CLA-2 CO:R:C:V 544017 BJO
Gary C. Cooper, Esq.
George R. Tuttle, P.C.
Three Embarcadero Center
Suite 1160
San Francisco, California 94111
RE: GSP Eligibility of Photograph Albums Assembled in Mexico
Dear Mr. Cooper:
This is in response to your letter of September 10, 1987, on
behalf of Sunnyville Corporation, in which you request a ruling
under the Generalized System of Preferences ("GSP")(19 U.S.C.
2461-2466) that unfinished photo album filler pages produced in
Mexico are substantially transformed constituent materials. We
apologize for the delay in our response.
FACTS:
You state that Sunnyville Corporation intends to assemble
the photo albums in Mexico for export to the U.S. The components
used in the photo album assembly will be: (1) filler pages, which
will be produced in Mexico from rolls of manilla paper imported
from Korea or the U.S., O.P.P. film imported from Korea, and
latex (glue) imported from the U.S. or Malaysia, (2) a book cover
imported from Korea, Mexico, or Singapore, (3) metal rings
imported from Hong Kong or Korea, (4) two PVC protectors,
imported from Korea or produced in Mexico, (5) labels imported
from Korea or the U.S., (6) rivets imported from the U.S., and
(7) packaging imported from the U.S. or produced in Mexico.
The filler pages will be produced in Mexico from the
imported rolls of manilla paper, O.P.P. film, and latex (glue) as
follows:
1. The latex will be mixed, the manilla paper and O.P.P.
film inspected for defects, and the sheet making machine
prepared for operation. The sheet making machine is 70 feet
long, and contains a series of rollers, an oven, and a
rotary cutter through which the manilla paper will pass.
The machine's sensors and tension gages will be pre-set, the
oven temprature set, and the circular cutter checked for
proper positioning.
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2. The manilla paper and O.P.P. film will then be mounted to
the machine. While the paper and O.P.P. film are being fed
through the machine, its speed will be increased to adjust
tension and the sensors.
3. The machine's rollers will coat the front of the paper
with latex necessary to hold the O.P.P. film. The paper
will pass through an oven to dry the latex, and then through
a series of rollers which place glue on the back of the
paper, laminate the film to the front of the paper, and fold
the paper in half and glue it together. The sheet then will
be passed through a roller which presses the sheet to remove
the air between the paper and film, and then through a
rotary cutter, which cuts the paper to sheets measuring 22
1/2 x 9 3/8 inches. At this point, the sheets are
"unfinished filler sheet" which remain to be cut to proper
size and punched with holes for insertion into the binder.
The unfinished filler sheet will be loaded into bundles,
inspected for defects, pallatized, and stored for approximately
one week, apparently to allow the sheets to dry. At that time,
the unfinished filler sheet will be cut in half, trimmed on two
sides, and punched with a drill machine to form three holes on
one side of the sheet. The photo album will then be assembled by
riveting the three ring metal section to the center of the binder
cover, hand placing the finished filler pages and two plastic
protectors in the rings, and attaching a label to the album
cover. The album will then be packaged by a shrink-wrap sealing
machine, and packed in cartons for shipment.
You estimate that the total cost of producing one dozen
photo albums will be $32.49, of which 58 percent will be
attributed to the total cost of materials used in producing the
filler pages. You state that the sheet-making machine costs
approximately $50,000, and that 30 persons are required to
produce the filler pages, assemble the photo album, and pack and
ship the finished product. You also estimate that the direct
labor costs plus the indirect costs of producing a dozen units,
including lease, maintenance, travel, utilities, depreciation,
and sample costs will be $1.651, or approximately 5.08 percent of
the total cost of production. Your submission indicates that
unless the unfinished filler pages are considered substantially
transformed constituent materials of the photograph albums, the
albums will not qualify for duty-free treatment under the GSP.
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ISSUE:
Whether unfinished filler paper produced in Mexico from
imported materials in the above-described process are
substantially transformed constituent materials for GSP purposes.
