Customs Ruling HQ H270834 - Request for Internal Advice; Adorable Pillows F&R Corp.

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HQ H270834
Mar 02, 2017

Type : • HTSUS :
Related: 544375; 545032; H242598; H234186; H255619; H271308; W548475; 545663

OT:RR:CTF:VS H270834 AJR

Port Director
U.S. Customs and Border Protection
City View Plaza – Suite 3000
#48 Rd. 165 Km. 1.2
Guaynabo, PR 00968-8000

RE: Request for Internal Advice; Adorable Pillows F&R Corp.

Dear Port Director:

This is in response to the internal advice request, dated September 15, 2015, initiated on behalf of Adorable Pillows F&R Corp. (“AP”), concerning the eligibility for preferential tariff treatment of certain innerspring and foam products imported into Puerto Rico under the United States-Singapore Free Trade Agreement (“SFTA”) and the Dominican Republic-Central America-United States Free Trade Agreement (“DR-CAFTA”), as well as the proper appraisement method of the innerspring products. All confidential information included in this decision will be bracketed and redacted from the public version of this decision.

FACTS:

AP is a company located in Puerto Rico that supplies raw materials for the production of mattresses. AP acquires the raw materials primarily from Singapore and the Dominican Republic. At issue are two raw materials: uncovered innerspring units (“innersprings”) imported from Singapore; and foam imported from the Dominican Republic. On August 6, 2015, the Office of Regulatory Audit in Miami, Florida (“RA”), U.S. Customs and Border Protection (“CBP”), issued an audit report covering 20 entries of the subject innersprings and foam within the scope period of March 1, 2013, through September 30, 2014.

Innersprings

The subject innersprings were imported from Singapore into Puerto Rico under subheading 9404.29.90, Harmonized Tariff Schedule of the United States (“HTSUS”). AP states that Parfait International PTE. LTD. (“Parfait”) manufactured the innersprings in a factory in Singapore using non-originating steel wire and coils imported into Singapore from China. AP indicates that Parfait imported the steel wires from China under chapter 72, HTSUS, and steel coils from China under chapter 73, HTSUS. RA reviewed entry documents, commercial invoices, bills of lading, certificates of origin, payment records, and production records, among other documents, with regard to the imported innersprings. The entry documents showed that the subject innersprings had been imported from Singapore into Puerto Rico on the following dates: December 16, 2013 (“Innerspring Entry 1”); December 19, 2013 (“Innerspring Entry 2”); February 28, 2014 (“Innerspring Entry 3”); May 9, 2014 (“Innerspring Entry 4”); and, June 9, 2014 (“Innerspring Entry 5”). No entry documents were provided with regard to the materials that were imported into Singapore for the production of these innersprings. The production records for the innersprings indicate that Parfait obtained the materials to produce the innersprings from Foshan Jingxin Steel Wire & Spring Co., Ltd. (“Foshan”), a Chinese vendor of innersprings subject to Antidumping Duty (“ADD”) Order A-570-928.

The documents associated with Innerspring Entry 1 show that 82 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per invoice 904 (“Innerspring Invoice A”). The production records indicate that Parfait used “steel wire & spring coils” purchased from Foshan per invoices JX20130827-1 (“Material Invoice A”) and JX20130827-2 (“Material Invoice B”) to produce the innersprings for Innerspring Entry 1. Material Invoices A and B show that Foshan sold 190 packages of “steel wire & spring coils” to Parfait on September 13, 2013, and shipped these materials from China to Singapore on September 17, 2013. The bill of lading corresponding to Material Invoices A and B shows that 190 packages of “steel wire & spring coils,” weighing [XXXX] kilograms (“kg”), were shipped from Foshan in China to Parfait in Singapore on September 17, 2013.

The documents associated with Innerspring Entry 2 show that 81 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per invoice 904A (“Innerspring Invoice B”). The production records indicate that Parfait used the materials from Material Invoices A and B to produce the innersprings for Innerspring Entry 2 (i.e., 190 packages of “steel wire & spring coils,” weighing [XXXX] kg, purchased and imported from Foshan in China).

