CLA-2 CO:R:C:S 556451 WAW
Chief, National Import Specialist Branch 3
U.S. Customs
New York Region
Suite 716
6 World Trade Center
New York, N.Y. 10048-0945
RE: Reconsideration of HRL 084926; eligibility of science lab
kits for duty-free treatment under the GSP; T.D. 91-7; sets;
555999
Dear Sir:
This is in response to your memorandum dated November 4,
1991, requesting reconsideration of Headquarters Ruling Letter
(HRL) 084926 dated September 20, 1989, issued to Tasco Quality
Optics, which determined that a junior science kit and an energy
lab kit were eligible for duty-free treatment under the
Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466).
FACTS:
The "toy junior science lab kit" is a chemistry kit for
children. The kit includes a microscope, candle holder, copper
sulfate, eye dropper, filter paper, measuring spoons, plastic
slides, sea sand, sodium ferrocyanide, specimen slides, steel
wool, stones, tannic acid, test tubes, a holder, a rack and zinc
metal. All of these articles are of Israeli origin except the
microscope, eye dropper and slides which are of Taiwanese origin.
This kit is designed to teach children how to use a microscope.
The total value of the goods originating from Taiwan is $2.68,
while the total value of the kit is $6.35.
The "toy energy and you lab kit" is designed for teaching
children how to control, transform and use various forms of
energy. The kit and accompanying instruction booklet enable
children to perform over 120 experiments concerning how to
construct windmills, levers, cars, and batteries. All of the
approximately 60 articles in the set, except for a magnifier and
an eye dropper are produced in Israel. The magnifier and eye
dropper are produced in Hong Kong and Taiwan, respectively. The
value of the magnifier is $0.25, the value of the eye dropper is
$0.08, and the total value of the kit is $10.85.
ISSUE:
Whether the toy chemistry kits from Israel containing
components produced in Israel and materials originating from
non-beneficiary developing countries, are eligible for duty-free
treatment under the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product or
manufacture of a designated developing beneficiary country (BDC)
which are imported directly into the customs territory of the
U.S. from the BDC may receive duty-free treatment if the sum of
(1) the cost or value of materials produced in the BDC, plus
(2) the direct costs of the processing operation in the BDC, 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).
As stated in General Note 3(c)(ii)(A), Harmonized Tariff
Schedule of the United States Annotated (HTSUSA), Israel is a
designated BDC. You apparently do not dispute the tariff
classification of the sets in subheading 9503.70.80, HTSUSA,
which provides for "Other toys, put up in sets or outfits, and
parts and accessories thereof: Other: Other." This subheading is
a GSP eligible provision, and, therefore, the toy chemistry sets
will be entitled to duty-free treatment if the entire set is
considered to be a "product of" Mexico and the 35% value-content
requirement is met.
Prior to August 20, 1990, the GSP program differed from the
Caribbean Basin Economic Recovery Act (CBI) and U.S.-Israeli FTA
programs in that the latter programs included a "product of"
requirement, while the GSP did not. This requirement means that
to receive duty-free treatment, an article either must be made
entirely of materials originating in the beneficiary country or,
if made of materials from a non-beneficiary country, those
materials must be substantially transformed in the beneficiary
country into a new or different article of commerce. In Madison
Galleries, Ltd. v. United States, 688 F. Supp. 1544 (CIT 1988),
aff'd 870 F.2d 627 (Fed. Cir. 1989), the court concluded that,
under the GSP statute, it is unnecessary for an article to be a
"product of" a GSP country to be eligible for duty-free treatment
under that program. However, section 226 of the Customs and
Trade Act of 1990 (Public Law 101-382) included an amendment to
the GSP statute requiring an article to be a "product of" a GSP
country for it to receive duty-free treatment. This amendment
was effective for articles entered, or withdrawn from warehouse
for consumption, on or after August 20, 1990. See T.D. 91-7
dated January 16, 1991 (25 Cust. Bull. 6).
At the time HRL 084926 was issued, there was no "product of"
requirement in the GSP statute. Therefore, the ruling was
correct in stating that the toy chemistry sets were eligible for
duty-free treatment under the GSP provided the 35% value-content
and "imported directly" requirements of the GSP were satisfied.
However, since the issuance of HRL 084926, the GSP statute has
been amended to require a "product of" requirement. Therefore,
the issue presented here is whether, in view of the amendment to
the GSP statute and the rulings that we have issued on this
subject, the toy sets are eligible for duty-free treatment under
the GSP.
