Protest 2002-06-100663; Caribbean Basin Economic Recovery Act; Subheading 9802.00.80, HTSUS; Computed Value

HQ H009613 April 4, 2008 OT-RR:CTF:VS H009613 GOB CATEGORY: Valuation Port Director U.S. Customs and Border Protection 1515 Poydras Street New Orleans, LA 70112 RE: Protest 2002-06-100663; Caribbean Basin Economic Recovery Act; Subheading 9802.00.80, HTSUS; Computed Value Dear Port Director: This is in response to the application for further review of Protest 2002-06-100663, received in your office on October 17, 2006, filed on behalf of Lear Kyungshin (“protestant”). This office received the protest on April 11, 2007. In response to our request for additional information, the protestant made a further submission of May 11, 2007. Our decision follows. FACTS: The protest concerns five entries of merchandise, four of which were filed on June 10, 2005 and the fifth filed on August 10, 2005. The protestant states in pertinent part as follows: Lear Kyungshin is an affiliate of Lear Corporation (Lear). Lear Kyungshin (LK) . . . imports wire harnesses from its overseas manufacturing facility in Honduras, Lear Kyungshin Honduras (LK HN), that are used in the assembly of automobile seats and seat assemblies. The wire harnesses at issue are all classified under subheading 8544.30.0000, of the Harmonized Tariff Schedule of the United States (HTSUS). . . . Lear and its customs consultants conducted an independent verification of prices charged from its affiliate in Honduras. The verification could not conclude that the prices charged were at arm’s length; accordingly, transaction value was deemed inappropriate. In addition, transaction value of identical or similar merchandise [section 402(c) of the TAA] is not available as LK HN does not sell merchandise to any other entities in the U.S. Under 19 CFR §151.101(c) [sic; 19 CFR § 152.101(c)], LK has exercised its option to apply the computed value method prior to the deductive value method. Accordingly, the correct method of appraisement for wire harness importations from LK HN by LK is computed value, in accordance with 19 CFR §152.106. [Footnote omitted.] . . . . . . [D]ue to an oversight, LK did not apply for Reconciliation …; and subsequently, certain entries occurring in 2005 were not appropriately flagged. Because of this inadvertence, the declared value at the time of entry was not true and correct. The incorrect value led to the overpayment of duties to CBP. . . . . . . In accordance with 19 CFR § 151.106 [sic; 19 CFR 152.106)], Lear and its customs consultants conducted a Computed Value analysis of LK HN’s actual 2005 production costs and determined the correct value of the imported wire harnesses. . . . The wire harnesses produced by LK HN incorporate a significant amount of Honduran origin components. As part of the valuation analysis, Lear conducted a thorough review of wire harness component values and identified certain wire harness part numbers that qualified for preferential treatment under the Caribbean Basin Initiative (CBI), which was in effect during 2005 for imports from Honduras. . . . The wire harnesses produced by LK HN also incorporate a significant amount of U.S. origin articles. During the analysis of 2005 production records, Lear discovered that the value of U.S. articles incorporated into the wire harnesses should have been correctly classified under the 9802 – U.S. Articles Assembled Abroad provision (19 CFR § 10.11 – 10.24). The subject articles meet the three-fold test to qualify for classification under Subheading 9802.00.80, HTSUS in that the articles . . . 1) were exported in condition ready for assembly without further fabrication, 2) have not lost their physical identity during the wire harness assembly operations, and 3) have not been advanced in value or approved in condition while abroad. With respect to its claimed computed value election, the protestant claims that during a formal compliance assessment in 2003 and 2004 Lear notified Customs and Border Protection (“CBP”) of its intention to appraise imported wire harnesses from Lear Honduras under the computed value method. The protestant states: Lear provided notification of the Company’s intention to appraise merchandise from Honduras under computed value prior to import of the goods. Notification was sent to . . . CBP’s Regulatory Audit Division, Ft. Mitchell, Kentucky, in a letter dated October 15, 2004. A copy of the letter was sent to . . . Lear’s CBP Account Manager based in New Orleans, Louisiana. Lear also submitted notification in an e-mail dated October 22, 2004 [to] CBP’s Regulatory Audit Division, Houston, Texas. . . . A copy of the October 22, 2004 email message is in the case file. In its May 11, 2007 submission, the protestant included a copy of a letter of October 15, 2004 from Lear Corporation (Headquarters, Southfield, Michigan) to the CBP Regulatory Audit Division in Fort Mitchell, Kentucky, in