OT:RR:CTF:VS H332934 AS
Port Director
U.S. Customs and Border Protection
610 South Canal Street
Room 300
Chicago, IL 60607
RE: Application for Further Review of Protest No. 3901-16-100266; United States-Singapore Free
Trade Agreement;; General Note 25 of the HTSUS; Microscopes
Dear Port Director:
This is in response to the Application for Further Review (“AFR”) of Protest 3901-16-
100266, timely filed on behalf of Leica Microsystems Inc. (“Leica”). Leica contests the decision of
U.S. Customs and Border Protection (“CBP”) to deny its claims for preferential tariff treatment
under the United States-Singapore Free Trade Agreement (“US-SFTA”) on its importations of the
M720 OH5 stereoscopic surgical microscope.
FACTS:
Leica imported the merchandise subject to this protest on October 14, 2014, through the
Port of Chicago with a claim for preferential tariff treatment under the US-SFTA. Leica’s
merchandise is described as a compound stereoscopic microscope with specially configured digital
cameras for recording magnified images, classifiable under subheading 9011.10.80, Harmonized
Tariff Schedule of the United States (“HTSUS”). A list of materials provided by Leica includes the
following parts in the finished microscope:
Item Description Classification Country of Origin
1 M720 Optic Carrier II to OH5 9011.90.00 SG
2 OH5 Stand System to M720 400W 9011.90.00 JP
3 Certificate of Installation 4901.10.00 SG
4 Dust Cover 9011.90.00 US
5 M720 Assistant Tube Replacement 9011.90.00 SG
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6 Stereo Attachment for Second Observer 9011.90.00 SG
7 M720 Binocular Assistant Tube 9011.90.00 SG
8 Power cable, 5m, North America 8544.42.90 CN
9 Binocular Tube Var. 30-150o 9002.90.95 SG
10 Eyepiece F. Spect. Ww’s 12.5x/17B, Type II 9002.90.95 SG
11 Eyepiece F. Spect. Ww’s 8.33x/22B, Type II 9002.90.95 SG
12 Protective Glass M50x, M620 9011.90.00 CH
13 OH4/OH5 Plastic Base Cover 8522.90.75 US
14 Remote Video Adapter F=55 9011.90.00 SG
15 Leica FL800,JAI (NTSC) for M525/M720 9011.90.00 SG
16 OH4/OH5 Face Plate Kit 8522.90.75 US
17 Samsung 24-inch Monitor Kit 8471.60.00 CN
18 M720 Protective Glass Holder 9011.90.00 SG
19 EMI Upgrade Kit 9011.90.00 SG
20 UPS Upgrade Kit 9011.90.00 SG
21 HD Panasonic Camera NTSC (HD-SDI/HDMI) 8525.80.40 JP
22 Touchpad Holder with Edge Protection 9011.90.00 US
23 MedXchange HDMD 1080p 8521.90.91 US
On March 9, 2015, the Port issued a Customs Form 28 Request for Information to verify
the originating status of the microscope. On April 9, 2015, the Port issued a Customs Form 29
Notice of Action (Proposed) informing Leica that the microscope did not qualify for preferential
tariff treatment under the US-SFTA, as the OH5 Stand System attachment originated outside of
Singapore and was not required for the microscope to function. On April 27, 2015, Leica
responded to the claim that the microscope could not function without the OH5 Stand System and
provided additional product information and records to support its claim. On August 25, 2015, the
Port issued a Customs Form 29 Notice of Action Taken denying Leica’s preference claim, as the
Port claimed Leica’s brochure demonstrated that the microscope could be mounted on the ceiling as
an alternative to using the stand. The Port then informed Leica that the entry would be rate
advanced to 7.2% ad valorem. On September 25, 2015, CBP liquidated the entry.
