Application for Further Review of Protest Number 2304-13-100102; Certificate of Origin; Originating Goods; Gas Turbine Parts; Disassembly, 19 CFR 181.132; Controverting a Consumption Entry to a TIB Entry; 19 C.F.R. § 10.31(g)

HQ H247308 December 15, 2016 OT:RR:CTF:VS H247308 RSD CATEGORY: Classification Port Director Customs and Border Protection P.O. Box 3130 Laredo, Texas 78044-3130 RE: Application for Further Review of Protest Number 2304-13-100102; Certificate of Origin; Originating Goods; Gas Turbine Parts; Disassembly, 19 CFR 181.132; Controverting a Consumption Entry to a TIB Entry; 19 C.F.R. § 10.31(g) Dear Port Director: This is in response to the application for further review of Protest Number 2304-13-100102, filed by counsel on behalf of Sulzer Turbo (Sulzer) concerning the denial of Protestant’s request for preferential tariff treatment under the North American Free Trade Agreement (NAFTA) for several sets of parts from a gas turbine electrical generating system that were imported for a repair through the Port of Laredo, Texas. In addition, Counsel also contends that Protestant should have been able to change the type of entry made for the imported turbine parts from a consumption entry to an entry made under a Temporary Importation Bond (TIB). We note that in the course of considering the protest, Protestant changed counsels. A telephone conference to discuss this matter was conducted with Sulzer’s counsel and several company officials on August 31, 2016. FACTS: The Protest record indicates that on February 9, 2012, Sulzer’s customs broker filed a consumption entry for gas turbine parts on Sulzer’s behalf. This entry was filed because a Mexican utility company, Comision Federal de Electricidad (CFE) shipped the gas turbine parts to Sulzer’s facility located in Houston, Texas. The particular merchandise at issue consisted of 16 sets of parts for a Siemens Westinghouse Model W501FD2 Gas Turbine (“Gas Turbine”). It is claimed that CFE originally purchased the entire gas turbine system, Model W501FD2, from Siemens Westinghouse Power Corporation in 2002 as part of an electric generation facility. According to the information contained in the protest file, the gas turbine system was originally imported into Mexico during 2003. CFE contracted with Sulzer to repair certain parts of the gas turbine. It removed these parts, identified by a serial number, from the gas turbine system and shipped them to Sulzer in the U.S. for repair. According to counsel, after Sulzer repaired the damaged parts, they were shipped back to CFE in Mexico on May 17, 2012. Sulzer submitted a document in which CFE certified the parts that it shipped to Sulzer were the original parts from the turbine machine that they had imported into Mexico in 2003, and that CFE only removed the parts from the turbine system for purposes of being repaired by Sulzer in the United States. The contract for service between CFE and Sulzer similarly describes the repair work to be performed on the parts. Sulzer repaired the parts in accordance with this contract and shipped the parts back to CFE in Mexico on May 17, 2012. CFE then incorporated the parts back into the gas turbine to the original configuration. Counsel states that at the time of entry of the turbine parts, Sulzer believed that they were U.S. origin goods because at the time CFE purchased the turbine from Siemens Westinghouse, Siemens had manufacturing facilities in the United States and Canada. Sulzer did not enter the merchandise under a TIB because it believed that the U.S.-origin goods were eligible for duty-free entry as American goods returned under subheading 9801.00.10 of the Harmonized Tariff Schedule of the United States (HTSUS). As such, Sulzer directed its customs broker to enter the parts for repair as a consumption entry under subheading 9801.00.10 HTSUS. However, the record indicates that Sulzer’s customs broker did not enter the parts under any Chapter 98, HTSUS provision. Rather, Sulzer’s Customs broker entered the parts as generator parts in subheading 8405.90.00, HTSUS. Because subheading 8405.9000, HTSUS, is a duty free provision, counsel states that no corrective action was taken to correct the entry into a Chapter 98 HTSUS entry. Nonetheless, subheading 8405.90.00, HTSUS, was an incorrect tariff classification provision; according to Sulzer’s counsel, the parts should have been classified in subheading 8411.99.9085, HTSUS, as turbine parts. On May 11, 2012, Sulzer received a Customs Border Protection (CBP) Form (CBPF) 28, which was a Request for Information from CBP regarding the classification of the imported parts. Specifically, CBP requested documentation accompanying the entry as