The documents associated with Innerspring Entry 3 show that 68 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per invoice 1128 (“Innerspring Invoice C”). The production records indicate that Parfait used “steel wire & spring coils” purchased from Foshan per invoice JX20130929-1 (“Material Invoice C”) to produce the innersprings for Innerspring Entry 3. Material Invoice C shows that Foshan sold 82 packages of “steel wire & spring coils” to Parfait on October 17, 2013, and shipped these materials from China to Singapore on October 21, 2013. The bill of lading corresponding to Material Invoice C shows that 81 packages of “steel wire & spring coils,” weighing [XXXX] kg, were shipped from Foshan in China to Parfait in Singapore on October 28, 2013. The documents associated with Innerspring Entry 4 show that 91 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per invoice 21705 (“Innerspring Invoice D”). The production records indicate that Parfait also used the materials from Material Invoice C to produce the innersprings for Innerspring Entry 4 (i.e., 81 packages of “steel wire & spring coils,” weighing [XXXX] kg, purchased and imported from Foshan in China).

The documents associated with Innerspring Entry 5 show that 164 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait in Singapore to AP in Puerto Rico per Innerspring Invoice D and invoice 21706 (“Innerspring Invoice E”). The production records indicate that Parfait used “steel wire & spring coils” purchased from Foshan per invoices JX20140318-1 (“Material Invoice D”) and JX20140318-2 (“Material Invoice E”) to produce the innersprings for Innerspring Entry 5. Material Invoices D and E show that Foshan sold 164 packages of “steel wire & spring coils” to Parfait on April 7, 2014, and shipped these materials from China to Singapore on April 11, 2014. The bill of lading corresponding to Material Invoices D and E shows that 164 packages of “steel wire & spring coils,” weighing [XXXX] kg, were shipped from Foshan in China to Parfait in Singapore on April 13, 2014.

RA found that the documentation submitted by AP did not substantiate the SFTA preference claims for these five innerspring entries. RA indicated that the documentation submitted by AP specifically, failed to demonstrate that the non-originating materials, purchased from an entity in China subject to an ADD order, were further processed into innersprings in Singapore. RA also noted that the certificate of origin for the innersprings did not indicate the classification, nor the applicable rule of origin under which the innersprings qualified as originating under the SFTA.

AP disagrees with RA’s finding, arguing that the innersprings are a product of Singapore and eligible for preferential tariff treatment under the SFTA. In support, AP submitted the following documentation, using the invoices, bills of lading, and production records from Innerspring Entries 1 and 2 as representative samples:

A business profile of Parfait with an address in Singapore, describing it as a manufacturer and wholesaler (general importer and exporter) of furniture springs and related products, and listing [XXXX] as the company’s contact person; A commercial invoice and packing list, dated December 6, 2011, and a bill of lading and certificate of origin, dated December 12, 2011, showing that Guangzhou Jin Yuan Ye Xing Trading Co. Ltd. in China sold and shipped two SX200 automatic spring assembly machines (“SX200”) to Parfait in Singapore for an FOB China price of $[XXXX]; A photograph, timestamped June 8, 2015, showing “SX200,” “ASSEMBLING MACHINE,” “SPARE PARTS,” and “SHAOXING HUAJIAN MATTRESS MACHINERY LTD” (“SHMM”) printed onto a flat surface with additional text printed in a foreign language underneath the text in English, as well as handwritten marks in a foreign language without translation; A product description and picture of the SX200 from SHMM’s website;

Photographs, timestamped May 31, 2015, showing an office building and parking lot with a truck that has a Parfait logo; a directory listing Parfait and other companies, including one with “Singapore” in its name; and, four workers wearing shirts with a Parfait logo that are operating various equipment, including an assembly machine that appears to be processing innersprings; A list of procedures signed by [XXXX], listed as Parfait’s manager, describing the process that Parfait uses to manufacture the innersprings in Singapore with coils and wire imported from China; Timecards for two Parfait employees, covering a period from September 2, 2013, through April 30, 2014; Salary vouchers and payroll benefit payments for Parfait employees issued as a “RECORD OF PAYMENT” by the Central Provident Fund Board with an address in Singapore, covering a period from May 9, 2014, through May 11, 2015; and, Production records signed by [XXXX], listed as Parfait’s manager, showing: the amount of steel wire and steel coils received from Foshan per Material Invoices A and B; the amount of materials from Material Invoices A and B used to produce the innersprings for Innerspring Invoices A and B; the production rate employed by three Parfait workers to produce the innersprings for Innerspring Invoices A and B over a four week period; and, the remaining balance of steel wire and steel coils from Material Invoices A and B, not used for Innerspring Invoices A and B, that will be used for other customers.

