**HQ H009613**

April 4, 2008

**OT-RR:CTF:VS** H009613 GOB

**CATEGORY:** Valuation

Port Director

U.S. Customs and Border Protection

1515 Poydras Street

New Orleans, LA 70112

**RE:** Protest 2002-06-100663; Caribbean Basin Economic Recovery Act;
Subheading 9802.00.80, HTSUS; Computed Value

Dear Port Director:

This is in response to the application for further review of Protest
2002-06-100663, received in your office on October 17, 2006, filed on
behalf of Lear Kyungshin ("protestant"). This office received the
protest on April 11, 2007. In response to our request for additional
information, the protestant made a further submission of May 11, 2007.
Our decision follows.

**FACTS:**

The protest concerns five entries of merchandise, four of which were
filed on June 10, 2005 and the fifth filed on August 10, 2005. The
protestant states in pertinent part as follows:

Lear Kyungshin is an affiliate of Lear Corporation (Lear). Lear
Kyungshin (LK) . . . imports wire harnesses from its overseas
manufacturing facility in Honduras, Lear Kyungshin Honduras (LK HN),
that are used in the assembly of automobile seats and seat assemblies.
The wire harnesses at issue are all classified under subheading
8544.30.0000, of the Harmonized Tariff Schedule of the United States
(HTSUS).

. . .

Lear and its customs consultants conducted an independent verification
of prices charged from its affiliate in Honduras. The verification could
not conclude that the prices charged were at arm's length; accordingly,
transaction value was deemed inappropriate. In addition, transaction
value of identical or similar merchandise \[section 402(c) of the TAA\]
is not available as LK HN does not sell merchandise to any other
entities in the U.S.

Under 19 CFR §151.101(c) \[sic; 19 CFR § 152.101(c)\], LK has exercised
its option to apply the computed value method prior to the deductive
value method. Accordingly, the correct method of appraisement for wire
harness importations from LK HN by LK is computed value, in accordance
with 19 CFR §152.106. \[Footnote omitted.\]

. . .

. . . \[D\]ue to an oversight, LK did not apply for Reconciliation ...;
and subsequently, certain entries occurring in 2005 were not
appropriately flagged. Because of this inadvertence, the declared value
at the time of entry was not true and correct. The incorrect value led
to the overpayment of duties to CBP.

. . .

. . . In accordance with 19 CFR § 151.106 \[sic; 19 CFR 152.106)\], Lear
and its customs consultants conducted a Computed Value analysis of LK
HN's actual 2005 production costs and determined the correct value of
the imported wire harnesses. . . .

The wire harnesses produced by LK HN incorporate a significant amount of
Honduran origin components. As part of the valuation analysis, Lear
conducted a thorough review of wire harness component values and
identified certain wire harness part numbers that qualified for
preferential treatment under the Caribbean Basin Initiative (CBI), which
was in effect during 2005 for imports from Honduras.

. . .

The wire harnesses produced by LK HN also incorporate a significant
amount of U.S. origin articles. During the analysis of 2005 production
records, Lear discovered that the value of U.S. articles incorporated
into the wire harnesses should have been correctly classified under the
9802 -- U.S. Articles Assembled Abroad provision (19 CFR § 10.11 --
10.24).

The subject articles meet the three-fold test to qualify for
classification under Subheading 9802.00.80, HTSUS in that the articles .
. . 1) were exported in condition ready for assembly without further
fabrication, 2) have not lost their physical identity during the wire
harness assembly operations, and 3) have not been advanced in value or
approved in condition while abroad.

With respect to its claimed computed value election, the protestant
claims that during a formal compliance assessment in 2003 and 2004 Lear
notified Customs and Border Protection ("CBP") of its intention to
appraise imported wire harnesses from Lear Honduras under the computed
value method. The protestant states:

> Lear provided notification of the Company's intention to appraise
> merchandise from Honduras under computed value prior to import of the
> goods. Notification was sent to . . . CBP's Regulatory Audit Division,
> Ft. Mitchell, Kentucky, in a letter dated October 15, 2004. A copy of
> the letter was sent to . . . Lear's CBP Account Manager based in New
> Orleans, Louisiana. Lear also submitted notification in an e-mail
> dated October 22, 2004 \[to\] CBP's Regulatory Audit Division,
> Houston, Texas. . . .

A copy of the October 22, 2004 email message is in the case file.