After liquidation, Leica timely filed a protest pursuant to 19 U.S.C. § 1514(a)(2) and (5)
requesting that the microscope be granted preferential, duty-free tariff treatment as an originating
good under the US-SFTA, and that the entry be reliquidated with a refund of applicable duties,
taxes, fees, and interest. In its protest, Leica argued that the OH5 Stand System attachment,
originating in Japan, shifts from subheading 9011.90 to subheading 9011.10 as it is part of the
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complete microscope and provides the electrical power and illumination necessary for the
microscope to function. Leica also provided the value of all materials for purposes of calculating the
regional value content (“RVC”). Leica therefore argued that the microscope has a RVC of 49.7%
using the build down method, exceeding the required RVC of 45%, based on their costs and
including all components in the microscope.
On March 12, 2019, CBP completed an Office of Trade Referral Audit of Leica, the scope
of which included Leica’s imports during the period of September 15, 2010 through May 12, 2016.
CBP’s audit found that Leica’s disclosure for classification, valuation, and FTA errors were neither
accurate nor complete. During the audit, CBP reviewed the accuracy of Leica’s determination of its
microscope classification, as the microscope was included in Leica’s sample of 139 items entered in
relation to FTAs. This undertaking revealed that Leica had used standard costs rather than actual
costs to calculate the relevant RVC. CBP reviewed the actual costs associated with the production
of the entered microscope, as well as the manufacturing costs associated with one of the
subassemblies of the microscope, and found that the good had an RVC of 34.61%, including the
OH5 Stand System in its calculations, and therefore did not qualify for preferential tariff treatment
under the US-SFTA.
ISSUE:
Whether the microscope at issue is eligible for preferential tariff treatment under the US-SFTA.
LAW AND ANALYSIS:
The US-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 US-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 the Agreement. The HTSUS has been amended to include General Note 25,
HTSUS, which contains Rules of Origin, definitions and other provisions to determine whether a
good originates under the US-SFTA. Title 19, Code of Federal Regulations (“CFR”) was amended
on June 11, 2007 to implement the US-SFTA and the Act. 19 CFR §§10.501-10.570. General Note
25(b), HTSUS, states 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–
(i) were wholly obtained or produced entirely in the territory of Singapore or of the
United States, or both;
(ii) are goods that, in their condition as imported, are enumerated in subdivision (m)
of this note and imported from the territory of Singapore; or
(iii) have been transformed in the territory of Singapore or of the United States, or
both, so that each nonoriginating material:
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(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).
An importer may make a claim for preferential treatment under this note
based on the importer's knowledge or on information in the importer's
possession that the good qualifies as an originating good. For the purposes of
this note, the term “SFTA country” refers only to Singapore or to the United
States.
The method of RVC calculation for the purposes of the US-SFTA is set forth in GN 25(g), HTSUS,
as follows:
(i) Where a rule set forth in subdivision (o) of this note specifies a regional value
content for a good, the regional value content of such good shall be calculated, at the
choice of the person claiming the tariff treatment authorized by this note for such
good, on the basis of one of the following methods, unless otherwise specified
herein:
(A) For the build-down method, the regional value content may be calculated
on the basis of the formula RVC = ((AV-VNM)/AV) x 100, where RVC is
the regional value content, expressed as a percentage; AV is the adjusted
value; and VNM is the value of non-originating materials that are acquired
and used by the producer in the production of the good; or
(B) For the build-up method, the regional value content may be calculated on
the basis of the formula RVC = (VOM /AV) x 100, where RVC is the
regional value content, expressed as a percentage; AV is the adjusted value;
and VOM is the value of originating materials that are acquired or self-
produced and are used by the producer in the production of the good.
(ii) Value of materials.
(A) For purposes of calculating the regional value content of a good under
subdivision (i) and for purposes of applying the de minimis provisions of
subdivision (e) of this note, the value of a material is:
(1) in the case of a material imported by the producer of the good,
the adjusted value of the material;
(2) in the case of a material acquired in the territory where the good is
produced, except for a material to which subdivision (3) below
applies, the adjusted value of the material; or
(3) in the case of a material that is self-produced, or in a case in which
the relationship between the producer of the good and the seller of
the material influenced the price actually paid or payable for the
material, including a material obtained without charge, the sum of–
(I) all expenses incurred in the production of the material,
including general expenses; and
(II) an amount for profit.
