• HQ H120923
• Nov 22, 2011

• Type : VALUATION • HTSUS :

CLA-2 OT:RR:CTF:VS H120923 RSD

Port Director
U.S. Customs and Border Protection
Port of New York/Newark
Protest & Control
1100 Raymond Blvd. Suite 402
Newark, New Jersey 07102

RE: Protest: 4601-10-100057, Reliquidation, Generalized System of Preferences, Polyamides

Dear Port Director:

This is in response to your memorandum of August 18, 2010, forwarding the above referenced protest filed by counsel on behalf of Rhodia Inc. (Rhodia) claiming preferential tariff treatment under the Generalized System of Preference (GSP). Rhodia made an additional submission dated November 30, 2010. Counsel submitted additional cost information in emails sent on April 24, 2011 and October 18, 2011. Our decision follows. FACTS:

The imported merchandise at issue is a polyamide resin identified as STABAMID 26FS1 B PA 66 (STABAMID). According to the information supplied by Rhodia, a polyamide is an engineered plastic and most useful for applications requiring high mechanical properties along with chemical and temperature resistance and an excellent finish. The specific polyamide in this case, STABAMID, is used in the production of carpet and technical yarns. It is classified in subheading 3908.10.00, Harmonized Tariff Schedule of the United States (HTSUS). Rhodia imported the STABAMID from Brazil.

The imported STABAMID under consideration was entered on August 18, 2008. In response to a Request for Information dated January 12, 2009, Rhodia submitted information in support of its position that the product qualified for duty-free treatment under the GSP. On July 5, 2009, Customs and Border Protection (CBP) liquidated the entry at issue as duty-free by granting the request for GSP treatment. Subsequently, CBP requested additional information to support the classification of the polyamide-66 under the GSP provision. Rhodia responded on Septem]ber 29, 2009. On October 1, 2009, CBP reliquidated the entry and billed Rhodia for payment of duties plus interest as cost data manufacturing production records were not provided at that time. It is our understanding that the re-liquidation notice was posted on a bulletin board at the Customshouse in Newark, New Jersey, and that the importer did not respond to the posted notice. Protestant filed a protest against the liquidation of the entry without benefit of the GSP.

According to Protestant’s counsel, the manufacturing process takes place entirely in Brazil. The polyamide is produced from a 55 percent nylon salt solution. Rhodia’s subsidiary manufactures the nylon salt solution in Brazil using raw materials that are also made in Brazil. The first step in the manufacturing process takes place at Rhodia’s plant in Paulinia, Brazil using a chemical called Cyclohexanol which reacts with Nitric acid to form Adipic acid. Next, Adiponitrile and hydrogen are separately reacted at the Paulina plant to yield a chemical called Hexamethylenediamine (HMD). The nylon salt is produced by a chemical reaction between the Adipic acid in solution with the (HMD) in solution. The result of this chemical reaction produces the chemical examethylenediammonium adipate, commonly called “nylon salt.” The reaction generates heat, which is removed by a heat exchanger. Additional water and HMD are added to adjust the pH and to reach the desired concentration (i.e. 55 percent). The 55 percent nylon salt solution is pumped into storage.

To produce the STABAMID, the 55 percent nylon salt solution is mixed with Manganese Acetate, Acetic Acid and HMD. By volume, the nylon salt accounts for over 99 percent of the raw materials used in producing the STABAMID. The mixture is then heated to evaporate water and to concentrate the nylon salt solution. The concentrated mixture is introduced to a reactor where the polymerization occurs. In the reactor, the blend polymerizes and the additional water is separated. The pre-polymer is transferred to a second reactor to separate the remaining water and achieve the final molecular weight. The final polymer is pumped through a die and emerges as strands of a solid polymer. The polymer strands are water and air cooled, and chopped into granules or pellets. The pellets are then packed.

