OT:RR:CTF:VS H055447 YAG

Mr. Lawrence R. Pilon
Hodes Keating & Pilon
134 North LaSalle Street, Suite 1300
Chicago, Illinois 60602

RE: Generalized System of Preferences (“GSP”); Effect of U.S. FTZ warehousing on GSP eligibility

Dear Mr. Pilon:

This is in response to your letter, dated February 18, 2009, requesting a ruling on behalf of your client, A&I Products, Inc. (“A&I”), concerning the GSP- eligibility of certain agricultural and industrial components that are entered into a United States foreign trade zone (“U.S. FTZ”) for warehousing and occasional repacking and labeling, and later withdrawn from a U.S. FTZ and entered for domestic consumption in the United States.

FACTS: A&I is a manufacturer, importer, and distributor of agricultural and industrial machinery and equipment, as well as replacement and spare parts and accessories such as engine, transmission, suspension, and electrical system parts for agricultural tractors and combines. A&I imports this merchandise in its finished condition, already packaged for sale by A&I to its customers without further processing in the United States. You assert that the subject merchandise imported by A&I originates in countries (such as India and Turkey) that qualify as beneficiary developing countries (“BDCs”) under the GSP. You also claim that the imported merchandise is GSP-eligible.

You state that A&I desires to begin warehousing the subject merchandise in a U.S. FTZ, located in or around Rock Valley, Iowa. A&I envisions that the merchandise will enter the FTZ in non-privileged foreign status. You claim that the merchandise would not be subject to any manufacturing or processing operations after its entry into the U.S. FTZ, except for the removal of the merchandise from the shipping containers and outer packaging in which it arrives at the FTZ, and repacking into smaller carton and occasional relabeling, as appropriate. Thereafter, the merchandise will be withdrawn from the FTZ, entered for consumption in the United States, and shipped to A&I’s customers. Thus, the question is whether the GSP-eligible imported merchandise would lose its GSP eligibility by being initially transferred into the U.S. FTZ for storage purposes rather than immediately entered for consumption in the United States.

ISSUE: Is the merchandise in question “imported directly” within the meaning of the Generalized System of Preferences (“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 United States 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 United States. See 19 U.S.C. §2463(b). For purposes of this ruling, we assume that the subject merchandise otherwise meets the requirements of the GSP and that the only issue is whether the “imported directly” requirement will be satisfied.

According to the Importer, the merchandise will be entered into the FTZ in nonprivileged foreign status and will be entered for consumption in the same condition as it was in at the time of admission to the FTZ in the United States. In other words, it is claimed that there would be no alterations or other manipulations within the U.S. FTZ that would result in a change in the condition or tariff classification of the merchandise while in the U.S. FTZ.

The Foreign Trade Zones Act of 1934, as amended (48 Stat. 998; 19 U.S.C. §§81a through 81u), provides that when foreign merchandise is so sent from a zone into the customs territory of the United States, it shall be subject to the laws and regulations of the United States affecting imported merchandise. See 19 U.S.C. §81c(a). Removal of merchandise from a FTZ is subject to the provisions in Customs Regulations. Nonprivileged foreign merchandise is subject to tariff classification in accordance with its character, condition, and quantity as constructively transferred to Customs territory at the time the entry or entry summary is filed with Customs. See 19 CFR §146.65(a)(2); See also 19 CFR §146.42(a). Under this provision the importer chooses to have the merchandise characterized, for tariff purposes, in its condition as removed from the zone.

As applicable to this case, the words “imported directly” mean:

(a) Direct shipment from the beneficiary country to the United States without passing through the territory of any other country. See 19 CFR §10.175(a), or . . .

(c) If shipped from the beneficiary developing country to the United States through a free trade zone in a beneficiary developing country, the merchandise shall not enter into the commerce of the country maintaining the free trade zone, and (1) The eligible articles must not undergo any operation other than (i) Sorting, grading, or testing, (ii) Packing, unpacking, changes of packing, decanting or repacking into other containers, (iii) Affixing marks, labels, or other like distinguishing signs on articles or their packing, if incidental to operations allowed under this section, or (iv) Operations necessary to ensure the preservation of merchandise in its condition as introduced into the free trade zone. (2) Merchandise may be purchased and resold, other than at retail, for export within the free trade zone. (3) For the purposes of this section, a free trade zone is a predetermined area or region declared and secured by or under governmental authority, where certain operations may be performed with respect to articles, without such articles having entered into the commerce of the country maintaining the free trade zone. 19 CFR §10.175(c).

