Goods 'Put Up in Sets' Get GSP Treatment, Even if Other Parts of Set Don't Qualify, CIT Says
Articles imported within sets may be eligible for duty-free treatment under the Generalized System of Preferences, even if other components of the set are not, the Court of International Trade said in a decision issued Aug. 23. In a test case on whether sets of Thai pots and Chinese lids imported by Meyer Corp. qualify for GSP, CIT held that the pots are GSP-eligible, and that the lids are not, despite the entire sets being classified in a single tariff provision for kitchen articles of stainless steel.
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CBP had denied the sets’ GSP eligibility based on Treasury Decision 91-7. Set forth in 1991, the policy said an entire set is ineligible for GSP treatment when it contains an item or component that is not a “product of” a GSP beneficiary country. CBP also outlined a 35 percent GSP beneficiary value content requirement for GSP goods in the policy.
To qualify for GSP, an “article” must be “wholly” the growth, manufacture or product of a GSP beneficiary. By law, that “article” can’t become the growth or manufacture of a beneficiary country “merely by having undergone … ‘simple combining or packaging operations,’” CIT said. Though the law is silent on how it applies to sets, CBP’s concern is not unreasonable that “finding that only the component which imparts the essential character to the finished article must be substantially transformed would open the door for all kinds of significant non-originating goods to be included with originating goods to receive GSP treatment,” the trade court said.
On the other hand, Meyer does not seem to be combining Chinese lids with Thai pots with the purpose of avoiding duties on the lids, it said. The question of whether the articles are a product of a GSP country should be applied to the sets as a whole, not each individual article in the set, taking the 35 percent value content rule into account, Meyer said.
CIT held neither side had it right, finding they both conflated the classification of the sets with the applicability of preferential treatment. Just because the pans and lids are classifiable together in the same subheading does not mean they share the same country of origin for tariff preference purposes, CIT said. “Simply put: classification pursuant to GRI 3(b) of ‘an article’ (e.g. a set) is a distinct consideration apart from preferential duty-free treatment of ‘an article’, and the two articles are not at the same level of consideration.”
The 1991 Treasury Decision and Meyer’s arguments against it both run contrary to GSP’s intent, the court said. “To the extent T.D. 91-7 has the effect of denying preferential treatment to ‘an article’ that is otherwise eligible for the benefit of GSP simply because it has been ‘put up in sets for retail sale’ together with one or more non-[GSP beneficiary] component articles that are not de minimis, the purpose of the GSP statute is thereby undermined,” CIT said. “Allowing a non-de minimis non-[GSP beneficiary] component article the benefit of preferential tariff treatment simply by virtue of its being a component part of the set would also undermine the purpose of the GSP statute. Either instance contorts the GSP statute into covering a condition that is beyond that which the language adopted by Congress apparently contemplates.”
CBP denied GSP preferences to the Thai pots “on the basis of an assumption that is invalid as a matter of law,” CIT said, granting Meyer’s motion to find the pots are GSP-eligible. On the other hand, it is “clear to the court” that the Chinese components of the set “are not entitled to [GSP] treatment upon reliquidation,” the court said. CIT left undecided the issue of whether the Chinese lids should be dutiable at the rate applicable to the stainless steel kitchenware set in subheading 7323.93.0045, or at the rate applicable to the lid itself.
But the court agreed with the government’s decision to deny the entry first sale treatment. CBP had denied the claim because Meyer did not provide any financial documents for its parent company. Meyer argued that the parent’s data was irrelevant, because CBP should determine whether the price paid was enough for the manufacturer to make a profit, not the parent company that “neither produces or sells any goods,” CIT said. The burden is on the importer to establish that the manufacturer and the middle man dealt with one another at arm’s length, it said. “All of the entities relevant to that issue are related, and therefore the financial information pertaining to the parent is also relevant to examining whether any non-market influences affect the legitimacy of the sales price,” especially when Meyer’s lids were from a “non-market” economy like China, CIT said.
(Meyer Corp., U.S. v. U.S., Slip Op. 17-110, CIT # 13-00154, dated 08/23/17, Judge Musgrave)
(Attorneys: John Donohue of Reed Smith for plaintiff Meyer Corporation, U.S.; Beverly Farrell for defendant U.S. government)