HQ 562462 - Application for Review and Protest No. 5201-02-100052; Eligibility of imported vehicle parts for preferential tariff treatment under the Generalized System of Preferences (GSP); No supporting documentation; Customs unable to determine origin of components used, nature of assembly operations, or verify costs of processing - United States International Trade Commision Rulings

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HQ 562462

October 22, 2002

CLA-02 RR:CR:SM 562462 KKV

CATEGORY: CLASSIFICATION

Port Director of Customs
6601 North West 25th Street
Miami, FL 33122

RE: Application for Review and Protest No. 5201-02-100052; Eligibility of imported vehicle parts for preferential tariff treatment under the Generalized System of Preferences (GSP); No supporting documentation; Customs unable to determine origin of components used, nature of assembly operations, or verify costs of processing

Dear Sir or Madam:

This is in response to your memorandum July 1, 2002, which forwards for our review an Application for Further Review of Protest No. 5201-02-100052. The protest, timely filed by Vastera Solution Services on behalf of Visteon Corportation, involves the eligibility of certain automotive parts for preferential tariff treatment under the Generalized System of Preferences (GSP).

FACTS:

At issue is the eligibility of twenty-one (21) entries of automotive parts for preferential tariff treatment under the GSP. The merchandise, imported from Brazil, was entered at the port of Miami from January 23, 2001, through February 3, 2001, and consists of three different types of motor vehicle parts, described as “Control Assembly A/C Blower Motor X200/DEW” (Part No. YW4H19E624AA), “Bracket & Processor Assembly Injector Control” (Part No. XC3F-12B635-AD) and “Receiver Assembly” (Part No. XS4F-18C838-AB). Nine of the entries were liquidated on December 7, 2001. The remaining twelve (12) entries were liquidated on December 12, 2001. The subject protest was timely filed on January 3, 2002.

ISSUE:

Whether the subject merchandise is eligible for preferential tariff treatment pursuant to the GSP.

LAW AND ANALYSIS:

Under the Generalized System of Preferences, 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. See section 10.176(a), Customs Regulations (19 CFR 10.176(a)). As provided in General Note 4(a), Harmonized Tariff Schedule of the United States (HTSUS), Brazil is a designated BDC.

General Note 3(a)(iii), Harmonized Tariff Schedule of the United States (HTSUS), states that special rates of duty under one or more of the special tariff treatment programs (including the GSP) apply to those products which are classified under a provision for which a special rate is indicated in the "Special" subcolumn and for which all of the legal requirements for such program(s) have been met. For an article to be eligible to receive duty-free treatment under the GSP, it must be imported from a designated BDC and classified under a tariff provision for which a rate of duty of "Free" appears in the "Special" subcolumn followed by the symbol “A” or “A*.”

It is uncontested that the three articles in question are classified in subheadings 9032.89.6025, 9032.89.6085 and 8527.21.1015, HTSUS. Articles provided for in these provisions are eligible for duty-free treatment under the GSP provided that they are a “product of” a BDC and meet the value-content requirement and are “imported directly” into the United States.

It is also uncontested that the articles were imported directly into the U.S. from Brazil. However, as noted, this is only one of several criteria for eligibility under the GSP. In addition to being “imported directly” into the U.S., the articles must be a “product of” a designated BDC in order to be eligible for preferential treatment under the GSP. Where an article is produced from materials imported into the BDC, the article is considered to be a “product of” the BDC for purposes of the GSP only if those materials are substantially transformed into a new and different article of commerce. See 19 CFR 10.177(a)(2) and Azteca Milling Co. v. United States, 703 F.Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989). The courts have stated that a substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Texas Instruments Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).

In addition to the “imported directly” and “product of” requirements, to be eligible for duty-free treatment under the GSP statute, merchandise must also satisfy a 35% value-content requirement. If an article consists of materials which are imported into a BDC, the cost or value of these materials may be counted toward the 35% value-content requirement only if they undergo a double substantial transformation in the BDC. Customs application of the double substantial transformation requirement in the context of the GSP received judicial approval in The Torrington Company v. United States, 8 CIT 150, 596 F.Supp. 1083 (1984), aff'd 764 F.2d 1563 (Fed. Cir. 1985). The Court of International Trade, after affirming Customs application of the double substantial transformation concept, said:

Regulations promulgated by Customs define the term “materials produced” to include materials from third countries that are substantially transformed in the BDC into a new and different article of commerce. 19 CFR 10.177(a)(2). It is not enough to transform substantially the non-BDC constituent materials into the final article, as the material utilized to produce the final article would remain a non-BDC material. There must first be a substantial transformation of the non-BDC material into a new and different article of commerce which becomes “material produced,” and these materials produced in the BDC must then be substantially transformed into the new and different article of commerce. It is noted that 19 CFR 10.177(a) distinguishes between “merchandise produced in the BDC” and the cost or value of the “materials produced in the BDC” which demonstrates the contemplation of a dual substantial transformation requirement.

Id. at 1086.

With regard to the “product of” and “value content” requirements, the Protestant’s request for further review may be disposed of summarily. The scope of review in this protest is on the administrative record, and the protestant has not presented sufficient documentary evidence to support its assertion of eligibility. Although neither the GSP Declaration nor the commercial invoices state that the imported articles are wholly the growth, product, or manufacture of Brazil, no details have been provided regarding the identity and country of origin of the component parts used to assemble the finished articles, nor has a description of the assembly operations been submitted detailing the nature of the operations performed upon the components/materials used. Moreover, the GSP Declaration, signed by an individual whose title and company of employment is not provided, is generic in nature: the document does not identify the number and date of the invoices pertaining to the articles in question, the quantity in which they were imported, nor provide any information regarding the description, production process or value of the Brazilian (or other BDC) materials used in their production, as required by 19 CFR 10.173(a)(1). Although protestant lists a sum representing the direct cost of processing for each type of automotive part, no further breakdown of that cost has been submitted. Lastly, we note that the declaration is signed by an individual whose title and company of employment is not provided.

In the absence of such information, we are unable to determine whether the imported articles are a “product of” Brazil or verify whether the value-content requirement has been satisfied. Accordingly, you are directed to deny the protest in full.

HOLDING:

Where insufficient information has been submitted to permit Customs to determine that an imported article is the “product of” a BDC and has met the 35% content-value requirement, the merchandise is not eligible for preferential tariff treatment pursuant to the GSP. Therefore, the protest should be denied in full.

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 mailed by your office to the protestant attached to the Form 19, Notice of Action, no later than 60 days from the date of this letter. Any reliquidation of the entries 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 Ruling Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Myles B. Harmon

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