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HQ 562112





June 8, 2001

CLA-2 RR:CR:SM 562112 TJM

CATEGORY: CLASSIFICATION

Port Director
US Customs Service
200 East Bay Street
Charleston SC 29401

RE: Protest and AFR No. 1601-00-100141, 1601-00-100143, 1601-00-100161; GSP; Ukraine; titanium dioxide; imported directly; 19 CFR 10.175(d).

Dear Port Director:

The above referenced protests were forwarded to this office for further review. We have considered the evidence provided and the points raised by your office and the protestant. Our decision follows.

FACTS:

This protest concerns the denial of the Generalized System of Preferences (“GSP”) duty-free treatment for titanium dioxide imported from Ukraine through Rotterdam, Netherlands. The protestant contends that the titanium dioxide was produced by a company located in Donetsk, Ukraine, and was shipped out of Odessa, Ukraine. The titanium dioxide is shipped to Rotterdam, Netherlands, and then to the United States. The protestant stated that it purchased the goods from a trading company in Austria.

The entry at issue for protest number 1601-00-100141 was made on July 1, 1999. The entry was liquidated on May 12, 2000. The product was classified in subheading 3206.11.0000 of the Harmonized Tariff Schedule of the United States (“HTSUS”) with a duty rate of 6% ad valorem. But, the protestant claims that the entry should have been duty-free under the GSP program. The protestant timely filed the protest on August 9, 2000. On August 15, 2000, your office requested the following information from the importer: 1) copy of invoice from Ukraine; 2) copy of through bill of lading; 3) purchase order and/or contract for the goods from Ukraine to the U.S. buyer; 4) proof of payment to manufacturer in Ukraine; 5) customs entry document and invoices with identifying purchase order number indicating receipt into and out of warehouse in Rotterdam.

In response to the Request for Information for the above entry, protestant submitted: 1) a commercial invoice (No. 9924) indicating an order with Privest of Vienna, Austria, and the purchaser as Special Material Company, New York, NY 10024 with the price as F.O.B. Rotterdam; 2) a European Community Certificate of Origin indicating the country of origin as Ukraine, destination as Special Materials Company, New York, NY, USA; 3) a letter from Bulkchart Services of Rotterdam, Netherlands, stating that the goods are a product of Ukraine, that they were shipped to Atlanta, USA, and that the goods did not enter the commerce of the Netherlands; and 4) a bill of lading by Interglobal Container Carriers indicating the port of discharge as Charleston, SC, place of delivery as Atlanta, GA, and the port of loading as Rotterdam, Netherlands.

The entry at issue for protest number 1601-00-100116 was made on August 3, 1999. The entry was liquidated on June 16, 2000, with a duty rate of 6% ad valorem. The protestant timely filed a protest on September 13, 2000. The protestant then submitted the following documents related to the August 3 entry: 1) commercial invoice (No. 9935) indicating the buyer as Special Materials Company in Cherry Hill, NJ, USA, and price as FOB Rotterdam; 2) an European Community Certificate of Origin indicating Ukraine as the country of origin, consignee as Special Materials Company of New York, NY, and Consignor as Bulkchart Services as agents for Privest GmBh of Vienna, Austria; and 3) a bill of lading by SSL Sea Shipping Lane indicating port of discharge as Charleston, SC, and port of loading as Rotterdam, Netherlands.

The entry at issue for protest number 1601-00-100143 was made on July 6, 1999. The entry was liquidated on May 19, 2000. The protestant timely filed the protest on August 15, 2000. The Customs Port Director requested similar supporting documents as noted above with the July 1, 1999, entry. The protestant submitted the following documents in related to the July 6 entry: 1) commercial invoice (no. 9925) indicating the buyer as Special Material Company in New York, NY 10024, and the price as FOB Rotterdam; 2) an European Community Certificate of Origin stating Ukraine as the country of origin for the goods and consignee as Special Materials Company of New York, NY; and 3) bill of lading by Yangming Marine Transport Corporation indicating the port of discharge as Charleston, SC and the port of loading as Rotterdam, Netherlands.

