Application for Further Review of Protest No. 1303-98-100259; marking duties; GSP; subheading 8517.80.20

HQ 561340 May 18, 1999 MAR-05 RR:CR:SM 561340 BLS CATEGORY: Marking CLASSIFICATION: 8517.80.20 Port Director U.S. Customs Service 40 South Gay Street Baltimore, MD 21202 RE: Application for Further Review of Protest No. 1303-98-100259; marking duties; GSP; subheading 8517.80.20 Dear Sir: This is in reference to an Application for Further Review of Protest No. 1303-98-100259, timely filed by Philips Electronics North America (“Philips”). Philips protests the increase in duties resulting from Customs denial of the claim for duty-free treatment under the Generalized System of Preferences (GSP) of certain “P-100-US/Screen Telephones” and the imposition of 10 percent marking duties. Philips also protests Customs classification of the merchandise under subheading 8517.80.1020, Harmonized Tariff Schedule of the United States (HTSUS). FACTS: A) Marking 1) May 29, 1997 - A shipment of screen telephones is imported through Baltimore. 2) June 12, 1997 - The merchandise is entered and a marking notice is issued by the port of Baltimore, with instructions to mark the outer cartons “Hungary.” Customs also located 800 uninvoiced parts in the shipment. Philips subsequently submitted the invoice and tendered duty for the parts. The merchandise is then moved to the consignee’s premises. 3) July 14, 1997 - The Customs officer telephonically discussed the marking requirements with Philips’ representatives. An extension of time to mark - 2 - is granted. Philips advises that most of the merchandise will be repackaged into properly marked cartons and a repackaging certificate will be filed. Philips also states that they do not wish to mark the loose components nor mark future shipments. Customs advises that the loose components are required to be marked separately as they were being sold or provided to customers individually as replacement parts for the telephones. Philips was also advised to obtain a ruling for future shipments. 4) July 16, 1997 - A memorandum from Philips to Emery Global Logistics states that "For customs purposes, the merchandise must be booked immediately and exported as soon as possible, The shipment must be certified by Customs in Section IV on the attached Notice to Mark/Redeliver. No other certification is acceptable!!" 5) July 17, 1997 - A shipment notification form indicates the loading date (7/18/97) for electrical equipment and sailing date (7/28/97) from Norfolk. 6) July 18, 1997 - A "Neptune Orient Line" bill of lading indicates the shipment of phones from Ohio, and via the vessel “Tokio Express” to Bremerhaven, Germany. 5) July 21, 1997 - On or about this date, Customs in Baltimore received a letter dated July 18, 1997, from Philips, stating that the company had decided to export the merchandise rather than mark. Included with the letter is the marking notice signed off by Philips certifying that the merchandise was to be exported. The date of Philips’ certification shown on the form is July 11, 1997. The box indicating the place of exportation was left blank. The Customs officer states that she was telephonically advised by Philips after receipt of the letter that the merchandise had been loaded on a vessel in Norfolk on July 18. 6) July 24, 1997 - The marking notice issued by Baltimore was presented to Customs in Norfolk bearing importer’s certification dated July 24 that the merchandise was to be exported from Baltimore on July 28. However, additional documentation presented to Customs in Norfolk reflected that the shipment was to be exported from Norfolk on July 28. Customs in Norfolk declined to sign off on the notice for the reason that the shipment had already been loaded on the vessel without Customs opportunity to examine it. B) GSP Claim  The GSP claim was denied because Customs in Baltimore determined that the 35% value-content requirement was not satisfied as the direct costs of processing - 3 - operations and cost or value of materials produced in Hungary totaled 18.58%. The protestant does not address this specific issue directly, but merely protests the total increase in duties. C) Classification The protestant entered the merchandise under subheading 8517.80.2000, HTSUS, duty-free under the GSP. As noted, Customs denied the claim for GSP, and classified the merchandise under subheading 8517.80.1020, HTSUS. ISSUES: 1) What is the classification of the imported screen telephones? 2) Whether the merchandise is entitled to duty-free treatment under the GSP. 3) Whether marking duties were properly assessed in this case. LAW AND ANALYSIS: A) Classification The protestant submitted Headquarters Ruling Letter (HRL) 956943 dated December 20, 1994, in connection with the classification issue. Customs held in this ruling that the subject P100 Screen Telephones were properly classifiable under subheading 8517.82.00 (subheading 8517.80.20 in 1997), HTSUS, which in 1994 provided for other electrical apparatus for line telegraphy. Your office concurs that the ruling is applicable to the subject merchandise. We agree. Accordingly, we find that the screen telephones are properly classifiable under subheading 8517.80.20, HTSUS. B) GSP 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 dutyfree 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 in the BDC, is equivalent to at least 35 percent of the appraised value of the article at the time of entry. See 19 U.S.C. 2463(b). Hungary is and was a designated BDC in 1997. See General Note 4(a), HTSUS. - 4 - As noted, the articles in question are classified under subheading 8517.80.20, HTSUS, a GSP eligible provision. Therefore, the imported article will receive dutyfree treatment if it is considered to be a "product of" Hungary and the 35 percent value content requirement is satisfied. Merchandise is considered the "product of" a BDC if it is either wholly the growth, product or manufacture of a BDC or has been substantially transformed there into a new or different article of commerce. Your office determined that the imported articles are a product of Hungary. You also determined that the value of the materials produced in Hungary plus the direct costs of processing represents 18.58% of the total appraised value. We note that this is almost 17% less than the minimum Hungarian value-content required under the statute. This determination is based on the information reflected on the GSP Declaration and the attached Parts List which is broken down to reflect the value of the Hungarian content. We have reviewed the cost data and concur with your calculations. As noted, the protestant does not specifically address the determination as to GSP entitlement, except to generally protest the increase in