CLA-2 CO:R:C:S 557937 WAS

Mr. Mark Austin
Granite International Inc.
P.O. Box 9323
S. Burlington, VT 05407

RE: "Imported Directly"; GSP; 19 CFR 10.175; granite from Zimbabwe and South Africa

Dear Mr. Austin:

This is in response to your letter dated May 26, 1994, concerning the eligibility of granite blocks from Zimbabwe and South Africa for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). We had an opportunity to meet with you on September 8, 1994, to further discuss this matter. You also submitted additional information after the meeting which we have incorporated in our ruling.

FACTS:

You state that your company is presently involved in importing rough granite blocks from Zimbabwe and South Africa into the U.S. You have presented two scenarios which you have asked us to consider. Under the first scenario, granite blocks are imported into the U.S. through Canada. However, the original bill of lading for the shipment to Canada does not show the U.S. as the final destination. A trucking company is used to transport the rough blocks from the port of entry in Canada (Montreal) to a warehouse in Beebe, Quebec (not a bonded warehouse). The blocks are held in the warehouse until they are sold to U.S. purchasers, at which time they are trucked to the purchaser's facility in the U.S. for processing. You claim that the blocks do not undergo any changes or repackaging operations while in the warehouse in Beebe, Quebec.

Under the second scenario, granite blocks are imported from Zimbabwe and South Africa into the U.S. through Canada, although, as under the first scenario, the bill of lading for the shipment to Montreal (the Canadian port of entry) does not show the U.S. as the final destination. During the time that the blocks are in transit to Canada, a number of the blocks may be sold to customers located in the U.S. Those blocks which are sold to U.S. customers during the voyage to Canada are transported in bond through Canada by truck to your facility in Barre, Vermont. You state that these blocks do not enter into the commerce of Canada while in that country.

ISSUE:

Whether, under the two scenarios described above, the granite from Zimbabwe and South Africa which is shipped to Canada and subsequently entered into the U.S. is considered "imported directly" for purposes of the GSP?

LAW AND 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).

Pursuant to General Note 4(a), HTSUS, Zimbabwe and South Africa are designated beneficiary developing countries for purposes of the GSP. Granite is classified in subheading 2516.12, HTSUS, which provides for granite: Merely cut, by sawing or otherwise, into blocks or slabs of a rectangular (including square) shape. Articles classified under this provision are eligible for duty-free treatment under the GSP provided that they satisfy the "product of," 35% value-content and "imported directly" requirements.

Merchandise which is wholly the growth, product, or manufacture of a BDC, or an association of countries treated as one country under section 502(a)(3) of the Trade Act of 1974 as amended (19 U.S.C. 2462(a)(3)) and section 10.171(b), Customs Regulations (19 CFR 10.171(b)), are normally presumed to meet the 35% value-content requirement under the GSP. See 19 CFR 10.176(c).

Under the first scenario, the issue is whether granite from Zimbabwe and South Africa is considered to be "imported directly" for purposes of receiving duty-free treatment under the GSP, if it is shipped from the BDC to Canada where it is transported to a non-bonded warehouse in Canada, before being sold to a U.S. customer and subsequently transported into the U.S.

Section 10.175, Customs Regulations (19 CFR 10.175), states that eligible articles must be imported directly from a beneficiary developing country to qualify for treatment under the GSP. According to these regulations, paragraph (a), which sets forth the most restrictive definition of the term, provides that "imported directly" means "direct shipment from the beneficiary country to the U.S. without passing through the territory of any other country."

Recognizing the exigencies of trade and transportation, however, Customs has by regulation determined that merchandise shipped through a non-BDC to the U.S. is "imported directly" if: (1) the merchandise in the shipment does not enter into the commerce of any other country while en route to the U.S. and the invoice, bills of lading, and other shipping documents show the U.S. as the final destination (see 19 CFR 10.175(b)); or (2) if the shipment is from any beneficiary developing country to the U.S. through the territory of any other country and the invoices and other documents do not show the U.S. as the final destination, the articles in the shipment upon arrival in the U.S. are imported directly only if they: (a) remained under the control of the customs authority of the intermediate country; (b) did not enter into the commerce of the intermediate country except for the purpose of sale other than at retail, and the district director is satisfied that the importation results from the original commercial transaction between the importer and the producer or the latter's sales agent; and (c) were not subjected to operations other than loading and unloading, and other activities necessary to preserve the articles in good condition (see 19 CFR 10.175(d)).

