Application for Further Review of Protest No. 5309-12-100681; GSP; Sufficiency of Documentation

HQ H242598 March 13, 2015 OT:RR:CTF:VS H242598 AJR CATEGORY: Classification Port Director U.S. Customs & Border Protection 2350 N. Sam Houston Pkwy East Houston, TX 77032 RE: Application for Further Review of Protest No. 5309-12-100681; GSP; Sufficiency of Documentation Dear Director: This is in response to an Application for Further Review (“AFR”) of Protest No. 5309-12-100681, timely filed on November 12, 2012, by counsel on behalf of the importer, [XXXX] (hereinafter, the "Protestant"), regarding the eligibility of imported biodiesel for duty-free treatment under the Generalized System of Preferences (“GSP”). The Protestant has requested that certain information be treated as confidential. Inasmuch as this request conforms to the requirements of 19 CFR §177.2(b)(7), the request for confidentiality is approved, except for the name of Argentina’s national energy company, because it is publically available. The information contained within brackets and all attachments to this protest decision, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling. FACTS: From September 23, 2008 to December 28, 2008, Protestant made seven biodiesel entries at the Port of Houston from various suppliers in Argentina claiming preferential tariff treatment under the GSP. In February of 2009, CBP issued a Request for Information (CBP Form 28) requesting Protestant provide documentation to substantiate its GSP claims. On May 18, 2010, after being granted an extension to respond, Protestant submitted supporting documents that included contracts, invoices, and calculations. Protestant also submitted certifications from the biodiesel suppliers. On April 27, 2012, CBP issued a Notice of Action (CBP Form 29) rate advancing the entries because documentation to substantiate the 35% direct costs of processing was not received. Your office states that Protestant only relies on the costs of one component, soybeans, to meet the 35% value-content requirement, and since the invoices for the cost calculations are in Spanish, they cannot be tied to the entries in question. Further your office states that no information pertaining to the country of origin for all the feedstock, inputs, and catalysts was provided. Protestant argues that it substantiated its GSP claims because it submitted sufficient documentation to show: (1) that biodiesel is mainly comprised from soybean oil, and likewise soybean oil from soybeans; and (2) that the process from soybean to soybean oil, and to biodiesel took place entirely in Argentina. In support of this argument, Protestant provided the following documents (collectively “Supporting Documentation”) from its five Argentinean Biodiesel suppliers, [XXXX] (“Supplier A”), [XXXX] (“Supplier B”), [XXXX] (“Supplier C”), [XXXX] (“Supplier D”), and [XXXX] (“Supplier E”), (collectively, “Biodiesel Suppliers”): Supporting Documentation Chart Supporting Documentation Third Entry, Line Item 1 Supplied by Supplier A Third Entry, Line Item 2 Supplied by Supplier C  Soybean Agro-Business Article: A scholarly article describing Argentina as the largest global exporter of soybean oil and denouncing allegations that Argentina imports biodiesel for re-export (“Soybean Agro-Business Article”). The Soybean Agro-Business Article applies generally to all entries. The Soybean Agro-Business Article applies generally to all seven entries.  Affidavits Claiming Origin: Certifications made by Biodiesel Suppliers, their affiliates, and Argentina’s national energy company, YPF, claiming that their biodiesel originated from Argentina, and was produced exclusively in Argentinean facilities from Argentinean produced soybean oil, Argentinean grown soybeans, and Argentinean produced methanol (“Affidavits Claiming Origin”). Supplier A certifies that biodiesel was produced from 100% Argentinean soybean, that the soybeans account for 80% of the biodiesel production costs, and that the entire production process took place in Argentinean facilities using Argentinean produced methanol. Supplier C certifies that biodiesel was produced from 100% Argentinean soybean, that the soybeans account for 80% of the biodiesel production costs, and that the entire production process took place in Argentinean facilities.  Soybean Invoices: Vendors: Invoices in Spanish reflecting soybean and soybean oil purchases made by Biodiesel Suppliers and their affiliates from Argentinean grain and oil vendors (“Soybean Invoices”). Quantity: Soybean Invoices showing that the quantity of soybeans or soybean oil purchased generally exceeded volumes well beyond 1,000,000 kilograms (kg). Dates: Soybean Invoices showing that the purchase date was a few months prior to the biodiesel imported by Protestant.  