OT:RR:CTF:VS H315391 AP
Center Director
Industrial & Manufacturing Materials CEE
U.S. Customs and Border Protection
726 Exchange Street, Suite 400
Buffalo, NY 14210
Attn.: Nicholas Bishop, CBP Import Specialist
RE: Application for Further Review of Protest Number 0401-20-102492; GSP; AMPET; PET Resin Chips; Double Substantial Transformation
Dear Center Director:
The following is our decision regarding the Application for Further Review (“AFR”) of Protest Number 0401-20-102492, timely filed on October 22, 2020, on behalf of Ravago Americas LLC d/b/a Burcham International (“importer”). The AFR concerns the eligibility of crystallized polyethylene terephthalate (“PET”) resin chips imported from Pakistan for duty-free treatment under the Generalized System of Preferences (“GSP”).
You have asked that certain information submitted in connection with this AFR be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R.
§ 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets in italics and all attachments to this AFR, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision.
FACTS:
The merchandise at issue consists of crystallized PET resin chips, also known as Gatronova SSP Homopolymer IV 1.00 VIS GTE 78 LTE, Gatronova A-66 SSP Homopolymer Polyester Chips, or PET Resin Chips with an intrinsic viscosity of 0.63 or higher, which were imported directly from Pakistan. These PET resin chips are used in the production of thermoplastic products such as thermoforming sheets and strapping sheets.
The PET resin chips were manufactured in Pakistan from pure terephthalic acid (“PTA”) from countries A, B, and C [ ]; mono ethylene glycol (“MEG”) from country D [ ]; diethylene glycol from country E [ ]; catalyst from country A [ ]; ortho phosphoric acid from country F [ ]; and blue and red toner from country G [ ]. The PTA and the MEG were the primary ingredients. A melt-phase polymerization treatment created uncrystallized amorphous PET resin chips (“AMPET” or “amorphous chips”) with an intrinsic viscosity equal or below 0.63 deliciters per gram used to manufacture bottle grade PET resin, PET resin chips, and biaxially oriented PET films for packaging. The amorphous chips were created through a controlled chemical reaction between PTA and MEG in a melt-phase polymerization process involving paste preparation, esterification, pre-polycondensation, final polycondensation, and chips production. The amorphous chips could be bagged for sale to customers or converted into the instant merchandise (crystallized PET resin chips with an intrinsic viscosity of 0.63 deciliters per gram or higher).
To convert the AMPET into PET resin chips, the AMPET were heated in large cylindrical reaction towers. The steps involved, as described by the importer, were: “heating the [amorphous] resin chips in a gravimetric feeder unit, circulating nitrogen for fluidization and heating of the chips, separating the dust from the circulating nitrogen by means of a twin cyclone, passing the dedusted chips into the reactor where the solid-state polycondensation takes place, removing the reaction products and volatile impurities, mixing gas stream coming from the reactor and first crystallizer with nitrogen, burning the hydrocarbon by-products, drying, heating and recycling the nitrogen to the reactor and cooling the PET resin chips by means of circulation of cooling water and conveying the PET resin chips to storage silos.”
From July 23, 2019 through November 28, 2019, the PET resin chips were entered under subheadings 3907.69.0050 and 3907.61.0050, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”), which are GSP eligible provisions containing the Special Program Indicator (“SPI”) “A” in the Special Rate of Duty column. On July 17 and 31, 2020, the Industrial and Manufacturing Materials Center of Excellence and Expertise (“CEE”) concluded that the submitted documentation did not establish a double substantial transformation and denied GSP treatment to the entries upon liquidation.
On June 9, 2021, the U.S. Customs and Border Protection (“CBP”) New York Laboratory advised that, “AMPET is the starting material” for the production of the PET resin chips and that the final product “has a higher molecular weight and unlike AMPET, is crystalline in structure. This makes their PET a separate and distinct product than their starting material, AMPET.” On June 10, 2021, the CBP New York Laboratory further explained that, “[T]here is a change in appearance of the product (transparent chips – AMPET to opaque chips (CPET)), a change in form since the short chain length or molecular weight (low molecular weight) increases when you further process a melt phase product by a secondary solid state polymerization which is reflected by the increased [i]ntrinsic viscosity needed for PET bottles manufacturing and other products. There is no change in name – both are considered PET, however descriptors can sometimes be used such as AMPET (amorphous PET) and CPET (crystalline PET). When using the term crystalline it does not infer a fully crystalline product, just an increase in the level of crystallinity (semi crystalline).”
ISSUE:
Whether the imported PET resin chips are eligible for preferential tariff treatment under the GSP.
LAW AND ANALYSIS:
We note that the matter protested is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed, within 180 days of liquidation for the entry. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further review of this protest is properly accorded to the importer pursuant to 19 C.F.R.
§ 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon.
Under the GSP, eligible articles, which are the growth, product, or manufacture of a designated beneficiary developing country (“BDC”) and 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(a)(2)(A).
Pursuant to General Note 4(a), HTSUS, Pakistan is a designated BDC for GSP purposes and may be afforded preferential treatment if the imported merchandise is classified in a GSP-eligible provision containing SPI Code A. As indicated above, the PET resin chips were classified under subheadings 3907.69.0050 and 3907.61.0050, HTSUSA, which are GSP eligible provisions. The goods satisfy the “imported directly” requirement because they were imported into the United States directly from Pakistan.