We have held for purposes of the GSP that merchandise is deemed to have entered the commerce of an intermediate country if manipulated (other than loading and unloading), offered for sale (whether or not a sale actually takes place), or subjected to a title change in the country. See Headquarters Ruling Letter (HRL) 071575 dated November 20, 1984.

We held in HRL 556185 dated September 10, 1991, that ceramic tile shipped from Israel to a Canadian customs bonded warehouse prior to being shipped to the U.S. was deemed to satisfy the "imported directly" requirement for purposes of the U.S.-Israel Free Trade Implementation Act of 1985 ("FTA") (See General Note 8, Harmonized Tariff Schedule of the United States (HTSUS)). In HRL 556185, the merchandise remained in the original packaging and did not undergo any processing or alteration while in the Customs bonded warehouse. We stated that if the invoice, bill of lading and other shipping documents do not show the U.S. as the final destination, the goods may be considered "imported directly" under the U.S.-Israel FTA, provided that the goods remain under Customs control while in Canada (such as in a Canadian customs bonded warehouse), and the district director is satisfied that the importation results from the original commercial transaction between the importer and the producer.

We find that under the first scenario, the shipment does not meet the requirements of either 19 CFR 10.175(b) or (d). The invoice, bill of lading and other shipping documents do not show the U.S. as the final destination as required by 19 CFR 10.175(b). Furthermore, 19 CFR 10.175(d) requires that the articles remain under the control of customs authorities in the non-BDC. You state that the granite under the first scenario is shipped to Montreal, Canada and transported to a non-bonded warehouse located in Beebe, Canada. The granite does not at any time enter into a customs bonded warehouse in Canada or remain under the control of Canadian Customs authorities. Therefore, because the shipping documents do not show the U.S. as the final destination, and the granite does not remain under the control of Canadian Customs, we find that under the first scenario, the granite is not considered "imported directly" from the BDC for the purpose of qualifying for duty-free treatment under the GSP.

Under the second scenario, the issue concerns whether granite from Zimbabwe and South Africa is considered to be "imported directly" for purposes of the GSP if it is shipped from the BDC to Canada, sold to a U.S. purchaser during that voyage, and, when imported into Canada, transported in bond through Canada by truck to the U.S.

We find that under the second scenario, the shipment satisfies the "imported directly" requirement as set forth in 19 CFR 10.175(d). The granite is shipped from South Africa or Zimbabwe to Canada where it remains in bond under the control of the Canadian customs authorities until it arrives in the U.S. Furthermore, the operations that take place in Canada do not appear to constitute more than simple loading and unloading of the merchandise, and as such, will not cause the merchandise to enter the commerce of the intermediate country. Therefore, consistent with our holding in HRL 556185, provided that the district director is satisfied that the importation results from the original commercial transaction between the importer and the producer or the latter's sales agent, the granite under this scenario will be considered "imported directly" from a BDC to the U.S. for purposes of the GSP.

HOLDING:

Based on the information submitted, under the first scenario, because the shipping documents do not show the U.S. as the final destination, and the granite does not remain under the control of the Canadian Customs, we find that the granite produced in Zimbabwe and South Africa, shipped to Canada where it is transported to a Canadian warehouse, and later imported to the U.S., is not "imported directly" from the BDC for the purpose of qualifying for duty-free treatment under the GSP.

Under the second scenario, the granite is considered "imported directly" into the U.S. from a BDC for purposes of the GSP, provided that when the merchandise is shipped to Canada it is transported in bond through Canada to the U.S., and the district director is satisfied that the importation results from the original commercial transaction between the importer and the producer or the latter's sales agent.

Sincerely,

John Durant, Director
Commercial Rulings Division

cc: District Director
St. Albans, Vermont