In its May 11, 2007 submission, the protestant included a copy of a
letter of October 15, 2004 from Lear Corporation (Headquarters,
Southfield, Michigan) to the CBP Regulatory Audit Division in Fort
Mitchell, Kentucky, in which Lear Corporation ("Lear") stated in
pertinent part as follows:

> . . . please note that we will not be submitting an internal advice
> request for the use of Transaction Value for Lear purchases from Lear
> Honduras. Our analysis of the operational and financial aspects of
> those transactions was less conclusive that Transaction Value is the
> appropriate valuation method. Accordingly, we are supplementing our
> current customs compliance program with controls and procedures to
> ensure the appropriate declaration under the computed value
> appraisement method. We are also using the ACS reconciliation program
> to ensure that all entries going back to January 2003 are liquidated
> at the appropriate computed values.

In a Compliance Assessment Report of February 2, 2001, CBP Regulatory
Audit concluded that computed value was the appropriate basis of
appraisement.

**ISSUES:**

1\. Whether the protestant made a valid election to use computed value?

2\. Whether the subject goods were eligible for treatment under the
Caribbean Basin Economic Recovery Act ("CBERA")?

3\. Whether the subject goods were eligible for treatment under
subheading 9802.00.80, Harmonized Tariff Schedule of the United States
("HTSUS")?

**LAW AND ANALYSIS:**

The protestant makes three basic claims: the goods qualify for treatment
under CBERA; the goods qualify for treatment under subheading
9802.00.80, HTSUS; and the goods should be appraised by computed value
as it exercised its option to apply the computed value method of
appraisement prior to the deductive value method of appraisement.

# Protestant's Computed Value Claim 

With respect to its claimed computed value election, the protestant
states that it notified CBP of its intention to use computed value. Your
office advised that it never received any notice from the protestant or
from a CBP officer with respect to the protestant's claimed election to
use the computed value method before the deductive value method. The
protestant states that after it performed an analysis of the prices
charged, it determined that they were not charged at arm's length, and
that therefore the use of transaction value was not appropriate.
Accordingly, it used computed value. We further note that CBP Regulatory
Audit concluded in a Compliance Assessment Report of February 2, 2001
that computed value was the appropriate basis of appraisement.

Section 152.102(c), CBP Regulations (19 CFR § 152.102(c)) provides in
pertinent part as follows:

> The importer may request the application of the computed value method
> before the deductive value method. The request must be made at the
> time the entry summary for the merchandise is filed with the port
> director . . .

While the documentation of record includes a copy of an email message of
October 22, 2004 from Lear to CBP Regulatory Audit in Texas, the record
does not include any documentary evidence that the protestant notified
the port director in New Orleans of this election at the time the entry
summary is filed, as required by 19 CFR § 152.102(c). Accordingly, we
find that the protestant did not make a valid election. Nonetheless,
given the Regulatory Audit assessment that computed value was the
appropriate basis of appraisement, we find that the use of computed
value may be appropriate. We are returning the protest file to you to
fix the appraisement of the entries which are the subject of this
protest, considering the audit findings.

# Protestant's CBERA Claim

Pursuant to 19 U.S.C. 2701, *et seq*., eligible articles the growth,
product, or manufacture of a designated beneficiary country ("BC"),
which are imported directly to the U.S. from a BC, qualify for duty-free
treatment, provided the sum of (1) the cost or value of materials
produced in a BC or two or more BCs, plus (2) the direct costs of
processing operations performed in a BC or BCs is not less than 35
percent of the appraised value of the article at the time it is entered
into the U.S. 19 USC § 2703(a)(1). In addition, the cost or value of
materials produced in the U.S. may be applied toward the 35 percent
value-content minimum in an amount not to exceed 15 percent of the
imported article's appraised value. *See* 19 CFR § 10.195(c).

Pursuant to General Note 7(a) of the HTSUS, Honduras was a BC for
purposes of the CBERA at the time the subject entries were filed. The
subject wire harnesses are classified in subheading 8544.30.00, HTSUS.
Articles classified in this subheading are eligible for duty-free
treatment under the CBERA. Therefore, the wire harnesses will receive
duty-free treatment if they are considered to be the "product of"
Honduras, the 35 percent value-content requirement is met, and they are
"imported directly" into the United States.

