macau suppliers have always differed from the invoice prices between Lanard and the U.S. importer. Your office stated that the shipment subject to this protest shows that both prices are the same. You asked that Lanard provide your office with an explanation along with all correspondence, purchase orders, and payment records between Lanard and the Macau manufacturers. You requested that Lanard provide its orders and explain how the prices were established between Lanard and its Macau suppliers. In addition, you also requested that Lanard provide your office with its proof of payment, i.e., letter of credit and bank draft against L/C. In another Request for Information dated July 27, 1993, your office stated that it had not received previously requested information concerning the correspondence, purchase orders, payment records between Lanard and the Macau manufacturers, Lanard's orders, how the prices were established between Lanard and its Macau suppliers, and proof of payment information. Additionally, in another Request for Information dated August 12, 1993, your office asked for an explanation as to why Item 9101 is invoiced on Lanard H.K. P.O. at HK $8.073/set FOB Macau, while the GSP cost breakdown shows a price of HK $8.97/set FOB Macau. Your office asked the protestant to explain why it appears that the manufacturer is selling at a price below their cost.

ISSUE:

Whether the toys from Macau satisfy the 35 percent value-content requirement under the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product or manufacture of a designated 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 operations performed in the BDC, is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the U.S. See 19 U.S.C. 2463(b).

In order to determine if the 35 percent value-content requirement has been satisfied with respect to the merchandise subject to this protest, your office requested a complete cost breakdown along with supporting documentation in the form of bills of material and invoices for material used in the manufacturing process, utility and transportation invoices, etc. Protestant has failed to adequately supply the requested information regarding the 35 percent value-content requirement, claiming that this information is not available since Lanard buys from these manufacturers at "arm's length" and the manufacturers will not disclose this information.

In T.D. 86-107, 20 Cust. Bull. 287 (1986), Customs established a final rule with respect to the GSP documentation requirements and eliminated mandatory foreign government certification of the GSP Certificate of Origin Form A's, except for those beneficiary countries with which the U.S. Customs Service has a bilateral enforcement agreement. T.D. 86-107 states that certification by a foreign government has no binding legal effect on the duty-free eligibility of imported merchandise, since it is Customs, and not the BDC government, which is charged with the responsibility under U.S. law to determine the proper tariff status of imported merchandise. Customs believes that it is the importer who is legally responsible for establishing to Customs that there is compliance with the GSP requirements.

Inasmuch as Customs has ultimate responsibility to determine duty-free eligibility, it has in some cases been necessary for the district director to verify the information on the Form A pursuant to section 10.173(a)(4) of the GSP regulations. Such requests have involved both requests for further documentary evidence and the performance of investigations in the GSP exporting country. Therefore, in cases where the exported article is not wholly the growth, product, or manufacture of a beneficiary country, as in the instant case, Customs has required that an exporter be prepared to submit a declaration supporting a claim for GSP treatment.

Additionally, in acting on a protest, Customs cannot and will not assume facts that are not presented (e.g., an unsubstantiated claim that the direct costs of processing operations incurred in producing the toys was equivalent to at least 35 percent of the appraised value of the merchandise). Accordingly, without sufficient information regarding the costs of producing the toys in the instant case, we cannot determine whether the GSP 35 percent value-content minimum has been satisfied.

HOLDING:

Based on the documentary information submitted in connection with this protest, we find that the protestant has not provided sufficient proof to show that the 35 percent value-content requirement under the GSP has been satisfied. Accordingly, this protest should be denied.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

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