• HQ H242598
• Mar 13, 2015

• Type : Classification • HTSUS :
•  Related:   563020; H013526; H120923; H241889; H192596; H115766; W563490   

OT:RR:CTF:VS H242598 AJR

Port Director
U.S. Customs & Border Protection
2350 N. Sam Houston Pkwy East
Houston, TX 77032

RE: Application for Further Review of Protest No. 5309-12-100681; GSP; Sufficiency of Documentation

Dear Director:

This is in response to an Application for Further Review (“AFR”) of Protest No. 5309-12-100681, timely filed on November 12, 2012, by counsel on behalf of the importer, [XXXX] (hereinafter, the "Protestant"), regarding the eligibility of imported biodiesel for duty-free treatment under the Generalized System of Preferences (“GSP”).

The Protestant has requested that certain information be treated as confidential. Inasmuch as this request conforms to the requirements of 19 CFR §177.2(b)(7), the request for confidentiality is approved, except for the name of Argentina’s national energy company, because it is publically available. The information contained within brackets and all attachments to this protest decision, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling.

FACTS:

From September 23, 2008 to December 28, 2008, Protestant made seven biodiesel entries at the Port of Houston from various suppliers in Argentina claiming preferential tariff treatment under the GSP. In February of 2009, CBP issued a Request for Information (CBP Form 28) requesting Protestant provide documentation to substantiate its GSP claims. On May 18, 2010, after being granted an extension to respond, Protestant submitted supporting documents that included contracts, invoices, and calculations. Protestant also submitted certifications from the biodiesel suppliers. On April 27, 2012, CBP issued a Notice of Action (CBP Form 29) rate advancing the entries because documentation to substantiate the 35% direct costs of processing was not received.

Your office states that Protestant only relies on the costs of one component, soybeans, to meet the 35% value-content requirement, and since the invoices for the cost calculations are in Spanish, they cannot be tied to the entries in question. Further your office states that no information pertaining to the country of origin for all the feedstock, inputs, and catalysts was provided. Protestant argues that it substantiated its GSP claims because it submitted sufficient documentation to show: (1) that biodiesel is mainly comprised from soybean oil, and likewise soybean oil from soybeans; and (2) that the process from soybean to soybean oil, and to biodiesel took place entirely in Argentina. In support of this argument, Protestant provided the following documents (collectively “Supporting Documentation”) from its five Argentinean Biodiesel suppliers, [XXXX] (“Supplier A”), [XXXX] (“Supplier B”), [XXXX] (“Supplier C”), [XXXX] (“Supplier D”), and [XXXX] (“Supplier E”), (collectively, “Biodiesel Suppliers”):

Supporting Documentation Chart

Supporting Documentation Third Entry, Line Item 1 Supplied by Supplier A Third Entry, Line Item 2 Supplied by Supplier C  Soybean Agro-Business Article: A scholarly article describing Argentina as the largest global exporter of soybean oil and denouncing allegations that Argentina imports biodiesel for re-export (“Soybean Agro-Business Article”). The Soybean Agro-Business Article applies generally to all entries. The Soybean Agro-Business Article applies generally to all seven entries.  Affidavits Claiming Origin: Certifications made by Biodiesel Suppliers, their affiliates, and Argentina’s national energy company, YPF, claiming that their biodiesel originated from Argentina, and was produced exclusively in Argentinean facilities from Argentinean produced soybean oil, Argentinean grown soybeans, and Argentinean produced methanol (“Affidavits Claiming Origin”). Supplier A certifies that biodiesel was produced from 100% Argentinean soybean, that the soybeans account for 80% of the biodiesel production costs, and that the entire production process took place in Argentinean facilities using Argentinean produced methanol. Supplier C certifies that biodiesel was produced from 100% Argentinean soybean, that the soybeans account for 80% of the biodiesel production costs, and that the entire production process took place in Argentinean facilities.  Soybean Invoices: Vendors: Invoices in Spanish reflecting soybean and soybean oil purchases made by Biodiesel Suppliers and their affiliates from Argentinean grain and oil vendors (“Soybean Invoices”).

Quantity: Soybean Invoices showing that the quantity of soybeans or soybean oil purchased generally exceeded volumes well beyond 1,000,000 kilograms (kg).

Dates: Soybean Invoices showing that the purchase date was a few months prior to the biodiesel imported by Protestant.

 Soybean Invoice from Argentinean grain vendor, [XXXX], for soybeans sold to Supplier A’s affiliate, [XXXX].

