H290625

HQ H290625 June 7, 2022 OT:RR:CTF:VS H290625 JK/AP CATEGORY: Valuation; Origin Port Director U.S. Customs and Border Protection 200 E Bay St. Charleston, South Carolina 29401-2611 Attn: Andrew M. French, Import Specialist, IMM CEE RE: Application for Further Review of Protest No. 1601-16-100269; PET Film; Transaction Value; U.S.-Bahrain Free Trade Agreement Dear Port Director: This is in response to an Application for Further Review (“AFR”) of Protest Number 1601-16-100269, timely filed on behalf of JBF Bahrain S.P.C. (“JBF” or “importer”), concerning the eligibility of certain Polyethylene Terephthalate (“PET”) film for duty-free treatment under the United States – Bahrain Free Trade Agreement (“UBFTA”). A virtual meeting with the importer and its counsel was held on March 8, 2022. The business confidential information contained within brackets in italics will not be released to the public and will be withheld from published versions of this decision. FACTS: The merchandise at issue is PET film, Type A471, 12 microns thick by 31.535 inches wide. It consists of [X] percent Super Bright Chips .630 intrinsic viscosity (“I.V.”) from India; [X] percent Silica Chips 4000 PPM from India; and [X] percent Recycled Chips – Hazy & Clear (“recycled chips”) from Bahrain recycled from PET film waste and scrap. The importer manufactured the PET film in Bahrain. The U.S. ultimate consignee, Pilcher Hamilton Corporation (“PHC”), agreed to buy a minimum of 7,200,000 lbs. of PET film within a period of six months from July 1 through December 31, 2014, in exchange for a volume discount in the form of a post-import rebate. In the first step of the PET Film manufacturing process, the input raw materials (Super Bright Chips, Silica Chips, and recycled chips) were processed into a dried PET resin. The materials were mixed, and the resulting PET resin was subjected to high pressure heating and then dried. During this heating and drying process, the materials underwent various changes. There was a change in crystallinity. The structural morphology of the materials changed with the formation of regions of low spherulites containing thin crystals. The transparent resin became cloudy white in color and its moisture levels were brought down. In the second step of the process, the dried PET resin was fed into the film production machinery where it was melted in an extruder by application of shear forces and was heated. During this process, the PET resin changed from a solid to a viscous melt and from a crystalline to amorphous state. The molten mixture of PET resin underwent casting and cooling by extruding the resin through a flat rectangular slit die through an orifice onto a chill cast roll where the melt was quenched and processed into a solid, clear film containing no orientation. Next, the unoriented clear film underwent Machine Direction (“MD”) orientation, whereby it was heated above its glass transition temperature with the help of heated rolls and stretched in machine direction with the help of successive rollers moving at relatively different speeds. The unoriented film was stretched and oriented uniaxially, crystallization was induced, the thickness of the film was optimized, and its physical properties, such as modulus, tensile strength, and barrier and optical properties, were increased. The MD oriented film then underwent transverse direction orientation, whereby it was again heated above its glass transition temperature and drawn in a perpendicular or transverse direction. After the sideways draw, the film was annealed to further increase its crystallinity, reducing the tendency of the film to shrink on heating. As a result of biaxial stretching and isothermal crystallization of the film during transverse stretching, there was a significant increase in the mechanical and structural properties of the film, producing a tough, dimensionally stable, and relatively inert, flat film. Finally, the PET film was subject to winding and slitting to required dimensions and then packaged. The recycling plant took the reusable waste material from all stages of production. This included automatically recycled material by the machine, on-line generated scrap, and off-line generated scrap. The recycling plant produced recycled PET chips from these sources of scrap. The recycling plant machinery consisted of a compactor, a chopper, a melter/extruder, a filter, a die, a dryer, a conveyor and cooler, a chip cutter and bagger. During the recycling process, the scrap was chopped by an automated system in the recycling plant into very small pieces of approximately 5 to 8 mm in size. The chopped scrap was stored in a silo for further feeding into a continuous process system. The continuous processor started by compacting the scrap to increase the bulk density. This density-increased scrap was then melted and extruded into continuous uniform filaments of melted plastic. These uniform filaments were cooled and then chopped into 2.5 mm square chips. The chips were collected, tested, marked, and bagged for future use in the production of PET film. The aforementioned on-line waste was automatically fed into the recycling plant with the other scrap manually fed into the recycling plant. The recycling plant automatically processed the scrap into the recycled chip and packed the chip into the temporary storage bags for future use in the production of PET film. On January 17, 2015, the importer entered the PET film at the Port of Charleston, South Carolina under subheading 3920.62.0090, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”), claiming duty-free treatment under the UBFTA. U.S. Customs and Border Protection (“CBP”) initiated a verification of the importer’s UBFTA eligibility claim. On March 11, 2015, CBP in Charleston issued a CBP Form 28 (Request for Information) to the importer. The CBP Form 28 stated, in part: Please provide the following information or any other information not listed below but necessary per 19 CFR 10.809 through 10.817; and General Note 30(a)(b)(ii), (c)‚ (d), (f) to substantiate the Bahrain Free Trade Agreement for entry …. If JBF Bahrain S.P.C. is using the regional value content to qualify, please provide information and sup[p]orting records, documents and materials that would support the US/Bahraini materials and the direct cost[s] of processing that must at least equal 35% of the appraised value. This request[] seeks to obtain support for the breakdown of components, materials and actual costs. Failure to provide sufficient support will result in the denial of your free trade claims and the assessment of duties, fees, and possibly penalties under 19 USC 1592 …. On March 23, 2016, the CBP Laboratories and Scientific Services Directorate, Savannah Laboratory in Savannah, Georgia determined that “… regarding the manufacture of PET flakes into Biaxially Oriented PET film, the melting of PET flakes does not constitute a substantial chemical transformation and therefore the PET flakes do not undergo a double substantial transformation in this process.” On May 9, 2016, and June 1, 2016, CBP issued CBP Forms 29 (Notices of Action), notifying JBF that the PET film did not qualify for preferential treatment under the UBFTA. Specifically, the nonoriginating raw materials, Super Bright and Silica Chips, did not undergo a double substantial transformation; the importer had overvalued the cost of its recycled materials; and the plant insurance and finance costs were not direct costs of processing operations. The May 9, 2016 CBP Form 29 stated: U.S. Customs and Border Protection (CBP) completed a verification of the United States-Bahrain Free Trade (UBFTA) claim on Entry Number …. CBP concluded the imported PET Film may not qualify for UBFTA. If the PET Film does not qualify the correct classification is 3920620090/4.2%. CBP concluded: JBF understated its appraised value by deducting unsubstantiated international shipping costs and a post import reba

We note that the matter protested is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed, within 180 days of liquidation for the entry. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further review of this protest is properly accorded to the importer pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon.Transaction Value Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. § 1401a(b)(1).The importer asserts that it did not understate the appraised value of the PET film by deducting unsubstantiated international shipping costs and a post-import rebate from the price actually paid or payable for the merchandise, and that it used a correct currency exchange rate to convert Bahrain dinar (“BHD”) to U.S. dollar. RAAAS calculated an appraised value of $[X] for the imported merchandise versus JBF’s appraised value of $[X] and entered value of $[X], and accepted the importer’s currency exchange rate of 2.6529, which it used to convert BHD to U.S. dollars. RAAAS allowed the deduction of freight and other costs incident to the international shipment of $[X] after verifying that these deductions represented the actual expenses incurred for the international shipment. However, RAAAS concluded that JBF’s post-import rebate/retroactive price adjustment should not be deducted from th