Protest 1601-07-100198; Generalized System of Preferences; Tebuthiuron Technical; Substantial Transformation

HQ H022286 July 10, 2008 OT-RR:CTF:VS H022286 GOB CATEGORY: Classification Port Director U.S. Customs and Border Protection 200 East Bay Street Charleston, SC 29401 RE: Protest 1601-07-100198; Generalized System of Preferences; Tebuthiuron Technical; Substantial Transformation Dear Port Director: This is in response to your memorandum of January 7, 2008, forwarding for our review the protest filed by Dow AgroSciences LLC (the “protestant”) with respect to the importation of tebuthiuron technical. Our decision follows. FACTS: The evidence of record indicates the following. By entry of October 10, 2005, the protestant imported a quantity of tebuthiuron technical (“teb-tech") under the General System of Preferences (“GSP”). The entry was liquidated on January 5, 2007. The protestant states that teb-tech is manufactured from the chemicals 5-(t-butyl)-2-methylamino-1,3,4-thiadiazole (“BTDA”), methyl isocyanate (“MIC”), and xylene. The protestant states that BTDA and MIC were manufactured in South Africa using materials of South African origin and materials imported into South Africa. Subsequent to the protestant’s initial protest submission, it submitted the following information and documentation with respect to BTDA: a supply agreement which indicates that certain BTDA, which is not the subject of this protest, was produced in South Africa and then supplied to an unrelated teb-tech producer in Brazil; a declaration, made under penalty of perjury by an official of the parent company of the protestant, supporting the fact that BTDA is produced in China by a party unrelated to the company which purchases it; and Patent 4,283,543, dated August 11, 1981, the background section of which provides in pertinent part that BTDA “can also be utilized as the starting material in a wide variety of reactions to provide useful end products, such as, for example, in the reaction with isocyanates to form ureas, with isothiocyanates to form thioureas, with organic acids and acid chlorides to form amides, with alkyl and aryl chloroformates to form carbamates, and with alkyl chlorides to form alkylated amines.” In addition to its original protest submission, the protestant made submissions of March 23, 2008, May 30, 2008, and June 13, 2008. A case conference was held in our office on May 8, 2008. ISSUE: Whether the teb-tech imported into the United States is eligible for treatment under the GSP? LAW AND ANALYSIS: Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. § 1514(c)(3). Title V of the Trade Act of 1974, as amended (19 U.S.C. §§ 2461-65), authorizes the President to establish a Generalized System of Preferences to provide duty-free treatment for eligible articles imported directly from beneficiary developing countries (“BDCs”). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the goods are imported directly into the customs territory of the United States from the BDC and the sum of the cost or value of materials produced in the BDC, or any two or more countries that are members of the same association of countries and are treated as one country under 19 U.S.C. § 2467(2), plus the direct costs of the processing operations performed in the BDC or member countries, is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the United States. See 19 U.S.C. § 2463(a)(2) and (3), and the implementing Bureau of Customs and Border Protection (“CBP”) Regulations at 19 CFR § 10.171-178. South Africa has been designated as a BDC for purposes of the GSP and may be afforded preferential treatment under the Harmonized Tariff Schedule of the United States (“HTSUS”). See General Note 4(a), HTSUS. General Note 4(b)(ii) and (c), HTSUS, provide, in part, that special tariff treatment under the GSP is indicated in the “Special” subcolumn in the tariff by the symbols “A,” “A*” or “A+.” The record indicates that the goods imported into the United States were classified under subheading 2934.99.90, HTSUS (2005). This tariff provision is GSP-eligible. Thus, the goods imported into the United States are eligible to receive preferential treatment under the GSP, if they (1) are considered to be a “product” of South Africa; (2) meet the 35 percent value-content requirement; and (3) are “imported directly” into the United States. A good is considered to be a “product of” a BDC if it is wholly the growth, product, or manufacture of a BDC, or has been substantially transformed in the BDC into a new or different article of commerce. See 19 U.S.C. § 2463(a)(3) and 19 C.F.R. § 10.177(a). The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character, and use, different from that possessed by the article prior to processing. See Texas Instruments v. United States, 681 F.2d 778, 782 (CCPA 1982). The teb-tech is a new and different article in comparison to the imported components from which it is made. Therefore, the teb-tech is a product of South Africa. Your office advises that the sole issue for our decision in this protest is whether the goods imported into South Africa were the subject of a “double substantial transformation” for the purpose of the 35 percent minimum value-content requirement. Under certain circumstances, the value of non-BDC materials may be included in the 35 percent minimum value-content requirement. In order for the value of these materials to be included, however, there must be a substantial transformation of the non-BDC material into a new and different article of commerce in a BDC (or other member of an association of countries treated as one BDC), which itself must then be substantially transformed in the BDC into a new and different article of commerce. These two substantial transformations are referred to as a “double substantial transformation.” That is, the non-BDC materials must be substantially transformed in South Africa into new and different intermediate articles of commerce, which are then used in South Africa in the production of the finished article, in this case, the teb-tech. See 19 C.F.R. § 10.177; see also Azteca Milling Co. v. United States, 703 F. Supp. 949 (Ct. Int’l Trade 1988), aff’d 890 F.2d 1150 (Fed Cir. 1989). In HQ 555403, dated June 6, 1990, CBP stated in pertinent part as follows: Under previous rulings involving the manufacture of products from chemicals, we have ruled that an intermediate created in a two (or more) step reaction process is an article of commerce if the intermediate is or can be isolated, and it has been or can be marketed in that form. . . . Conversely, where the manufacturing process, from starting materials to final product, is continuous, and no market exists for the intermediate in its refined form, we have held that the intermediate is not an “article of commerce.” … Similarly, where the evidence shows that an intermediate created in the course of a two-step reaction is not traded in commerce, is relatively unstable, and cannot be economically isolated for trade, we have ruled that the purported intermediate is no more than “a transitional stage which is always reacted to completion” of the final product, and not itself an independent “article of commerce.” In considering this protest, this office has consulted closely with CBP’s Laboratories and Scientific Services. We find that the MIC is a new and different article of commerce from the goods from which it was manufactured. This finding is consistent with the information which was developed prior to this office’s consideration of the protest. The remaining issue involves the BTDA. Based upon the facts presented, including the specific information with respect to the production and use of BTDA, we find that the BTDA is a new and different article of commerce from the goods from which it was manufactured. The BTDA was created by a chemical reaction. The protestant has submitted sufficient documentation for us to conclude that it can be isolated and that it has been, or may be, marketed in its form as manufactured. Based upon our findings that the MIC and the BTDA are new and different articles of commerce from the goods from which they are manufactured, along with our finding that teb-tech is a new and different article from the imported components from which it is manufactured, we determine that the value of the non-BDC materials may be included in the 35 percent minimum value-content requirement for the GSP (i.e., there has been a double substantial transformation in that the non-BDC materials were substantially transformed in South Africa into new and different articles of commerce which were then used in South Africa in the production of the teb-tech). HOLDING: The MIC and the BTDA are new and different articles of commerce from the goods from which they are manufactured and the teb-tech is a new and different article from the imported components from which it is manufactured. Therefore, the value of the non-BDC materials may be included in the 35 percent minimum value-content requirement for the GSP. You are instructed to grant the protest. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), 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 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