HQ 556779 - Protest No. 2002-21-000292 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 556779

April 5, 1993

CLA-2 CO:R:C:S 556779 WAW

CATEGORY: CLASSIFICATION

District Director
U.S. Customs Service
423 Canal Street
New Orleans, LA 70310
Attn: Room 200 - Protest Office

RE: Protest No. 2002-21-000292 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 Chas L. Green, on behalf of Green Importers, 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 were manufactured by the "Fabrica de Flores Artificials Dak Fong" (hereinafter Dak Fong), "Fabrica de Flores Artificiais Florist" (hereinafter Florist) and "Luen Fat" factories 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 merchandise which is the subject of this protest was entered on August 9, 1990, September 18, 1989, October 9, 1989 and December 27, 1989. Your office, however, subsequently denied the entries duty-free treatment under the GSP and liquidated them dutiable at the rate of 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 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)).

In a memorandum to the field dated October 31, 1991 (INV 8- 02 CO:TO:C JRD), the Assistant Commissioner for 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). All three of the factories involved in this protest are named as being precluded from receiving duty-free treatment under the GSP pursuant to the above-referenced memorandum. In addition, the memorandum states that the Senior Customs Representative (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 Office of Commercial Compliance for their analysis and review before any action is taken.

In response to our request for verification of the production cost data for the factories at issue in this protest, protestant provided affidavits from the suppliers of the artificial flowers, protestant's agent and Certificates of Origin Form A's that were signed by the designated governmental authority in Macau. Protestant claims that these affidavits are sufficient proof that the artificial flowers were produced in Macau and that the entries satisfy the GSP 35% value-content requirement. In regard to the Certificate of Origin Form A's which were signed by the designated foreign official in Macau, in T.D. 86-107, 20 Cust. Bull 287 (1986), Customs established a final rule with respect to the 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. Customs announced in T.D. 86-107 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. Thus, certification by a foreign government alone, without supporting documentation to demonstrate compliance with the country of origin requirements is not sufficient to grant duty-free treatment under the GSP. Likewise, sworn affidavits from protestant's agent and suppliers of the artificial flowers that the flowers were produced in Macau and satisfy the GSP 35% value-content requirement alone, without more specific information regarding the direct costs of processing operations and origin of the materials used in the production of the flowers, is not sufficient evidence to grant the protest.

With regard to the instant case, the protestant has not submitted sufficient independent evidence to your office to substantiate its claim for duty-free treatment pursuant to the GSP. Protestant simply asserts that the importer relied on the supplier's representations, sales confirmations, declarations from sales agents, and the Certificate of Origin Form A's, as evidence that the merchandise was manufactured in Macau by the named factories. Moreover, based on the evidence that we have from the SCR/HK investigation into the artificial flower industry in Macau, we know that the majority of flowers during the period of the protest were assembled in China. However, the entry documentation submitted for the current protested entries is misleading because the "Textile Declaration," which describes the manufacturing operations and country of manufacture of the flowers, indicates that for the subject entries the printing, cutting, molding, dyeing, packing, and assembling all took place in Macau.

Furthermore, based on an investigation beginning in June 1989, conducted by the SCR/HK, Customs concluded that the Florist factory was not capable of manufacturing artificial flowers at its facility due to its very limited production capacity. Customs Service informants in Macau revealed that the Florist factory had not produced artificial flower components or artificial flowers in Macau for several years. In addition, confidential source information, comments by other artificial flower manufacturers in Macau, and an investigation conducted by both the Macau authority and the SCR/HK indicated that Florist subcontracted all production to the PRC and its factory in Macau functioned only as a location for the export packing and preparation of commercial documents.

With regard to the Luen Fat factory, we note that during Customs' investigation into the manufacturing processes, the evidence indicated that artificial flowers were neither produced by Luen Fat in their Macau factory, nor assembled in the PRC from components produced in Macau. Based upon information obtained during the SCR/HK's investigation, it appeared that some of the machines in Luen Fat had been set up for a very short period of time and were either non-operational or showed little or no sign of recent use. Additionally, the SCR/HK 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. The evidence made it clear that the only manufacturing process being performed in Macau was the cutting of the imported fabric into shapes, and 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.

Finally, based on information developed during the investigation into the manufacturing processes of the Dak Fung factory, it was found that this factory had not been capable of producing artificial flower components or artificial flowers in Macau for a significant period of time. The investigation by the SCR/HK revealed that Dak Fung did not possess the essential equipment in an operational condition to produce artificial flower components since late 1989. The entry under this protest identifying Dak Fung as the factory of manufacture is the August 9, 1990, entry which was exported from Macau on July 9, 1990.

Therefore, based on this information, it was reported that the vast majority, if not all, of the flowers shipped from the Florist, Luen Fat and Dak Fung factories and labeled "made in Macau" were actually produced in China. Protestant has not provided "compelling evidence" for any of the entries to rebut the findings of the SCR/HK.

The Customs Regulations require that a protest set forth the nature of, and justification for the objection distinctly and specifically with respect to each claim. Section 174.13(a)(6), Customs Regulations (19 CFR 174.13(a)(6)). The Customs Service has and will continue to fully consider any relevant allegation in a protest supported by competent evidence. However, 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 artificial flowers was equivalent to at least 35% of the appraised value of the merchandise). Accordingly, without sufficient information to confirm that the artificial flowers in the instant case were manufactured in Macau by the Florist, Luen Fat and Dak Fong factories (i.e., evidence of manufacturing operations performed in Macau such as cutting, dying, texturizing, and injection molding), we cannot determine whether any materials imported in 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, the value of any imported materials in this case may not be included towards satisfying the GSP 35% value- content requirement. As we have no evidence that the direct costs of processing operations alone satisfy the GSP 35% requirement, the protest should be denied.

HOLDING:

Upon review of all of the documentary evidence submitted in connection with this protest, which contests the assessment of duties on entries of artificial flowers from the Luen Fat, Dak Fung and Florist factories in Macau, it is our determination that protestant has not provided sufficient independent evidence to support a claim that the artificial flowers from these factories are entitled to duty-free treatment under the GSP upon entry into the U.S.

Based upon 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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