which Lear Corporation (“Lear”) stated in pertinent part as follows: . . . please note that we will not be submitting an internal advice request for the use of Transaction Value for Lear purchases from Lear Honduras. Our analysis of the operational and financial aspects of those transactions was less conclusive that Transaction Value is the appropriate valuation method. Accordingly, we are supplementing our current customs compliance program with controls and procedures to ensure the appropriate declaration under the computed value appraisement method. We are also using the ACS reconciliation program to ensure that all entries going back to January 2003 are liquidated at the appropriate computed values. In a Compliance Assessment Report of February 2, 2001, CBP Regulatory Audit concluded that computed value was the appropriate basis of appraisement. ISSUES: 1. Whether the protestant made a valid election to use computed value? 2. Whether the subject goods were eligible for treatment under the Caribbean Basin Economic Recovery Act (“CBERA”)? 3. Whether the subject goods were eligible for treatment under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (“HTSUS”)? LAW AND ANALYSIS: The protestant makes three basic claims: the goods qualify for treatment under CBERA; the goods qualify for treatment under subheading 9802.00.80, HTSUS; and the goods should be appraised by computed value as it exercised its option to apply the computed value method of appraisement prior to the deductive value method of appraisement. Protestant’s Computed Value Claim With respect to its claimed computed value election, the protestant states that it notified CBP of its intention to use computed value. Your office advised that it never received any notice from the protestant or from a CBP officer with respect to the protestant’s claimed election to use the computed value method before the deductive value method. The protestant states that after it performed an analysis of the prices charged, it determined that they were not charged at arm’s length, and that therefore the use of transaction value was not appropriate. Accordingly, it used computed value. We further note that CBP Regulatory Audit concluded in a Compliance Assessment Report of February 2, 2001 that computed value was the appropriate basis of appraisement. Section 152.102(c), CBP Regulations (19 CFR § 152.102(c)) provides in pertinent part as follows: The importer may request the application of the computed value method before the deductive value method. The request must be made at the time the entry summary for the merchandise is filed with the port director . . . While the documentation of record includes a copy of an email message of October 22, 2004 from Lear to CBP Regulatory Audit in Texas, the record does not include any documentary evidence that the protestant notified the port director in New Orleans of this election at the time the entry summary is filed, as required by 19 CFR § 152.102(c). Accordingly, we find that the protestant did not make a valid election. Nonetheless, given the Regulatory Audit assessment that computed value was the appropriate basis of appraisement, we find that the use of computed value may be appropriate. We are returning the protest file to you to fix the appraisement of the entries which are the subject of this protest, considering the audit findings. Protestant’s CBERA Claim Pursuant to 19 U.S.C. 2701, et seq., eligible articles the growth, product, or manufacture of a designated beneficiary country (“BC”), which are imported directly to the U.S. from a BC, qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or two or more BCs, plus (2) the direct costs of processing operations performed in a BC or BCs is not less than 35 percent of the appraised value of the article at the time it is entered into the U.S. 19 USC § 2703(a)(1). In addition, the cost or value of materials produced in the U.S. may be applied toward the 35 percent value-content minimum in an amount not to exceed 15 percent of the imported article’s appraised value. See 19 CFR § 10.195(c). Pursuant to General Note 7(a) of the HTSUS, Honduras was a BC for purposes of the CBERA at the time the subject entries were filed. The subject wire harnesses are classified in subheading 8544.30.00, HTSUS. Articles classified in this subheading are eligible for duty-free treatment under the CBERA. Therefore, the wire harnesses will receive duty-free treatment if they are considered to be the “product of” Honduras, the 35 percent value-content requirement is met, and they are “imported directly” into the United States. Where an article is produced from materials that are imported into the BC, the article is considered “the growth, product, or manufacture” of the BC, only if the imported materials are substantially transformed there into new and different articles of commerce. See 19 CFR § 10.195(a). Moreover, the