well as descriptive or illustrative information regarding the nature and function of the imported parts. In response, Sulzer submitted a diagram of a single shaft gas turbine, which depicted a single shaft gas turbine of the type from which the imported parts had been removed and provided explanatory information for the parts comparable to the imported parts. Sulzer did not explain to CBP that the diagram it provided was for a General Electric Model MS5001 gas turbine even though the actual imported parts were from a Siemens Westinghouse Model W501FD2 gas turbine. Sulzer claims that at that time, it did not have a comparable diagram for the Siemens turbine, but subsequently Sulzer did provide CBP with a diagram for the Siemens turbine. Sulzer’s response neither detailed the errors in the classification of the entry, nor thoroughly explained the descriptive and illustrative literature it submitted. Despite the fact that the parts sent to Sulzer for repair were accurately identified as turbine parts on the commercial invoice and in the service contract, Sulzer’s customs broker still incorrectly described the parts as generator parts. Additionally, Sulzer later learned that the country of origin of the gas turbine and the parts imported for repair was Canada, not the United States as had been declared on the CF-7501 entry document. Sulzer claims that this error was not corrected in its response to the CF-28 because it believed that as Canadian origin, they would be eligible for duty-free treatment under the NAFTA. On July 11, 2012, CBP issued a CF-29 Notice of Action notifying Sulzer that because the parts were turbine engine parts properly classified under subheading 8411.99.9085, it was advancing the rate of duty on the Entry from free to a rate of 2.4 percent. CBP liquidated the entry on July 27, 2012. On September 7, 2012, Sulzer timely filed a protest disputing the demand for payment by U.S. Customs. In its protest, the company stated that the imported merchandise was eligible for a duty preference under NAFTA, and it was making a claim for preferential treatment of the parts. On October 30, 2012, CBP denied the protest in full. The protest denial indicated that the protest was improperly filed as a NAFTA post-importation claim under 19 U.S.C. 1514. It was further noted that the sole avenue to request NAFTA preference treatment would be a post importation NAFTA claim under 19 U.S.C. 1520(d). On October 10, 2012, Sulzer filed a post entry NAFTA claim asserting that the parts were entitled to NAFTA preferential treatment. Due to other errors in verbiage, Sulzer revised the claim in accordance with the Port’s instructions on December 7, 2012 as a claim filed under 19 U.S.C. 1520(d). Subsequently, your office conducted a NAFTA verification on the claim. On December 12, 2012, your office sent a CF 28 to CFE, the exporter shown on the certificate of origin, requesting supporting documentation for the NAFTA claim with a costed bill of materials, a written description of the manufacturing process, and a flowchart of the manufacturing process. CFE responded on December 17, 2012, by stating that since it was not the manufacturer of the original equipment, it was not able to submit the requested information. However, CFE did provide a certificate of origin from the manufacturer of the turbine system, Siemens Westinghouse, which was given to CFE for the blanket period from April 25, 2003 through April 25, 2004. The certificate of origin indicates that the country of origin of the turbine equipment was Canada. The certificate of origin from CFE that Sulzer originally submitted indicated that the gas turbine was classified in heading 8502, HTS. However, Counsel explains that this classification was incorrect because it was not for the gas turbine, but for a separately imported generator system that was connected to the turbine in Mexico, and that this classification was made pursuant to instructions that CFE received from Mexican Customs. Counsel further explains that the correct classification for the turbine system should have been heading 8411, HTS. In addition, Sulzer submitted a photograph of an identification tag from the turbine equipment that shows the words “Made in Canada”. On January 10, 2013, CBP sent another CF 28 to Siemens Westinghouse Power to verify the origin of the imported Gas Turbine Parts. After doing some research, the manager of Export Control and Customs for Siemens responded in a letter stating that Siemens Energy was not a party to the transaction under consideration and that the shipper used a Siemens Westinghouse NAFTA certificate of origin from 2003-2004 to substantiate a NAFTA qualification for an entry that