Eligibility of Loofa Rath Sponges Imported from Mexico for GSP and/or subheading 9802.00.50, HTSUS Treatment; Country of Origin Marking

HQ W555212 March 12, 1990 CLA-2 CO:R:CV:V W555212 BJO CATEGORY: Classification Mr. Edward J. Murray Director of Importing Allied of Chicago 190 Carpenter Avenue Wheeling, Illinois 60090 RE: Eligibility of Loofa Rath Sponges Imported from Mexico for GSP and/or subheading 9802.00.50, HTSUS Treatment; Country of Origin Marking Dear Mr. Murray: This is in response to your letters of May 19, 1988, October 28, 1988, June 13, 1989, and October 5, 1989, in which you request a ruling that loofa bath sponges which are produced in El Salvador, Republic of China, or Peoples Republic of China, and dipped in water, expanded, dried, and packaged in Mexico, are eligible for duty free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466, or for reduced duty treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). You have also requested a ruling that the country of origin marking of the submitted samples is adequate. We regret the delay in our response. FACTS: The loofa sponges will be made in Bl Salvador, China, or Taiwan. They will then be shipped from those countries to Laredo, Texas, where they will be entered for transportation and exportation under bond, or for immediate transportation under bond, to a Mexican Maquiladora operation in Nuevo Laredo. There, the sponges will be subjected to one of two processes. Some of the sponges ("flat sponges") will simply be placed in plastic bags, which will be heat sealed, packed in inner bags or cartons, and placed in a master carton for shipping to the U.S. Other sponges ("expanded sponges") will be expanded by being dipped in water, then left to dry in the open air, which allows any remaining seeds to fall. The expanded sponges will then be packaged in the same way as dry sponges, and both will be returned to the U.S. - 2 - On the back of each of the heat sealed plastic bags which contain the sponges will be marked the following legend: "Distributed by Paris Presents (Div. of Allied of Chicago), Wheeling, IL 60090. BATHTIME is a trademark of Allied of Chicago. Made in China. ®1986 A of C. Bag Printed in U.S.A." The shipping cartons will be marked "Packed in Mexico." You ask whether the heat sealed bag may be marked "Country of Origin­ Various," or "Country of Origin El Salvador, China, or Taiwan?" ISSUES: Whether sponges produced in a beneficiary developing country, shipped in bond through the U.S. to Mexico, where they are packaged, or wet, expanded, dried, and packaged, are imported directly for purposes of the GSP, or are eligible for reduced duty-treatment under subheading 9802.00.50, HTSUS, when returned to the U.S. from Mexico. Whether the country of origin marking of the bags is conspicuous within the meaning of 19 U.S.C. 1304. LAW AND ANALYSIS: Under the GSP, eligible articles which are imported directly into the customs territory of the U.S. from a designated beneficiary developing country (BOC) may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BOC, plus 2) the direct costs of processing operation in the BOC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See 19 U.S.C. 2463(b). For purposes of this ruling, we assume that the sponges are a GSP eligible article, and that the 35% value­ content requirement is met. El Salvador is a BOC; the People's Republic of China ("ROC") and Taiwan are not. Accordingly, products of the ROC and Taiwan are not eligible for duty-free treatment under the GSP. Under section 10.175(c), Customs Regulations (19 CFR 10.175(c)), an article is imported directly if shipped from the BOC to the U.S. through a free trade zone in a BOC, and the merchandise does not enter into the commerce of the country maintaining the free trade zone, nor undergo any operation other than sorting, grading, or testing, packing, unpacking, decanting - 3 - or repacking into other containers, affixing marks, labels, or other like distinguishing signs on the 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. A free trade zone is defined as "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 article having entered into the commerce of the country maintaining the free trade zone." 19 CFR 10.175(c)(S). In HQ 728811, dated December 13, 1985, we ruled that merchandise produced in a BDC, shipped in bond through the U.S. to Mexico for repacking under bond pursuant to the Maquiladora program, and exported to the U.S. was, for GSP purposes, imported directly, as that term is defined in 19 CFR 10.175(c). The Maquiladora program there was described as: "[A)pproved manufacturing or processing plants are set up within specific geographical zones. Materials, goods, and machinery in these plants are not subject to Customs duties by the Mexican authorities. The bonds secure the government against unauthorized entry into Mexican commerce of the above described items as well as the imported merchandise which is to be processed for exportation. Goods produced in these plants may be entered into consumption in Mexico upon payment of duties and taxes under certain conditions. Imported raw materials, parts, or components must be exported after 6 months, but this may be extended to 12 months. Machinery and equipment imported to be used in the plants are allowed to stay as