Additionally, in the course of reviewing AP’s financial documents, RA found that AP had made additional payments of $[XXXX] and $[XXXX] to Parfait, which exceeded the invoice prices for the innersprings by a total of $[XXXX]. AP argues that the value of the subject innersprings was properly declared under the transaction value because these additional payments to Parfait were only a guarantee for future production, and would ultimately be refunded to AP if not owed for production. In support, AP submitted e-mail correspondence, dated May of 2015, between Parfait’s representative, [XXXX], and AP’s representative, [XXXX], indicating that Parfait would deduct $[XXXX] from AP’s credit, leaving AP with $[XXXX] in credit. We note that the deducted credit and remaining credit, when added together, amount to a total of $[XXXX]. RA could not verify whether these additional payments pertained to the subject innersprings or another transaction as claimed by AP. As a result, RA concluded that AP had not provided sufficient information to support the declared value of the innersprings under the transaction value method of appraisement.

In the course of evaluating this internal advice, the Port of San Juan provided additional information as to the innerspring transactions and Parfait’s facility in Singapore. Particularly, two versions of the same bank statement were provided, the first blocking a description, and the second without the description blocked. In comparing these two versions of the same bank statement, it is unclear whether the description that is being blocked is the same description that is revealed in the unblocked version. Furthermore, through its additional research into this matter, CBP was unable to confirm the existence of Parfait’s facility in Singapore.

Foam

The subject foam was imported from the Dominican Republic into Puerto Rico under subheading 3921.13.50, HTSUS. AP states that Gomas y Plasticos S.A. (“Gomas”) produced the foam in a factory in the Dominican Republic using chemicals that were imported into the Dominican Republic from Bayer Material Science LLC in the United States (“Bayer US”) and Bayer Material Science AG in Germany (“Bayer Germany”). According to AP, the imported chemicals consisted of Desmodur T80 (“DT80”), classified under subheading 2929.10, HTSUS, and Arcol polyol F-3040 (“APF3040”), classified under subheading 3907.20, HTSUS.

RA reviewed entry documents, commercial invoices, bills of lading, certificates of origin, payment records, and production records, among other documents, with regard to the subject foam. The entry documents showed that the subject foam had been imported from the Dominican Republic into Puerto Rico between May 10, 2013, and August 11, 2014. The documentation also included customs and commercial records pertaining to the DT80 and APF3040 that Gomas imported from Bayer US and Bayer Germany into the Dominican Republic for the production of the subject foam. RA found that the documentation submitted by AP did not substantiate the DR-CAFTA preference claims for ten foam entries. RA indicated that AP had not demonstrated that the non-originating DT80 and APF3040 were further processed into foam in the Dominican Republic. RA also noted that it was unclear whether Gomas was actually capable of producing the subject foam.

AP disagrees with RA’s finding, arguing that the subject foam entries are products of the Dominican Republic. In support, AP submitted representative documentation, primarily concerning the entries dated: January 17, 2014 (“Foam Entry 1”); March 24, 2014 (“Foam Entry 2”); April 25, 2014 (“Foam Entry 3”); June 12, 2014 (“Foam Entry 4”); and, August 11, 2014 (“Foam Entry 5”).

The documents associated with Foam Entry 1 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001181 (“Foam Invoice A”). The corresponding DR-CAFTA Certificate of Origin, dated January 14, 2014, references Foam Invoice A. The corresponding bill of lading, dated January 16, 2014, also references Foam Invoice A, along with the same identifying label and weight of the foam imported under Foam Entry 1. The production records indicate that Gomas produced the foam entered under Foam Entry 1 with the DT80 it had purchased from Bayer Germany per invoice 802E036027, and with the APF3040 it had purchased from Bayer US per invoices 880E029418 and 880E029419 (collectively, “Bayer Invoices”). The Bayer Invoices and corresponding bills of lading show that Gomas purchased [XXXX] kg of DT80 from Bayer Germany and [XXXX] kg of APF3040 from Bayer US between March and April of 2014, and imported these materials into the Dominican Republic during that time. Entry documents were also submitted with regard to the Bayer Invoices, indicating that the customs administration of the Dominican Republic processed the entry of [XXXX] kg of DT80 from Bayer Germany and [XXXX] kg of APF3040 from Bayer US into the Dominican Republic during March and April of 2014, and charged duties and customs fees on these importations.

The documents associated with Foam Entry 2 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001265 (“Foam Invoice B”). The corresponding DR-CAFTA Certificate of Origin, dated March 21, 2014, references Foam Invoice B. The corresponding bill of lading, dated March 23, 2014, also references Foam Invoice B, along with the same identifying label and weight of the foam imported under Foam Entry 2. The production records indicate that Gomas also produced the foam entered under Foam Entry 2 with the DT80 and APF3040 it had purchased per the Bayer Invoices.