Soybean Invoice shows that 2,600,000 kg of soybeans were sold to Supplier A’s affiliate, [XXXX].

Soybean Invoice is from August 19, 2008, and biodiesel was shipped on September 9, 2008.  Soybean Invoice from Argentine corridor, [XXXX], on behalf of grain vendor, [XXXX], for soybeans sold to Supplier C.

Soybean Invoice shows that 485,270 kg of soybeans were sold to Supplier C.

Soybean Invoice is from August 13, 2008, and biodiesel was shipped on September 12, 2008.  Methanol Invoices: Invoices in Spanish reflecting methanol purchases made by four of the Biodiesel Suppliers and their respective affiliates, from YPF, dated within months prior to corresponding biodiesel imported by Protestant (“Methanol Invoices”).

Supplier A provides three invoices, dated in February of 2008, showing that YPF sold over 250,000 kg of methanol to Supplier A’s affiliate, [XXXX]. The invoice also references Supplier A.

Supplier C does not provide a Methanol Invoice.  Production Process Documents: Biofuel Production Process: Documents describe how crude soybean oil is chemically neutralized, combined with methanol, catalyzed by Sodium Methylate, in a chemical transformation resulting in Methyl Esters (biodiesel) and a glycerol by-product (“Production Process Documents”).

Location & Facilities: Production Process Documents from Biodiesel Suppliers indicate that their entire process, from soybean oil to biodiesel, takes place in [XXXX], Argentina.

Affiliates: Production Process Documents showing companies affiliated with Biodiesel Suppliers (“Affiliates”).



Supplier A describes the collection of raw materials, pretreatment of soybean oil, transesterfication, storage and quality control. Includes diagram of the process.

Supplier A describes its pretreatment plant, biodiesel plant, storage plant, production capabilities, facility size, tank sizes, and lists its address in Argentina.

[XXXX] and [XXXX], two Argentine soybean oil refineries, own Supplier A through a joint venture. 

Supplier C does not describe its biodiesel production process.

Supplier C includes a picture of the plant, notes that it produces 6 million soybean tons per year, and lists its addresses in Argentina.

Supplier C is affiliated with [XXXX], an oleochemical commodity company with various locations, including Argentina.

 Production Records: Production: Internal records reflecting Suppliers daily biodiesel and soybean oil production volumes in metric tons (“MT”) (“Production Records”).

Quantity: Production Records showing that the quantity of biodiesel produced aligns with the respective biodiesel imported by Protestant.

Dates: Production Records showing that biodiesel was produced within weeks of the corresponding biodiesel imported by Protestant.  Supplier A produced [XXXX] MT of soybean oil and [XXXX] MT biodiesel from August 25, 2008 to September 9, 2008.

Supplier A produced [XXXX] MT of biodiesel compared to [XXXX] MT of biodiesel in contract.

Production was from August 25, 2008 to September 9, 2008, compared to shipment on September 9, 2008.  Supplier C produced [XXXX] MT of soybean oil and [XXXX] MT biodiesel from August 31, 2008 to September 10, 2008.

Supplier C produced [XXXX] MT of biodiesel compared to [XXXX] MT of biodiesel in contract.

Production was from August 31, 2008 to September 10, 2008, compared to shipment on September 12, 2008.  Biodiesel Invoices: Invoices from Biodiesel Suppliers to Protestant for the biodiesel purchased per the corresponding biodiesel contract (“Biodiesel Invoices”). Supplier A provides invoice from its marketing company, [XXXX] showing the purchase of [XXXX] MT of biodiesel, B100, by Protestant at a rate of $[XXXX] per MT for a total of $[XXXX] on September 10, 2008. Supplier A provides invoice from its Affiliate, [XXXX], showing the purchase of [XXXX] MT of biodiesel, B100, by Protestant at a rate of $[XXXX] per MT for a total of $[XXXX] on September 24, 2008.  Certificates of Origin: Biodiesel Suppliers provide certificates of origin for all seven entries, which match the respective contracts terms for biodiesel seen throughout Supporting Documentation (“Certificates of Origin”). Supplier A provides two GSP Certificates of Origin issued retrospectively by Argentina for two shipments of [XXXX] MT of biodiesel on the vessel, [XXXX], referencing two invoices from September 9 and 10 of 2008. The Certificates of Origin show [XXXX] and [XXXX] as the parties listed for “Good consigned from.” The issued dates are cut off, but both appear to be from September 2008. Both have a fax time stamp from October 3, 2008.