Soybean Invoice from Argentinean grain vendor, [XXXX], for soybeans sold to Supplier A’s affiliate, [XXXX]. Soybean Invoice shows that 2,600,000 kg of soybeans were sold to Supplier A’s affiliate, [XXXX]. Soybean Invoice is from August 19, 2008, and biodiesel was shipped on September 9, 2008.  Soybean Invoice from Argentine corridor, [XXXX], on behalf of grain vendor, [XXXX], for soybeans sold to Supplier C. Soybean Invoice shows that 485,270 kg of soybeans were sold to Supplier C. Soybean Invoice is from August 13, 2008, and biodiesel was shipped on September 12, 2008.  Methanol Invoices: Invoices in Spanish reflecting methanol purchases made by four of the Biodiesel Suppliers and their respective affiliates, from YPF, dated within months prior to corresponding biodiesel imported by Protestant (“Methanol Invoices”). Supplier A provides three invoices, dated in February of 2008, showing that YPF sold over 250,000 kg of methanol to Supplier A’s affiliate, [XXXX]. The invoice also references Supplier A. Supplier C does not provide a Methanol Invoice.  Production Process Documents: Biofuel Production Process: Documents describe how crude soybean oil is chemically neutralized, combined with methanol, catalyzed by Sodium Methylate, in a chemical transformation resulting in Methyl Esters (biodiesel) and a glycerol by-product (“Production Process Documents”). Location & Facilities: Production Process Documents from Biodiesel Suppliers indicate that their entire process, from soybean oil to biodiesel, takes place in [XXXX], Argentina. Affiliates: Production Process Documents showing companies affiliated with Biodiesel Suppliers (“Affiliates”).  Supplier A describes the collection of raw materials, pretreatment of soybean oil, transesterfication, storage and quality control. Includes diagram of the process. Supplier A describes its pretreatment plant, biodiesel plant, storage plant, production capabilities, facility size, tank sizes, and lists its address in Argentina. [XXXX] and [XXXX], two Argentine soybean oil refineries, own Supplier A through a joint venture.  Supplier C does not describe its biodiesel production process. Supplier C includes a picture of the plant, notes that it produces 6 million soybean tons per year, and lists its addresses in Argentina. Supplier C is affiliated with [XXXX], an oleochemical commodity company with various locations, including Argentina.  Production Records: Production: Internal records reflecting Suppliers daily biodiesel and soybean oil production volumes in metric tons (“MT”) (“Production Records”). Quantity: Production Records showing that the quantity of biodiesel produced aligns with the respective biodiesel imported by Protestant. Dates: Production Records showing that biodiesel was produced within weeks of the corresponding biodiesel imported by Protestant.  Supplier A produced [XXXX] MT of soybean oil and [XXXX] MT biodiesel from August 25, 2008 to September 9, 2008. Supplier A produced [XXXX] MT of biodiesel compared to [XXXX] MT of biodiesel in contract. Production was from August 25, 2008 to September 9, 2008, compared to shipment on September 9, 2008.  Supplier C produced [XXXX] MT of soybean oil and [XXXX] MT biodiesel from August 31, 2008 to September 10, 2008. Supplier C produced [XXXX] MT of biodiesel compared to [XXXX] MT of biodiesel in contract. Production was from August 31, 2008 to September 10, 2008, compared to shipment on September 12, 2008.  Biodiesel Invoices: Invoices from Biodiesel Suppliers to Protestant for the biodiesel purchased per the corresponding biodiesel contract (“Biodiesel Invoices”). Supplier A provides invoice from its marketing company, [XXXX] showing the purchase of [XXXX] MT of biodiesel, B100, by Protestant at a rate of $[XXXX] per MT for a total of $[XXXX] on September 10, 2008. Supplier A provides invoice from its Affiliate, [XXXX], showing the purchase of [XXXX] MT of biodiesel, B100, by Protestant at a rate of $[XXXX] per MT for a total of $[XXXX] on September 24, 2008.  Certificates of Origin: Biodiesel Suppliers provide certificates of origin for all seven entries, which match the respective contracts terms for biodiesel seen throughout Supporting Documentation (“Certificates of Origin”). Supplier A provides two GSP Certificates of Origin issued retrospectively by Argentina for two shipments of [XXXX] MT of biodiesel on the vessel, [XXXX], referencing two invoices from September 9 and 10 of 2008. The Certificates of Origin show [XXXX] and [XXXX] as the parties listed for “Good consigned from.” The issued dates are cut off, but both appear to be from September 2008. Both have a fax time stamp from October 3, 2008. Supplier C provides a GSP Certificate of Origin issued retrospectively by Argentina on September 25, 2008 for [XXXX] MT of biodiesel, B100, shipped on the [XXXX] vessel to Protestant in Houston, TX from [XXXX], Argentina on September 12, 2008.  