Generalized System of Preferences (GSP); “imported directly” requirements; 19 CFR 10.175

HQ 561386 June 15, 1999 CLA-02 RR:CR:SM 561386 BLS CATEGORY: Classification Mr. Andrew Linley, President Alloy Wheels International (Canada) Ltd. 49 Truman Road Barrie, Ontario Canada L4M 6E7 RE: Generalized System of Preferences (GSP); “imported directly” requirements; 19 CFR 10.175 Dear Mr. Linley: This is in reference to your letter dated May 7, 1999, supplemented by a fax from your office dated May 28, 1999, requesting a ruling concerning the eligibility for duty-free treatment under the Generalized System of Preferences (GSP) of certain automotive wheels to be imported from South Africa. FACTS: Alloy Wheels International (Canada) Ltd. (“AWI”), has entered into an agreement with General Motors (“GM”) wherein AWI will supply aluminum wheels to support the Buick Model, Year 2000. Sales will range around 13,000 wheels per week and AWI will utilize its South African and Canadian facilities to achieve the required output. Under the arrangement with GM, the following procedures will be applicable with respect to the South African production: 1) Wheel shipment at the rate of 5,000 wheels per week shipped to Barrie, Canada. 2) Upon arrival in Canada the wheels will be unloaded from the sea container in their South African packaging and transferred to a Canadian bonded warehouse within AWI’s Barrie plant. 3) Every wheel is inspected for transportation damage. 4) Random checking of dimensional and adhesion checks will be performed to guarantee product is within specifications. - 2 - 5) Product is re-packed from AWI’s South African container onto GM- owned plastic containers as per arrangement. (This system is required by GM for all of its wheel suppliers.) GM’s containers will be returned empty to the plant in Barrie for reuse when the wheels are consumed in the U.S. 6) If during re-packing a part should be detected with transportation damage AWI would like to apply any one or more of the following processes: a) Deburring b) Light sanding c) Paint touch-up d) Reaming e) Polishing You also state that the shipments arriving in Canada are owned by AWI South Africa and will remain under AWI’s ownership until sale (to GM) in the U.S. You also orally advise that the documentation from South Africa including bills of lading will show Canada as the destination of the merchandise. ISSUE: Whether the shipments will be considered “imported directly” from South Africa, for purposes of determining whether the wheels will be eligible for duty-free treatment under the Generalized System of Preferences (GSP). LAW AND ANALYSIS: Under the GSP, eligible articles the growth, product or manufacture of a designated 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 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).  Under General Note 4(a), Harmonized Tariff Schedule of the United States (HTSUS), South Africa is designated as a beneficiary developing country for GSP purposes. For purposes of this ruling, we will assume that the articles are GSP eligible, are “products of” the GSP country, and the minimum local valuecontent requirement is - 3 - met. Therefore, provided the wheels are “imported directly” from South Africa, they will be entitled to duty-free treatment. The term "imported directly" from a BDC, for GSP purposes, is defined in section 10.175, Customs Regulations (19 CFR 10.175). 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 port 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.) 83144, dated June 28, 1983. In T.D. 83144, 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. - 4 - 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 HRL 560435 (February 5, 1998), radiators were shipped from a BDC to a bonded warehouse in Canada for labeling and storage and subsequently imported into the United States. Because the radiators were stored in a Canadian bonded warehouse, we found that they would remain under the customs authority of the intermediate country, Canada, as required by 19 CFR 10.175(d)(1). We also found that as the radiators would be withdrawn from storage in the bonded warehouse for shipment to the U.S. and that the importation resulted from the original commercial transaction between the importer and the producer, the radiators would not enter the commerce of the intermediary country, as required by 19 CFR 10.175(d)(2). However, as a result of the labeling operation, we stated the following: 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 C.F.R. §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. See also HRL 555181 dated June 16, 1989, where we held that quality control testing of phone equipment in an intermediate country (Singapore) constituted more than loading and unloading of the articles, for purposes of 19 CFR 10.175(d). Examples of activities that may be necessary to preserve merchandise in good condition include removal of dust that accumulates during shipment, ventilation, replacing damaged packing materials and containers and removal of units of the good that are spoiled or damaged and present a danger to the remaining units in the shipment.  In the instant case, inspection of the product for damage during transit would be permissible but repair of the wheels in Canada by deburring, sanding, painting, etc., would not be permissible as it would constitute activities beyond actual preservation of the merchandise. Checking the wheels for proper dimension and adhesion appears to be in the nature of quality control testing, which also is beyond the scope of permissible - 5 - activities. Re-packing is permissible only insofar as it is necessary to preserve the merchandise in good condition. There is no indication that the re-packing in this case, although required by GM, is related to preservation of the merchandise. Therefore, unless shown as warranted to preserve the merchandise, re-packing is not permissible. HOLDING: On the basis of the information provided, it is our opinion that the automotive wheels to be manufactured in South Africa (a BDC) and transported to Canada (a nonBDC) for re-packing, testing as to specifications, and possible repair of defects due to transportation damage will not be imported directly from the BDC into the U.S. and, therefore, will not qualify for dutyfree treatment under the GSP. A copy of this ruling 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