Rhodia submitted production records for the imported STABAMID. The production records show that the nylon salt is the greatest raw material used to produce the STABAMID by volume. In the November 30 submission, Counsel submitted a certification from the factory dated November 17, 2010, which attests to the relative value of the raw materials and the processing that took place in Brazil. That certification showed 83 percent of the value is attributable to the Brazilian origin. In addition, cost data originally submitted indicated that the Brazilian content of the imported STABAMID was 70.76 percent, while the data contained in the November 17, 2010, certification indicated that the Brazilian content was 83.03 percent. Counsel explains the reason for this difference was that the data submitted with the protest was based on 2009 production costs, while the data shown on the November 17, 2010, certification submission was based on 2010 production costs. Counsel adds that the production costs significantly increased between 2009 and 2010. Since these costs relate to production after 2008, they do not concern the entry under protest and are not relevant.

On October 18, 2011, Counsel for Rhodia sent an email with an attachment of a statement showing Rhodia’s production costs for the STABAMID in the year 2008. Rhodia’s Engineering Plastic and Polymers Director prepared the cost statement which is dated August 1, 2008. According to counsel, it covers the period when the specific batch of the STABAMID under protest was produced. The statement indicates the production costs of the STABAMID expressed in terms of percentages of its FOB Price. It shows that the raw materials, components or other materials of Brazilian origin, including the nylon salt, additives (HMD), and packaging accounted for 83.83 percent of the FOB price of the STABAMID. The remaining materials, Manganese Acetate of German origin and Acetic Acid of U.S. origin, only account for 0.02 percent of the FOB Price. An additional 5.25 percent of the costs of producing the STABAMID were due to industrial processes that were performed in Brazil. The remaining costs of the STABAMID are attributable to industrial process/deducting the taxes refunded or refundable in case of Export and Margin Fee (i.e. profit). ISSUE:

I. Whether the port’s reliquidation of the entry was untimely.

II. Whether the imported polyamide identified as STABAMID imported from Brazil was eligible for preferential tariff treatment under the GSP.

LAW AND ANALYSIS:

Initially, we note that the information in the file indicates that the protest with application for further review was timely filed under the statutory and regulatory provisions for protest 19 U.S.C. § 1514(c)(3).

Reliquidation

Rhodia argues that CBP’s reliquidation of the entry was untimely because it was issued after the 90-day time limit for reliquidation. According to Rhodia, the port had 90 days from the date of liquidation on July 5, 2009 to reliquidate the entry. Rhodia asserts that the port reliquidated the entry when it issued the bill on October 16, 2009. Because that date was more than 90 days after the date of liquidation, Rhodia claims the reliquidation was untimely under 19 U.S.C. § 1501 and 19 C.F.R. § 173.3.

Pursuant to 19 U.S.C. § 1501 and 19 C.F.R. § 173.3, CBP may voluntarily reliquidate entries within 90 days from the date on which notice of the original liquidation was given to the importer, his consignee or agent. The purpose of voluntary reliquidation is to enable CBP officers to correct errors in the appraisement, classification, liquidation or reliquidation of the merchandise within the specified time period. See 19 C.F.R. § 173.3(a).

We find that the port’s reliquidation of the subject entry was timely. Although the entry at issue was liquidated on July 5, 2009, the notice of liquidation was not posted in the customshouse until the following day, July 6, 2009. Therefore, the port had until October 4, 2009, to reliquidate the entry. In this case, the port reliquidated the entry on October 1, 2009. The fact that the bill for additional duties was not issued until October 16, 2009, does not alter the date of reliquidation. See Headquarter Ruling (HQ) 957062, dated April 5, 1995 (noting that the date of reliquidation is the date on which the reliquidation is posted in the customshouse, not the date of the bill for additional duties). Therefore, because the port reliquidated the entry within the 90 day reliquidation period, the port’s reliquidation action was timely.

Generalized System of Preferences

Title V of the Trade Act of 1974, as amended (19 U.S.C.A. 2461-65), authorizes the President to establish a Generalized System of Preferences 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).

We first note that the imported STABAMID was classified in subheading 3908.10.00, HTSUS, which is a GSP-eligible provision and that Brazil has been designated as a BDC for purposes of the GSP. Thus, if the product at issue was produced in Brazil, it may be afforded preferential treatment under the GSP. See GN 4(a), HTSUS. Accordingly, the first issue that must be resolved in this case is whether the imported STABAMID was a “product of” Brazil.