took place on February 10, 2012. The Siemens manager also noted that it was an error for the shipper to use a NAFTA certificate with an incorrect classification of the imported merchandise. Because the importer of record should not have used the outdated and incorrect NAFTA certificate of origin, CBP issued a CF 29 Notice for the entry. The notice explained that the verification revealed that the goods did not qualify for NAFTA preferential treatment tariff treatment pursuant to General Note 12(b)(ii) to the HTSUS, and the entry was value advanced. On March 25, 2013, CBP denied the NAFTA claim stating that the information provided did not support the NAFTA claim. On April 16, 2013, Sulzer’s prior counsel submitted a Protest and Application for Further Review. ISSUES:     I. Whether the parts removed from the gas turbine equipment in Mexico and imported into and the United States for repair qualify for preferential tariff treatment under NAFTA. II. Whether the entry for the gas turbine equipment can be converted from an entry for consumption to a TIB entry pursuant to 19 CFR § 10.31(g).  LAW AND ANALYSIS: NAFTA Preference  General Note (“GN”) 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a)(ii) provides, in pertinent part: Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “MX” in parentheses, are eligible for such duty rate, in accordance with section 201 of the NAFTA Implementation Act.  Accordingly, the imported product will be eligible for the “Special” “MX” rate of duty provided it is a NAFTA “originating” good under GN 12(b), HTSUS, and qualifies to be marked as a product of Mexico under the NAFTA Marking Rules. GN 12(b), HTSUS, provides, in pertinent part: For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as goods originating in the territory of a NAFTA party only if—(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and /or the United States; or (ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that—(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or (B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.     In connection with a claim for preferential tariff treatment for a good under the NAFTA, a U.S. importer must make a formal declaration that the good qualifies for such treatment. Except in specified instances, the declaration must be based on a complete and properly executed original certificate of origin, or a copy thereof, which is in the possession of the importer and which covers the good being imported. See Section 181.21(a), CBP Regulations (19 CFR § 181.21(a)). Pursuant to 19 CFR § 181.22(b), an importer claiming preferential treatment shall provide, at the request of the port director, a copy of each certificate of origin pertaining to the goods in question. Thus, an importer is required to submit a certificate of origin which was in its possession at the time of importation to CBP upon request, in order to receive preferential tariff treatment. A certificate of origin shall be accepted by the port director as valid, provided that the certificate is completed, signed, and dated in accordance with the requirements of 19 CFR § 181.22(b). This section requires that the certificate of origin: be on CBP Form 434, another approved form, or in another format approved by CBP be signed by the exporter or by the exporter’s authorized agent having knowledge of the relevant facts; and, be in English or the language of the country from which the good is exported. See also 19 CFR § 181.22(c). In Headquarter Ruling Letter (HQ) 228506, CBP stated that “[t]he failure to supply promptly, within the 30-day period set in CF 28, a certificate of origin creates a rebuttable presumption that the importer did not have such a certificate of origin in its possession at the time of importation.” However, this presumption can be rebutted if the importer provides credible and sufficient evidence that the party had a valid certificate of origin in its possession at the time of the claim. See, e.g., HQ 561991, dated March 29, 2001. In this instance, Sulzer did not make a claim for NAFTA duty preference when it first filed its entry for the imported goods because it believed they were classified in an otherwise duty-free provision, or were of U.S. origin and would qualify for duty-free entry as American goods returned under subheading 9801.00.10, HTSUS. Eventually, Sulzer filed a post entry NAFTA claim asserting that the entry was entitled to NAFTA preferential treatment on October 10, 2012. Even if an importer fails to make a claim for NAFTA at the time of entry, it may claim NAFTA by filing a request under 19 U.S.C. § 1520(d). Specifically, that provision states in pertinent part that: Notwithstanding the fact