The first issue is whether the subject PET resin chips are a “product of” Pakistan. To receive duty-free treatment under the GSP, an article must be a “product of” the BDC. A good is considered to be a “product of” a BDC if it is wholly the growth, product, or manufacture of a BDC, or has been substantially transformed in the BDC into a new or different article of commerce. See 19 U.S.C. § 2463(a)(3); 19 C.F.R. § 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.” Torrington Co. v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985) (citing Anheuser-Busch Brewing Ass’n v. United States, 207 U.S. 556, 562 (1908) and Texas Instruments v. United States, 69 CCPA 151, 681 F.2d 778 (1982)). In Headquarters Ruling Letter (“HQ”) 560321, dated Dec. 31, 1997, melamine monomeric crystals and formaldehyde underwent a substantial transformation when they were reacted together to create a prepolymer, which was a new article with a different use. When chemical compounds “are mixed together to form a different substance and the individual properties of each ingredient are no longer discernable, a substantial transformation results.”
HQ 556189, dated Mar. 16, 1992, citing HQ 555989, dated June 24, 1991. Here, during the melt-phase polymerization treatment in Pakistan, the raw materials reacted together and were substantially transformed into a different substance, AMPET, with a new name, character and use, which subsequently formed PET resin chips with a new character and use. Therefore, the PET resin chips are a “product of” Pakistan for the purposes of the GSP.
To be eligible for duty-free treatment under the GSP, the PET resin chips must also satisfy the 35 percent value-content requirement. If an article consists of materials that are imported into a BDC, as in the instant case, the cost or value of these materials may be counted toward the 35 percent value-content requirement only if they undergo a double substantial transformation in the BDC. See 19 C.F.R. § 10.177(a)(2). Materials imported into the BDC must first be substantially transformed into a new and different article of commerce which becomes “material produced” and these materials produced in the BDC must then undergo a second substantial transformation into a new and different article of commerce (the final article). See Drexel Chem. Co. v. United States, 27 CIT 804 (2003) (a double substantial transformation occurred when a dichloro diphenyl dimethyl urea cake was air milled into fine particles because the physical and chemical changes to the cake resulted in a usable herbicide).
Thus, we need to determine whether the AMPET produced in Pakistan underwent a second substantial transformation in Pakistan when they were used to make the PET resin chips. The importer argues that a second substantial transformation occurred in Pakistan when the AMPET were heated in a large cylindrical reaction towers and then cooled in a closed-circuit heat exchange to form the PET resin chips.
We concur that the amorphous chips underwent a double substantial transformation in Pakistan when used to make the crystallized PET resin chips. If the intermediate and final articles are distinct articles of commerce then the double substantial transformation requirement is satisfied. See HQ H041939, supra. In HQ 560321, supra, alpha cellulose, pigments, lubricants and catalysts were substantially transformed when subsumed into a melamine-formaldehyde prepolymer because they became a new and different article (melamine molding compound, a separate article of commerce). These materials were also transformed a second time when the melamine molding compound was substantially transformed into another new and different article (a finished, undecorated melamine dinner plate).
Similarly, the AMPET, which are formed from PTA, MEG, diethylene glycol, catalyst, ortho phosphoric acid, blue toner and red toner, are new and distinct intermediate articles of commerce with a new character and use. The AMPET are separate articles of commerce that could be bagged for sale to customers or converted into PET resin chips. The heating and cooling of the AMPET further transforms them into another distinct article of commerce (the finished PET resin chips) with a new character and dedicated use distinct from that possessed by the AMPET. The CBP New York Laboratory confirmed that the intermediate AMPET and the final PET resin chips had different appearance, form, and use. The final PET resin chips are crystalline in structure and have a higher molecular weight than the AMPET. During the transformation of AMPET into PET resin chips, the low molecular weight of the PET resin chips increased, which resulted in their increased intrinsic viscosity. The intermediate AMPET had an intrinsic viscosity equal or below 0.63 deliciters per gram and could be used to manufacture bottle grade PET resin, PET resin chips, and biaxially oriented PET films for packaging. The final PET resin chips have an intrinsic viscosity of 0.63 or higher, and are used in the production of thermoforming sheets and strapping sheets. Accordingly, the final PET resin chips underwent a double substantial transformation.
Finally, the importer details the manufacturing cost of AMPET in the first stage of polycondensation and the manufacturing cost of PET resin in the second stage of polycondensation. See [ ]. In the first stage of polycondensation, the cost of the imported raw materials transformed into AMPET in Pakistan is [ ] percent ($[ ]) and the direct costs of the manufacturing operations (labor, depreciation and manufacturing overheads) is [ ] percent ($[ ]). In the second stage of polycondensation, the film grade resin costs in Pakistan are [ ] percent
($[ ]), the direct costs are [ ] percent ($[ ]), and the packing costs are [ ] percent ($[ ]). Thus, the AMPET amount to over 97 percent of the value of the PET resin and the direct costs that occurred in Pakistan, and the 35 percent value-content requirement is met.
HOLDING:
Based on the information provided, the raw ingredients undergo a substantial transformation in Pakistan when they are transformed into PET resin chips, and therefore, the imported crystallized PET resin chips would be considered a “product of” Pakistan for the purposes of the GSP.
Further, the AMPET undergo a second substantial transformation and and could be counted toward the 35 percent value-content requirement for the purposes of the GSP.
Accordingly, this protest should be GRANTED.
In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the importer, through its counsel, no later than 60 days from the date of this letter. Any reliquidation of the entries in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision Regulations and Rulings, Office of Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
for Craig T. Clark, Director
Commercial and Trade Facilitation Division