MAR-05 RR:CR:SM 562359 NL
Port Director
U.S. Customs Service
1000 Second Avenue, Suite 2100 Seattle, WA 98104-1020
RE: Protest No. 3001-01-100432; Generalized System of Preferences; Laboratory Analysis of Metallic Structure
Dear Port Director:
This office has considered the application of API International, Inc. (API) for further review of the above-referenced protest. The decision of this office follows.
FACTS:
API imported steel flanges at Seattle on January 23, 2001. The entry summary and commercial invoice indicated that India was the country of origin of the flanges. The entry summary indicated by use of the symbol “A” as a prefix to the claimed HTSUS subheading that duty-free treatment under the Generalized System of Preferences (GSP) was being claimed.
Classification of the flanges is not at issue. Customs officials agreed that they were properly classified under subheading 7307.91.50, HTSUS, which provides for tube or pipe fittings of iron or steel, other, flanges, other. Products of India classified under subheading 7307.91.50 may be entitled to duty free treatment under the GSP upon compliance with applicable regulations.
By a CF 28 Request for Information dated May 11, 2001, Customs officials asked API to provide copies of all invoices, contracts, purchase orders, confirmation of orders and/or sales, and proof of all payments made. Customs officials also requested a copy of the GSP declaration with proof that the direct costs of production of the flanges was not less than 35 percent of their appraised value. By a CF 29 Notice of Action dated June 20, 2001, Customs proposed to deny GSP treatment. The Notice advised that analysis of a sample flange at a Customs Laboratory had suggested an inconsistency in API’s submission. Customs advised that the laboratory report stated that the flanges were manufactured from upset forgings, while API’s documents stated that the flanges were manufactured from hot rolled plates. API was afforded 20 days, later extended, in which to furnish materials in support of its position.
During the period before liquidation, API filed responsive documents, many obtained from suppliers in India. It submitted additional related documents after liquidation in support of the instant Protest. These materials reflected the Protestant’s position that the flanges were produced in India wholly from material originating in India. Specifically, the Protestant asserted that this material was hot rolled carbon steel produced in India from billets produced in India. The commercial invoices and representations from Indian producers and suppliers throughout the stages of production provided prima facie support for this claim. The submissions included a micro examination report prepared by an inspection and testing company in India, and a chemical and microstructure analysis undertaken by a testing concern in the U.S. The Indian report observed that the grain structure was characteristic or suggestive that the material had been hot-rolled. The U.S. report observed that the microstructure was normal for carbon steel plate material.
As indicated above, analysis by the Customs Laboratory reached a different conclusion. An initial report, dated April 13, 2001, stated that the sample flange examined had been machined from an upset forging. A supplemental report dated August 13, 2001, concluded that the forging could not have come from machining a disk from a rolled plate. These analyses were prepared under Customs Laboratory reference No. SF20010154.
Customs liquidated the entry on August 10, 2001. The statement of the Customs Service position in the CF 6445A Protest Summons and Information Report indicates that the position is based upon the conclusions of Customs Laboratory Report SF20010154. It was determined that because the Customs laboratory analysis contradicted the importer’s documentation, the veracity of all documents submitted by the importer was called into question. Pursuant to 19 CFR 10.177(b), the flanges were found to be of questionable origin, and not eligible to be treated as having been produced in the beneficiary developing country. On this rationale the importer’s claim for GSP duty-free treatment was denied, and duty was assessed at 5.5 percent ad valorem. In sum, the Customs Laboratory provided evidence that the materials used to produce the flanges were not as stated by the importer. This finding in turn provided the basis for rejecting all of the importer’s representations, and for treating the flanges as being of questionable origin pursuant to 19 CFR 10.177(b).
The instant Protest and Application for Further Review was timely filed on November 7, 2001.
Pursuant to this office’s review of the Protest, the Headquarters Office of Laboratories and Scientific Services (LSS) reviewed the reports of laboratory analysis concerning the subject flanges. By memorandum dated September 27, 2002, LSS advised as follows:
Upon review, the sample in question has a machined surface that has been further fabricated to include bolt-holes. As a consequence, these processes can alter the original manufacturing condition of the product. Thus, to definitively determine the method of manufacture for this sample comparison with similar products of known origin and manufacturing methodology would be required.
Accordingly, since Laboratories and Scientific Services does not have reference samples of the claimed origin and manufacturing process to compare with the instant sample, the findings stated in laboratory report SF20010154 are inconclusive.
ISSUE:
Did Customs properly deny the importer’s claim that the flanges were eligible for GSP as articles wholly a product or manufacture of India?
LAW & ANALYSIS:
Under the GSP, eligible articles the growth, product or manufacture of a designated 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 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(b)(1). The Customs implementing regulations are found at 19 CFR §10.171 et seq.
This case does not call for determinations as to whether the merchandise is a product of India or whether 35 percent cost or value requirement is met. Here, if the importer’s claim that the flanges were wholly the product of India is accepted, it may be presumed that the statutory criteria were satisfied. See 19 CFR §10.176(c). Accordingly, the key consideration is whether the Customs Laboratory report supported the finding that the flanges were not wholly produced in India.
The Headquarters Office of Laboratories and Scientific Services has advised this office concerning its review of the data previously considered by the Customs Laboratory and other expert specialists. In view of that office’s advice that the data on the microstructure of the flange is inconclusive with respect to its method of manufacture, the initial Customs Laboratory reports should not be relied upon.
Therefore, in consideration of the substantial documentation and other evidence submitted by the Protestant in support of its GSP claim, in the absence of evidence in the record to question the Protestant’s declaration of GSP eligibility, the claim that the flanges were wholly the product of India and eligible for GSP duty treatment should be allowed.
HOLDING:
Protest No. 3001-01-100432 should be ALLOWED.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550065, dated August 4, 1993, this decision and the Customs Form 19 are to be mailed to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon
Acting Director
Commercial Rulings Division