The documents associated with Foam Entry 3 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001311 (“Foam Invoice C”). The corresponding DR-CAFTA Certificate of Origin, dated April 24, 2014, references Foam Invoice C. The corresponding bill of lading, dated April 27, 2014, also references Foam Invoice C, along with the same identifying label and weight of the foam imported under Foam Entry 3. The production records indicate that Gomas also produced the foam entered under Foam Entry 3 with the DT80 and APF3040 it had purchased per the Bayer Invoices.

The documents associated with Foam Entry 4 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001373 (“Foam Invoice D”). The corresponding DR-CAFTA Certificate of Origin, dated June 10, 2014, references Foam Invoice D. The corresponding bill of lading, dated June 12, 2014, also references Foam Invoice D, along with the same identifying label and weight of the foam imported under Foam Entry 4. The production records indicate that Gomas also produced the foam entered under Foam Entry 4 with the DT80 and APF3040 it had purchased per the Bayer Invoices.

The documents associated with Foam Entry 5 show that [XXXX] kg of foam, labeled as [XXXX], were sold and shipped from Gomas in the Dominican Republic to AP in Puerto Rico per invoice EX001423 (“Foam Invoice E”). The corresponding DR-CAFTA Certificate of Origin, dated July 29, 2014, references Foam Invoice E. The corresponding bill of lading, dated August 10, 2014, also references Foam Invoice E, along with the same identifying label and weight of the foam imported under Foam Entry 5. The production records indicate that Gomas also produced the foam entered under Foam Entry 5 with the DT80 and APF3040 it had purchased per the Bayer Invoices.

In addition to the documents referenced above, AP submitted the following documents in support of its claim that the subject foam entries were products of the Dominican Republic:

Printouts of the Gomas website showing the location of the company in the Dominican Republic, the separate company divisions for foam and plastic, the equipment used in the foam division’s factory, and the foam produced in the foam division’s factory; Commercial invoices issued by Bayer US indicating that [XXXX] kg of DT80 and [XXXX] kg of APF3040 were sold and shipped from the United States to Gomas in the Dominican Republic during October, November, and December of 2013; Entry documents indicating that the customs administration of the Dominican Republic processed the entry of [XXXX] kg of DT80 and [XXXX] kg of APF3040 from the United States into the Dominican Republic during November and December of 2013, and charged duties and customs fees on these importations; Production records, signed by the International Sales Manager for Gomas, showing: that over [XXXX] kg of DT80 and APF3040 were received by Gomas from Bayer US and Bayer Germany per the Bayer Invoices; that [XXXX] kg of APF3040 and [XXXX] kg of DT80 from the Bayer Invoices were mixed with [XXXX] kg of water to produce the foam for AP per Foam Invoices A, B, C, D, and E; the production rate employed by four Gomas workers to produce the foam, along with the duties of the workers; and, A video flash drive showing how foam is produced at the Gomas factory in the Dominican Republic, and a newspaper from the Dominican Republic, dated July 20, 2015, to evidence when the video was taken.

In the course of evaluating this case, CBP sought comment from the National Commodity Specialist Division (“NCSD”) as to the materials and process involved in manufacturing foam. Research by the NCSD’a National Import Specialist responsible for polymer products, such as foam, indicated that the foam at issue could be manufactured in the manner described by Gomas.

According to AP, the submitted documentation substantiates the SFTA claims and transaction value appraisement for the imported innersprings, and the DR-CAFTA claims for the imported foam. The Port of San Juan seeks advice to determine the eligibility of the innersprings under the SFTA, the proper method of appraisement of the innersprings, and the eligibility of the foam under the DR-CAFTA.

ISSUES:

Whether AP submitted sufficient documentation to substantiate its claims that the subject innersprings are eligible for preferential tariff treatment under the SFTA?

What is the proper method of appraisement of the imported innersprings?

Whether AP submitted sufficient documentation to substantiate its claims that the subject foam is eligible for preferential tariff treatment under the DR-CAFTA?

LAW AND ANALYSIS:

Eligibility of the Innersprings under the SFTA

The SFTA was signed on May 6, 2003, and the United States-Singapore Free Trade Agreement Implementation Act (“the Act”) (Public Law 108-78; 117 Stat. 948; 19 U.S.C. § 3805 note) was signed on September 3, 2003. Sections 201 and 202 of the Act authorized the President to proclaim the tariff modifications and provide the rules of origin for preferential tariff treatment with respect to goods of Singapore provided for under the SFTA. Section 202 of the Act specifies the general rules of origin to be used in determining if a good qualifies for preferential tariff treatment under this agreement. The HTSUS has been amended to include General Note (“GN”) 25, HTSUS, which contains the rules of origin, definitions, and other provisions to determine whether a good originates under the SFTA. Title 19, Code of Federal Regulations, was amended on June 11, 2007 to implement the SFTA and the Act. 19 C.F.R. §§ 10.501-10.570. GN 25(b), HTSUS, states in pertinent part, as follows:

