CLA-2 RR:CR:SM 561454 BLS
CLASSIFICATION: 8519.88.0045
Port Director
U.S. Customs Service
11099 S. La Cienega
Los Angeles, CA 90045
RE: Application for Further Review of Protest No. 2720-99-100221; eligibility of compact disc player for duty-free treatment under GSP; “product of”;T.D. 91-7; HRLs 560050, 556451
Dear Sir:
This is in reference to an application for Further Review of Protest No. 2720-99-100221, timely filed on behalf of Pioneer Electronics (USA), Inc. Pioneer protests the increase in duties resulting from Customs denial of the claim for duty-free treatment of compact disc players under the Generalized System of Preferences (GSP).
FACTS:
Protestant entered automotive compact disc players imported from Thailand under subheading 8519.99.0045, Harmonized Tariff Schedule of the United States (HTSUS), and claimed duty-free treatment under the Generalized System of Preferences (GSP). The disc players were imported and sold and used as a single unitary article although certain components of the article are not assembled or wired together until the article is imported and installed in the vehicle. The unassembled components included a Japanese-origin magazine assembly which holds the CD discs to be played and a display assembly (face plate).
Your office denied the claim for GSP treatment, because of the presence of the non-BDC magazine assembly and display assembly packaged with the other components.
ISSUE:
Whether the compact disc player is eligible for duty-free treatment under the GSP.
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LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product or manufacture of a beneficiary developing country (BDC) which are imported directly into the customs territory of the U.S. from a 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 operations in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry into the U.S. See, 19 U.S.C. 2463(a).
Thailand is a designated BDC. See General Note 4(a), HTSUS. The compact disc player is classifiable under subheading 8519.99.0045, HTSUS. Articles provided for in this provision are eligible for duty free treatment under the GSP provided that they are a "product of" a BDC, they are imported directly from a GSP country, and the 35% value content requirement is met.
The “product of” requirement means that to receive duty free treatment, an article either must be made entirely of materials originating in the BDC (or an association of countries, such as ASEAN, treated as one BDC), or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new or different article of commerce.
In Treasury Decision (T.D.) 91 7, Customs held that as a general rule, a collection of articles classifiable in one subheading pursuant to the GRI's will receive GSP or Caribbean Basin Initiative (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, 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 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. Therefore, it is Customs position that pursuant to T.D. 91 7, an imported article in its entirety must be a "product of" a GSP country in order for it to receive duty free treatment.
As noted, the Japanese-origin components of the disc player were unassembled upon importation. Protestant argues nevertheless that the imported articles should be considered a “product of” Thailand and thus entitled to duty-free treatment provided the
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other statutory requirements are satisfied. Protestant contends that Customs reliance upon T.D. 91-7 is misplaced, for the reason that the Treasury Decision concerned only the tariff treatment of sets, mixtures and composite goods classifiable under Generalized Rules of Interpretation (GRI) 3(a) or (b), in contrast to the subject disc player, classifiable under GRI 1 as a separate and distinct article of commerce.
In HRL 560050 dated October 29, 1997, Customs found that a plug in regulator/AC adapter of Chinese origin, packaged with a cordless telephone set in the Philippines, was not substantially transformed in that country as a result of the packaging operation. Therefore, because the entire imported cordless telephone set was not a "product of" the Philippines, we held that neither the cordless telephone nor any of the components of the article were entitled to duty free treatment under the GSP program. In that case, we stated that the telephone set was properly classifiable under subheading 8517.11.00, HTSUS, pursuant to GRI 1.
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, were not entitled to duty free treatment under the GSP since the "product of" requirement was not met. In that case, 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.
See also HRL 556451 dated January 28, 1992 (mere packaging of Taiwanese origin components of a toy chemistry kit with the other items in the kit did not substantially transform these non BDC components into "products of" Israel (formerly a “BDC”)).
We find that these cases are controlling in this case as the Japanese-origin components merely packaged with the other items comprising the disc player similarly do not undergo a substantial transformation. Furthermore, we do not consider these non-BDC items to be de minimus, as it appears that these components comprise approximately 16 percent of the value of the imported product. See, e.g., HRL 556451, supra, and HRL 559010 dated March 14, 1996.
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Therefore, as the mere packaging of the Japanese-origin components with the other components of the disc player does not substantially transform these non-BDC components into “products of” Thailand, neither the compact disc player nor
any of the components of the imported article are entitled to duty free treatment under
the GSP.
HOLDING:
As the entire imported article is not a “product of” Thailand, the compact disc player is not eligible for duty-free treatment under the GSP. Therefore, the protest should be denied in full.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant attached to the Form 19, Notice of Action, no later than 60 days from the date of this letter. Any reliquidation of the entries in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Ruling Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division