In T.D. 91-7, Customs held that as a general rule, a
collection classifiable in one subheading pursuant to the GRI's
will receive CBI treatment only if all of the items or components
in the collection are considered "products of" the beneficiary
country. To illustrate the application of the "product of"
requirement to sets under the CBI, we used the example of a
hairdressing set consisting of a comb, brush, and scissors
manufactured in Jamaica from materials originating in Jamaica, as
well as an electric hair clipper manufactured in Taiwan (a non-
BC country) and imported into Jamaica for packaging with the
other items of the set. We also stated that in cases where the
entire imported set is not the "product of" a BDC, as required by
the CBI statute, neither the set nor any part thereof would be
entitled to duty-free treatment under this program. The above
requirements also exist under the GSP statute with respect to
articles entered on or after August 20, 1990.
We have previously held that although a toy set may be
properly classifiable under GRI 1, the merchandise must still
satisfy the "product of" requirement to be eligible for duty-
free treatment pursuant to the GSP. In Headquarters Ruling
Letter 555999 dated November 20, 1991, we held that toy farm sets
from Mexico, consisting of Mexican-origin components and Chinese
farm animals which are simply packaged together in Mexico, are
not entitled to duty-free treatment since the "product of"
requirement has not been met. See 19 U.S.C. 2463(b)(2) (no
article of a BDC shall be eligible for GSP treatment by virtue of
having merely undergone simple combining or packaging
operations). In that ruling we stated the following:
We see no justification, from either a legal or policy
standpoint, for treating sets classifiable under GRI 1
any differently than sets classifiable under GRI 3(b)
in determining their eligibility for GSP treatment.
Moreover, it is our opinion that construing the GSP
"product of" requirement as applying only to those sets
classified pursuant to GRI 3, would lead to
inconsistent results.
Because the "toy junior science lab kit" includes component
parts which are sourced outside of Israel, it is clear that these
parts are not wholly the growth, product, or manufacture of that
BDC. The mere packaging of the Taiwanese-origin components with
the other items in the set clearly will not substantially
transform the non-Israel components into "products of" Israel.
Furthermore, one of the Taiwanese components -- the microscope -
- constitutes an integral part of the set in which it is
included. Therefore, because the entire imported toy chemistry
kit is not a "product of" Israel, as required by the GSP statute,
neither the set nor any part thereof is entitled to duty-free
treatment under this program. The issue of whether the "toy
junior science lab kit" will satisfy the 35% value-content
requirement under the GSP is not relevant in this case since the
set does not meet the "product of" requirement.
However with respect to the "toy energy and you lab kit,"
although the magnifier and eye dropper are produced in Hong Kong
and Taiwan respectively, it is clear that the two components
represent merely a de minimus portion of the set in which they
are included. They do not constitute integral components of the
entire set without which the set is rendered inoperable, and the
components represent only two of the approximately 60 total items
in the set. Moreover, the value of these two components ($0.33)
represents approximately 3 percent of the value of the entire set
($10.85). Therefore, we conclude that the presence of the
magnifier and eye dropper in the set will not render the entire
set ineligible for duty-free treatment under the GSP. In view
of these findings, it is our determination that the imported "toy
energy and you lab kit" is a "product of" Israel. Accordingly,
if the importer can show that the toy energy and you lab kit will
satisfy the 35% value-content and "imported directly"
requirements, the set will be eligible for duty-free treatment
under the GSP.
HOLDING:
The toy chemistry sets are properly classified under
subheading 9503.70.8000, HTSUSA, the provision for other toys,
put up in sets or outfits, and parts and accessories thereof,
other, other. The applicable rate of duty is 6.8 percent ad
valorem.
Because the entire imported "toy junior science lab kit" is
not a "product of" Israel, as required under the GSP statute,
neither the set nor any of the components in the set are entitled
to duty-free treatment under this program. With regard to the
"toy energy and you lab kit," we believe that the set is a
"product of" Israel, as required under the GSP statute, and
therefore, the entire set is entitled to duty-free treatment under this program provided that the 35% value-content and
"imported directly" requirements are met. The portion of HRL
084926 relating to the GSP issue is hereby modified accordingly.
In a separate letter, we have notified the importer, Tasco
Quality Optics, of our decision to modify HRL 084926.
Sincerely,
John Durant, Director
Commercial Rulings Division