For the purposes of this note, subject to the provisions of subdivisions (c), (d), (n) and (o) thereof, goods imported into the customs territory of the United States are eligible for treatment as originating goods of a SFTA country under the terms of this note only if they–

[…]

(iii) have been transformed in the territory of Singapore or of the United States, or both, so that each non-originating material: (A) undergoes an applicable change in tariff classification set out in subdivision (o) of this note as a result of production occurring entirely in the territory of Singapore or of the United States, or both; or (B) if no change in tariff classification is required, the good otherwise satisfies the applicable requirements set forth in such subdivision (o).

The applicable tariff shift rule per GN 25(o)/94.6, HTSUS, requires “[a] change to subheadings 9404.29 through 9404.30 from any other chapter.” AP states that Parfait imported non-originating materials from China into Singapore, consisting of steel wires under chapter 72, HTSUS, and steel coils under chapter 73, HTSUS. AP states that in Singapore, Parfait used these non-originating materials to produce innersprings classified under subheading 9404.29, HTSUS. This scenario would provide the requisite change in tariff classification to yield SFTA-originating innersprings. The question here, however, is whether AP provided sufficient documentation to show that this production scenario actually took place in Singapore.

Section 10.550, CBP Regulations (19 C.F.R. § 10.550), indicates that a claim for preference under the SFTA, “including any statements or other information submitted to CBP in support of the claim, will be subject to such verification as the Center director deems necessary. In the event that the Center director is provided with insufficient information to verify or substantiate the claim, the Center director may deny the claim for preferential treatment.”

In this case, AP provided documentation in support of its claim for preferential tariff treatment under the SFTA. However, based on our review, AP has not provided sufficient documentation to establish that the innersprings were produced in Singapore.

In Headquarters Ruling Letter (“HRL”) H242598, dated March 13, 2015, a protestant submitted production process documents, production records, invoices, contracts, certificates of origin, affidavits, bills of lading, and product quality inspection records to establish, by sufficiency of documentation, its claim for preferential tariff treatment under the Generalized System of Preferences (“GSP”). For most of the entries, the documentation referenced dates, products, quantities, and Incoterms that matched one another, and explained the production process in a manner that could be reasonably linked to its respective entry. To the extent that the documentation corresponding to an entry showed a connection to that particular entry and reasonably aligned such entry with the production process, CBP was satisfied that the submitted documentation substantiated the country of origin claim for GSP preferential tariff treatment purposes. However, for the other entries that did not explain the production process, CBP was not satisfied with the submitted documentation. Particularly, without demonstrating a producer’s capability to manufacture the product at issue, the other submitted documents for this producer could not be relied upon by CBP.

In HRL H234186, dated July 24, 2014, CBP held that an importer did not provide sufficient documentation to demonstrate that gold jewelry it had imported under the United States – Oman Free Trade Agreement was manufactured in Oman. To support the production in Oman, the importer submitted various documents, including: a Certificate of Origin for the jewelry; invoices, purchase orders, and purchase vouchers showing the sale and purchase transactions of the jewelry and material required to make the jewelry; shipping and customs records; a summary of the cost data and general expenses; production calculations; a summary of total hours worked by employees; vouchers issued to each employee for that time period; photographs of the production facility; and, a tenancy agreement for the manufacturer’s facility in Oman. In reaching its conclusion, CBP noted that the documents did not describe the jewelry in detail (aside from purity, type, and weight); that the amount of materials listed on the invoices did not correspond to the production calculations; and that it was unclear how 18 employees produced thousands of jewelry pieces in a period of 20 days from the date of the purchase order to the date of importation into the United States.

In this case, AP submitted certain commercial documents related to the purchase, sale, and production of the subject innersprings. This documentation includes Material Invoices A, B, C, D, and E and Innerspring Invoices A, B, C, D, and E. The bills of lading associated with Material Invoices A, B, C, D, and E indicate that a total of 435 packages of “steel wire & spring coils”, weighing [XXXX] kg, were shipped from Foshan to Parfait for the production of the subject innersprings. The bills of lading associated with Innerspring Invoices A, B, C, D, and E indicate that a total of 418 packages of innersprings, weighing [XXXX] kg, were shipped from Parfait to AP. It is unclear how [XXXX] kg of finished innersprings were created from materials weighing [XXXX] kg. Moreover, the documents associated with Innerspring Entry 5 indicate that 164 packages, weighing [XXXX], were shipped from China to Singapore per Material Invoices D and E, and that the same quantity and weight were shipped from Singapore to Puerto Rico per Invoices D and E. This matching quantity and weight is a potential indication that the products that were shipped into Singapore were the same products that were shipped into Puerto Rico. Additionally, no entry documents were submitted with regard to the materials that were imported from China into Singapore per Material Invoices A, B, C, D, and E, and their corresponding bills of lading. The lack of documentation showing entry into Singapore from China makes it difficult to rely on the Material Invoices and corresponding bills of lading, which themselves fail to account for the weight of the subject innersprings as entered into Puerto Rico.