Supplier C provides a GSP Certificate of Origin issued retrospectively by Argentina on September 25, 2008 for [XXXX] MT of biodiesel, B100, shipped on the [XXXX] vessel to Protestant in Houston, TX from [XXXX], Argentina on September 12, 2008.  Inspection Reports: Surveyor’s report, inspecting and certifying, quality and quantity of the biodiesel, made by independent company, [XXXX] (“Inspection Reports”).

[XXXX] certifies that [XXXX] MT of biodiesel, B100, was shipped by Supplier A’s Affiliate, [XXXX], from [XXXX], Argentina to Houston, TX. The Inspection Report is from September 10, 2008. [XXXX] certifies that [XXXX] MT of biodiesel was shipped by Supplier C from [XXXX], Argentina to Houston, TX. The Inspection Report is from September 12, 2008.

 Shipment Records: Shipment loading, shipment discharge, and charter party records reconciling the product, quantity, and dates between the biodiesel produced and the biodiesel imported by Protestant (“Shipment Records”). Supplier A provides Shipment Records showing that [XXXX] MT of biodiesel, B100, were loaded onto the [XXXX] vessel on September 9, 2008 for shipment to Protestant in Houston, TX from [XXXX], Argentina. Supplier C provides Shipment Records showing that [XXXX] MT of biodiesel, B100, were loaded onto the [XXXX] vessel on September 12, 2008 for shipment to Protestant in Houston, TX from [XXXX], Argentina.

 Bills of Lading: Biodiesel Suppliers provide bills of lading for all seven entries, which match the respective contract terms for the biodiesel seen throughout Supporting Documentation (“Bills of Lading”).

Supplier A provides Bill of Lading showing that [XXXX] MT of biodiesel, B100, was shipped by Supplier A’s Affiliate, [XXXX], from [XXXX], Argentina to Protestant in Houston, TX on September 9, 2008. Supplier C provides Bill of Lading showing that [XXXX] MT of biodiesel, B100, was shipped by Supplier C from [XXXX], Argentina to Protestant in Houston, TX, on September 12, 2008.

 Biodiesel Contracts: Contracts between Protestant and Biodiesel Suppliers and their Affiliates for each of the seven entries by line item (“Biodiesel Contracts”).

Protestant contracted with [XXXX] to supply [XXXX] MT of biodiesel fuel, FOB delivery from [XXXX] in Argentina on dates between August 23rd and September 23rd of 2008 at a rate of $[XXXX] per MT. Protestant contracted with [XXXX] to supply [XXXX] MT of biodiesel fuel, FOB delivery from [XXXX] or [XXXX] in Argentina on dates between September 1st and 30th of 2008 at a rate of $[XXXX] per MT.

 Calculations: Calculations showing that the cost of the soybeans and soybean oil exceeds 35% of cost of the biodiesel per its corresponding Biodiesel Contract (“Calculations”).

Using Argentine Nuevo Peso (ARS) paid per kg as shown in Soybean Invoices.

Converting kg to MT (1000 kg equals 1 MT).

Converting ARS to Dollars ($1 equals ARS 3.171).

Biodiesel Suppliers estimate that 1,000 MT of soybeans yield a certain amount of soybean oil and biodiesel.

Converting to price paid per 1,000 MT of soybeans by multiplying by 1,000.

Dividing the price paid per 1,000 MT of soybeans by the amount of biodiesel yielded, in order to calculate the soybean cost required to produce biodiesel.

Showing that the cost per MT of soybeans exceeds the price per MT of biodiesel in its corresponding Biodiesel Contract. 

Supplier A’s Affiliate, [XXXX], paid ARS [XXXX] for [XXXX] kg of soybeans (ARS [XXXX]/kg).

The conversion equals ARS [XXXX]/MT of soybeans.

The conversion to dollars equals $[XXXX]/MT of soybeans.

Supplier A claims that 1,000 MT of soybeans yields 169.90 MT of soybean oil and 166.50 MT of biodiesel.

The conversion to 1,000 MT of soybeans equals $[XXXX] per 1,000 MT of soybeans.

The soybean cost in each MT of biodiesel is $[XXXX] ($[XXXX] per 1,000 MT of soybeans divided by 166.50 MT of biodiesel yielded from 1,000 MT of soybeans).

