HQ 560513 - Application for Further Review of Protest No. 2501-97-10005; Cal Pacifico of - United States International Trade Commision Rulings

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HQ
560513

August 18,
1998

CLA-02 RR:TC:SM 560513 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Port Director
610 West Ash Street
San Diego, CA 92188

RE: Application for Further Review of Protest No. 2501-97-10005; Cal Pacifico of
California

Dear Sir:

This is in reference to the above-captioned protest, timely filed by counsel on behalf of Cal Pacifico of California ("Cal Pacifico"). The primary issue concerns the denial by Customs of claims for a partial duty exemption made under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

Customs Regulatory Audit Division conducted an audit of Cal Pacifico and its clients, from January 1990 through June of 1994. The primary focus of the audit concerned claims made for duty exemptions under HTSUS 9802.00.80, for various types of merchandise, including audio equipment, aluminum blinds, and articles for medical applications. An audit report was issued on January 6, 1995.

Cal Pacifico acted as importer of record for various clients during the period in question. The audit review of 12 of such clients disclosed that 1) some had U.S. certificates of origin for the period but such certificates could not be matched with specific entries; 2) certificates of origin that were deficient, or 3) no certificates of origin at all. As a result, claims for HTSUS subheading 9802.00.80 treatment during this period were denied. None of the other companies had documentary evidence in support of the subheading 9802.00.80 claims.

Protestant claims that excessive duties were assessed on the entries covered by the subject protest for the following reasons:

1) Certificates of origin were not available at the time the entries were filed. Protestant
claims that It has now been established, with valid certificates of origin, that the components were of U.S.-origin and qualify for the duty allowance.

2) Duties were improperly assessed on the value of U.S. packaging materials which qualified for duty-free treatment under subheading 9801.00.10.

3) Assembly costs were previously duty-paid at the time of entry.

4) Duties were improperly assessed because of mathematical errors.

5) Increased duty assessments are excessive because no credit was given for duties which were previously tendered in lump sum deposits made by the importer on certain assemblies and subassemblies when the claims for a partial duty allowance under subheading 9802.00.80, HTSUS, were abandoned. These deposits must be applied as credits against the duty assessments the subject of this protest.

Subsequent to the denial of the subheading 9802.00.80 claims and after the protest was filed, additional information was submitted by Cal Pacifico and its clients in support of the claims. This information was submitted to the Field National Import Specialist (FNIS), who reviewed the information and has forwarded to this office his comments.

ISSUE:

Whether the articles covered by the subject protest qualify for a partial duty exemption under subheading 9802.0080, HTSUS.

LAW AND ANALYSIS:

1) Claim of U.S.-Origin

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

(a)rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations.

Pursuant to 19 CFR 10.24, the required documentation shall include an assembler's declaration describing the fabricated components, that they are of U.S. origin, and other pertinent information, and an endorsement by the importer certifying the accuracy of the declaration. (19 CFR 10.24(a).) The port director may waive the production of either or both of these documents, or any of the information required, if he is satisfied that unusual circumstances exist which make the production of such documents or information impractical, and he is satisfied that the requirements of the statute (and legal notes) have been met.

Headquarters Ruling Letter (HRL) 556363 dated February 16, 1993, involved the documentation required under 19 CFR 10.24 in connection with a claim under HTSUS subheading 9802.00.80. In this ruling, we stated that a subheading 9802.00.80, HTSUS, allowance may be granted only if the importer can document, for each and every entry for which the allowance is claimed, that those components claimed to be products of the U.S. are, in fact, products of the U.S. This documentation requirement may be waived by the port director if the port is satisfied that the required controls were maintained to strictly segregate U.S.-origin and foreign components, so that the port director can identify by audit, if necessary, the specific components of U.S. origin in particular shipments for which a subheading 9802.00.80, HTSUS, allowance is claimed. See HRL 555505 dated December 28, 1989.

With regard to the segregation requirement, it is noted that Customs has denied claims for subheading 9802.00.80 treatment based solely on an accounting methodology where U.S. and foreign components had been commingled in the foreign assembly operation in such a way that the precise quantity and value of the U.S. components in a given shipment could not be substantiated. See, e.g., Headquarters Ruling Letter (HRL) 555409 dated March 12, 1990 (C.S.D. 90-71(4)).

The primary issue to be resolved in this case is whether protestant has supported its claims through documentary evidence that the fabricated components claimed to be of U.S.-origin were, in fact, of U.S-origin.

In his report regarding the new information submitted, the FNIS states that in many of the cases certificates of origin were submitted reflecting the U.S.-origin of various
components of the type used in fabrication of the imported merchandise as well as bills of materials and purchase orders of U.S. components near the date of importation. In addition, in some cases, the FNIS found that the company or a related firm produced components in the U.S. that were used in fabrication of the products imported from abroad. However, in eleven of the twelve cases there is no evidence which would connect the U.S. components to a particular entry. Nor is there evidence that any identified parts were exclusively of U.S.-origin. The absence of the foregoing evidence was confirmed with the FNIS through telephonic communication.

However, in connection with the entries made by 3 Day Blinds, Inc., a statement was submitted by the Vice President of Manufacturing dated January 13, 1995, certifying that the enumerated parts (by number) were self-produced by the company in the U.S. during the period in question, and that such parts "...[a]re, and since January 1, 1990, have been, of U.S. origin." The FNIS confirms that these part numbers correlate with the part numbers covered by the 9802.00.80 claims.

Accordingly, with the exception of the claims made on behalf of 3 Day Blinds, Inc., we find that protestant is unable to document its claim of the U.S.-origin of components on an entry-by-entry basis. In the case of 3 Day Blinds, Inc., the record establishes that all of the parts covered by the subheading 9802.00.80 claims during the entry period were self-produced in the U.S. and thus were of U.S.-origin. In addition, the FNIS is satisfied that all other requirements of HTSUS subheading 9802.00.80 have been met in connection with the articles imported by 3 Day Blinds. Therefore, the claim for a duty allowance under subheading 9802.00.80 made in connection with the articles imported for the account of 3 Day Blinds, Inc., should be granted. All other claims for a duty allowance made under subheading 9802.00.80 by Cal Pacifico should be denied.

2) Packaging Materials - Subheading 9801.00.10

Protestant has submitted no evidence that duties were assessed on the value of U.S. packaging materials which were entitled to duty-free treatment under subheading 9801.00.10, HTSUS. Accordingly, the claim is not substantiated and must be denied.

3) Incorrect Assessment of Duties on Assembly Costs

The FNIS advises that no specific evidence was presented indicating which assemblies or subassemblies had previous lump sum deposits tendered. Under the circumstances, as there is no evidence to support this claim, it is denied.

4) Incorrect Assessment of Duties due to Mathematical Errors

No evidence was presented of incorrect assessment of duties as a result of mathematical errors. As a result, this claim is not substantiated.

5) Lump-Sum Deposits

No specific evidence was presented indicating which assemblies or subassemblies had previous lump sum deposits tendered, therefore no credit could be granted for possible over assessments of duties. Accordingly, this claim is denied.

HOLDING:

The protest is granted in part and denied in part consistent with the foregoing.

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 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 of 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 Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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