The protestant also submitted a corporate marketing document that explains the transaction structure of the goods at issue. I.T.A./Privest of Vienna, Austria, sources titanium dioxides from Krimititan, a Ukrainian producer of titanium dioxide. I.T.A./Privest is a Vienna-based trading house that also acts as a trade financing company in Ukraine. It maintains a permanent stock in Rotterdam. After an order is placed by a buyer, I.T.A./Privest distributes the product from Rotterdam or directly from Odessa, Ukraine.

In a letter dated October 23, 2000, Adam Feldman, an officer of Special Materials Company, which is the importer of the goods at issue, stated, in pertinent part, that :

This material was produced at the Krimtitan plant in Ukraine. We purchase the Ukrainian Titanium Dioxide from an Austrian Company that provides the financing for the facility in Ukraine. . . .In order to purchase the material, we placed an order with this Austrian trading company which in turn placed the order to the factory in Ukraine. The material was then shipped to the United States through Rotterdam. In order to reduce the cost of the freight, multiple containers were shipped to Rotterdam and our container was repacked in a container and sent to the United States. The repacking was done at Bulchart Services, a bonded warehouse in Rotterdam. (Emphasis added)

The protestant also submitted a bill of lading for what appears to be the original shipment of titanium dioxide from Ukraine to Rotterdam. The bill of lading indicates the port of loading as Odessa, Ukraine, and the port of destination as Rotterdam, Netherlands.

ISSUE:

Whether the merchandise in the entries subject to this protest were “imported directly” from Ukraine to the United States for purposes of the GSP.

LAW AND ANALYSIS:

Under the Generalized System of Preferences (“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 of 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(a)(2)(A). At the time of the subject entries, titanium dioxide was classified in a GSP-eligible provision, subheading 3206.11, HTSUS, and Ukraine was a designated BDC.

There appears to be no dispute in the protests under review that the imported product originated in Ukraine. Rather, the primary issue in these cases is whether the titanium dioxide (“TiO2”) was “imported directly” (as required by 19 U.S.C. § 2463(a)(2(A)) into the U.S. from a BDC. Section 10.175, Customs Regulations (19 CFR § 10.175) defines the term “imported directly” for purposes of the GSP program. Under 19 C.F.R. § 10.175(b), merchandise shipped to the U.S. from a BDC via an intermediary country 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.

However, in cases where the documents do not show the U.S. as a final destination, the provisions of section 10.175(d) may apply:

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 shipment upon arrival in the U.S. are imported directly only if they:

Remained under the control of the customs authority of the intermediate country; 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 Were not subjected to operations other than loading and unloading, and other activities necessary to preserve the article in good condition. (Emphasis added)

The specific factual situation which led to the creation of the above amendment to the “imported directly” definition was designed specifically to encompass the traditional marketing procedure established for “Cameroon wrapper tobacco.” See T.D. 83-144, dated June 28, 1983. 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. Customs determined that the 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. 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. The definition of “imported directly” in 19 C.F.R. § 10.175 recognizes that the complexity and exigencies of international trade often require shipments through an intermediary country.

HRL 559705, dated March 7, 1997, is similar to the case before us. HRL 559705 involved ferro chrome from Russia transported through Rotterdam, Netherlands and Antwerp, Belgium. In that case, the parent company purchased the ferro chrome from its subsidiary and producer in Russia. The ferro chrome was transported through Rotterdam, Netherlands, or Antwerp, Belgium, after which it was transported to the U.S. The contracts for the goods indicated delivery location of Rotterdam and invoices indicated that the goods were shipped from Rotterdam to the United States. In that case, quoting T.D. 83-144, dated June 28, 1983, we held that because the record established that the importation resulted from transactions between the U.S. importer and the parent company outside a BDC rather than between the U.S. importer and the producer in a BDC, the importation of the ferro chrome was not considered “imported directly” into the U.S. from a BDC.