Per its contract, Protestant paid $[XXXX] per MT of biodiesel, which exceeds $[XXXX]/MT of soybeans that Protestant paid for biodiesel. 

Supplier C paid ARS [XXXX] for [XXXX] kg of soybeans (ARS [XXXX]/kg]).

The conversion equals ARS [XXXX]/MT.

The conversion to dollars equals $[XXXX]/MT of soybeans.

Cremer claims that 1,000 MT of soybeans yields 180.00 MT of soybean oil and 176.40 MT of biodiesel.

The conversion to 1,000 MT of soybeans equals $[XXXX] per 1,000 MT of soybeans.

The soybean cost in each MT of biodiesel is $[XXXX] ($[XXXX] per 1,000 MT of soybeans divided by 176.40 MT of biodiesel yielded from 1,000 MT of soybeans).

Per its contract, Protestant paid $[XXXX] per MT of biodiesel, which exceeds $[XXXX]/MT of soybeans that Protestant paid biodiesel.  Calculations Article: Calculations using numbers, from the Argentine stock market and from a scholarly article about industrial oil and fat products that finds that 1 MT of soybeans yields about 18.5% soybean oil, to determine the biodiesel yielded from soybean oil and from soybeans, and the value of soybeans (“Calculations Article”).

Imputing the yield estimate from the scholarly article to the stock market number to determine the value from soybeans.

Calculating the value of soybean oil from soybeans by multiplying the value percentage by the cost of soybeans per MT of biodiesel produced.

Showing that the value per MT of soybean oil exceeds the value per MT of biodiesel per its corresponding Biodiesel Contract. 

Protestant uses these numbers to determine that soybean oil obtains 43% of its value from soybeans.

If it cost Supplier A’s Affiliate, [XXXX], $[XXXX] per MT of soybeans, the value of the soybean oil derived therefrom is $[XXXX]/MT.

If this imputed soybean oil value is $[XXXX]/MT, it amounts to 47% of the Biodiesel Contract price of $[XXXX]/MT. 

Protestant uses these numbers to determine that soybean oil obtains 43% of its value from soybeans.

If it cost Supplier C $[XXXX] per MT of soybeans, the value of the soybean oil derived therefrom is $[XXXX]/MT.

If this imputed soybean oil value is $[XXXX]/MT, it amounts to 44% of the Biodiesel Contract price of $[XXXX]/MT.   Protestant contends that these aforementioned documents sufficiently substantiate the GSP claims for the seven entries.

ISSUE:

Whether Protestant submitted sufficient documentation to substantiate claims that the imported biodiesel was eligible for preferential treatment under the GSP.

LAW AND ANALYSIS:

Title V of the Trade Act of 1974, as amended (19 U.S.C.A. 2461-65), authorizes the President to establish a GSP to provide duty-free treatment for eligible articles from beneficiary developing countries (“BDCs”). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the goods are imported directly into the customs territory of the U.S. from the BDC and the sum or value of materials produced in the BDC plus the direct costs of the processing operations performed in the BDC is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the U.S. See 19 U.S.C. 2463(a)(2) and (3).

The “produced in a BDC” requirement means that to receive duty free treatment, an article must either be made of materials “wholly the growth, product or manufacture of” the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.176(a). The regulatory language set forth in 19 CFR 10.176(c) states that “merchandise which is wholly the growth, product, or manufacture of a BDC […] shall normally be presumed to meet the requirements set forth in this section.” However, per Headquarters Ruling Letter (HQ) H013526, dated August 8, 2008, though the “normally be presumed” language from 19 CFR 10.176(c) implies that the 35% value-content requirement is normally met, 19 CFR 10.177(a) and 19 U.S.C. 2463(a)(2)(A) still require that the 35% value-content requirement be satisfied.

It is not in dispute that the biodiesel was properly classified under a GSP-eligible provision; that Argentina is a designated BDC per General Note 4(a), HTSUS; or that the biodiesel was imported directly into the customs territory of the U.S. from Argentina. Rather the issue in this case concerns whether Protestant’s Supporting Documentation substantiates its claims that the seven biodiesel entries consisted of products that were “produced in” Argentina and met the 35% value-content requirement.

