Request for Internal Advice; Adorable Pillows F&R Corp.

HQ H270834 March 2, 2017 OT:RR:CTF:VS H270834 AJR Port Director U.S. Customs and Border Protection City View Plaza – Suite 3000 #48 Rd. 165 Km. 1.2 Guaynabo, PR 00968-8000 RE: Request for Internal Advice; Adorable Pillows F&R Corp. Dear Port Director: This is in response to the internal advice request, dated September 15, 2015, initiated on behalf of Adorable Pillows F&R Corp. (“AP”), concerning the eligibility for preferential tariff treatment of certain innerspring and foam products imported into Puerto Rico under the United States-Singapore Free Trade Agreement (“SFTA”) and the Dominican Republic-Central America-United States Free Trade Agreement (“DR-CAFTA”), as well as the proper appraisement method of the innerspring products. All confidential information included in this decision will be bracketed and redacted from the public version of this decision. FACTS: AP is a company located in Puerto Rico that supplies raw materials for the production of mattresses. AP acquires the raw materials primarily from Singapore and the Dominican Republic. At issue are two raw materials: uncovered innerspring units (“innersprings”) imported from Singapore; and foam imported from the Dominican Republic. On August 6, 2015, the Office of Regulatory Audit in Miami, Florida (“RA”), U.S. Customs and Border Protection (“CBP”), issued an audit report covering 20 entries of the subject innersprings and foam within the scope period of March 1, 2013, through September 30, 2014. Innersprings The subject innersprings were imported from Singapore into Puerto Rico under subheading 9404.29.90, Harmonized Tariff Schedule of the United States (“HTSUS”). AP states that Parfait International PTE. LTD. (“Parfait”) manufactured the innersprings in a factory in Singapore using non-originating steel wire and coils imported into Singapore from China. AP indicates that Parfait imported the steel wires from China under chapter 72, HTSUS, and steel coils from China under chapter 73, HTSUS. RA reviewed entry documents, commercial invoices, bills of lading, certificates of origin, payment records, and production records, among other documents, with regard to the imported innersprings. The entry documents showed that the subject innersprings had been imported from Singapore into Puerto Rico on the following dates: December 16, 2013 (“Innerspring Entry 1”); December 19, 2013 (“Innerspring Entry 2”); February 28, 2014 (“Innerspring Entry 3”); May 9, 2014 (“Innerspring Entry 4”); and, June 9, 2014 (“Innerspring Entry 5”). No entry documents were provided with regard to the materials that were imported into Singapore for the production of these innersprings. The production records for the innersprings indicate that Parfait obtained the materials to produce the innersprings from Foshan Jingxin Steel Wire & Spring Co., Ltd. (“Foshan”), a Chinese vendor of innersprings subject to Antidumping Duty (“ADD”) Order A-570-928. The documents associated with Innerspring Entry 1 show that 82 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per invoice 904 (“Innerspring Invoice A”). The production records indicate that Parfait used “steel wire & spring coils” purchased from Foshan per invoices JX20130827-1 (“Material Invoice A”) and JX20130827-2 (“Material Invoice B”) to produce the innersprings for Innerspring Entry 1. Material Invoices A and B show that Foshan sold 190 packages of “steel wire & spring coils” to Parfait on September 13, 2013, and shipped these materials from China to Singapore on September 17, 2013. The bill of lading corresponding to Material Invoices A and B shows that 190 packages of “steel wire & spring coils,” weighing [XXXX] kilograms (“kg”), were shipped from Foshan in China to Parfait in Singapore on September 17, 2013. The documents associated with Innerspring Entry 2 show that 81 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per invoice 904A (“Innerspring Invoice B”). The production records indicate that Parfait used the materials from Material Invoices A and B to produce the innersprings for Innerspring Entry 2 (i.e., 190 packages of “steel wire & spring coils,” weighing [XXXX] kg, purchased and imported from Foshan in China). The documents associated with Innerspring Entry 3 show that 68 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per invoice 1128 (“Innerspring Invoice C”). The production records indicate that Parfait used “steel wire & spring coils” purchased from Foshan per invoice JX20130929-1 (“Material Invoice C”) to produce the innersprings for Innerspring Entry 3. Material Invoice C shows that Foshan sold 82 packages of “steel wire & spring coils” to Parfait on October 17, 2013, and shipped these materials from China to Singapore on October 21, 2013. The bill