Because the M720 OH5 stereoscopic surgical microscope is comprised, in part, of
nonoriginating components, GN 25(b)(i), HTSUS does not apply. Similarly, GN 25(b)(ii) does not
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apply because the microscope is not enumerated in subdivision (m). Therefore, we must determine
whether the goods qualify as originating under GN 25(b)(iii), HTSUS.
Here, pursuant to General Rule of Interpretation 2(a), the unassembled microscope is
classified together with the stand and other components in subheading 9011.10.80, HTSUS, which
provides for “Compound optical microscopes, including those for photomicrography,
cinemicrography or microprojection; parts and accessories thereof: Stereoscopic microscopes:
Other.” The applicable rule for goods of subheading 9011.10.80, set forth in GN 25(o) requires:
(A) A change to subheadings 9011.10 through 9011.80 from any other heading; or
(B) A change to subheadings 9011.10 through 9011.80 from subheading 9011.90,
whether or not there is also a change from any other heading, provided there is a
regional value content of not less than 35 percent based on the build-up method
or 45 percent based on the build-down method.
Here, the merchandise does not satisfy (A) because two non-originating materials—namely
the “OH5 Stand System to M720 400W” and the “Protective Glass M50x, M620”—are classified in
heading 9011, HTSUS (specifically, in subheading 9011.90, HTSUS). We must therefore examine
whether the goods satisfy rule (B).
Rule (B) contains two parts. First, the nonoriginating components classified in subheading
9011.90 must shift to subheading 9011.10 as a result of production entirely in Singapore or the
United States. As noted above, the two nonoriginating materials are classified in subheading
9011.90, HTSUS. Therefore, the first part of the rule is satisfied. The second part requires an RVC
of at least 35% based on the build-up method or 45% based on the build-down method.
In this case, CBP’s audit revealed that Leica’s calculation of the RVC for the microscope had
been performed using standard costs based on actual costs for the microscope from the previous
year. Leica provided no actual costs to CBP that contradicted the audit findings. Once CBP
reviewed the actual costs associated with the production of the microscope, the costs were lower for
each of the subassemblies involved in production. In addition, the manufacturing costs associated
with one of these subassemblies, an optics carrier--consisting of direct material, direct labor, and
manufacturing overhead—was also reviewed and found to be lacking support. CBP then used the
actual costs of the subassemblies, supported by internal information from Leica, and found that the
microscope had an RVC of 31.46 percent using the build-down method and 34.61 percent using the
build-up method. For purposes of this protest, we reviewed the auditors’ calculations based on
actual costs and agree with their calculation of the RVC of the imported goods. Because the RVC
requirement found in GN 25(o), rule 34(B) has not been satisfied, the goods do not qualify as
originating. Accordingly, we find that the M720 OH5 stereoscopic surgical microscope does not
qualify for duty-free, preferential tariff treatment under the US-SFTA and was properly liquidated at
a duty rate of 7.2% ad valorem.
HOLDING:
The M720 OH5 stereoscopic surgical microscope does not qualify for duty-free, preferential
tariff treatment under the US-SFTA and was properly liquidated at a duty rate of 7.2% ad valorem.
The subject protest should be denied.
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You are instructed to notify the protestant of this decision, through the protestant’s current
counsel, no later than 60 days from the date of this decision. Any reliquidation of the entry or
entries in accordance with the decision must be accomplished prior to this notification. Sixty days
from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision
available to CBP personnel, and to the public on the Customs Rulings Online Search System
(“CROSS”) at https://rulings.cbp.gov/, which can be found on the CBP website at
https://www.cbp.gov and other methods of public distribution.
Sincerely,
For Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division
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