Wholly the Growth, Product or Manufacture of BDC

Counsel for Protestant argues that the imported biodiesel meets the “produced in a BDC” requirement because it was “wholly the growth, product or manufacture of” Argentina. Though the Supporting Documentation demonstrates that soybean oil and methanol were constituent materials used to produce the biodiesel, the Production Process Documents indicate that sodium methylate, caustic soda, hydrochloric acid, antioxidant additive, and other materials (collectively, “Other Materials”) were also used in the production process. No country of origin was provided for these Other Materials, and no specific support is provided for counsel’s claim that these Other Materials were not constituent materials in the production process. Section 10.177(b), Customs Regulations (19 CFR 10.177(b)) states that “[w]hen the origin of an article is not ascertainable […] the article shall not be considered to have been produced in the [BDC].” As a result, because we do not know where these Other Materials originated and because we cannot determine whether these Other Materials were constituent materials, we find that the biodiesel was not wholly grown, produced or manufactured in Argentina.

Substantially Transformed in BDC

In the alternative, counsel for Protestant argues that the imported biodiesel meets the “produced in a BDC” requirement because it was substantially transformed from soybeans into soybean oil, and then into biodiesel in Argentina. A substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982). In HQ H120923, dated November 22, 2011, a polyamide was held to originate in Brazil because it was shown that virtually all the materials, but for some minor exceptions, were from Brazil, and that such materials were substantially transformed in Brazil primarily through chemical reactions. In this case, the “Affidavits Claiming Origin” certify that the constituent materials (soybeans and methanol) used to make biodiesel are from Argentina and the production of biodiesel took place in Argentina. Supplier A’s Production Process Documents describe a process in Argentina, where soybean oil, methanol, and the Other Materials are chemically transformed into the final product, biodiesel, which differs in name, character, and use from the materials used throughout the biodiesel production process. This production process is substantiated by Supplier B, Supplier D, and Supplier E, but not by Supplier C. Assuming we consider these certifications and production process descriptions to be valid, namely that the soybeans were substantially transformed into biodiesel in Argentina, then the biodiesel will be considered a “product of Argentina.”

Double Substantial Transformation for 35% Value-Content Requirement

To meet the 35% value-content requirement, the sum of the cost or value of materials produced in the BDC, plus the direct costs of processing operations in the BDC, must equal at least 35% of the appraised value of the article at the time of entry into the United States. See 19 CFR 10.176(a). If an article consists of materials that are imported into a BDC, the cost or value of these materials may be counted toward the 35% value-content requirement only if they undergo a double substantial transformation in the BDC. See 19 CFR 10.177(a)(2). As a result, such imported materials must first be substantially transformed into a new and different article of commerce, becoming a “material produced” in the BDC (the intermediate product). Next, this intermediate product must again be substantially transformed into a new and different article of commerce (the final article). The final article, intermediate product, and imported materials must be distinct articles of commerce from one another. An article of commerce is commercially recognizable as a different article if it is readily susceptible of trade, and is an item that persons might well wish to buy and acquire for their own purposes of consumption or production. See Azteca Mill Co. v. U.S., 703 F. Supp. 949 (CIT 1988); see F.F. Zuniga a/c Refractarios Monterrey, S.A. v. United States, 996 F.2d 1203 (Fed. Cir. 1993).

The port denied GSP because the Other Materials had unknown countries of origin. However, Protestant is not using or claiming the cost of the Other Materials to satisfy the 35% value-content requirement. Rather, Protestant is using the cost of the soybeans to calculate the 35% value-content requirement. In order to use the cost of the soybeans to satisfy the 35% value-content requirement, Protestant must show that the soybeans were Argentinean soybeans or if not, that they underwent a double substantial transformation in Argentina.

The Production Process Documents describe that soybean oil, methanol, and the Other Materials were chemically transformed into the final product biodiesel. The Soybean Invoices and Methanol Invoices provide support that the soybean oil and methanol used in the production originated from Argentina. We note that the quantity of soybeans bought per the Soybean Invoices does not necessarily yield the amount of biodiesel produced per the Production Records. The Calculations Article submitted by Protestant suggests that it takes 1,000 kg (or 1 MT) of soybeans to produce roughly 183 kg (or .183 MT) of soybean oil. These numbers align with the yield estimates provided by the Biodiesel Suppliers in the Calculations for the seven entries. Such yield estimates, along with numbers from the Production Records, suggest that soybean oil yields biodiesel at a near 1:1 ratio. In the example from the Supporting Documentation Chart, [XXXX] only buys [XXXX] kg (or [XXXX] MT) of soybeans, which only yields about 475 MT of soybean oil, and if that yields nearly 475 MT of biodiesel, it is still short of the [XXXX] MT provided for in its respective Biodiesel Contract. The other Soybean Invoices for the seven entries also lack the soybean quantity to yield their respective biodiesel quantity. As a result, we find that the Calculation Article and Production Process Documents do not prove that only Argentinean soybeans were used in the production of the biodiesel.