of lading corresponding to Material Invoice C shows that 81 packages of “steel wire & spring coils,” weighing [XXXX] kg, were shipped from Foshan in China to Parfait in Singapore on October 28, 2013. The documents associated with Innerspring Entry 4 show that 91 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per invoice 21705 (“Innerspring Invoice D”). The production records indicate that Parfait also used the materials from Material Invoice C to produce the innersprings for Innerspring Entry 4 (i.e., 81 packages of “steel wire & spring coils,” weighing [XXXX] kg, purchased and imported from Foshan in China). The documents associated with Innerspring Entry 5 show that 164 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per Innerspring Invoice D and invoice 21706 (“Innerspring Invoice E”). The production records indicate that Parfait used “steel wire & spring coils” purchased from Foshan per invoices JX20140318-1 (“Material Invoice D”) and JX20140318-2 (“Material Invoice E”) to produce the innersprings for Innerspring Entry 5. Material Invoices D and E show that Foshan sold 164 packages of “steel wire & spring coils” to Parfait on April 7, 2014, and shipped these materials from China to Singapore on April 11, 2014. The bill of lading corresponding to Material Invoices D and E shows that 164 packages of “steel wire & spring coils,” weighing [XXXX] kg, were shipped from Foshan in China to Parfait in Singapore on April 13, 2014. RA found that the documentation submitted by AP did not substantiate the SFTA preference claims for these five innerspring entries. RA indicated that the documentation submitted by AP specifically, failed to demonstrate that the non-originating materials, purchased from an entity in China subject to an ADD order, were further processed into innersprings in Singapore. RA also noted that the certificate of origin for the innersprings did not indicate the classification, nor the applicable rule of origin under which the innersprings qualified as originating under the SFTA. AP disagrees with RA’s finding, arguing that the innersprings are a product of Singapore and eligible for preferential tariff treatment under the SFTA. In support, AP submitted the following documentation, using the invoices, bills of lading, and production records from Innerspring Entries 1 and 2 as representative samples: A business profile of Parfait with an address in Singapore, describing it as a manufacturer and wholesaler (general importer and exporter) of furniture springs and related products, and listing [XXXX] as the company’s contact person; A commercial invoice and packing list, dated December 6, 2011, and a bill of lading and certificate of origin, dated December 12, 2011, showing that Guangzhou Jin Yuan Ye Xing Trading Co. Ltd. in China sold and shipped two SX200 automatic spring assembly machines (“SX200”) to Parfait in Singapore for an FOB China price of $[XXXX]; A photograph, timestamped June 8, 2015, showing “SX200,” “ASSEMBLING MACHINE,” “SPARE PARTS,” and “SHAOXING HUAJIAN MATTRESS MACHINERY LTD” (“SHMM”) printed onto a flat surface with additional text printed in a foreign language underneath the text in English, as well as handwritten marks in a foreign language without translation; A product description and picture of the SX200 from SHMM’s website; Photographs, timestamped May 31, 2015, showing an office building and parking lot with a truck that has a Parfait logo; a directory listing Parfait and other companies, including one with “Singapore” in its name; and, four workers wearing shirts with a Parfait logo that are operating various equipment, including an assembly machine that appears to be processing innersprings; A list of procedures signed by [XXXX], listed as Parfait’s manager, describing the process that Parfait uses to manufacture the innersprings in Singapore with coils and wire imported from China; Timecards for two Parfait employees, covering a period from September 2, 2013, through April 30, 2014; Salary vouchers and payroll benefit payments for Parfait employees issued as a “RECORD OF PAYMENT” by the Central Provident Fund Board with an address in Singapore, covering a period from May 9, 2014, through May 11, 2015; and, Production records signed by [XXXX], listed as Parfait’s manager, showing: the amount of steel wire and steel coils received from Foshan per Material Invoices A and B; the amount of materials from Material Invoices A and B used to produce the innersprings for Innerspring Invoices A and B; the production rate employed by three Parfait workers to produce the innersprings for Innerspring Invoices A and B over a four week period; and, the remaining balance of steel wire and steel coils from Material Invoices A and B, not used for Innerspring Invoices A and B, that