In another similar case, HRL 559621, dated March 18, 1997, Customs ruled that magnesium produced in Russia was not “imported directly” for purposes of GSP requirements. In that case, the magnesium was shipped from Russia to Rotterdam, Netherlands, by an independent intermediary buyer of magnesium and not an agent of the Russian producer. The second shipping document indicated shipment from Rotterdam to Baltimore. The protestant in that case provided documentation that the goods were in a bonded warehouse in Rotterdam not having entered the stream of commerce. However, the basis for the denial of GSP duty exemption in HRL 559621 was the fact that the independent intermediary buyer in Cyprus was not an acting sales agent of the Russian producer as required by section 10.175(d)(2).

Additionally, in HRL 557933, dated September 26, 1994, Customs denied GSP duty exemption for methanol imported into the U.S. from Russia via Finland. In that case, it was our opinion that there was insufficient evidence to show that the product remained under the control of the customs authority of the intermediate country, as required by 19 C.F.R. § 10.175(d)(1).

In contrast, Customs has granted GSP duty-free treatment in cases of transshipment when the invoices, shipping documents, and other supporting documents showed the U.S. as the final destination for GSP eligible goods and the goods met the general requirements of the phrase “imported directly.” See HRL 560688, dated January 26, 1998; HRL 559535, dated September 20, 1996; HRL 560720, dated February 11, 1998; and HRL 556079, dated July 2, 1991.

In the instant case, the bill of lading for the original shipment from Odessa, Ukraine, shows Rotterdam, Netherlands, as the port of destination and not a port in the United States customs territory. Therefore, the provisions of 19 C.F.R. 10.175(b) do not apply and we therefore, turn to a consideration of the applicability of the provisions of 19 C.F.R. § 10.175(d). Section 10.175(d)(1) requires that the goods remain under the customs authority of the intermediary country. The protestant has provided a letter from its carrier/forwarder certifying that the goods did not enter the commerce of the Netherlands, goods were not changed or further processed while in the Netherlands, and that the goods were stored in a customs controlled warehouse in Rotterdam. However, despite your office’s request, the protestant has not provided any customs documents evidencing entry into and exit from a customs bonded warehouse in Rotterdam. In HRL 557933, we denied GSP duty exemption solely on the basis that customs documents to evidence compliance with this provision were lacking.

Section 10.175(d)(2) requires that the product did not enter into the commerce of the intermediate country and that the importation results from the original commercial transaction between the importer and the producer or the latter’s acting sales agent. In the instant case, an officer of the U.S. importing company admitted in the letter dated October 23, 2000, that the transaction was between it and the Austrian trading company. Additionally, the record before us does not provide any evidence that an agency relationship existed between ITA/Privest and Krimtitan in connection with the transactions under consideration. The protestant has not produced any contracts, purchase orders, or other supporting documents such as an agency agreement to show some type of an agency relationship. Furthermore, although the protestant submitted a corporate marketing document which describes the Austrian trading house as an investor in the Ukrainian producer, that is not sufficient evidence to establish an agency relationship between the two parties.

Documents to show that the importation is a result of an original transaction between Special Materials Co. and Krimtitan also are lacking. Furthermore, although your office requested evidence to show that the payment of the goods by the U.S. importer somehow related back to the Ukrainian producer or an offshore agent, none were provided. Similarly, in HRL 559621, we denied GSP exemption where Russian magnesium was shipped to the U.S. via Rotterdam and where the transaction was between the U.S. importer and an independent intermediary buyer in Cyprus. In that case, as in the case before us, sufficient evidence to show that an agency relationship existed between the intermediary buyer/broker and the producer in a BDC was lacking.

HOLDING:

For the reasons discussed above, the record before us in this case fails to establish that the goods in the entries subject to this protest were “imported directly” from Ukraine to the United States, as specified by 19 C.F.R. § 175. Therefore, the protest should be denied in full.

This decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. On that date, the Office of Regulations & Rulings will take steps to make the decision available to Customs Personnel and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act and other means of public distribution.

Sincerely,

John Durant
Director

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