GSP Treatment of Articles Consolidated in a Non-Beneficiary Developing Country Free Trade Zone

HQ H238131 March 5, 2013 OT:RR:CTF:VS H238131 SEK CATEGORY: Classification Paul Fitzpatrick MIQ Logistics 20 Central Street, Suite 108 Salem, MA 01970 RE: GSP Treatment of Articles Consolidated in a Non-Beneficiary Developing Country Free Trade Zone Dear Mr. Fitzpatrick: This is in response to your request for a binding ruling on behalf of EZ-FLO International, Inc. (“EZ-FLO”) inquiring whether articles are “imported directly” for purposes of the Generalized System of Preferences (“GSP”), if they are produced in a beneficiary developing country (“BDC”), but shipped to a free trade zone in a non-BDC for consolidation prior to their importation to the U.S. FACTS: EZ-FLO manufactures plumbing products and distributes them to customers in the United States. EZ-FLO’s related company, Ningbo Rockwall Manufacturing International Co., LTD (“Rockwall”), is located in and operates a bonded warehouse within the Ningbo free trade zone in Ningbo, China. EZ-FLO uses Rockwall’s bonded warehouse to receive cargo from different countries, including China. Rockwall consolidates the various shipments into a single full container and forwards the consolidated shipment directly to one of five EZ-FLO distribution centers located in California, Texas, Florida, Illinois, or New Jersey, thereby reducing handling, ocean freight, and U.S.-inland freight costs. You state Rockwall does not repack, re-process, or relabel the cartons of cargo received in the bonded warehouse, and only receives cargo, inventories the cartons, and consolidates the on-forwarded shipments. The cargo is not changed in the warehouse, and retains its original labels, markings, and numbers. You state that in accordance with Chinese customs regulations, all cargo received by Rockwall in the Ningbo free trade zone must not enter the commerce of China and all inventories must be exported directly to other countries. EZ-FLO now wishes to consolidate in the Ningbo free trade zone cargo ordered from suppliers in Indonesia for delivery to the United States. ISSUE: Whether merchandise is “imported directly” for purposes of the GSP if consolidated with other merchandise in a non-BDC free trade zone prior to shipment to the U.S. LAW AND ANALYSIS: Under the GSP, eligible articles that are the growth, product or manufacture of a BDC which are imported directly into the customs territory of the U.S. from a BDC may receive duty-free treatment if the sum of (1) the cost or value of the materials produced in the BDC, plus (2) the direct costs of processing operations performed in such BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry into the U.S. 19 U.S.C. § 2463(a)(2)(A). Pursuant to General Note 4(a), HTSUS, Indonesia is a designated BDC for GSP purposes. For purposes of this ruling, we will assume that the plumbing products are GSP eligible, and that the 35 percent value-content requirement is satisfied. The issue in this case concerns whether the plumbing products manufactured in Indonesia are considered to be “imported directly” from Indonesia to the U.S. when they are shipped from Indonesia to a free trade zone in China, and subsequently entered into the U.S. The phrase “imported directly” from a BDC, for GSP purposes, is defined in section 10.175 of the Customs Regulations (19 CFR 10.175) as follows: Direct shipment from the beneficiary country to the United States without passing through the territory of any other country; or If the shipment is from a BDC to the U.S. through the territory of any other country, the merchandise in the shipment does not enter into the commerce of any other country while en route to the U.S., and the invoices, bills of lading, and other shipping documents show the U.S. as the final destination; or If shipped from the BDC to the U.S. through a free trade zone in a BDC, the merchandise does not enter into the commerce of the country maintaining the free trade zone, and The eligible articles must not undergo any operation other than: Sorting, grading, or testing, Packing, unpacking, changes of packing, decanting or repacking into other containers, Affixing marks, labels, or other like distinguishing signs on articles or their packing, if incidental to operations allowed under this section, or Operations necessary to ensure the preservation of merchandise in its condition as introduced into the free trade zone. Merchandise may be purchased and resold, other than at retail, for export within the free trade zone. For the purposes of this section, a free trade zone is a predetermined area or region declared and secured by or under governmental authority, where certain operations may be performed with respect to articles, without such articles having entered into the commerce of the country maintaining the free trade zone; or 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: Remained under the control of the customs authority of the intermediate country; 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 Were not subjected to operations other than loading and unloading, and other activities necessary to preserve the articles in good condition. In the instant case, the plumbing products are not shipped directly from Indonesia to the U.S.; therefore the shipment does not meet the “imported directly” requirement set forth in 19 C.F.R. § 10.175(a). Since the inquiry does not suggest that the invoices, bills of lading and other original shipping documents to be issued in the BDC will show the U.S. as the final destination, it does not appear that the shipment will meet the requirements of 19 CFR § 10.175(b). Since the importer intends to ship the plumbing products through China, the shipment will not be shipped through a free trade zone in a BDC, and therefore the shipment does not meet the requirements of 19 C.F.R. § 10.175(c). However, the plumbing products may satisfy the requirements for “imported directly” under 19 C.F.R. § 10.175(d). According to your submission, the plumbing products will be shipped from Indonesia to China where they will be stored in a bonded warehouse in a free trade zone. You state that the shipment will not enter the commerce of China, the non-BDC, and will not be subjected to activities other than loading and unloading. Customs has determined that as long as the free trade zone met the applicable definition for free trade zones in the GSP regulations, which required the region be “declared and secured by or under government authority,” the goods would be considered under the control of the customs authority while in the free trade zone. Headquarters Ruling Letter (“HRL”) 555039, dated June 16, 1989 (citing 19 C.F.R. § 10.175(c)). The goods in HRL 555039 were exported from a beneficiary country to a free trade zone in a non-beneficiary country to be consolidated with other goods. That is also the situation here. While no information concerning the extent of customs control over articles placed in the non-BDC free trade zone has been submitted, we find that if the Ningbo free trade zone meets the definition stated in 19 C.F.R. § 10.175(c), then the shipment will satisfy the “imported directly” requirements in 19 C.F.R. § 10.175(d). HOLDING: Based on the information presented, the plumbing products shipped from a BDC but placed in a free trade zone in a non-BDC prior to shipment to the U.S., where they will be subjected to no operations other than loading and unloading, will be considered “imported directly” from the BDC within the meaning of 19 CFR 10.175(d) provided the free trade zone meets the definition stated in 19 CFR 10.175(c)(3). A copy of this ruling letter 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 CBP officer handing the transaction. Sincerely, Monika R. Brenner, Chief Valuation & Special Programs Branch