Inspection Reports: Surveyor’s report, inspecting and certifying, quality and quantity of the biodiesel, made by independent company, [XXXX] (“Inspection Reports”). [XXXX] certifies that [XXXX] MT of biodiesel, B100, was shipped by Supplier A’s Affiliate, [XXXX], from [XXXX], Argentina to Houston, TX. The Inspection Report is from September 10, 2008. [XXXX] certifies that [XXXX] MT of biodiesel was shipped by Supplier C from [XXXX], Argentina to Houston, TX. The Inspection Report is from September 12, 2008.  Shipment Records: Shipment loading, shipment discharge, and charter party records reconciling the product, quantity, and dates between the biodiesel produced and the biodiesel imported by Protestant (“Shipment Records”). Supplier A provides Shipment Records showing that [XXXX] MT of biodiesel, B100, were loaded onto the [XXXX] vessel on September 9, 2008 for shipment to Protestant in Houston, TX from [XXXX], Argentina. Supplier C provides Shipment Records showing that [XXXX] MT of biodiesel, B100, were loaded onto the [XXXX] vessel on September 12, 2008 for shipment to Protestant in Houston, TX from [XXXX], Argentina.  Bills of Lading: Biodiesel Suppliers provide bills of lading for all seven entries, which match the respective contract terms for the biodiesel seen throughout Supporting Documentation (“Bills of Lading”). Supplier A provides Bill of Lading showing that [XXXX] MT of biodiesel, B100, was shipped by Supplier A’s Affiliate, [XXXX], from [XXXX], Argentina to Protestant in Houston, TX on September 9, 2008. Supplier C provides Bill of Lading showing that [XXXX] MT of biodiesel, B100, was shipped by Supplier C from [XXXX], Argentina to Protestant in Houston, TX, on September 12, 2008.  Biodiesel Contracts: Contracts between Protestant and Biodiesel Suppliers and their Affiliates for each of the seven entries by line item (“Biodiesel Contracts”). Protestant contracted with [XXXX] to supply [XXXX] MT of biodiesel fuel, FOB delivery from [XXXX] in Argentina on dates between August 23rd and September 23rd of 2008 at a rate of $[XXXX] per MT. Protestant contracted with [XXXX] to supply [XXXX] MT of biodiesel fuel, FOB delivery from [XXXX] or [XXXX] in Argentina on dates between September 1st and 30th of 2008 at a rate of $[XXXX] per MT.  Calculations: Calculations showing that the cost of the soybeans and soybean oil exceeds 35% of cost of the biodiesel per its corresponding Biodiesel Contract (“Calculations”). Using Argentine Nuevo Peso (ARS) paid per kg as shown in Soybean Invoices. Converting kg to MT (1000 kg equals 1 MT). Converting ARS to Dollars ($1 equals ARS 3.171). Biodiesel Suppliers estimate that 1,000 MT of soybeans yield a certain amount of soybean oil and biodiesel. Converting to price paid per 1,000 MT of soybeans by multiplying by 1,000. Dividing the price paid per 1,000 MT of soybeans by the amount of biodiesel yielded, in order to calculate the soybean cost required to produce biodiesel. Showing that the cost per MT of soybeans exceeds the price per MT of biodiesel in its corresponding Biodiesel Contract.  Supplier A’s Affiliate, [XXXX], paid ARS [XXXX] for [XXXX] kg of soybeans (ARS [XXXX]/kg). The conversion equals ARS [XXXX]/MT of soybeans. The conversion to dollars equals $[XXXX]/MT of soybeans. Supplier A claims that 1,000 MT of soybeans yields 169.90 MT of soybean oil and 166.50 MT of biodiesel. The conversion to 1,000 MT of soybeans equals $[XXXX] per 1,000 MT of soybeans. The soybean cost in each MT of biodiesel is $[XXXX] ($[XXXX] per 1,000 MT of soybeans divided by 166.50 MT of biodiesel yielded from 1,000 MT of soybeans). Per its contract, Protestant paid $[XXXX] per MT of biodiesel, which exceeds $[XXXX]/MT of soybeans that Protestant paid for biodiesel.  Supplier C paid ARS [XXXX] for [XXXX] kg of soybeans (ARS [XXXX]/kg]). The conversion equals ARS [XXXX]/MT. The conversion to dollars equals $[XXXX]/MT of soybeans. Cremer claims that 1,000 MT of soybeans yields 180.00 MT of soybean oil and 176.40 MT of biodiesel. The conversion to 1,000 MT of soybeans equals $[XXXX] per 1,000 MT of soybeans. The soybean cost in each MT of biodiesel is $[XXXX] ($[XXXX] per 1,000 MT of soybeans divided by 176.40 MT of biodiesel yielded from 1,000 MT of soybeans). Per its contract, Protestant paid $[XXXX] per MT of biodiesel, which exceeds $[XXXX]/MT of soybeans that Protestant paid biodiesel.  