that a valid protest was not filed, the Customs Service may . . . reliquidate an entry to refund any excess duties (including any merchandise processing fees) paid on a good qualifying under the rules of origin set out in section 202 of the North American Free Trade Agreement Implementation Act [19 USCS § 3332], . . . for which no claim for preferential tariff treatment was made at the time of importation if the importer, within 1 year after the date of importation, files, in accordance with those regulations, a claim that includes— It is not disputed that Sulzer made a timely claim for NAFTA pursuant to 19 U.S.C. § 1520(d). To make a 19 U.S.C. § 1520(d) claim, a valid certificate of origin is required to be filed. 19 CFR 181.32(b). In order to determine if Sulzer presented a valid claim for NAFTA preferential tariff treatment on the turbine parts under 19 U.S.C. § 1520(d), CBP initiated a verification. Section 181.71, Customs Regulations (19 CFR 181.71), provides as follows: …Customs shall deny preferential tariff treatment on an imported good, or shall deny a post-importation claim for a refund filed under subpart D of this part, only after initiation of an origin verification under section 181.72(a) of this part which results in a determination that the imported good does not qualify as an originating good or shall not be accorded such treatment for any other reason as specifically provided for elsewhere in this part. Furthermore, section 181.72(a), Customs Regulations (19 CFR 181.72(a)), provides as follows: …Customs may initiate a verification in order to determine whether a good imported into the United States qualifies as an originating good for purposes of preferential tariff treatment under the NAFTA as stated on the Certificate of Origin pertaining to the good. Such a verification (1) May also involve a verification of the origin of a material that is used in the production of a good that is the subject of a verification under this section;… In this instance, Sulzer did not present a valid NAFTA certificate of origin from the Mexican exporter of the turbine parts, CFE. The certification requirement is central to the implementation of NAFTA preference and it gives effect to the understanding by all three parties to the NAFTA that a claim for tariff preference must be based on knowledge that a good originates. This “knowledge” must be actual knowledge of the factual information that, under the post-entry verification procedures of the NAFTA, is sufficient to demonstrate that the specific rule of origin is satisfied, e.g., that the change in tariff and the regional value content requirements are, in fact, satisfied. Specifically, in this instance, when the Port attempted to verify the information contained on the certificate of origin that Sulzer submitted, the producer did not substantiate that the imported turbine parts were originating goods. Sulzer’s counsel contends the subject merchandise were parts from a gas turbine system that was a product of Canada made by Siemens Westinghouse, which CFE purchased and imported into Mexico in 2003. According to counsel, since the gas turbine was produced in Canada, it was NAFTA originating when it was imported into Mexico in 2003. Consequently, it is claimed that the parts removed from the gas turbine system should qualify as NAFTA originating. However, Sulzer did not present a valid certificate of origin from the actual exporter of the turbine parts. Instead, in order to show that they were NAFTA originating, Sulzer furnished a certificate of origin that CGE obtained from the manufacturer of the entire gas turbine system, Siemens Westinghouse, when the turbine system was imported into Mexico in 2003. This document indicates that the country of origin of the entire gas turbine system was Canada. There was also confusion whether the information on the certificate of origin was accurate. Your office notes that there were some discrepancies in the certificate of origin presented, including the HTSUS classification of the turbine parts as generator parts rather than as turbine parts. Counsel further explains at the same time when CFE imported the turbine produced in Canada into Mexico, it also imported a generator produced in the United States into Mexico, and that it received certificates of origin for both products. This caused confusion, because when Sulzer made its NAFTA claim, Sulzer mistakenly submitted a certificate of origin for the U.S. produced generator that CFE imported into Mexico rather than for the turbine that was produced in Canada. When your office attempted to verify the accuracy of the certificate of origin, Siemens indicated that it could not verify the contents of