will be used for other customers. Additionally, in the course of reviewing AP’s financial documents, RA found that AP had made additional payments of $[XXXX] and $[XXXX] to Parfait, which exceeded the invoice prices for the innersprings by a total of $[XXXX]. AP argues that the value of the subject innersprings was properly declared under the transaction value because these additional payments to Parfait were only a guarantee for future production, and would ultimately be refunded to AP if not owed for production. In support, AP submitted e-mail correspondence, dated May of 2015, between Parfait’s representative, [XXXX], and AP’s representative, [XXXX], indicating that Parfait would deduct $[XXXX] from AP’s credit, leaving AP with $[XXXX] in credit. We note that the deducted credit and remaining credit, when added together, amount to a total of $[XXXX]. RA could not verify whether these additional payments pertained to the subject innersprings or another transaction as claimed by AP. As a result, RA concluded that AP had not provided sufficient information to support the declared value of the innersprings under the transaction value method of appraisement. In the course of evaluating this internal advice, the Port of San Juan provided additional information as to the innerspring transactions and Parfait’s facility in Singapore. Particularly, two versions of the same bank statement were provided, the first blocking a description, and the second without the description blocked. In comparing these two versions of the same bank statement, it is unclear whether the description that is being blocked is the same description that is revealed in the unblocked version. Furthermore, through its additional research into this matter, CBP was unable to confirm the existence of Parfait’s facility in Singapore. Foam The subject foam was imported from the Dominican Republic into Puerto Rico under subheading 3921.13.50, HTSUS. AP states that Gomas y Plasticos S.A. (“Gomas”) produced the foam in a factory in the Dominican Republic using chemicals that were imported into the Dominican Republic from Bayer Material Science LLC in the United States (“Bayer US”) and Bayer Material Science AG in Germany (“Bayer Germany”). According to AP, the imported chemicals consisted of Desmodur T80 (“DT80”), classified under subheading 2929.10, HTSUS, and Arcol polyol F-3040 (“APF3040”), classified under subheading 3907.20, HTSUS. RA reviewed entry documents, commercial invoices, bills of lading, certificates of origin, payment records, and production records, among other documents, with regard to the subject foam. The entry documents showed that the subject foam had been imported from the Dominican Republic into Puerto Rico between May 10, 2013, and August 11, 2014. The documentation also included customs and commercial records pertaining to the DT80 and APF3040 that Gomas imported from Bayer US and Bayer Germany into the Dominican Republic for the production of the subject foam. RA found that the documentation submitted by AP did not substantiate the DR-CAFTA preference claims for ten foam entries. RA indicated that AP had not demonstrated that the non-originating DT80 and APF3040 were further processed into foam in the Dominican Republic. RA also noted that it was unclear whether Gomas was actually capable of producing the subject foam. AP disagrees with RA’s finding, arguing that the subject foam entries are products of the Dominican Republic. In support, AP submitted representative documentation, primarily concerning the entries dated: January 17, 2014 (“Foam Entry 1”); March 24, 2014 (“Foam Entry 2”); April 25, 2014 (“Foam Entry 3”); June 12, 2014 (“Foam Entry 4”); and, August 11, 2014 (“Foam Entry 5”). The documents associated with Foam Entry 1 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001181 (“Foam Invoice A”). The corresponding DR-CAFTA Certificate of Origin, dated January 14, 2014, references Foam Invoice A. The corresponding bill of lading, dated January 16, 2014, also references Foam Invoice A, along with the same identifying label and weight of the foam imported under Foam Entry 1. The production records indicate that Gomas produced the foam entered under Foam Entry 1 with the DT80 it had purchased from Bayer Germany per invoice 802E036027, and with the APF3040 it had purchased from Bayer US per invoices 880E029418 and 880E029419 (collectively, “Bayer Invoices”). The Bayer Invoices and corresponding bills of lading show that Gomas purchased [XXXX] kg of DT80 from Bayer Germany and [XXXX] kg of APF3040 from Bayer US between March and April of 2014, and imported these materials into the Dominican Republic during that time. Entry documents were also submitted with regard to the Bayer Invoices, indicating that the customs