CLA-2 RR:TC:SM 560389 MLR
Port Director
U.S. Customs Service
Port of Chicago
Chicago, IL 60607
RE: Application for Further Review of Protest No. 3901-95-102868; Denial of duty-free treatment of cordless
telephones/answering machines and answering machines
under the Generalized System of Preferences (GSP);
tape; battery pack
Dear Sir:
This is in reference to your memorandum dated April 1,
1997, forwarding a protest and application for further
review filed by Panasonic Company ("Panasonic"), which
contests the denial of duty-free treatment to certain
telephone answering machines and telephones imported from
Malaysia under the Generalized System of Preferences (GSP).
FACTS:
The record indicates that the articles at issue were
entered on June 7, 1995, the entries were liquidated on
September 8, 1995, and the protest was timely filed on
December 6, 1995.
Your office states that the telephone answering
machines and cordless telephones at issue are not eligible
for duty-free treatment under the GSP because each component
thereof is part of a set, which includes a non-Malaysian
made item, specifically a Japanese-made audio cassette. The
file submitted contains a list of merchandise which the
protestant describes as telephone answering machines,
cordless telephones with answering machines and line
telephones with answering machines. The file submitted
contains a GSP declaration for all articles, including a GSP
cost analysis, and production costs.
ISSUE:
Whether the audio cassettes from Japan disqualify the
answering machines and telephones imported from Malaysia
from duty-free treatment under 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).
At the time the articles were entered into the U.S.,
Malaysia was a designated BDC for purposes of the GSP. At
the time the telephone answering machines and cordless
telephones at issue were entered into the U.S., they were
classified under subheadings 8520.20.00 and 8525.20.50,
Harmonized Tariff Schedule of the United States (HTSUS),
respectively which both were GSP-eligible provisions. The
record also contains the documentary requirements for GSP
eligibility indicating that the 35 percent value-content
requirement was satisfied for the telephone answering
machines and cordless telephones.
Therefore, the only issue remaining is whether the
telephone answering machines, and the telephones with the
audio cassettes from Japan, were "products of" Malaysia.
The "product of" requirement means that to receive duty-free
treatment, an article either must be made entirely of
materials originating in the BDC, or if made of materials
imported into the BDC those materials must be substantially
transformed in the BDC into a new or different article of
commerce.
Your office denied GSP treatment pursuant to T.D. 91-7
(January 8, 1991), which states that sets, mixtures, and
composite goods entered on or after August 20, 1990, are
eligible for GSP preference only if all of the items or
components in the collection are considered "products of"
the BDC.
Protestant contends that the manufacturing process for
the telephone answering machines and telephones at issue are
described in Headquarters Ruling Letter (HRL) 557208 dated
July 24, 1993. In 557208, Customs held that cordless
telephones which were produced in Mexico underwent the
double substantial transformation necessary to qualify for
the GSP. The first substantial transformation occurred when
the individual electronic components were assembled onto a
printed circuit board. The second substantial
transformation occurred when the printed circuit boards were
assembled with other parts into a finished cordless
telephone. Protestant claims that although the articles at
issue also include telephone answering machines, the
manufacturing process for these products was the same two-step process used for the cordless telephones in HRL 557208,
that is, the assembly of components into a printed circuit
board, and the final assembly of the boards into the
finished article.
In HRL 559634 dated August 8, 1996, Customs considered
whether certain telephone/answering machines and answering
machines imported by Panasonic from Malaysia were eligible
for duty-free treatment under the GSP. The records also
indicate that Customs in HRL 559634 actually considered some
of the same model numbers as in this case, which were
entered through the Port of Dallas/Fort Worth. In that
case, the protestant claimed that Legal Note 6, Chapter 85,
HTSUS, applies because the tapes were separately classified
under 8523.11, HTSUS, which covers "magnetic tape" and duty
was paid at the rate of 3.4 percent. It was claimed that
the telephone/answering machines were separately classified
under 8525.20.50, HTSUS (cordless), and the answering
machines were separately classified under 8520.20.00, HTSUS.
In T.D. 91-7, Customs held that as a general rule, a
collection of goods classifiable in one subheading pursuant
to the GRI's will receive GSP treatment only if all of the
items or components in the collection are considered
"products of" the beneficiary country. The cordless
telephones at issue are correctly classified at the time of
entry were classified, in accordance with General Rule of
Interpretation (GRI) 3(b), as a set under subheading
8525.20.50, HTSUS. See HRL 559010 dated March 14, 1996.
However, the audio cassettes are prima facie classifiable in
heading 8523, HTSUS. Chapter 85, Legal Note 6 provides:
[r]ecords, tapes and other media of heading 8523 or
8524 remain classified in those headings, whether or
not they are entered with the apparatus for which they
are intended.
Therefore, the audio cassettes are not classified as
part of the set, but rather are to be classified separately
in heading 8523, HTSUS. See HRL 951507 dated July 2, 1992.
Submitted for our review is one of the entry summaries
covering the subject goods. This document reflects that
3930 tapes were separately entered under subheading
8523.11.00 and that a total of 3990 answering machines and
telephones (which appear to use audio cassettes) were
entered. Accordingly, we find that since the audio
cassettes were entered separately, the inclusion of the
audio cassettes from Japan in the retail package will not
disqualify the telephone answering machines and cordless
telephones from GSP eligibility.
HOLDING:
Based on the information provided, we find that the
answering machines and telephones qualify for duty-free
treatment under the GSP, as the audio cassettes are
separately entered and classified in accordance with Chapter
85, Legal Note 6, HTSUS. Accordingly, we find that since
the audio cassettes were entered separately, the inclusion
of the audio cassettes from Japan in the retail package will
not disqualify the telephone answering machines and cordless
telephones from GSP eligibility and this protest should be
granted.
In accordance with Section 3A(11)(b) of Customs
Directive 099 3550-065 dated August 4, 1993, Subject:
Revised Protest Directive, this decision should be attached
to Customs Form 19, Notice of Action, and be mailed by your
office 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
mailing the decision. Sixty days from the date of the
decision the Office of Regulations and Rulings will take
steps to make the decision available to customs personnel
via the Customs Rulings Module in ACS and the public via the
Diskette Subscription Service, Freedom of Information Act
and other public access channels.
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division