cost or value of those imported materials may be included in calculating the 35 percent value-content requirement only if they undergo a “double substantial transformation” in the BC. That is, the foreign materials will be considered “materials produced” in Honduras only if they are substantially transformed in Honduras into a new and different intermediate article of commerce, which is then used in Honduras in the production of the wire harnesses. See 19 CFR § 10.196(a). A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, or use which differs from that of the original material subjected to the process. Texas Instruments v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982). In HQ 563086, dated November 22, 2004, in which Customs and Border Protection (“CBP”) responded to Lear Corporation’s request for a ruling that certain wire harnesses from Honduras qualify for duty-free treatment under CBERA, CBP stated: Based on the information provided, we determine that the copper wire, polyvinyl pellets, polyethylene pellets, PVC resins and electrical circuits undergo a double substantial transformation in Honduras and therefore, the cost or value of these materials may be included in calculating the value of the BC content. Furthermore, the wire harnesses which are “products of” Honduras will be entitled to duty-free treatment under the CBERA, assuming that the 35% value-content and “imported directly” requirements are satisfied. The documentation of record reflects that the subject goods were imported directly from Honduras. The remaining requirement is the 35 percent value-content requirement, described above. We have reviewed the documentation contained in the protestant’s May 11, 2007 submission, including the invoices and bills of materials. The protestant submitted a chart of the entries and the corresponding invoices and part numbers, as well as documentation concerning the direct costs of processing and information concerning direct labor, indirect labor, and salaries, etc. CBERA declarations were submitted by the plants, along with the bill of materials for the part numbers. Certificates of origin and manufacturer’s affidavits were submitted by the manufacturers. Based upon this information, the protestant prepared CBERA value-content calculations. We have reviewed some of these calculations for some part numbers and we concur that the value-content has been met. Therefore, based upon the information presented, we find that the protestant is entitled to preferential treatment under CBERA, provided your office is able to verify the value content for all entries which are the subject of this protest. Protestant’s Subheading 9802.00.80 Claim In its letter of May 10, 2007, the protestant states: “For items that do not qualify for CBI, Lear’s . . . system calculates the value of U.S. components for 9802 preferential treatment.” The protestant has submitted “9802 Declarations” for the various part numbers. The protestant also submitted its “Subheading 9802 Cost Submission Control Procedures.” Subheading 9802.00.80, HTSUS, provides a partial duty exemption for: Articles assembled abroad . . . in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating and painting. We have reviewed the documentation submitted by the protestant with respect to this claim, including the declarations prepared pursuant to 19 CFR § 10.24. We find that this documentation is sufficient to support its claim for eligibility under subheading 9802.00.80, HTSUS, with respect to goods for which treatment under CBERA is not permitted. Therefore, the protestant’s claim for subheading 9802.00.50, HTSUS, should be allowed, provided your office is able to verify the information for all entries which are the subject of this protest. HOLDINGS: We find that the subject merchandise may be appraised using computed value provided your office is able to determine that the analysis of the audit is consistent with the valuation of the entries presented. We find that the goods entered on the subject entries are eligible for treatment under CBERA, provided your office is able to verify the value content with respect to all entries presented, as described above. We find that the goods which are not eligible for treatment under CBERA are eligible for treatment under subheading 9802.00.80, HTSUS, provided your office is able to verify the pertinent information with respect to all entries presented. You are instructed to grant the protest consistent with these findings. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), please promptly mail this decision, together with the Customs Form 19, to the protestant, but in no event later than 60 days from the date of this letter. Any reliquidation of the entry 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 CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Myles B. Harmon Director Commercial and Trade Facilitation Division