In Headquarters Ruling Letter (“HRL”) 061352, dated January 16, 1980, published as C.S.D. 80-188, chrome plated tops and glass bottles were entered as nonprivileged foreign merchandise in a U.S. FTZ. Prior to the removal of the merchandise from a U.S. FTZ, the bottles and tops were repackaged and, subsequently, entered for consumption in the United States. In that case, we ruled that the tops and bottles were “imported” for purposes of the GSP; however, the articles entered for consumption were unassembled salt and pepper dispensers. Thus, the entered articles (salt and pepper dispensers) were not the articles imported from a BDC, but consisted of components imported into a FTZ from a BDC. Further, reference was made to 19 CFR §10.175(c)(1)(ii) as the basis for considering the entered article as “imported directly” under the GSP. C.S.D. 80-188 stated, in response, that this provision only applies to a FTZ in a BDC and that an article would not be considered to be “imported directly” if the repacking operations are performed in a FTZ other than one established by a BDC. In particular, C.S.D. 80-188 stated that 19 CFR §10.175(c)(1)(ii) does not encompass the operations performed in a FTZ established by the United States.

You claim that the merchandise in this case will not be subject to any manufacturing or processing operations after entry into the FTZ. Further, you claim that the merchandise will only be subject to repacking and relabeling prior to being withdrawn from the U.S. FTZ and entered for consumption. You claim that in C.S.D. 80-188, the salt and pepper tops and bottoms were put together in an assembly process.

By contrast, in HRL 230090, dated December 31, 2003, crude oil was entered in privileged status into a U.S. FTZ. Reference to 19 CFR §10.204 was made for purposes of discussing the term “imported directly” in the context of the Andean Trade Promotion and Drug Eradication Act (“ATPDEA”). It was stated that although the merchandise was admitted into an FTZ prior to entry into the Customs territory of the United States, such admission into the FTZ did not constitute the territory of a non-beneficiary country. Further, HRL 230090 referenced the definition of the “date of importation” in 19 CFR §101.1 and determined that arrival of the merchandise in the United States prior to admission into the FTZ constituted an importation. Therefore, prior to admission of the merchandise into the FTZ, the merchandise had been “imported,” but not entered, into the Customs territory of the United States. Further, HRL 230090 determined that even if the merchandise was not considered to have been “imported” into the “Customs territory” of the United States prior to entry from FTZ, the definition in Section 10.204 did not preclude ATPDEA eligibility for merchandise shipped directly from a beneficiary country, for admission of merchandise into a U.S. FTZ prior to entry of the merchandise into the Customs territory.

We note that the language in 19 CFR §10.175(a) for the GSP is identical to that of 19 CFR §10.204. However, unlike HRL 230090, the merchandise in this case is not entered into the FTZ in privileged status and is subject to repacking. Nonetheless, we find that the merchandise in question is “imported” into the United States. Although the merchandise undergoes unpacking, minor packing, and labeling operations, for example, placing the imported merchandise into smaller boxes, etc., this does not preclude the claim for preferential tariff treatment under the GSP in the particular circumstances of this case. The operations in this case are distinguishable from those described in the C.S.D. 80-188, as the repacking in this case will not combine separately imported articles, and, unlike in C.S.D. 80-188, the merchandise entered for consumption in this case will be in the same condition as it was at the time of entry into the U.S. FTZ with no change in tariff classification. While unlike in HRL 230030, the merchandise in question is in nonprivileged foreign status, this fact does not operate to preclude GSP eligibility in this case, provided only unpacking, minor packing and labeling operations occur in the FTZ, and the merchandise entered into the FTZ is the same to what is entered for consumption.

HOLDING: Based on the information provided, we find that the imported merchandise is "imported directly" into the United States within the meaning of GSP.

Sincerely,           


Monika R. Brenner, Chief
Valuation and Special Programs Branch