Furthermore, the production records submitted by AP do not provide a clear indication that Parfait is capable of producing the subject innersprings. The production records for the innersprings merely address quantities of steel wire and steel coils that were processed into innersprings, and labor hours worked by the employees to make such innersprings. While indicating that it takes materials and labor to produce such innersprings, the production records do little to actually demonstrate the process of manufacturing innersprings. For instance, there is nothing that indicates the specific quantities needed per innerspring, nor is there any information on how the machines should be used to create the innersprings from the materials. To this extent, without a demonstration of Parfait’s capability of producing the innersprings at issue, it is difficult to simply rely on the submitted documentation as evidence that the subject innersprings were actually manufactured in Singapore.

AP also submitted machinery receipts; employee and payroll records; and various photographs showing innerspring production. The information provided in these documents is not sufficiently specific. The employee and payroll records do not indicate the responsibilities of the employees as they relate the manufacturing of the merchandise, but rather only the amount of hours worked by the employees on certain days. While the photographs show employees producing innersprings, and Parfait logos on the building, trucks, and employees, these records do not demonstrate that such production actually occurred in Singapore during the time period at issue. Furthermore, considering the extensive innerspring-related dealings between Parfait and Foshan, and given the fact that CBP was unable to confirm the existence of Parfait’s facility in Singapore, we would expect to see more detailed evidence that sufficiently address the questions concerning Parfait’s innerspring production. As such, we agree with the Port and RA that there is inadequate supporting documentation to demonstrate that the innersprings were manufactured in Singapore. Therefore, we find that that AP has not provided sufficient documentation to substantiate its claims for preferential tariff treatment under the SFTA.

Proper Appraisement Method of the Imported Innersprings

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States” plus enumerated statutory additions. 19 U.S.C. § 1401a(b)(1). The term “price actually paid or payable” is defined as the “total payment […] made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.” 19 U.S.C. § 1401a(b)(4)(A). There is a rebuttable presumption that all payments made by a buyer to a seller, or a party related to a seller, are part of the price actually paid or payable. See Generra Sportswear Co. v. United States, 8 CAFC 132, 905 F.2d 377 (1990); and, HRL 545663, dated July 14, 1995. In Generra, the court considered whether quota charges paid to the seller on behalf of the buyer were part of the price actually paid or payable for the imported goods. In reversing the decision of the lower court, the appellate court held that the term “total payment” is all-inclusive and that “as long as the quota payment was made to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in transaction value, even if the payment represents something other than the per se value of the goods.” The court also explained that it did not intend for CBP to engage in an extensive fact-finding to determine whether separate charges, all resulting in payments to the seller in connection with the purchase of imported merchandise, were for the merchandise or something else.

In HRL 544375, dated July 6, 1990, the issue concerned whether transaction value was the proper method of appraisement in purchasing agreements where buyers paid cash advances to sellers in order to obtain a “set” or “market price” for the imported merchandise. The ruling held that transaction value may be used in those cases where cash advances are made to the seller by and for the benefit of the buyer, if the amount and means of recovering these advances are clear. However, it also holds that transaction value cannot be used, where no agreed upon price or a bona fide formula for determining the price exists, or where cash advances are made but the amount is not disclosed.

In HRL H255619, dated January 16, 2015, payments from an importer to an exporter exceeded the amount declared by the importer for garlic it had imported from the exporter. The importer informed CBP that the additional amounts were pre-payments for future purchases, which were separate from the payments for the garlic that had already been imported. The importer supported this claim by providing contracts for the future purchases, which indicated that the importer was planning to import garlic and other merchandise from the exporter. However, the importer could not sufficiently link the pre-payments to the future shipments, creating an absence of specific information with regard to the pre-payments. CBP held that without this information, and with no clear means for ascertaining how these advances would be recovered by the importer, the total payment for the garlic could not be confirmed, and transaction value was not the proper method of appraisement. See also HRL 545032, dated December 4, 1993 (holding that even though the importer informed CBP that cash advances were provided to the seller and provided a contract purportedly containing all the terms under which the price actually paid or payable was determined, transaction value was not the appropriate method of appraisement because there was an absence of specific information pertaining to the cash advances exchanged between the parties).