administration of the Dominican Republic processed the entry of [XXXX] kg of DT80 from Bayer Germany and [XXXX] kg of APF3040 from Bayer US into the Dominican Republic during March and April of 2014, and charged duties and customs fees on these importations. The documents associated with Foam Entry 2 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001265 (“Foam Invoice B”). The corresponding DR-CAFTA Certificate of Origin, dated March 21, 2014, references Foam Invoice B. The corresponding bill of lading, dated March 23, 2014, also references Foam Invoice B, along with the same identifying label and weight of the foam imported under Foam Entry 2. The production records indicate that Gomas also produced the foam entered under Foam Entry 2 with the DT80 and APF3040 it had purchased per the Bayer Invoices. The documents associated with Foam Entry 3 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001311 (“Foam Invoice C”). The corresponding DR-CAFTA Certificate of Origin, dated April 24, 2014, references Foam Invoice C. The corresponding bill of lading, dated April 27, 2014, also references Foam Invoice C, along with the same identifying label and weight of the foam imported under Foam Entry 3. The production records indicate that Gomas also produced the foam entered under Foam Entry 3 with the DT80 and APF3040 it had purchased per the Bayer Invoices. The documents associated with Foam Entry 4 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001373 (“Foam Invoice D”). The corresponding DR-CAFTA Certificate of Origin, dated June 10, 2014, references Foam Invoice D. The corresponding bill of lading, dated June 12, 2014, also references Foam Invoice D, along with the same identifying label and weight of the foam imported under Foam Entry 4. The production records indicate that Gomas also produced the foam entered under Foam Entry 4 with the DT80 and APF3040 it had purchased per the Bayer Invoices. The documents associated with Foam Entry 5 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001423 (“Foam Invoice E”). The corresponding DR-CAFTA Certificate of Origin, dated July 29, 2014, references Foam Invoice E. The corresponding bill of lading, dated August 10, 2014, also references Foam Invoice E, along with the same identifying label and weight of the foam imported under Foam Entry 5. The production records indicate that Gomas also produced the foam entered under Foam Entry 5 with the DT80 and APF3040 it had purchased per the Bayer Invoices. In addition to the documents referenced above, AP submitted the following documents in support of its claim that the subject foam entries were products of the Dominican Republic: Printouts of the Gomas website showing the location of the company in the Dominican Republic, the separate company divisions for foam and plastic, the equipment used in the foam division’s factory, and the foam produced in the foam division’s factory; Commercial invoices issued by Bayer US indicating that [XXXX] kg of DT80 and [XXXX] kg of APF3040 were sold and shipped from the United States to Gomas in the Dominican Republic during October, November, and December of 2013; Entry documents indicating that the customs administration of the Dominican Republic processed the entry of [XXXX] kg of DT80 and [XXXX] kg of APF3040 from the United States into the Dominican Republic during November and December of 2013, and charged duties and customs fees on these importations; Production records, signed by the International Sales Manager for Gomas, showing: that over [XXXX] kg of DT80 and APF3040 were received by Gomas from Bayer US and Bayer Germany per the Bayer Invoices; that [XXXX] kg of APF3040 and [XXXX] kg of DT80 from the Bayer Invoices were mixed with [XXXX] kg of water to produce the foam for AP per Foam Invoices A, B, C, D, and E; the production rate employed by four Gomas workers to produce the foam, along with the duties of the workers; and, A video flash drive showing how foam is produced at the Gomas factory in the Dominican Republic, and a newspaper from the Dominican Republic, dated July 20, 2015, to evidence when the video was taken. In the course of evaluating this case, CBP sought comment from the National Commodity Specialist Division (“NCSD”) as to the materials and process involved in manufacturing foam. Research by the NCSD’a National Import Specialist responsible for polymer products, such as foam, indicated that the foam at issue could be manufactured in the manner described by Gomas. According to AP, the submitted documentation substantiates the SFTA claims and transaction value appraisement for the imported innersprings, and the DR-CAFTA claims for the imported foam. The Port of San Juan seeks advice to determine the eligibility of the innersprings under the SFTA, the proper me