Protest 0401-08-100059; Generalized System of Preferences; Commingling

HQ H028813 October 30, 2008 OT-RR:CTF:VS H028813 GOB CATEGORY: Classification Port Director U.S. Customs and Border Protection 10 Causeway Street Boston, MA 02222 RE: Protest 0401-08-100059; Generalized System of Preferences; Commingling Dear Port Director: This is our decision in Protest 0401-08-100059, which was forwarded by your office for our review. Our ruling follows. FACTS: The evidence of record indicates the following. This protest concerns one entry of dried split crude fatty acid (coconut oil based fatty acid; hereinafter “COFA”) which was filed by Twin Rivers Technologies LP (“protestant”) on May 16, 2007 and liquidated on October 5, 2007. The protestant entered the COFA duty-free under the Generalized System of Preferences (“GSP”). After learning via Requests for Information (CBP Form 28’s) that COFA from the Philippines, a GSP-eligible country, was commingled with COFA from Malaysia, a non-GSP-eligible country, in storage tanks on the transporting vessel, your office liquidated the entry as non-GSP-eligible under subheading 3823.19.20, Harmonized Tariff Schedule of the United States (“HTSUS”) at a rate of duty of 2.3% ad valorem. The COFA from the Philippines and the COFA from Malaysia were commingled in three tanks of the transporting vessel because there was a shortage of storage tanks on the vessel. The commingling occurred when the COFA was laden on the transporting vessel in Malaysia. The protestant states that “[c]ompletely distinct and separate documentation exists for the two parcels” of merchandise. In this regard, the protestant has submitted the following documentation concerning the COFA which it states was laden on the subject vessel in the Philippines: purchase orders #24845 and #24845A dated March 16, 2007; commercial invoice #SINV0780560 dated March 25, 2007; ocean freight invoice #370737 dated April 3, 2007; and Intertek survey report dated March 26, 2007. This documentation supports the fact that 3,517.647 metric tons of COFA were purchased by the protestant and subsequently laden on the subject vessel in Batangas, Philippines on March 25, 2007. The protestant has submitted the following documentation concerning the COFA which it states was laden on the subject vessel in Malaysia: purchase order #24720 dated February 8, 2007; commercial invoice #SINV0780612 dated April 3, 2007; ocean freight invoice #370737 dated April 3, 2007; and SGS survey report dated May 4, 2007. This documentation supports the fact that 1,002.668 metric tons of COFA were purchased by the protestant and subsequently laden on the subject vessel in Pasir Gudang, Malaysia on April 2, 2007. ISSUE: Whether certain COFA laden on the transporting vessel in the Philippines, a GSP-eligible country, and later commingled with COFA laden on the transporting vessel in Malaysia, a non-GSP eligible country, 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 provision 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 (“BDC’s”). 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 Customs and Border Protection (“CBP”) Regulations at 19 CFR § 10.171-178. The Philippines 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”). Malaysia is not so designated. 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 3823.19.20, HTSUS (2007). 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 the Philippines; (2) meet the 35 percent value-content requirement; and (3) are “imported directly” into the United States. The issue for consideration is whether the subject COFA is considered to be the “growth, product, or manufacture” of the Philippines for the purpose of eligibility under the GSP. As indicated above, COFA from the Philippines was commingled with COFA from Malaysia in storage tanks on the transporting vessel. Generally, an article is considered to be the product of a BDC only if the article is the product of the BDC. See, for example, Treasury Decision 91-7, where Customs held that a set, mixture, or composite good classifiable in one HTSUS subheading will be eligible for GSP only if all of the items or components of the set, mixture, or composite good are considered products of the GSP. In the subject case, we have a mixture of COFA – some from the Philippines, a GSP-eligible country and some from Malaysia, a non-GSP-eligible country. Treasury Decision 91-7 militates in favor of the conclusion that the subject COFA is not eligible for GSP because the entire shipment of COFA, which is a mixture, is not from a GSP-eligible country. HQ 556193, dated December 23, 1991, involved the commingling of methyl tertiary butyl ether (“MTBE”) from a BDC with MTBE from non-BDCs aboard a vessel prior to the importation of the MTBE into the United States. Customs held that “. . . as the MTBE, in its condition as imported, will not be entirely the ‘product of’ a BDC, none of the MTBE will be entitled to duty-free treatment under the GSP.” HQ 556193 appears to be directly on point with the subject protest. In HQ 955203, dated June 2, 1994, which involved the commingling of goods under the United States-Canada Free-Trade Agreement Implementation Act (“CFTA” and NAFTA), Customs discussed the use of inventory management methods to ascertain the quantity of materials or goods that are “originating” for purposes of the CFTA and NAFTA. In HQ 955203, Customs permitted the commingling of goods in certain specified circumstances. We find that this ruling is not directly on point in that the CFTA and NAFTA specifically provide for the use of inventory identification. (See Schedule X to the Appendix to 19 CFR Part 181 with respect to the NAFTA and HQ 955203, where CBP stated: “. . . the approved method for purposes of implementing Paragraph 6 of Annex 301.2, CFTA, was an inventory identification based on FIFO.”) The GSP, on the other hand, has no provision for inventory management. In HQ 225891, dated February 23, 1996, Customs held that a ratio method, stated to be consistent with the average method for inventory management permitted in Schedule X to the Appendix to 19 CFR Part 181, for separating commingled products of a U.S. insular possession into dutiable and nondutiable categories was sufficient to constructively segregate under General Note 17, HTSUS, as long as the importer was responsible for the accuracy of the entry records and was responsible for the submission of the records to Customs in accordance with 19 U.S.C. §§ 1508 and 1509. Similar to HQ 955203, we find that this ruling is not directly on point with respect to the subject protest, as in HQ 225891 the goods remained a product of the insular possession. As indicated in the Facts section of this ruling, the COFA from the Philippines and the COFA from Malaysia were commingled in three tanks of the transporting vessel. Under the circumstances and based upon the facts and documentation presented, we find that the 3,517.617 metric tons of COFA laden in the Philippines and later commingled with COFA laden in Malaysia are not the growth, product, or manufacture of the Philippines for the purpose of eligibility under the GSP. Therefore, this COFA is not eligible for duty-free treatment under the GSP. HOLDING: The 3,517.617 metric tons of COFA laden in the Philippines and later commingled with COFA laden in Malaysia are not the growth, product, or manufacture of the Philippines for the purpose of eligibility under the GSP. Therefore, this COFA is not eligible for duty-free treatment under the GSP. You are instructed to deny 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