long as the program for which they were approved is in effect. No taxes or duties are paid on the 'temporary importations' but the bond that is given must ensure their exportation. Among the various restrictions placed upon the products of these plants is that they cannot be withdrawn for consumption if they compete with similar products manufactured in Mexico." On the basis of that description, we found that the Maquiladora program fit within the definition of a free trade zone of 19 CFR 10.175(c). Assuming that the Maquiladora operation to which the sponges produced in El Salvador will be shipped meets the above description, we find that the dry sponges which are shipped from a BDC through the U.S. in-bond to Mexico for repacking in the Maquiladora operation and returned to the U.S. are likewise "imported directly" for purposes of the GSP. Note that an additional Certificate of Origin (Form A) must be presented to Customs when the articles are entered, which shall be prepared and signed by the person responsible for the articles in the free trade zone, or any person having knowledge of the facts, - 4 - describing the operations performed on the articles within the free trade zone. See 19 CFR 10.175(c)(4). The expanded sponges produced in El Salvador, which are subject to operations other than packing in Mexico -such as dipping in water, allowing to dry, removing seeds- are not imported directly for purposes of the GSP, for such operations exceed those permitted under 19 CFR 10.175(c). Accordingly, the expanded sponges will not be eligible for duty-free treatment under the GSP. Subheading 9802.00.50, HTSUS (formerly item 806.20, Tariff Schedules of the United States (TSUS)), provides a partial duty exemption to articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or alterations when returned to the U.S., provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. U.S. Note l(a), subchapter II, Chapter 98, HTSUS, provides that subchapter II (which includes subheading 9802.00.50, HTSUS) shall not apply to any article exported "[f]rom continuous customs custody with remission, abatement, or refund of duty." Merchandise entered for transportation and exportation, as here, is considered as remaining in customs custody while in the U.S. Therefore, because the sponges here are exported from continuous customs custody with abatement of duty, such articles are not eligible for entry under any of provisions encompassed by subchapter II, Chapter 98, HTSUS, upon their return to the U.S. Accordingly, neither the dry sponges nor the expanded sponges are eligible for reduced duty treatment under subheading 9802.00.50, HTSUS. Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires in general that all articles of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article will permit in such a manner as to indicate to an ultimate purchaser in the U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.4l(b), Customs Regulations (19 CFR 134.4l(b)), provides that the marking of an imported product must be conspicuous enough so that the ultimate purchaser will be able to find the marking easily and read it without strain. Because 19 U.S.C. 1304 requires articles of foreign origin to be marked with the country origin, it is not permissible, as you request, to mark the sponges either "Country of Origin­ Various" or "Country of Origin El Salvador, China, or Taiwan," - 5 - After examination of the submitted samples, we find that the marking contained on the heat sealed bags does not conform to the requirements of 19 U.S.C. 1304. Since the sponges will be delivered to the ultimate purchaser in the heat sealed bag, it is permissible to mark the bags with the country of origin. However, the marking on the submitted samples is not conspicuous. The words "Made in China" appear in lettering less than 1/16" high on the back of a bag at its bottom, and in the middle of a paragraph which contains other information, including numerous references to the U.S. and U.S. cities. In our view, the positioning of the marking on the package, coupled with the size of the lettering, render the marking not conspicuous within the meaning of 19 CFR 134.4l(b). In addition, if the master cartons are marked "Packed in Mexico," the country of origin of the sponges must also appear on the master cartons. See 19 CFR 134.46. CONCLUSION: Sponges which are shipped from the country of production through the U.S. in-bond to Mexico, where they are dipped in water to enlarge their size, dried, and returned to the U.S., are not eligible for duty-free treatment under the GSP. Sponges which are produced in El Salvador and shipped in-bond through the U.S. to Mexico, where they are packaged in a Maquiladora and returned to the U.S., are imported directly for GSP purposes, and are therefore eligible for duty-free treatment, provided the sponges are a GSP eligible article, and the 35% value-content requirement is met. Sponges produced in the ROC or Taiwan are not eligible for GSP duty-free treatment. None of the sponges produced in El Salvador, the ROC, or Taiwan are eligible for reduced duty treatment under subheading 9802.00.50, HTSUS. The country of origin marking of the submitted samples is not conspicuous within the meaning of 19 U.S.C. 1304. Sincerely, John Durant, Director Commercial Rulings Division