Nonetheless, the Calculation Article and the Production Process Documents, together, describe how soybeans are substantially transformed into soybean oil in Argentina and then again substantially transformed into biodiesel, also in Argentina. The Calculation Article describes how soybean oil is recovered from soybeans, stating that the “[o]il is recovered today by either mechanical means or through the use of organic solvents[,]” where “electric-powered continuous screw-presses, often referred to as expellers […] or continuous concurrent solvent extractors are used” to extract the soybean oil from the soybeans. The Production Process Documents explain how Supplier A neutralizes soybean oil in its Argentinean facility by chemically pretreating crude soybean oil to remove nonhydratable phospholipids, fatty acids that form soap, and other humidity impurities such as phosphatide residues and metals. Supplier B, Supplier, D, and Supplier E substantiated this information in their Production Process Documents. Assuming we find the Calculation Article and the Production Process Documents valid, then the soybeans were substantially transformed into neutral soybean oil in Argentina, because the soybeans changed form, from solid to liquid, and chemical composition through the neutralization process. The second substantial transformation occurred as previously described by transforming the neutral soybean oil and methanol into methyl esters (biodiesel). As a result, the double substantial transformation from soybeans into soybean oil and then into biodiesel would be such that the soybean value could be used in the 35% value-content calculation.

Sufficiency of Documentation

Section 10.173(c), Customs Regulations (19 CFR 10.173(c)) states that “[a]ny evidence of country of origin submitted under this section [the GSP] shall be subject to such verification as the port director deems necessary. In the event that the port director is prevented from obtaining the necessary verification, the port director may treat the entry as dutiable.” In this case, the port requested refinery production records, inventory records, proof of country of origin of any intermediates, and cost data to support the 35% value-content requirement. The port reviewed Protestant’s Supporting Documentation and concluded that the documents were deficient because many of the documents were in Spanish without translation; no country of origin was provided for some of the feedstock, inputs, and catalysts; and the 35% value-content calculation only utilized one component which lacked a specific tie to the corresponding entry.

In HQ H241889, dated March 20, 2014, a protestant submitted sufficient documentation to demonstrate its product eligible for preferential tariff treatment under the U.S.-Peru Trade Promotion Agreement because the submitted Certificate of Origin, notarized affidavit, purchase orders, invoices, production records in the form of batch sheets, and other commercial documents referenced each other and were thus seen as connected to the entry in question. Similar to HQ H241889, Protestant provided Supplier A’s Production Process Documents, Production Records, Soybean Invoices, Methanol Invoices, Certificates of Origin, Affidavits Claiming Origin, Bills of Lading, Biodiesel Invoices, along with other Supporting Documentation which reference dates, products, quantities, and Incoterms that specifically match Supplier A’s Biodiesel Contracts. Additionally, Supplier A’s Supporting Documentation shows a connection to its corresponding entries because the soybean and methanol materials were purchased by Supplier A or its Affiliates from Argentinean vendors: (a) in quantities that would yield a significant portion of the imported biodiesel per its Biodiesel Contracts; and (b) on dates within reasonable time periods prior to the production of the imported biodiesel. Such quantities and dates found in Supplier A’s Soybean Invoices and Methanol Invoices, reasonably align with the biodiesel production process discussed in its Production Process Documents, Production Records, and the Calculations Article. As will be explained below, we did not reach the same findings with regard to Supplier C’s Supporting Documentation. See generally HQ H192596, dated February 14, 2012.

For the requested refinery production records, Protestant submitted Production Process Documents, Production Records, and Inspection Reports. All of these documents were submitted in English. Supplier A’s and Supplier C’s Production Process Documents show that their refineries are located in Argentina. Supplier A’s Production Process Documents explain its production process from soybean oil to biodiesel, and its refinery plant capabilities. In this respect, Supplier B, Supplier D, and Supplier E substantiate Supplier A’s explanation. Supplier C’s Production Process Documents do not explain its production process. The Production Records show that Supplier A and Supplier C produced quantities of biodiesel on dates that aligned with the quantities and dates from their respective Biodiesel Contracts and substantiated information is provided by all the Biodiesel Suppliers for all seven entries. The Inspection Reports show that Supplier A and Supplier C shipped biodiesel that was produced to the quality and quantity standards specified by Protestant per their respective Biodiesel Contracts and all the Biodiesel Suppliers substantiated this information for all seven entries. Based on the Supporting Documentation, we are satisfied with the refinery production records submitted by Supplier A, Supplier B, Supplier D, and Supplier E for their respective entries because their documents thoroughly explain the production process in a manner that may be reasonably associated to their respective entries. See generally HQ H241889; see also, generally HQ H192596. However, Supplier C did not explain its production process. Without a demonstration that Supplier C was capable of producing the imported biodiesel, it is difficult to simply rely on the Production Record and Inspection Report submitted by Supplier C. Accordingly, we are not satisfied with the refinery production records submitted by Supplier C for its respective entries.

