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HQ 555181

June 16, 1989

CLA-2 CO:R:CV:V 555181 BJO


Mr. John H. Nessley
Edward S. Zerwekh Company
P.O Box 368
Wilmington, California 90748

RE: GSP Treatment of Telephone Answering Equipment

Dear Mr. Nessley:

This is in response to your letters of September 6 and November 8, 1988, on behalf of Phone Mate Inc., in which you inquired whether telephone answering equipment manufactured in Malaysia is eligible for duty free treatment under the Generalized System of Preferences (GSP)(19 U.S.C. 2461-2465) if containerized and quality control tested in Singapore prior to export to the U.S.


You state that your client will import telephone answering equipment produced by the Asahi Corporation. The producer will manufacture and pack the merchandise for export in Malaysia, a beneficiary developing country (BDC), and then transport it to Singapore, a non-BDC as of January 1, 1989. At its Singapore plant, which is not a customs bonded area, the producer will load the merchandise for export to the U.S. in containers holding only Malaysian-manufactured merchandise. The producer may also, from time to time, perform quality control tests on the merchandise in Singapore, the results of which will be placed in the box containing the tested article. The invoices, packing lists, and GSP Form A for the merchandise will be produced by the Malaysian factory, or if the invoice is prepared in Singapore "because of office facility purposes," it will be on the producer's Malaysian factory letterhead but will contain a statement disclosing that it was prepared by the Singapore office. A copy of the truck bill of lading covering movement of the cargo from Malaysia to Singapore will be provided.


Whether merchandise is "imported directly" to the U.S. from a BDC for GSP purposes if it is shipped from the BDC to a non- BDC, where it is quality control tested and loaded into containers for export to the U.S.


Under the GSP, eligible articles which are imported directly from a designated beneficiary developing country (BDC) into the U.S. qualify for duty-free treatment if the sum of the cost or value of the constituent materials produced in the BDC plus the direct costs involved in processing the eligible article in the BDC is at least 35 percent of the article's appraised value at the time it is entered into the U.S. See 19 U.S.C. 2463. The phrase "imported directly" is defined in section 10.175 of the Customs Regulations (19 CFR 10.175). For purposes of this ruling, we will assume that the merchandise is GSP eligible and that the local value-content minimum will be met.

Under 19 CFR 10.175, merchandise shipped through a non-BDC to the U.S. is "imported directly" if: 1) the merchandise does not enter into the commerce of the intermediate country while en route to the U.S., and the invoices, bills of lading, and other shipping documents show the U.S. as the final destination (19 CFR 10.175(b)); or 2) the merchandise does not enter into the commerce of the intermediate country except for the purpose of sale other than at retail, the shipment remains under the control of the customs authority of the intermediate country, and the shipment is not subjected to operations other than loading and unloading and other activities necessary to preserve the articles in good condition (19 CFR 10.175(d)).

The shipment described in your letter does not appear to meet the requirements of either subsection. It is not clear from your letter that the original shipping documents to be issued in the BDC will show the U.S. as the final destination, as required by 19 CFR 10.175(b). In addition, a transshipment does not qualify if the merchandise enters the commerce of the intermediate country. Merchandise enters the commerce of the intermediate country for purposes of the GSP if manipulated (other than by loading or unloading), offered for sale (whether or not a sale actually takes place), or subjected to a title change in that country. See Headquarters Ruling 071575, dated November 20, 1984. Because quality control testing constitutes
more than a loading and unloading, if such testing is performed on the merchandise in Singapore, it will be deemed to enter the commerce of that intermediate country.

We further find that the shipment will not meet the requirements of 19 CFR 10.175(d). That section requires that the articles remain under the control of customs authorities in the non-BDC. Your letter states, however, that the plant in Singapore where the operations will be performed is not a customs bonded area. In addition, manipulation of the merchandise permitted in the non-BDC under 19 CFR 10.175(d) is limited to "loading and unloading, and other activities necessary to preserve the articles in good condition." 19 CFR 10.175(d)(3). As stated above, quality control testing of the phone equipment in Singapore constitutes more than loading and unloading of the articles.


On the basis of the information provided, it is our opinion that the telephone answering equipment to be manufactured in a BDC and transported to a non-BDC for loading into containers and occasional quality control testing will not be imported directly from the BDC into the U.S. and, therefore, will not qualify for duty-free treatment under the GSP.


John Durant, Director

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