A good is considered to be a “product of” a BDC if it is wholly the growth, product or manufacture of the BDC, or if made of materials imported into the BDC, those materials were substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.176(a). 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 this case, the evidence submitted by protestant’s counsel indicates that virtually all of the materials, with some minor exceptions, used in making the imported polyamide were of Brazilian origin. In addition, all of the processing steps, such as combining the material through the chemical reactions, were all performed in Brazil. Therefore, we find that the STABAMID was a product of Brazil.

The record indicates that there is no controversy as to whether the subject STABAMID was imported directly into the United States from Brazil.

The next consideration in our analysis for eligibility for duty-free treatment under the GSP statute, is to determine whether the merchandise has satisfied the 35 percent value-content requirement. For purposes of satisfying the 35 percent value-content requirement, 19 C.F.R. § 10.176(a) states, in pertinent part, that: Duty-free entry under the GSP may be accorded to an article only if the sum of the cost or value of the materials produced in the beneficiary developing country, plus the direct costs of processing operations performed in the beneficiary developing country or member countries, is not less than 35 percent of the appraised value of the article at the time it is entered. In determining the cost or value of the materials produced in a beneficiary developing country, the following can be considered: (i) the manufacturer’s actual cost for the materials; (ii) when not included in the manufacturer’s actual cost for the materials, the freight, insurance, packing, and all other costs incurred in

transporting the materials to the manufacturer’s plant; (iii) the actual cost of waste or spoilage (material list), less the value of recoverable scrap; and (iv) taxes and/or duties imposed on the materials by the beneficiary developing country, or an association of countries treated as one country, provided they are not remitted upon exportation. 19 C.F.R. § 10.177(c). "Direct costs of processing operations" are defined as costs either directly incurred in, or which can be reasonably allocated to, the growth, production, manufacture, or assembly of the specific merchandise under consideration. 19 C.F.R. § 10.178(a). These costs include, but are not limited to: (1) all actual labor costs involved in the growth, production, manufacture, or assembly of the specific merchandise, including fringe benefits, on-the-job training, and the cost of engineering, supervisory, quality control, and similar personnel; (2) dies, molds, tooling, and depreciation on machinery and equipment which are allocable to the specific merchandise; (3) research, development, design, engineering, and blueprint costs insofar as they are allocable to the specific merchandise; and (4) costs of inspecting and testing the specific merchandise. Id. Overhead costs may be counted toward the 35 percent value-content requirement as direct costs of processing operations only to the extent that the costs are directly incurred in, or can be reasonably allocated to, the growth, production, or manufacture or assembly of the imported product. See id. The Protested entry was made on August 18, 2008, and concerned a product produced in 2008. The submitted costs statement sheet dated August 1, 2008, indicated the production costs for the STABAMID produced in 2008. According to the statement the Nylon Salt of Brazilian origin is 82.749 percent of the value. Thus, based on the information contained on this cost sheet statement, we are satisfied that more than 83 percent of its value was directly attributable to Brazilian origin materials. Furthermore, according to the production costs statement, the industrial processes performed in Brazil accounted for another 5.25 percent of the value of the finished STAMAMID. Consequently, the evidence in the record substantiates that more than 35 percent of value of the subject STAMAMID under protest was incurred in Brazil, and thus the 35 percent value content requirement of the GSP has been met. Therefore, we find that Protestant has established that the requirements for eligibility under the GSP have been satisfied. Accordingly, we hold that the imported STABAMID qualifies for duty-free treatment under the GSP. HOLDING:

Although Protestant’s claim that the port’s reliquidation of the protested entry was untimely is without merit, based on the facts described above, the imported STABAMID 26FS1 BPA 66 has met the requirements for qualifying for the GSP duty-free tariff preference. Therefore, the protest should be granted in full. In accordance with the Protest/Petition Processing Handbook (CIS HB December 2007), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any re-liquidation of the entry or entries in accordance with the decision should be accomplished prior to mailing of this decision. Sixty days from the date of this decision, the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cpb.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,

Myles B. Harmon, Director
Commercial & Trade Facilitation Division