duties. Accordingly, as the 35 percent value-content requirement is not met, the merchandise is not entitled to duty-free treatment under the GSP. C) Marking Duties Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Section 304(h) (19 U.S.C. 1304(h)) provides that 10 percent marking duties shall be levied, collected and paid if an imported article is not properly marked with the country of origin at the time of importation and such article is not exported, destroyed or properly marked under Customs supervision prior to liquidation. Under this provision, such duties shall not be remitted wholly or in part nor shall payment thereof be avoidable for any cause. Part 134, Customs Regulations (19 CFR 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.51, Customs Regulations (19 CFR 134.51), provides that when articles or containers are found upon examination not to be legally marked, the port director shall notify the importer on Customs Form (CF) 4647 to arrange with the port director's office to properly mark the article or container or to return all released articles to Customs custody for marking, exportation or destruction. This section further provides that the identity of such imported articles shall be established to the satisfaction of the port director. - 5 - Section 134.52, Customs Regulations (19 CFR 134.52), allows a port director to accept a certification of marking supported by samples from the importer or actual owner in lieu of marking under Customs supervision if specified conditions are satisfied (i.e., the filing of a bond). In Headquarters Ruling Letter (HRL) 731775 (November 3, 1988), Customs ruled that two prerequisites must be present in order to assess marking duties under 19 U.S.C. 1304(h) (19 U.S.C. 1304(f) in 1988)). These two prerequisites are: 1) the merchandise was not legally marked at the time of importation, and 2) the merchandise was not subsequently exported, destroyed or marked under Customs supervision prior to liquidation. In its letter dated September 21, 1998, Philips states that after Customs had advised that marking of the containers alone would not comply with the marking requirements, it determined that marking of the articles would be too expensive and decided to export the merchandise. Philips states that it notified Customs telephonically on July 11, 1997, that it would export the articles under Customs supervision. Philips states that it instructed the freight forwarder (Emery Global Logistics) by memorandum dated July 16, 1997, to export the merchandise and get Customs certification. Philips states that this information was supplied to Customs in the letter of July 18, 1997, along with a copy of the certified marking notice, the shipper’s letter of instructions and the booking notice. A copy of the memorandum from Philips to Emery is submitted as confirmation of these instructions. Philips states that they discovered after export that Emery had failed to have the Customs inspector (in Baltimore) complete the bottom of the marking notices. As noted above, your office telephonically granted an extension of the time to mark on July 14, 1997. You also report several earlier conversations with Philips representatives in connection with the marking requirements. Accordingly, Philips statement that it advised Customs on July 11 of its intent to export the merchandise appears to be in conflict with the conversations reported by your office, as discussions were ongoing with Philips as to the marking requirements for the subject merchandise through July 14.  In the July 18 letter to Customs, Philips states that "all of the merchandise is being exported to satisfy the requirements of the notice." The memorandum to Emery was enclosed with the letter. However, on July 18 the merchandise was placed on board - 6 - the vessel in Norfolk without Customs knowledge and acceptance after shipment from Philips facility in Ohio. As noted above, the marking notice was subsequently presented to Customs in Norfolk on July 24, signed by a Philips representative on the same date, certifying that the merchandise was to be exported from Baltimore (presumably intended to be "Norfolk") on July 28. The Customs official in Norfolk refused to sign off on the notice as the shipment had already been loaded on the vessel without Customs opportunity to examine it. In the instant case, the shipment was not properly marked upon importation nor was it marked when it was transported from Philips’ facility. Thus, in an unmarked condition, the shipment entered the commerce of the U.S. as it was transported from the facility in Baltimore to Norfolk and laden on board the vessel for exportation without Customs certification. Accordingly, the two prerequisites to assess marking duties were present as the merchandise was not legally marked at the time of importation, and it was not subsequently exported, destroyed or marked under Customs supervision prior to liquidation. Whether the freight forwarder was negligent in not following protestant’s instructions is not relevant to the imposition of marking duties. Thus, if a violation of 19 U.S.C. 1304 is found, and the article is not exported, destroyed or properly marked under Customs supervision prior to liquidation, the assessment of marking duties is mandatory and can not be remitted or mitigated under 19 U.S.C. 1618, which applies only to Customs penalties. When Congress amended section 304 of the Tariff Act of 1930 it stated that: “[marking duties] which shall be deemed to have accrued at the time of importation, shall not be construed to be penal, and shall not be remitted wholly or in part nor shall payment thereof be avoidable for any cause.” Section 304(c) of the Customs Administrative Act of 1938. See also C.S.D. 9232 (April 6, 1992); (HRL) 734151 (April 6, 1992).  Accordingly, we find that the assessment of marking duties was proper in this case. - 7 - HOLDING: 1) The screen telephones are properly classifiable under subheading 8517.80.20, HTSUS. 2) As the 35 percent value-content requirement was not met, the merchandise is not entitled to duty-free treatment under the GSP. 3) The assessment of marking duties in this case was proper as the merchandise was not legally marked at the time of importation and the importer failed to export the merchandise under Customs supervision prior to liquidation. Accordingly, the protest should be denied in part and granted in part in accordance with the foregoing. In accordance with Section 3A(11)(b) of Customs Directive 099 3550065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or 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 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 methods of public distribution. Sincerely, John Durant, Director Commercial Rulings Division