Calculations Article: Calculations using numbers, from the Argentine stock market and from a scholarly article about industrial oil and fat products that finds that 1 MT of soybeans yields about 18.5% soybean oil, to determine the biodiesel yielded from soybean oil and from soybeans, and the value of soybeans (“Calculations Article”). Imputing the yield estimate from the scholarly article to the stock market number to determine the value from soybeans. Calculating the value of soybean oil from soybeans by multiplying the value percentage by the cost of soybeans per MT of biodiesel produced. Showing that the value per MT of soybean oil exceeds the value per MT of biodiesel per its corresponding Biodiesel Contract.  Protestant uses these numbers to determine that soybean oil obtains 43% of its value from soybeans. If it cost Supplier A’s Affiliate, [XXXX], $[XXXX] per MT of soybeans, the value of the soybean oil derived therefrom is $[XXXX]/MT. If this imputed soybean oil value is $[XXXX]/MT, it amounts to 47% of the Biodiesel Contract price of $[XXXX]/MT.  Protestant uses these numbers to determine that soybean oil obtains 43% of its value from soybeans. If it cost Supplier C $[XXXX] per MT of soybeans, the value of the soybean oil derived therefrom is $[XXXX]/MT. If this imputed soybean oil value is $[XXXX]/MT, it amounts to 44% of the Biodiesel Contract price of $[XXXX]/MT.   Protestant contends that these aforementioned documents sufficiently substantiate the GSP claims for the seven entries. ISSUE: Whether Protestant submitted sufficient documentation to substantiate claims that the imported biodiesel was eligible for preferential treatment under the GSP. LAW AND ANALYSIS: Title V of the Trade Act of 1974, as amended (19 U.S.C.A. 2461-65), authorizes the President to establish a GSP to provide duty-free treatment for eligible articles 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 U.S. from the BDC and the sum or value of materials produced in the BDC plus 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(a)(2) and (3). The “produced in a BDC” requirement means that to receive duty free treatment, an article must either be made of materials “wholly the growth, product or manufacture of” the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.176(a). The regulatory language set forth in 19 CFR 10.176(c) states that “merchandise which is wholly the growth, product, or manufacture of a BDC […] shall normally be presumed to meet the requirements set forth in this section.” However, per Headquarters Ruling Letter (HQ) H013526, dated August 8, 2008, though the “normally be presumed” language from 19 CFR 10.176(c) implies that the 35% value-content requirement is normally met, 19 CFR 10.177(a) and 19 U.S.C. 2463(a)(2)(A) still require that the 35% value-content requirement be satisfied. It is not in dispute that the biodiesel was properly classified under a GSP-eligible provision; that Argentina is a designated BDC per General Note 4(a), HTSUS; or that the biodiesel was imported directly into the customs territory of the U.S. from Argentina. Rather the issue in this case concerns whether Protestant’s Supporting Documentation substantiates its claims that the seven biodiesel entries consisted of products that were “produced in” Argentina and met the 35% value-content requirement. Wholly the Growth, Product or Manufacture of BDC Counsel for Protestant argues that the imported biodiesel meets the “produced in a BDC” requirement because it was “wholly the growth, product or manufacture of” Argentina. Though the Supporting Documentation demonstrates that soybean oil and methanol were constituent materials used to produce the biodiesel, the Production Process Documents indicate that sodium methylate, caustic soda, hydrochloric acid, antioxidant additive, and other materials (collectively, “Other Materials”) were also used in the production process. No country of origin was provided for these Other Materials, and no specific support is provided for counsel’s claim that these Other Materials were not constituent materials in the production process. Section 10.177(b), Customs Regulations (19 CFR 10.177(b)) states that “[w]hen the origin of an article is not ascertainable […] the article shall not be considered to have been produced in the [BDC].” As a result, because we do not know where these Other Materials originated and because we cannot determine whether these Other Materials were constituent materials, we find that the biodiesel was not wholly grown, produced or manufactured in Argentina. Substantially Transformed in BDC In the alternative, counsel for Protestant argues that the imported biodiesel meets the “produced in a BDC” requirement because it was substantially transformed from soybeans into soybean oil, and then into biodiesel in Argentina. A substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982). In HQ H120923, dated November 22, 2011, a polyamide was held to originate in B