Where an article is produced from materials that are imported into the
BC, the article is considered "the growth, product, or manufacture" of
the BC, only if the imported materials are substantially transformed
there into new and different articles of commerce. *See* 19 CFR §
10.195(a). Moreover, the cost or value of those imported materials may
be included in calculating the 35 percent value-content requirement only
if they undergo a "double substantial transformation" in the BC. That
is, the foreign materials will be considered "materials produced" in
Honduras only if they are substantially transformed in Honduras into a
new and different intermediate article of commerce, which is then used
in Honduras in the production of the wire harnesses. *See* 19 CFR

§ 10.196(a). A substantial transformation occurs when an article emerges
from a manufacturing process with a name, character, or use which
differs from that of the original material subjected to the process.
*Texas Instruments v. United States*, 69 CCPA 152, 156, 681 F.2d 778,
782 (1982).

In HQ 563086, dated November 22, 2004, in which Customs and Border
Protection ("CBP") responded to Lear Corporation's request for a ruling
that certain wire harnesses from Honduras qualify for duty-free
treatment under CBERA, CBP stated:

> Based on the information provided, we determine that the copper wire,
> polyvinyl pellets, polyethylene pellets, PVC resins and electrical
> circuits undergo a double substantial transformation in Honduras and
> therefore, the cost or value of these materials may be included in
> calculating the value of the BC content. Furthermore, the wire
> harnesses which are "products of" Honduras[^1] will be entitled to
> duty-free treatment under the CBERA, assuming that the 35%
> value-content and "imported directly" requirements are satisfied.

The documentation of record reflects that the subject goods were
imported directly from Honduras.

The remaining requirement is the 35 percent value-content requirement,
described above. We have reviewed the documentation contained in the
protestant's May 11, 2007 submission, including the invoices and bills
of materials. The protestant submitted a chart of the entries and the
corresponding invoices and part numbers, as well as documentation
concerning the direct costs of processing and information concerning
direct labor, indirect labor, and salaries, etc. CBERA declarations were
submitted by the plants, along with the bill of materials for the part
numbers. Certificates of origin and manufacturer's affidavits were
submitted by the manufacturers. Based upon this information, the
protestant prepared CBERA value-content calculations. We have reviewed
some of these calculations for some part numbers and we concur that the
value-content has been met.

Therefore, based upon the information presented, we find that the
protestant is entitled to preferential treatment under CBERA, provided
your office is able to verify the value content for all entries which
are the subject of this protest.

[Protestant's Subheading 9802.00.80 Claim]{.underline}

In its letter of May 10, 2007,[^2] the protestant states: "For items
that do not qualify for CBI, Lear's . . . system calculates the value of
U.S. components for 9802 preferential treatment."

The protestant has submitted "9802 Declarations" for the various part
numbers. The protestant also submitted its "Subheading 9802 Cost
Submission Control Procedures."

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

Articles 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.

#  We have reviewed the documentation submitted by the protestant with respect to this claim, including the declarations prepared pursuant to 19 CFR 

# § 10.24. We find that this documentation is sufficient to support its claim for eligibility under subheading 9802.00.80, HTSUS, with respect to goods for which treatment under CBERA is not permitted. Therefore, the protestant's claim for subheading 9802.00.50, HTSUS, should be allowed, provided your office is able to verify the information for all entries which are the subject of this protest.

**HOLDINGS:**

We find that the subject merchandise may be appraised using computed
value provided your office is able to determine that the analysis of the
audit is consistent with the valuation of the entries presented.

We find that the goods entered on the subject entries are eligible for
treatment under CBERA, provided your office is able to verify the value
content with respect to all entries presented, as described above.

We find that the goods which are not eligible for treatment under CBERA
are eligible for treatment under subheading 9802.00.80, HTSUS, provided
your office is able to verify the pertinent information with respect to
all entries presented.

You are instructed to grant the protest consistent with these findings.

In accordance with the Protest/Petition Processing Handbook (CIS HB,
January 2007), please promptly mail this decision, together with the
Customs Form 19, to the protestant, but in no event 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 make the
decision

available to CBP personnel, and to the public on the CBP Home Page on
the World Wide Web at www.cbp.gov, by means of the Freedom of
Information Act, and other methods of public distribution.

> Sincerely,

Myles B. Harmon

Director

Commercial and Trade Facilitation Division

[^1]: We determined in the ruling that "the copper wire, polyvinyl
    pellets, and polyethylene pellets are substantially transformed by
    the manufacturing process into products of Honduras."

[^2]: The protestant's letter is dated May 10, 2007. Its bound
    submission which accompanied the letter is dated May 11, 2007.