CLA-2 CO:R:CV:V 555398 BJO
Vincent Bowen, Esq.
Willkie, Farr & Gallagher
1155 21st Street, N.W.
Washington, D.C. 20036
RE: GSP Eligibility of Black Pepper Grown in India or Indonesia
Dear Mr. Bowen:
This is in response to your letters of May 19, 1989,
November 1, 1989, and December 8, 1989, on behalf of the
McCormick Stange Flavor Division of McCormick & Company,
Incorporated, in which you request a ruling that black pepper
oleoresin produced in Singapore from black pepper grown in India
or Indonesia is eligible for duty-free treatment under the
Generalized System of Preferences (GSP)(19 U.S.C. 2461-2466).
FACTS:
The importer will purchase whole black pepper grown in India
or Indonesia, and ship it to Singapore for processing into
oleoresin. The black pepper grown in India will be kept separate
throughout the processing operation from that grown in Indonesia.
The processing involves cleaning and grinding the pepper, and
mixing it with a solvent, such as ethylene dichloride, to extract
the essential oil and color of the spice. The solvent is then
withdrawn, leaving the black pepper oleoresin. The importer will
ship the oleoresin produced from Indian-grown pepper to India,
and the oleoresin extracted from Indonesian-grown pepper to
Indonesia. Both shipments will then be shipped to the U.S. You
state that the sole purpose of the shipments to India and
Indonesia prior to the U.S. is to comply with the "imported
directly" requirement of the GSP, and that the oleoresin will not
undergo any processing or otherwise enter the commerce of those
countries. You further state that the oleoresin will not be
removed from the ships once laden in Singapore until the vessel
reaches the U.S.
ISSUE:
Whether an article is "imported directly" for purposes of
the GSP if shipped from a non-BDC to the U.S. through the
territory of a BDC.
LAW AND ANALYSIS:
Title 19, United States Code, section 2463(b) provides:
"(b) The duty-free treatment provided [to articles from
beneficiary developing countries (BDC)] with respect to any
eligible article shall apply only-
(1) to an article which is imported directly from a [BDC]
into the customs territory of the United States; and
(2) If the sum of (A) the cost or value of the materials
produced in the [BDC] or any 2 or more countries which are
members of the same association of countries which is
treated as one country under section 2462(a)(3) of this
title, plus (B) the direct costs of processing operations
performed in such [BDC] or such member countries is not less
than 35 percent of the appraised value of such articles at
the time of its entry into the customs territory of the
United States."
Although there is little discussion in the GSP legislative
history of the meaning of the "imported directly" requirement, it
does appear that it and the 35 percent value-content requirement
were conceived as separate and distinct country of origin
requirements, although with an overlapping purpose:
"Once an article is designated eligible for generalized
tariff preferences, imports of the article must meet
specific rules of origin requirements...in order to actually
receive preferential treatment. 1. The articles must be
"imported directly" from a [BDC] into the customers [sic]
territory of the United States. 2. The value added in the
[BDC]...must equal or exceed a minimum percentage not less
than 35 percent[.] These rules are designed to ensure that
the benefits of generalized tariff preferences actually
accrue to [BDC's]. The Trade Act of 1973: Hearings on H.R.
10710 Before the Senate Committee on Finance, 93rd Cong.,
2nd Sess. 326 (1974)(statement of William D. Eberle, U.S.
Special Representative for Trade Negotiations).
That the importer must meet both the 35 percent value-content
requirement and the "imported directly" requirement is also
evident from the structure of the statute, in which the two
requirements are set out in separate subparagraphs.
Merchandise which is shipped directly from a BDC to the U.S.
without passing through the territory of any other country will,
of course, clearly be "imported directly" to the U.S. from the
BDC. See 19 CFR 10.175(a). Recognizing the exigencies of trade
and transportation, however, Customs has by regulation defined
the term "imported directly" to also include:
(1) A shipment from a BDC to the U.S. through the territory
of any other country, if the merchandise in the shipment
does not enter into the commerce of any other country while
en route to the U.S., and the invoice, bills of lading, and
other shipping documents show the U.S. as the final
destination. 19 CFR 10.175(b). This provision allows, for
example, overland transshipment in bond from landlocked
BDC's through neighboring countries to the U.S. See HQ
071696, dated May 30, 1984.
(2) A shipment from a BDC to the U.S. through a free trade
zone in a second BDC, even though the invoice and shipping
documents do not show the U.S. as the final destination, and
even if the merchandise is purchased and resold within the
free trade zone, other than at retail, for export, provided
the merchandise does not enter into the commerce of the
country maintaining the free trade zone, and the articles
undergo no operations other than (i) sorting, grading, or
testing, (ii) packing, unpacking, changes of packing,
decanting or repacking into other containers, (iii) affixing
marks, labels, or other like distinguishing signs on
articles or their packing, if incidental to the foregoing
operations, and (iv) operations necessary to ensure the
preservation of merchandise in its condition as introduced
into the free trade zone. 19 CFR 10.175(c). This provision
allows BDC's to transship merchandise through countries with
developed entrepot trade, and thus use to its advantage
developed commercial trading institutions and facilities
that may not be available in the BDC.
(3) A shipment from a BDC to the U.S. through the territory
of any other country, if such shipment remains under the
control of the customs authority of the intermediate
country, does not enter into the commerce of the
intermediate country except for the purpose of sale other
than at retail, and the district director is satisfied that
the importation results from the original commercial
transaction between the importer and the producer and the
latter's sales agent; and the merchandise is not subject to
operations other than loading and unloading, and other
activities necessary to preserve the articles in good
condition. 19 CFR 10.175(d). This provision was added in
order to encompass within the meaning of "imported directly"
the traditional marketing procedure established for Cameroon
wrapper tobacco. See T.D. 83-144 (1983).