For the requested inventory records, Protestant submitted Soybean Invoices, Methanol Invoices, and Production Records. The port did not accept the Soybean Invoices and Methanol Invoices because they were provided in Spanish without translation. We note that these are the only documents from the Supporting Documentation provided in Spanish without translation. The Soybean Invoices made to Supplier A’s Affiliate, [XXXX], and to Supplier C, are for “SOYA,” which means soy. While we note that supporting information should be presented in English and it is not CBP’s burden to translate documents, in this particular instance we have taken note of the documents that are in Spanish and that the references made to Supplier A, Supplier C, their Affiliates, the vendors, the quantities measured in kilograms, and the prices are identifiable in the Soybean Invoices without translation. All the Biodiesel Suppliers substantiated this information in their respective Soybean Invoices, but some were for “ACIETE CRUDO, DE SOYA,” which means crude soybean oil, rather than for soy. The Methanol Invoice made to Supplier A’s Affiliate, [XXXX], is for “METANOL,” which means methanol, and though it should have been provided in English, we make the same note as above, that the parties to the contract, the quantities and the prices are identifiable without translation. Supplier B, Supplier D, and Supplier C substantiated this information with their Methanol Invoices. Supplier C did not provide a Methanol Invoice. As previously noted, the Production Records show that the Biodiesel Suppliers produced an inventory of soybean oil and biodiesel in quantities that met the amounts shipped per their respective Biodiesel Contracts on dates prior to such shipments. Therefore, taken together with the documents submitted in English, along with the invoices, we are satisfied with the inventory records submitted by Supplier A, Supplier B, Supplier D, and Supplier E for their respective entries because such documents are presented in a manner that can be reasonably tied to the Production Process Documents and other Supporting Documentation. See generally HQ H241889; see also, generally HQ H192596. However, as noted above, the Production Record submitted by Supplier C is not reliable because it does not demonstrate a capability for such production. Additionally, its lack of Methanol Invoices for its entries further deters us from relying on the inventory records for the entries submitted by Supplier C.

For the requested proof of country of origin of any intermediates, Protestant submitted Affidavits Claiming Origin, Certificates of Origin, the Soybean Agro-Business Article, Soybean Invoices, Methanol Invoices, and Production Process Documents. The Affidavits Claiming Origin, show that Supplier A and Supplier C provided affidavits signed by company representatives certifying that they used 100% Argentinean soybeans to produce the biodiesel, that the soybeans accounted for 80% of the biodiesel production cost, and that the production of biodiesel took place entirely in Argentina. In this respect, substantiated certifications were provided by the Biodiesel Suppliers for all seven entries. All the Biodiesel Suppliers also submitted Certificates of Origin for all seven entries indicating that the imported biodiesel originated in Argentina. The submitted Soybean-Agro-Business Article furthers Protestant’s contention that the biodiesel originated from Argentina, particularly denouncing allegations that Argentina imports biodiesel for re-export.

The Soybean Invoices and Methanol Invoices also support proof of the country of origin. Aspects of these invoices, such as the vendors, were identifiable with little or no translation and we take note of the information in Spanish because in this particular instance we have the ability to do so. In the Soybean Invoices, the address of Supplier A’s vendor is “[XXXX],” and the address of Supplier C’s vendor is “[XXXX].” The former address is located in the province of [Córdoba], Argentina, and the latter in the Argentina’s [XXXX]. Similarly, the address of the vendor of the Methanol Invoice provided by Supplier A is “[XXXX],” which is located in Argentina’s [XXXX]. In this respect, substantiated Argentinean vendor addresses were provided: in the Soybean Invoices for all the entries; and in the Methanol Invoices for all the entries, except for those pertaining to Supplier C. Furthermore, the Production Process Documents show that the Biodiesel Suppliers and Affiliates have facilities located in Argentina. As previously noted, Supplier A, Supplier B, Supplier D, and Supplier E explain how the process, from soybean oil into biodiesel, is performed in their Argentinean facilities. Accordingly, except for Supplier C, the other Biodiesel Suppliers satisfy the request for proof of country of origin for its main materials, since Supplier A, Supplier B, Supplier D, and Supplier E provided support showings that its main materials originate from Argentina and its production process took place in Argentina.