In HRL H271308, dated November 30, 2016, an importer made advance payments to a manufacturer in order to enable the company to remain viable as a manufacturer. The importer did not have any documentation, such as invoices or written agreements, identifying the advance payments and establishing the specific method of repayment by the manufacturer. While the importer provided a statement from the manufacturer, which characterized the payments as advances per an oral agreement between the companies, CBP held that all the payments characterized as advances should be included in the price actually paid or payable because the documentation did not demonstrate that the advances were for a separate transaction with an established method of repayment by the manufacturer. See also HRL W548475, dated March 25, 2004 (holding that all financial transactions characterized as loans should be included in the transaction value because a buyer did not have written agreements to establish that the payments made to a seller were unrelated to the merchandise).

In this case, RA found additional payments made by AP to Parfait, which exceeded the declared values of the innersprings by an amount of $[XXXX]. AP argues that these additional payments to Parfait were to guarantee future production, and would be refunded to AP if not owed for production. In support, AP provided correspondence between AP and Parfait discussing AP’s outstanding credit with Parfait that would be deducted from the amount AP owed to Parfait for a certain transaction. This correspondence indicates that AP had $[XXXX] in credit with Parfait, which equals the amount in additional payments that RA had found. The correspondence also indicates that Parfait would be deducting $[XXXX] from AP’s credit to cover the transaction between them.

The submitted correspondence between AP and Parfait provides no information about the particular transaction discussed in the correspondence nor does it provide information about future transactions between the parties. Unlike HRL 545032 and HRL H255619, AP has not provided a written agreement or invoice identifying the additional payments to Parfait as advance payments that were related to a separate transaction. Rather, this lack of written agreement or invoices identifying the advance payments is similar to HRL H271308 and HRL W548475 because AP only identifies the additional payments through the submitted correspondence with Parfait concerning an unidentified transaction, and the means of recovering the advances made to Parfait remain unclear. The submitted correspondence itself is simply a discussion of the credit arrangement between the parties and does not indicate that there was any structure or schedule to the repayment. This correspondence shows that Parfait was repaying the advance payments (i.e., deducting AP’s credit) in accordance with the order placed by AP, which further indicates the lack of a structured repayment schedule. Although AP has characterized the payments as advances to guarantee future production, AP has not provided sufficient documentation that identifies the advance payments and that addresses the specific method of repayment by Parfait. Therefore, transaction value is the proper method of appraisement for the subject innersprings, and all financial transfers characterized by the parties as additional payments for the guarantee of future production should be included in the price actually paid or payable by AP.

Eligibility of the Foam under the DR-CAFTA

The DR-CAFTA was signed on August 5, 2004, and includes as parties the United States, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica. The provisions of the DR-CAFTA were adopted by the U.S. in the Dominican Republic Central America Free Trade Agreement Implementation Act, Public Law 109-53 (2005). Regulations for the DR-CAFTA are set forth in 19 C.F.R. §§ 10.581-10.625. GN 29, HTSUS, sets forth the rules of origin for the DR-CAFTA. GN 29(b), HTSUS, states, in pertinent part, as follows:

For the purposes of this note, subject to the provisions of subdivisions (c), (d), (m) and (n) thereof, a good imported into the customs territory of the United States is eligible for treatment as an originating good under the terms of this note if--

[…] (ii) the good was produced entirely in the territory of one or more of the parties to the Agreement, and— (A) each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (n) of this note; or (B) the good otherwise satisfies any applicable regional value content or other requirements specified in subdivision (n) of this note; and the good satisfies all other applicable requirements of this note[.]

The applicable tariff shift rule per GN 29(n)/39.5, HTSUS, requires “[a] change to subheadings 3921.11 through 3920.99 from any other subheading.” AP states that Gomas imports non-originating materials into the Dominican Republic, consisting of DT80 classified under subheading 2929.10, HTSUS, and APF3040 classified under subheading 3907.20, HTSUS. AP states that in the Dominican Republic, Gomas uses these materials to produce foam classified under subheading 3921.13.50, HTSUS. This scenario would provide the requisite change in tariff classification to yield DR-CAFTA-originating foam. The question here, however, is whether AP has provided sufficient documentation to show that this production scenario actually took place in the Dominican Republic.

