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HQ 559622





March 19, 1997

CLA-2 RR:TC:SM 559622 KBR

CATEGORY: CLASSIFICATION

Port Director
U.S. Customs Service
200 St. Paul Place
Baltimore, MD 21202

RE: Application for Further Review of Protest No. 1303-95-100012 Concerning the Eligibility of Magnesium for Duty-free Treatment Under the Generalized System of Preferences ("GSP"); Imported Directly; 19 CFR ?10,175(d)

Dear Sir:

This is in reference to the above-cited Application for Further Review of Protest filed by John S. Connor, Inc., on behalf of their client British Metal Canada contesting the denial of eligibility of magnesium for duty-free treatment under the Generalized System of Preferences ("GSP").

FACTS:

British Metal Canada/Amalgamet Canada ("BMC") is protesting a denial of eligibility of magnesium for duty-free treatment under the GSP. BMC purchased magnesium from Solikamsk Magnesium Works ("SMW"), a producer of magnesium in Russia. The magnesium was transported through Kotka, Finland, where it was inspected. The movement summary states that "the [m]aterial was released to [BMC] for inspection..." The inspection instructions stated that the magnesium should be inspected by an inspector familiar with magnesium metal for physical appearance; any cracks, wrinkles, holes, spots, blooms, dirt contaminants, marks; the shine and cleanliness; oxide; discoloration; variance between bundles of ingots; consistent size and weight; packing; and breakage of bundles. The inspection took more than one day and an inspection report was issued dated December 16, 1993. The magnesium was then transported to Helsinki, Finland and, from there to Gothenburg, Sweden. The magnesium was then transported to the U.S. BMC purchased the magnesium from SMW prior to the contract for sale to the purchasers in the U.S. The contracts for sale by SWC to BMC show a delivery location of Kotka, Finland. BMC sold magnesium to Rossborough Manufacturing Co., Hart Metals, Inc., and E.S.M. II Inc. A Certificate of Origin dated December 17, 1993, was issued showing the magnesium was destined for Kotka, Finland. A "post Factum" GSP Certificate of Origin was issued on March 9, 1994, showing that the magnesium was of Russian origin. The magnesium was denied duty-free treatment under the GSP by your office and was found to be dutiable at 8 percent ad valorem.

A timely Application for Further Review and Protest was filed on October 28, 1994.

ISSUE:

Whether the magnesium from Russia was "imported directly" for purposes of the GSP when it was shipped through an intermediary country to the U.S. as described above.

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)(1). The phrase "imported directly" is defined in section 10.175 of the Customs Regulations (19 CFR 10.175). The magnesium is classifiable under subheading 8104.11.0000, Harmonized Tariff Schedule of the United States ("HTSUS"), which at the time of the subject entry was a GSP eligible provision. Also at the time of the subject entry, Russia was a BDC.

The issue in this case concerns whether the magnesium from Russia was "imported directly" from the BDC to the U.S., when it was shipped from the BDC through Kotka and Helsinki, Finland, and Gothenburg, Sweden; and subsequently entered into the U.S. Section 10.175, Customs Regulations (19 CFR 10.175) defines the term "imported directly" for purposes of the GSP. Under 19 CFR 10.175(b), merchandise shipped from a BDC through a non-BDC to the U.S. is "imported directly" if: (1) the merchandise does not enter into the commerce of any other country while en route to the U.S., and (2) the invoices, bills of lading, and other shipping documents show the U.S. as the final destination.

In this instance, the original contract of sale of the magnesium was from SWC to BMC. This contract and an amended contract both show as the only delivery location Kotka, Finland. Therefore, as these documents and certain other shipping documents do not show the U.S. as the final destination, the magnesium does not meet the requirements of 19 CFR 10.175(b). See HQ 555039 (June 16, 1989), HQ 557640 (January 5, 1994).

Subsection 10.175(d) states as follows:

If the shipment is from any beneficiary developing country to the U.S. through the territory of any other country and the invoices and other documents do not show the U.S. as the final destination, the articles in the shipment upon arrival in the U.S. are imported directly only if they:

(1) Remained under the control of the customs authority of the intermediate country;

(2) Did not enter into the commerce of the intermediate country except for the purpose of sale other than at retail, and the district director is satisfied that the importation results from the original commercial transaction between the importer and the producer or the latter's sales agent; and

(3) Were not subjected to operations other than loading and unloading, and other activities necessary to preserve the articles in good condition.

The above provision was added as an amendment to the definition of the term "imported directly" to expand the definition to allow for articles to qualify for GSP treatment under the GSP which: (1) originate in a beneficiary developing country, (2) are shipped to a developed country and auctioned there, and (3) then are shipped to the U.S. See T.D. 83-144 (June 28, 1983). The specific factual situation which led to the creation of the amendment to the "imported directly" definition was designed specifically to encompass the traditional marketing procedure established for "Cameroon wrapper tobacco." Cameroon wrapper was produced in Cameroon and the Central African Republic. It was sold at an auction held once a year in Paris. The Cameroon wrapper was shipped from the beneficiary countries to a French customs bonded transit warehouse in Le Havre until the Paris auction was completed, at which time the tobacco was reloaded for shipment to its final destination. Because the purchase of the wrapper tobacco occurred after it left the beneficiary country, the bill of lading covering the first leg of the journey only indicated the intermediate destination, and did not show the U.S. as the final destination. While in the transit warehouse, the wrapper tobacco was not subjected to any processing or other operations. Customs found that the Cameroon wrapper tobacco which had been exported from the Cameroon Republic and the Central African Republic to France, auctioned there, and then reexported to the U.S. satisfied the GSP "imported directly" requirement, and thus, the amendment to the "imported directly" definition was created. See HQ 557921 (July 27, 1994); HQ 557937 (September 29, 1994); HQ 556373 (January 17, 1992).

The goods in this case were shipped from Russia to Kotka, Finland, where they were warehoused. There is no direct evidence to show that the magnesium remained under the control of the customs authority while in the warehouse or during its shipment through Helsinki, Finland, and Gothenburg, Sweden, prior to its exportation to the U.S. Further, the magnesium entered into the commerce of Finland when it was subjected to detailed inspection in that country. Merchandise enters the commerce of the intermediate country for purposes of the GSP if manipulated (other than loading or unloading), offered for sale (whether or not a sale actually takes place), or subjected to a title change in that country. See e.g. HQ 071575 (November 20, 1984). In HQ 555181 (June 26, 1989), we held that quality control testing in the intermediate country constituted more than loading and unloading and, as a result, the merchandise did not meet the "imported directly" requirements of 19 CFR 10.175(d). Finally, there is no evidence that the importation resulted from the original sale between the importer and the producer or its agent because there is no evidence that BMC was an agent of SMW, the producer. Therefore, the magnesium in this case is not considered "imported directly" from Russia to the U.S.

HOLDING:

Based on the information submitted, we find that the magnesium shipped from Russia through Kotka, Finland, Helsinki, Finland, and Gothenburg, Sweden, before importation into the U.S., did not satisfy the "imported directly" requirement under 19 CFR ?10.175. A copy of this decision should be attached to Customs Form 19, to be sent to the protestant.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision should be attached to Customs Form 19, Notice of Action, and 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,

John Durant, Director
Tariff Classification Appeals Division

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