35% Value-Content Requirement Calculation

As noted above, merchandise must satisfy the 35% value-content requirement for GSP preferential treatment. If an article consists of materials that are imported into a BDC, the cost or value of these materials may be counted toward the 35% value-content requirement only if they undergo a double substantial transformation in the BDC. See 19 CFR 10.177(a)(2). As previously noted, since the soybeans undergo a double substantial transformation into biodiesel in Argentina, their value can be included into the 35% value-content requirement.

Furthermore, the language in 19 CFR 10.177(c) requires that the manufacturer’s actual cost for the materials in the BDC be utilized in calculating the 35% value-content requirement. Pursuant to 19 CFR 10.178(a), the direct costs of processing performed in the BDC is defined as “those costs either directly incurred in, or which can be reasonably allocated to, the growth, production, manufacture, or assembly of the specific merchandise under consideration.”

HQ H115766 dated December 23, 2011, states that the direct cost of processing should include actual costs for materials, actual labor costs, and costs allocable to the specific merchandise, and that indirect expenses such as administrative costs, sales taxes, and casualty and liability insurance, are not direct costs of processing. See also 19 CFR 10.178(a) and (b).

HQ H013526 with support from HQ 563020, dated May 24, 2005, notes that “the GSP regulations clearly reflect that the ‘direct costs of processing operations’ and ‘cost or value of materials produced’ must relate to the specific merchandise under consideration,” and as such a Certificate of Origin and affidavits from a middle man, who did not produce the product in question, did not show the actual or direct cost and were not sufficient to satisfy the 35% value-content requirement.

In this case, Protestant has provided, along with Certificates of Origin and Affidavits Claiming, Soybean Invoices and Methanol Invoices which represent the actual value of the soybeans purchased from the soybean vendors. Protestant also provides Production Process Documents and the Calculations Article that explain how the soybeans undergo a double substantial transformation into biodiesel in Argentina, permitting use of the soybean value in the 35% value-content calculation. In its Calculations, Protestant uses the actual value of the purchased soybeans in comparison with the Biodiesel Contracts to calculate that the value of the soybeans exceeds 35% of the appraised value of the imported biodiesel.

Treasury Decision (“T.D.”) 76-100, dated March 30, 1976, states that “the 35 percent criterion can be satisfied entirely by the cost or value of materials produced in the beneficiary developing country, the direct costs of processing operations, or any combination of the two.” CBP further expressed this position in HQ W563490, dated May 18, 2007, by concluding that if material costs alone satisfy the 35% value-content requirement, the auditors need look no further.

In this case, if the soybean cost alone meets the 35% value-content requirement, then further evaluation of the Other Material is not necessary. Accordingly, we find that Protestant met the 35% value-content requirement for entries of merchandise produced by Supplier A, Supplier B, Supplier D, and Supplier E. Because Supplier C did not provide the same detail in its Production Documents, we do not know whether Supplier C had the capability to conduct the substantial transformations noted by the other Biodiesel Suppliers. As a result, we find that the entries of merchandise produced by Supplier C did not provide sufficient documentation to support the 35% value-content requirement.

Therefore, because Protestant submitted sufficient documentation to support its entries supplied by Supplier A, Supplier B, Supplier D, and Supplier E, but did not submit sufficient documentation to support its entries supplied by Supplier C, the AFR of Protest No. 5309-12-100681 should be granted with regard to the first, second, fourth, fifth, and seventh entry and denied with regard to the sixth entry. The third entry should be granted with regard to line item one as supplied by Supplier A and denied with regard to line item two as supplied by Supplier C.

HOLDING:

We note that the decision herein is based upon the specific facts of this case and the documents submitted to and reviewed by this office. You are instructed to allow the protest in part and deny the protest in part. With regard to the entries supplied by Supplier C, the protest should be denied. With regard to the remaining entries, the protest should be allowed.

In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director
Commercial & Trade Facilitation Division