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HQ 560435




February 5, 1998

CLA-02:RR:CR:SM 560435 KKV

CATEGORY: CLASSIFICATION

Mr. Frank M. Murphy
Norman G. Jenson, Inc.
P.O. Box 8008
3030 Commerce Drive
Port Huron, MI 48061-8008

RE: Eligibility of automotive type radiators imported from Thailand for preferential tariff treatment under the Generalized System of Preferences (GSP); interim storage in bonded warehouse; "imported directly;" 19 CFR 10.175(d); invoices and entry documents show other than U.S. as final destination; labeling permissible only in free trade zone; 19 CFR 10.175(d)(3)

Dear Mr. Murphy:

This is in response to your letter dated April 22, 1997, on behalf of Coulter Radiator Manufacturing, which requests a binding ruling regarding the eligibility of certain automotive type radiators for preferential duty treatment under the Generalized System of Preferences (GSP) upon their importation into the U.S. from Thailand through Canada. No sample was submitted with your request.

FACTS:

Your letter indicates that Coulter Radiator Manufacturing (hereinafter, "Coulter") is a Canadian firm which supplies automotive type radiators to repair shops in Canada and the United States. In order to meet customer expectations, Coulter maintains an inventory of products which are both produced by Coulter and purchased from suppliers. One such supplier is located in Thailand. Orders are regularly placed with the Thai manufacturer to ensure that inventory is readily available to service orders regularly received from customers. We are informed that the radiators are classifiable under subheading 8708.91.50, HTSUS, and have been certified by the producer as a "product of" Thailand and meet the requirements of 19 CFR 10.176.

We are informed that Coulter uses historical market data to identify which items and what quantity levels are maintained in inventory. Due to production lead times and international delivery schedules, Coulter manufactures and purchases goods for inventory and would not necessarily have an order from a customer when a radiator is produced and ordered from a supplier. Based upon past business data, Coulter has a reasonable expectation that it will continue to receive customer orders and must maintain inventory available to ship.

Consequently, Coulter would like to receive and store GSP-eligible radiators at a Customs bonded facility in Canada. Each radiator is individually packaged and marked with the country of origin. When received at the bonded facility, the radiators may be placed in inventory without payment of duty or immediately shipped in response to a pending order. As inventory is received at the bonded facility, it is marked with a label bearing the Coulter name and part number. We are informed that such labeling does not alter the product or packaging.

Upon receipt of an order from a customer in the U.S., a radiator would be removed from the bonded warehouse and transported to the U.S. under bond. When the shipment is entered with U.S. Customs, Coulter is the importer of record and, through a duly authorized agent, accepts responsibility for all Customs importation procedures, including payment of duty and fees, if applicable.

For purposes of this ruling, we assume the tariff classification of the subject merchandise is correct.

ISSUE:

Whether automotive radiators which are the "product of" Thailand are "imported directly" into the U.S. for purposes of the Generalized System of Preferences (GSP) when purchased by a Canadian firm and shipped to Canada for interim storage in a bonded warehouse for subsequent shipment to the U.S. in response to variable customer needs.

LAW AND ANALYSIS:

Under the Generalized System of Preferences (GSP), eligible articles the growth, product or manufacture of a 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 of value of material produced in the BDC, plus (2) the direct costs of the processing operations in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry into the United States.

The issue to be resolved is whether the radiators from Thailand are considered to be "imported directly" into the U.S. for purposes of GSP duty preference when they are exported from Thailand under contract from Coulter, shipped to Canada for labeling and storage in a bonded warehouse and subsequently entered into the U.S. under contract from Coulter to U.S. purchasers. Under 19 CFR 10.175(b), merchandise shipped from a BDC through any other country to the U.S. is "imported directly" if the merchandise does not enter into the commerce of any other country while en route to the U.S., and the invoices, bills of lading, and other shipping documents show the U.S. as the final destination.

In this instance, the initial contract of sale of the radiators will be between the Thai seller and Coulter, located in Canada. At the time of contract between the Thai manufacturer and Coulter, the subsequent contracts for sale to U.S. purchasers are not completed. Therefore, because the documents issued in Thailand show Canada as the final destination, not the United States, the radiators do not meet the requirements of 19 CFR 10.175(b).

However, subsection 10.175(d) states:

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.

This provision was added as an amendment to the definition of the term "imported directly" to expand the definition to allow articles to qualify for GSP treatment where such articles: (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 Treasury Decision (T.D.) 83-144, dated June 28, 1983. In T.D. 83-144, Cameroon wrapper tobacco was produced in Cameroon and the Central African Republic. The Cameroon wrapper was shipped from the beneficiary countries to a French customs bonded transit warehouse in Le Havre until the sale 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, sold 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 HRL 557921, dated July 27, 1994; HRL 557937, dated September 29, 1994); HRL 556373, dated January 17, 1992.

In the case under consideration, the radiators are shipped from a BDC to a bonded warehouse for labeling and storage and subsequently imported into the United States by Coulter for its customers. Because the radiators are stored in a Canadian bonded warehouse, they will remain under the customs authority of the intermediate country, as required by 19 CFR 10.175(d)(1). Because we are informed that the radiators will be withdrawn from storage in the bonded warehouse for shipment to the U.S. and that Coulter will be the importer of record for the merchandise upon importation into the U.S., it appears that the radiators will not enter the commerce of the intermediary country and that importation will result from the original commercial transaction between the importer and the producer, as required by 19 CFR 10.175(d)(2).

However, we are informed that upon arrival from Thailand at the bonded facility in Canada, the radiators will undergo a labeling operation which includes the placement of a label bearing the Coulter name and part number on the outside of each box. While section 10.175(c)(1)(iii), Customs Regulations (19 CFR 10.175(c)(1)(iii) specifically lists "affixing marks, labels, or other like distinguishing signs on articles or their packing," as a permissible operation, it is applicable only in instances where merchandise is shipped from a BDC to the U.S. through a free trade zone in another BDC(see 19 CFR 10.175(c)(1)(iii). Where, as here, merchandise is shipped from a BDC 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 merchandise may undergo only loading and unloading, and other activities necessary to preserve the articles in good condition, pursuant to 19 CFR 10.175(d)(3). Inasmuch as Canada is not a BDC, any labeling operation is outside the scope of activities permissible under the regulations and the radiators will not be eligible for preferential duty preference under GSP upon entry into the U.S.

HOLDING:

Based upon the information submitted, radiators shipped from Thailand through Canada, for storage and labeling in a bonded warehouse before importation into the U.S. will not satisfy the requirement of being "imported directly" into the U.S. under either 19 CFR 10.175(b) because the invoices and other documents do not show the U.S. as the final destination or 19 CFR 10.175(d) because labeling exceeds the scope of activities permissible under 19 CFR 10.175(d)(3). Accordingly, the merchandise will not be eligible for preferential duty treatment under GSP upon importation into the United States.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant
Director
Commercial Rulings Division

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