LAW AND ANALYSIS:
Under the GSP, eligible products of a designated beneficiary
developing country (BDC) which are imported directly into the
U.S. qualify for duty-free treatment if the sum of the cost or
value of the constituent materials produced in the BDC plus the
direct costs involved in processing the eligible article in the
BDC is at least 35 percent of the article's appraised value at
the time of its entry into the U.S. See 19 U.S.C. 2463.
The cost or value of materials which are imported into the
BDC to be used in the production of the article, as here, may be
included in the 35 percent value-content computation only if the
imported materials undergo a double substantial transformation in
the BDC. That is, the materials imported into Mexico must be
substantially transformed in Mexico into a new and different
intermediate article of commerce, which is then used in Mexico in
the production of the final imported article, the photo albums.
See 19 CFR 10.177(a).
You claim that the processing of the O.P.P. film, latex, and
rolls of manilla paper in Mexico substantially transforms those
materials into an intermediate article of commerce, the
unfinished filler pages, and that the cutting and hole-punching
of those unfinished filler pages and assembly of the photo album
binder constitutes the requisite double substantial
transformation. You therefore claim that the unfinished filler
pages are substantially transformed constituent materials for
purposes of the GSP, and that their cost may be counted toward
the 35 percent value-content requirement.
A substantial transformation occurs when an article emerges
from a process with a new name, character, or use different from
that possessed by the article prior to processing. See Texas
Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982). If the manufacturing or combining process is merely a
minor one which leave the identity of the imported article
intact, a substantial transformation has not occurred. Uniroyal,
Inc., v. United States, 542 F. Supp. 1026, 1029 (CIT 1982), aff'd
per curiam, 702 F.2d 1022 (Fed. Cir. 1983).
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The O.P.P. film, latex, and rolls of manilla paper are
substantially transformed in Mexico to form a new and different
article, the unfinished filler pages. The unfinished filler
pages have a different name and tariff classification than the
constituent materials. The character of the materials has been
changed in the processing: the rolls of manilla paper are cut,
folded in half, and glued together; the O.P.P. film is attached
to the manilla paper and cut; and the latex is mixed, applied to
the sheets, and dried. The materials have also undergone a
change in use, from raw materials with multiple potential uses to
an unfinished photo album page, an article with a limited,
specific use. Upon manufacture into the unfinshed filler pages,
the commercial and physical identity of the constituent materials
is lost. The processing of the materials to form the unfinished
filler pages appears to require a number of steps, a substantial
period of time, and a significant capital investment in the sheet
making machine.
However, the further processing of the unfinished photo
album filler pages does not constitute a second substantial
transformation. The cutting and hole punching of the filler
pages and hand-placing them into the album appear to be minor
finishing operations which do not substantially transform the
unfinished filler pages into a new and different article of
commerce. The descriptions of the two articles, "unfinished
filler pages" and (finished) filler pages, simply refer to the
same product at different stages of production. See National
Juice Products Association v. United States, 628 F.Supp. 978, 989
(CIT 1986). Cutting in half, trimming, and 3 hole punching does
not physically alter the unfinished filler pages to a significant
extent, and does not cause the unfinished filler pages to lose
its identifying characteristics. Both before and after the
operations, the pages appear to be intended and suitable for use
only as photograph album pages.
In determining whether the unfinished filler pages have
undergone the requisite second substantial transformation, we do
not consider relevant the assembly of the album cover. The
physical identity, name, and use of the filler pages does not
appear to be affected at all by that assembly, and, as set forth
above, simply hand-placing the filler pages into the album does
not convert them into new and different article of commerce.
Accordingly, the filler pages cannot be said to have been
substantially transformed as a result of the assembly of the
album cover.
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CONCLUSION:
Unfinished filler pages are not substantially transformed
constituent materials of imported photograph albums, and their
cost or value may not therefore be counted toward the GSP 35%
value-content requirement.
Sincerely,
John Durant, Director
Commercial Rulings Division