You claim that the black pepper oleoresin is "imported
directly" from a BDC within the meaning of 19 CFR 10.175(a),
because it is shipped directly to the U.S. from India and
Indonesia, both of which are BDC's, after being returned from
processing in Singapore, a non-BDC. In our view, however, the
black pepper oleoresin is not "imported directly" to the U.S.
from India or Indonesia, but from Singapore. Neither the Customs
Regulations nor any previous ruling define what it means to
import directly from a BDC. The word "from," in its ordinary
sense, indicates a starting point, a point or place of where an
actual physical movement has its beginning, or the place of
origin. See Websters Third International Dictionary
(Unabridged), 913 (1971). Clearly, the origin or starting point
of the shipment here is Singapore, where the black pepper
oleoresin is produced, placed upon a vessel, and destined for the
U.S. The merchandise does not leave the vessel in India or
Indonesia and has no connection with those countries, other than
by being aboard a vessel that transits their ports. Under these
facts, the shipment will be considered to have been "imported
directly" from Singapore, not India or Indonesia.
We believe that this result is consistent with the statute
and Customs Regulations. To accept your claim would render the
statutory direct shipment requirement meaningless, for it would
allow merchandise to be "imported directly" from the last foreign
port at which the transporting vessel stops before reaching the
U.S. You state that your claim is premised on the fact that
Congress and the administration intended black pepper products
meeting the 35 percent requirement to receive the benefits of the
GSP program. As set forth above, however, the "imported
directly" requirement is a country of origin requirement separate
and distinct from the 35 percent value added requirement, and we
find no evidence in the legislative history that Congress
intended that an article receive duty-free treatment if it
satisfied one requirement but not the other.
Customs Regulations clearly contemplate that if an article
is merely transshipped through a country, it is not "imported
directly from" that country, but from the country from which the
shipment originates. For example, if the black pepper oleoresin
was processed and put aboard a vessel in India or Indonesia, and
transshipped through the port of Singapore to the U.S., then the
black pepper oleoresin would be considered to have been "imported
directly" from the BDC's India and Indonesia. See 19 CFR
10.175(b). To find that the merchandise is "imported directly"
from the country through which the merchandise is merely
transshipped would be, at best, inconsistent with the Customs
Regulations defining the term.
Although not expressly stated in the GSP legislative
background materials as its purpose, the direct shipment
requirement may act to reduce the possibility that materials or
articles of non-GSP countries will be commingled or mixed with
GSP eligible articles. You state that this policy will not be
compromised because the importer will be able to prove that the
entered merchandise complies with the applicable country of
origin criteria, and was not commingled with any ineligible
merchandise at any time. Congress did not, however, provide
that the direct shipment requirement may be waived if the
importer can prove that the merchandise was not commingled with
ineligible articles en route to the U.S. Assuming the policy is
as you suggest, Congress provided that the only sufficient proof
that the eligible merchandise is not commingled with ineligible
merchandise while en route to the U.S. is proof of direct
shipment from the BDC.
You note that we have twice previously addressed this issue,
and reached a different result. First, in C.S.D. 79-315, dated
November 6, 1978 (HQ 055618), we ruled that Yugoslavian-produced
glassware which had been imported into Canada for processing, but
then returned to Yugoslavia for credit when the Canadian
processor ceased operations, may receive duty-free treatment
under the GSP if shipped (again) directly to the U.S. We noted
that the glassware was not substantially transformed in Canada,
but that it had entered into the commerce of that country.
Second, in Customs response to comments on proposed regulations
implementing the Caribbean Basin Initiative (19 U.S.C. 2701-
2706), we stated:
"Under the CBI statute the Virgin Islands is not treated as
a beneficiary country for the purpose of the direct
importation requirement. Consequently, the Virgin Islands
will be prevented from engaging in tail-end processing
operations unless the article is returned to a beneficiary
country prior to final exportation to the U.S." T.D. 84-
237, 18 Cust.Bull. 761, 769 (1984).
You claim that this statement, and the ruling, allow the
importer here to return the article to India and Indonesia prior
to shipment to the U.S. to claim GSP benefits.
We do not find C.S.D. 79-315, or the comments made in T.D.
84-237, to be controlling here. First, it is unclear that our
statement in T.D. 84-237 would allow a shipment which merely
transits the port of a BDC, as here, to be considered a return to
the BDC. The shipment at issue in C.S.D. 79-315 appears to have
been actually imported and entered into the commerce of the BDC
upon return from Canada. In any event, both the ruling and our
comments on the CBI regulations contemplate return of the same
article that is the product of the BDC. In both cases, the
article is not substantially transformed after the original
export from the BDC. Here the article exported from India or
Indonesia, namely, black pepper, is not returned to those
countries. Rather, the article that is shipped to India and
Indonesia from Singapore is black pepper oleoresin, a new and
different article of commerce. See HQ 047092, dated February 1,
1977 (an oleoresin made in Singapore from black pepper berries
shipped from the Malagasy Republic and Indonesia is a product of
Singapore for purposes of the GSP). We find, therefore, that the
article originally exported from India or Indonesia is not
returned to those countries within the meaning of C.S.D. 79-315
or T.D. 84-237.
CONCLUSION:
Black pepper oleoresin produced in Singapore from black
pepper purchased in India or Indonesia, and shipped from
Singapore through the territory of India or Indonesia, is not
"imported directly" to the U.S. from a BDC. Therefore, the black
pepper oleoresin will not be eligible for duty-free treatment
under the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division