CLA-2 CO:R:CV:V 555181 BJO
Mr. John H. Nessley
President
Edward S. Zerwekh Company
P.O Box 368
Wilmington, California 90748
Re: GSP Treatment of Telephone Answering Equipment
Dear Mr. Nessley:
This is in response to your letters of September 6 and
November 8, 1988, on behalf of Phone Mate Inc., in which you
inquired whether telephone answering equipment manufactured in
Malaysia is eligible for duty free treatment under the
Generalized System of Preferences (GSP)(19 U.S.C. 2461-2465) if
containerized and quality control tested in Singapore prior to
export to the U.S.
FACTS:
You state that your client will import telephone answering
equipment produced by the Asahi Corporation. The producer will
manufacture and pack the merchandise for export in Malaysia, a
beneficiary developing country (BDC), and then transport it to
Singapore, a non-BDC as of January 1, 1989. At its Singapore
plant, which is not a customs bonded area, the producer will load
the merchandise for export to the U.S. in containers holding only
Malaysian-manufactured merchandise. The producer may also, from
time to time, perform quality control tests on the merchandise in
Singapore, the results of which will be placed in the box
containing the tested article. The invoices, packing lists, and
GSP Form A for the merchandise will be produced by the Malaysian
factory, or if the invoice is prepared in Singapore "because of
office facility purposes," it will be on the producer's Malaysian
factory letterhead but will contain a statement disclosing that
it was prepared by the Singapore office. A copy of the truck
bill of lading covering movement of the cargo from Malaysia to
Singapore will be provided.
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ISSUE:
Whether merchandise is "imported directly" to the U.S. from
a BDC for GSP purposes if it is shipped from the BDC to a non-
BDC, where it is quality control tested and loaded into
containers for export to the U.S.
LAW AND ANALYSIS:
Under the GSP, eligible articles which are imported directly
from a designated beneficiary developing country (BDC) into the
U.S. qualify for duty-free treatment if the sum of the cost or
value of the constituent materials produced in the BDC plus the
direct costs involved in processing the eligible article in the
BDC is at least 35 percent of the article's appraised value at
the time it is entered into the U.S. See 19 U.S.C. 2463. The
phrase "imported directly" is defined in section 10.175 of the
Customs Regulations (19 CFR 10.175). For purposes of this
ruling, we will assume that the merchandise is GSP eligible and
that the local value-content minimum will be met.
Under 19 CFR 10.175, merchandise shipped through a non-BDC
to the U.S. is "imported directly" if: 1) the merchandise does
not enter into the commerce of the intermediate 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 (19 CFR
10.175(b)); or 2) the merchandise does not enter into the
commerce of the intermediate country except for the purpose of
sale other than at retail, the shipment remains under the control
of the customs authority of the intermediate country, and the
shipment is not subjected to operations other than loading and
unloading and other activities necessary to preserve the articles
in good condition (19 CFR 10.175(d)).
The shipment described in your letter does not appear to
meet the requirements of either subsection. It is not clear from
your letter that the original shipping documents to be issued in
the BDC will show the U.S. as the final destination, as required
by 19 CFR 10.175(b). In addition, a transshipment does not
qualify if the merchandise enters the commerce of the
intermediate country. Merchandise enters the commerce of the
intermediate country for purposes of the GSP if manipulated
(other than by loading or unloading), offered for sale (whether
or not a sale actually takes place), or subjected to a title
change in that country. See Headquarters Ruling 071575, dated
November 20, 1984. Because quality control testing constitutes
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more than a loading and unloading, if such testing is performed
on the merchandise in Singapore, it will be deemed to enter the
commerce of that intermediate country.
We further find that the shipment will not meet the
requirements of 19 CFR 10.175(d). That section requires that the
articles remain under the control of customs authorities in the
non-BDC. Your letter states, however, that the plant in
Singapore where the operations will be performed is not a customs
bonded area. In addition, manipulation of the merchandise
permitted in the non-BDC under 19 CFR 10.175(d) is limited to
"loading and unloading, and other activities necessary to
preserve the articles in good condition." 19 CFR 10.175(d)(3).
As stated above, quality control testing of the phone equipment
in Singapore constitutes more than loading and unloading of the
articles.
HOLDING:
On the basis of the information provided, it is our opinion
that the telephone answering equipment to be manufactured in a
BDC and transported to a non-BDC for loading into containers and
occasional quality control testing will not be imported directly
from the BDC into the U.S. and, therefore, will not qualify for
duty-free treatment under the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division
cc: District Director
Los Angeles, California
cc: CLA-2 CO:R:CV:V:BJO:BJO:FNL 6-15-89