CLA-2 CO:R:C:S 556382 WAW
District Director
U.S. Customs Service
880 Front Street
Room 5S9
San Diego, CA 92101
RE: Protest No. 2501-91-100054 concerning the eligibility of
Doctor/Nurse Kits from Mexico for duty-free treatment under
the GSP; classification; 9503.70.8000
Dear Sir:
This is a decision on an Application for Further Review of
the above-referenced protest filed by Stein Shostak Shostak &
O'Hara on behalf of Imperial Toy Corporation against the
classification and assessment of duties on Doctor/Nurse Kits
imported into the U.S. from Mexico. We have considered the
protest and our decision follows.
FACTS:
The Doctor/Nurse Kit consists of a plastic doctor or nurse
bag which is molded in Mexico using plastic pellets of U.S.-
origin and various toy doctor and nurse components (e.g.,
stethoscope, thermometer, earscope, pan, knee tapper, microscope,
etc.), manufactured in China and packaged in Mexico with the bag
in a retail carton and shipped to the U.S. The subject
merchandise was entered and liquidated under subheading
9503.90.6000, Harmonized Tariff Schedule of the United States
Annotated (HTSUSA), the provision for other toys (except models)
not having a spring mechanism. The applicable rate of duty for
that subheading is 6.8 percent ad valorem. The protestant
maintains that the merchandise should have been classified and
liquidated 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 protestant is also
claiming that the merchandise is entitled to duty-free entry
under the Generalized System of Preferences (GSP) (19 U.S.C.
2461-2466).
ISSUE:
(1) What is the proper tariff classification of the
Doctor/Nurse Kits under the HTSUSA.
(2) Whether the Doctor/Nurse Kits are eligible for duty-
free treatment under the GSP.
LAW AND ANALYSIS:
Classification
Classification under the Harmonized Tariff Schedule of the
United States Annotated (HTSUSA) is made in accordance with the
General Rules of Interpretation (GRI's). The systematic detail
of the harmonized system is such that virtually all goods are
classified by application of GRI 1, that is, according to the
terms of the headings of the tariff schedule and any relative
Section or Chapter Notes. In the event that the goods cannot be
classified solely on the basis of GRI 1, and if the headings and
legal notes do not otherwise require, the remaining GRI's may
then be applied.
The Doctor/Nurse Kits can be classified by reference to GRI
1. This merchandise is classifiable in 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
duty rate is 6.8 percent ad valorem.
Generalized System of Preferences
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).
If an article is produced or assembled from materials which
are imported into the BDC, the cost or value of those materials
may be counted toward the 35% value-content minimum only if they
undergo a double substantial transformation in the BDC. See
section 10.177, Customs Regulations (19 CFR 10.177), and Azteca
Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd,
890 F.2d1150 (Fed.Cir. 1989).
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." See The Torrington Co., v. United States, 596 F. Supp.
1083 (CIT 1984), aff'd, 764 F.2d 1563, (Fed. Cir. 1985), citing
Texas Instruments Incorp. v. United States, 520 F. Supp. 1216
(CIT 1981), rev'd, 681 F.2d 778 (CCPA 1982).
As stated in General Note 3(c)(ii)(A), Harmonized Tariff
Schedule of the United States Annotated (HTSUSA), Mexico is a
designated BDC. Articles provided for in a provision in the
HTSUSA for which a rate of duty of "Free" appears in the
"Special" subcolumn followed by the symbols "A" or "A*" in
parentheses have been designated by the President to be eligible
articles for purposes of the GSP. See General Note 3(c)(ii)(C)
HTSUSA.
We previously determined that the Doctor/Nurse Kits are
properly classified in subheading 9503.70.8000, HTSUSA, the
provision 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 Doctor/Nurse Kits 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.
One of the requirements for duty-free treatment under the
GSP program is that the eligible article must satisfy the 35%
value-content requirement. That is, the sum of the cost or value
of the materials produced in the BDC, plus the direct costs of
processing operations performed in the BDC, must equal or exceed
35% of the appraised value of the imported article. In
determining whether this requirement has been satisfied with
respect to sets which are classifiable under one subheading
pursuant to the GRI's, the includable material and direct costs
must be compared to the appraised value of the entire collection
of materials or components (e.g., the entire set). See T.D. 91-
7 dated January 16, 1991 (25 Cust. Bull. 6).
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 BDC or, if made of
materials from a non-BDC, those materials must be substantially
transformed in the BDC 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.
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 BDC. 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-BDC 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.
In the instant case, since the merchandise was entered for
consumption on August 20, 1990, and thereafter, the merchandise
must be considered a "product of" Mexico in order for it to
receive duty-free treatment. Because the merchandise includes
component parts which are sourced outside of Mexico, it is clear
that these parts are not wholly the growth, product, or
manufacture of that BDC. The mere packaging of the Chinese-
origin components with the other items in the set clearly will
not substantially transform these components into a "product of"
Mexico. 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). Furthermore, the
Chinese toy components which include, among other things, the toy
stethoscope, thermometer, earscope, and knee tapper, constitute
an integral part of the entire set without which the Doctor/Nurse
Kit would simply consist of a doctor (or nurse) bag.
It is the protestant's opinion that because the Doctor/Nurse
Kits are classifiable under GRI 1 as toys put up in sets under
subheading 9503.70.8000, HTSUSA, GRI 3(b) is not applicable, and
the set is entitled to duty-free treatment regardless of the
addition of the non-BDC component parts. However, 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 components and Chinese farm animals which
are simply packaged with the Mexican components in Mexico, are
not entitled to duty-free treatment since the "product of"
requirement has not been met. 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.
Therefore, because the entire imported Doctor/Nurse Kits are not
"products of" Mexico, 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 set 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.
HOLDING:
The Doctor/Nurse Kits are classified in 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 duty rate is 6.8 percent ad valorem. The portion
of the protest relating to the classification issue should be
granted.
Because the entire imported Doctor/Nurse Kits are not
"products of" Mexico, as required under the GSP statute, neither
the set nor any of the components in the set is entitled to duty-
free treatment under this program. The portion of the protest
relating to the GSP issue should be denied.
A copy of this decision should be attached to the Customs
Form 19 and mailed to the protestant as part of the notice of
action on the protest.
Sincerely,
John Durant, Director
Commercial Rulings Division
cc: Otay Mesa Border Station
1100 Paseo Internacional
Entry Control, Protest Rm. 317
San Ysidro, CA 92073