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Sets Can Qualify for GSP Even if Each Component Doesn’t, Court Says

Thursday, August 31, 2017
Sandler, Travis & Rosenberg Trade Report

The Court of International Trade issued recently a test case decision concerning both eligibility for the Generalized System of Preferences and the First Sale Rule.

In Meyer Corp. v. United States the CIT reviewed the eligibility for GSP duty-free treatment of cookware sets imported from Thailand, a GSP beneficiary developing country, that include glass lids made in China as well as components made in other BDCs. U.S. Customs and Border Protection argued that the court should rely on Treasury Decision 91-7, which among other things provides that GSP’s “product of” requirement renders an entire set ineligible for GSP if it contains an item or component that cannot be regarded as a product of a BDC. The importer countered that T.D. 91-7 added a requirement (that every component of a set must be the product of a BDC for the set to be GSP-eligible) that does not exist in the law and instead pointed to a CIT ruling in 2000 that the “mere fact that one detachable component is not a BDC product does not automatically disqualify the entire article from GSP eligibility.”

The CIT rejected both arguments as undermining the purpose of GSP, emphasizing that tariff classification of an article as a set under GRI 3(b) is a distinct consideration from preferential treatment of an article. Under CBP’s argument, the court said, T.D. 91-7 would have the effect of denying preferential treatment to an article otherwise eligible for GSP simply because it has been put up in sets for retail sale together with articles that are not GSP-eligible. On the other hand, the court added, GSP treatment should not be extended to a non-de minimis non-BDC component simply by virtue of its being part of an otherwise GSP-eligible set. The court remanded for further consideration whether the Thai-produced components in the sets at issue do in fact meet the GSP eligibility criteria.

The CIT also considered whether the sets are viably valued at the price established between the Thai producer and a middleman, both of which are related to the importer, or on the basis of the price established between the middleman and the importer. CBP initially approved of the first sale valuation but subsequently rejected it during an audit. The court concluded that there is no indication of whether the Thai producer procured the glass lids from an unrelated entity and/or at arm’s length and therefore remanded this issue for further consideration. The CIT directed the parties to submit a proposal on resolving these issues by Sept. 22.

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