Section 10.616, CBP Regulations (19 C.F.R. § 10.616), indicates that a claim for preference under the DR-CAFTA, “including any statements or other information submitted to CBP in support of the claim, will be subject to such verification as the Center director deems necessary. In the event that the Center director is provided with insufficient information to verify or substantiate the claim, or the exporter or producer fails to consent to a verification visit, the Center director may deny the claim for preferential treatment.”

In this case, AP provided documentation in support of its claims for preferential tariff treatment under the DR-CAFTA. Based on our review, we find that AP has provided sufficient documentation to establish that the foam was produced in the Dominican Republic.

As noted in the facts section above, AP submitted commercial documents, entry documents, and shipping documents that trace the production of the foam from the entry of the materials used to produce the foam into the Dominican Republic to the sale of the foam to AP in Puerto Rico. For instance, AP provided the Bayer Invoices to show that Gomas bought over [XXXX] kg of DT80 and APF3040 per the Bayer Invoices during March and April of 2014. The entry documents corresponding to the Bayer Invoices show that the customs administration of the Dominican Republic processed the entry of such quantities of DT80 and APF3040 into the Dominican Republic from the United States and Germany on April 14, 2014, charging duties and customs fees for these importations. Moreover, the production records indicate how these materials were used to create the foam that was sold to AP per the Foam Invoices, and while the production description was not thoroughly extensive, it contained sufficient information for NCSD to indicate that the foam could be manufactured as described. Though Foam Entry 1 and Foam Entry 2 were entered before the Bayer Invoices, AP also provided additional commercial invoices and entry documentation showing that Gomas had also imported over [XXXX] kg of DT80 and APF3040 from Bayer US during November and December of 2013, which were processed by the customs administration of the Dominican Republic upon entry into the country. Additionally, the foam as entered into the United States is linked to the Foam Invoices and corresponding bills of lading and certificates of origin by matching weights and identifying labels.

Furthermore, the documentation shows Gomas’s production facility and process for manufacturing the foam in the Dominican Republic through pictures from Gomas’s official website and a video demonstrating the actual production process in Gomas’s facility, supported by a newspaper, dated July 20, 2015, evidencing when the video was taken. A map view of the address in the Dominican Republic that is listed as Gomas’s foam production facility shows an aerial view of a large building resembling a factory, and the building is identified as a property of Gomas. We note that nothing from the documentation provided by AP, nor from the information provided by RA or the Port, disputes the location of Gomas’s facility in the Dominican Republic. Moreover, as already noted, NCSD provided research indicating that the foam at issue could be manufactured in the manner described by Gomas. To this extent, we find that the submitted documentation demonstrates Gomas’s capability to produce the subject foam using the DT80 and APF3040 it imported into the Dominican Republic from Bayer US and Bayer Germany.

Therefore, in this case, we find that AP provided sufficient documentation to demonstrate that the foam imported under the DR-CAFTA was manufactured in the Dominican Republic. Particularly, the submitted documentation provides records that reasonably trace the process from the importation of the DT80 and APF3040 into the Dominican Republic; to the production of the foam using the DT80 and APF3040 in the Dominican Republic; and lastly, to the sale of the foam by Gomas to AP. Similar to HRL H242598, AP was also able to demonstrate that Gomas was capable of producing the subject foam using the materials that it had imported into the Dominican Republic from Bayer US and Bayer Germany. Accordingly, because the applicable tariff shift rule per GN 29(n)/39.5, HTSUS, is met when manufacturing the non-originating DT80 and APF3040 into foam in the Dominican Republic, and the record sufficiently demonstrates this production process by Gomas in the Dominican Republic, we find that AP has substantiated its claim that the subject foam is eligible for preferential tariff treatment under the DR-CAFTA. .

HOLDING:

Based on the documentation provided, we conclude the following as to the three issues:

AP has not provided sufficient documentation to substantiate its claim that the innersprings were produced in Singapore. Accordingly, the innersprings are not eligible for preferential tariff treatment under the SFTA.

The innersprings should be appraised under the transaction value with all financial transfers characterized by the parties as additional payments for the guarantee of future production included in the price actually paid or payable by AP.

AP has provided sufficient documentation to substantiate its claim that the foam was produced in the Dominican Republic. Accordingly, the foam is eligible for preferential tariff treatment under the DR-CAFTA.

This decision should be mailed by your office to the party requesting internal advice no later than 60 days from the date of this letter. On that date, the Office of Trade, 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 http://www.cbp.gov, by means of the Freedom of Information Act, and other methods of public publication.

Sincerely,

Yuliya A. Gulis, Acting Chief
Valuation and Special Programs Branch