GSP Treatement of Pencils Shipped Through a Non-Beneficiary Developing Country Free Trade Zone

N306834 November 15, 2019 CLA-2-96:OT:RR:NC:N4:462 CATEGORY: Classification Ms. Lina Chandra Bangkit USA Inc. 10511 Valley Boulevard El Monte CA, 91731 RE: GSP Treatement of Pencils Shipped Through a Non-Beneficiary Developing Country Free Trade Zone Dear Ms. Chandra: In your letter dated September 26, 2019, you requested a ruling on whether pencils, produced in a beneficiary developing country (“BDC”), but shipped to a free trade zone in a non-BDC prior to their importation to the U.S., qualify for preferential treatment under the Generalized System of Preferences (GSP). You submitted representative samples of each of the pencils. The first sample is identified as SKU 763 and consists of a #2 yellow pencil (12 pack). The second sample is identified as SKU 761 and consists of a pre-sharpened #2 pencil (12 pack). The third sample is identified as SKU 765 and consists of a pack of 12 colored pencils. These samples will be retained in our office. Based on your letter, the pencils are manufactured in Pakistan. The wood to make the pencils is imported from Russia and China, the lead and the paint are produced in Pakistan. 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, Pakistan is a designated BDC for GSP purposes. Based on the information provided, the pencils are GSP eligible since the 35 percent value-content requirement is satisfied. The issue in this case concerns whether the pencils manufactured in Pakistan are considered to be “imported directly” from Pakistan to the U.S. when they are shipped from Pakistan to a free trade zone in Dubai, 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 C.F.R 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 pencils were not shipped directly from Pakistan 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 bill of lading issued in the BDC does not show the U.S. as the final destination, the shipment does not meet the requirements of 19 CFR § 10.175(b). In addition, because the pencils will be shipped through the free trade zone at the Jebel Ali Port in Dubai, 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 pencils appear to satisfy the requirements for “imported directly” under 19 C.F.R. § 10.175(d). According to your submission, the pencils are shipped from Pakistan to Dubai 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 Dubai, 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 and HRL H238131, dated March 5, 2013 (citing 19 C.F.R. § 10.175(c)). Based on the information presented, the pencils shipped from a BDC, but placed in the Jebel Ali Free Trade Zone 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 C.F.R. 10.175(d). This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177). If you have any questions regarding the above, contact National Import Specialist Sandra Sary at sandra.sary@cbp.dhs.gov. Sincerely, Steven A. Mack Director National Commodity Specialist Division