OT:RR:CTF:VS H249770 HkP
Port Director
Port of Savannah
U.S. Customs and Border Protection
1 East Bay Street
Savannah, GA 31401
RE: Application for Further Review of Protest 1703-13-100268; U.S.-Israel Free Trade Agreement; Direct Costs; Calcium Saccharin
Dear Port Director:
This is in response to Application for Further Review of Protest 1703-13-100268, filed on behalf of Latitude Ltd., concerning the eligibility of Calcium Saccharin for preferential tariff treatment under the U.S.-Israel Free Trade Agreement (“U.S.-Israel FTA”). We apologize for our delay in responding to you.
FATCS:
The importer purchased Calcium Saccharin from a manufacturer in Israel. According to the submitted information, the manufacturer makes Calcium Saccharin by adding Saccharin Acid from China to a Calcium Hydroxide suspension and processing the mixture into a new chemical compound in Israel.
On April 26, 2010, the importer entered 17,000 kilograms (“kgs.”) of Calcium Saccharin from Israel, classified under subheading 2925.11.0000, Harmonized Tariff Schedule of the United States (“HTSUS”), and made a claim for preferential tariff treatment under the U.S.-Israel FTA. The declared value was $162,000. According to a Notice of Action (CBP Form 29), dated July 5, 2011, U.S. Customs and Border Protection (“CBP”) performed a verification that indicated that the imported chemical did not qualify for preferential duty treatment under the U.S.-Israel FTA, and as a result the entry was rate advanced. The entry was liquidated on March 1, 2013, and the Protest and AFR were timely filed on August 27, 2013, on the basis that the imported chemical was a product of Israel and qualified for duty preference under the U.S.-Israel FTA.
In the Customs Protest and Summons Information Report (Customs Form 6445A), dated December 6, 2013, the port explained that the protest was denied because the importer’s documentation did not demonstrate that the good met the requirements of the U.S.-Israel FTA, GN 8(b)(iii), HTSUS, which requires that the cost or value of materials produced in Israel plus the direct costs of processing equal not less than 35% of the appraised value (discussed below). According to the port, the importer performed its calculation on the basis of an average unit value of $7,300/ton ($7.30/kg), and Israeli-origin materials and direct processing costs of $2,700, which resulted in a 37% qualifying cost. However, the port stated that the per ton value at entry was actually $9,529/ton ($9.52/kg), which meant that the direct costs of processing in Israel was only 28%, which did not meet the qualification threshold. The port also stated in the Report its belief that the appraised value should actually be $9,000/ton ($9.00/kg), a figure apparently based on ex works invoices issued by the manufacturer to the importer.
ISSUE:
Whether the Calcium Saccharine imported from Israel is eligible for duty preference under the Israel FTA.
LAW AND ANALYSIS:
General Note 8(b), HTSUS, which details the provisions of the U.S.-Israel FTA provides:
For purposes of this note, goods imported into the customs territory of the United States are eligible for treatment as "products of Israel" only if—
each article is the growth, product or manufacture of Israel or is a new or different article of commerce that has been grown, produced or manufactured in Israel;
each article is imported directly from Israel (or directly from the West Bank, the Gaza Strip or a qualifying industrial zone as defined in general note 3(a)(v)(G) to the tariff schedule) into the customs territory of the United States; and
(iii) the sum of--
(A) the cost or value of the materials produced in Israel, and including the cost or value of materials produced in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, plus
(B) the direct costs of processing operations performed in Israel, and including the direct costs of processing operations performed in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, is not less than 35 percent of the appraised value of each article at the time it is entered.
It is not in dispute that the imported good meets the requirements of GN 8(b)(i) and (ii). Saccharin Acid from China is mixed into a Calcium Hydroxide suspension and the mixture is processed into a new chemical compound, Calcium Saccharin, in Israel. See, for e.g., Headquarters Ruling Letter (“HQ”) 563014, dated October 20, 2004 (“When chemical compounds are mixed together to form a different substance and the individual properties of each ingredient are no longer discernable, they have undergone a substantial transformation.”). The Calcium Saccharin is then imported directly from Israel into the United States. The only issue to be resolved is whether the imported good met the requirements of GN 8(b)(iii), HTSUS, which requires that the cost or value of materials produced in Israel plus the direct costs of processing equal not less than 35% of the appraised value of the good at the time it is entered.
We note that when an article is produced from materials that are imported into Israel, the cost or value of those imported materials may be included in satisfying the 35% value-content requirement only if they undergo a double substantial transformation in Israel. In order to achieve a double substantial transformation, the non-Israeli inputs must be substantially transformed in Israel into new and different intermediate articles of commerce, which are then used in Israel in the production of the final imported product. The intermediate material itself must be an article of commerce, which must be "readily susceptible of trade, and be an item that persons might well wish to buy and acquire for their own purposes of consumption or production." Torrington Co., v. United States, 764 F.2d 1563, 1570 (Fed. Cir. 1985). See, for e.g., HQ 563014, supra (Benzaldehyde from the Netherlands underwent a double substantial transformation in Israel, first into Bromobenzaldehyde (“MBBA”) and then into Meta-Bromophenyl-Dioxolane (“MBPD”), such that its cost or value was counted toward the 35% value content requirement.). In this case, while the Calcium Saccharin is a product of Israel, no evidence was submitted to show that a double substantial transformation occurred, such that the Chinese Saccharin Acid may be counted toward the 35% value content requirement. Rather, according to the evidence presented, seventeen thousand (17,000) kilograms of Calcium Saccharin were imported with a declared value of $162,000, indicating a per kilogram value of $9.529 ($9,529 per ton). The declared value was accepted by the port, and was not disputed by the importer in the protest. Further, Israeli-origin materials (as noted, the cost of the Chinese Saccharin Acid may not be counted) and the direct costs of processing in Israel totaled $2,700 per metric ton, which is 28.33% of $9,529. Based on this calculation, we find that the 35% threshold required by GN 8(b)(iii), HTSUS, was not met, and that the imported chemical does not qualify for preferential tariff treatment under the U.S.-Israel FTA.
HOLDING:
The imported Calcium Saccharin is not eligible for preferential tariff treatment under the U.S.-Israel FTA as the 35% value content requirement has not been met.
The protest should be denied. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), 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 the mailing of the decision. Sixty days from the date of the decision the Office of International
Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public at www.cbp.gov by means of the Freedom of Information Act and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division