CLA-2 CO:R:C:V 554914 CW/JD
Mike Ainsa, Esq.
Grambling & Mounce
Seventh Floor
Texas Commerce Bank Building
El Paso, Texas 79901-1334
RE: Ruling request concerning the eligibility for duty-free
treatment under the GSP of, and the tariff classification
and country of origin marking requirements applicable to,
certain opthalmic plastic lenses from Mexico.
Dear Mr. Ainsa:
This is in reference to a letter of December 31, 1987, from
the law firm of Kemp, Smith, Duncan & Hammond, requesting a
ruling on behalf of Epson El Paso, Inc. ("importer") concerning
whether the cost or value of certain substances of U.S. origin
used in the production in Mexico of molded plastic lenses may be
included in the 35 percent value-content requirement for purposes
of the Generalized System of Preferences (GSP). You advise that
your law firm, Grambling & Mounce, has replaced the above firm as
counsel for the importer in connection with this ruling request.
In addition to the above issue, our advice also is requested in
regard to the tariff classification and country of origin marking
requirements applicable to the imported lenses.
FACTS:
The ruling request states that your client plans to import
several types of opthalmic plastic lenses to be manufactured by
its wholly-owned subsidiary in Mexico. According to the December
31, 1987, letter, each of the different types of lenses will be
produced in essentially the same manner from raw materials of
U.S. origin. These materials consist of the following three
chemical substances: diallyl diglycol carbonate (a monomer in
liquid form), diisopropyl peroxydicarbonate (an initiator in
solid form), and Ultra Violet Absorber ("UVA", a solid). The
monomer, a stable, passive substance, and the initiator, a highly
active and reactive substance, are combined in distinct batches
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to which is added the UVA, also a passive substance. We are
informed that when the monomer and initiator are combined, they
create a new and distinctly different substance -- a polymer.
The combination of the monomer and initiator causes an
irreversible chemical reaction to take place resulting in the
growing viscosity of the polymer, until, unless cooled, the
polymer becomes a solid mass.
The cooled polymer is then injected into a glass mold
assembly which is placed in an air oven for heat curing at
precisely-controlled temperatures over specific time sequences.
The December 31, 1987, letter advises that during the curing
process the polymer undergoes further irreversible chemical
changes, resulting in a solid plastic lens. Upon completion of
the curing process, excess polymer is removed from the glass mold
assembly and the assembly is rough cleaned in an organic solvent
and placed in the air oven to maintain the temperature of the
mold assembly and the molded lens.
After the glass mold is removed from the air oven, the
molded lens is released from the mold, cleaned, and placed in a
Coating Basket. In this basket, the lens is dipped into a "Hard-
Coat-Solution", slowly withdrawn, and then heated to vaporize any
organic solvent present on the lens. Finally, the lens is
removed from the Coating Basket, placed on an annealing pallet,
and annealed in an Air Oven to stabilize the structure of the
lens and to remove any structural stresses resulting from the
molding and heating processes.
It is contended that because the combining of the monomer
and the initiator produces a new chemical substance --
a polymer -- and begins a reaction process that, once started, is
irreversible, a substantial transformation of the monomer,
initiator, and UVA occurs. Thus, your client believes that the
resulting polymer constitutes a new and different article of
commerce, possessing a name, character and use that is different
from those of the three predecessor chemical substances.
Moreover, we are asked to confirm that the production of the
finished plastic lenses from the polymer represents a second
substantial transformation, permitting the cost or value of the
monomer, initiator, and UVA to be counted for purposes of
satisfying the GSP 35 percent requirement.
Regarding the tariff classification of the imported molded
lenses, it is your client's position that these articles should
properly be classified in item 708.01, Tariff Schedules of the
United States (TSUS).
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Concerning the applicability of country of origin marking
requirements to the imported plastic lenses, we note that the
Manufacturing Process Description enclosed with the December 31,
1987, ruling request refers in item XXIV to the fact that the
lenses are marked by the use of marking machinery with the Seiko
logo. In items XXV-XXVII, reference is made to inspection of and
labeling of the "power" of each lens. In items XXVIII and XXIX,
it is stated that each lens is placed in an envelope which bears
country of origin information, the lens envelopes are placed in
lens packages, and the packages are placed in lens cases that
indicate country of origin.
In the U.S., laboratories or optical houses will grind and
fit these lenses to eyeglass frames. You advised a member of my
staff by telephone that the words "grind and fit" mean that the
outer rim of the lenses will be shaped to allow insertion in
various shapes of eyeglass frames. It is your understanding that
the vision corrective qualities of the lenses are imparted during
the manufacturing process in Mexico. That appears consistent
with the fact that the "power" of each lens is labeled before
export from Mexico.
ISSUE:
1. Whether the polymer produced in Mexico from certain
chemical substances of U.S. origin constitutes a substantially
transformed constituent material of the imported molded plastic
lenses so as to permit the cost or value of the U.S. chemical
substances to be counted toward the GSP 35 percent requirement.
2. Whether the imported lenses are substantially trans-
formed in the U.S. by being ground and fitted to eyeglass frames
so as to make the domestic grinder/fitter the ultimate purchaser
of the lenses for country of origin marking purposes.
3. Whether the imported lenses are properly classifiable in
item 708.01, TSUS (subheading 9001.50.00, Harmonized Tariff
Schedule of the United States (HTSUS)).
LAW AND ANALYSIS:
With respect to the first issue, section 10.176(a) of the
Customs Regulations (19 CFR 10.176(a)) provides that an article
may qualify for duty-free treatment under the GSP only if the sum
of the cost or value of the materials produced in the beneficiary
developing country (BDC), plus the direct costs of processing
operations performed in the BDC, are not less than 35 percent of
the appraised value of the imported article.
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Section 10.177(a), Customs Regulations (19 CFR 10.177(a)),
provides that the words "produced in the beneficiary developing
country" refer to the constituent materials of which the eligible
article is composed which are either (1) wholly the growth,
product, or manufacture of the BDC, or (2) substantially
transformed in the BDC into a new and different article of
commerce. Thus, the cost or value of materials not wholly the
growth, product, or manufacture of the BDC (i.e., materials
imported into the BDC) may be counted toward the 35 percent
requirement only if those materials are first substantially
transformed into a new and different intermediate article of
commerce which is then used in the BDC in the production of an
eligible article which is imported directly into the U.S.
A substantial transformation occurs when a new and different
article of commerce emerges from a process with a distinctive
name, character or use different from that possessed by the
original material that was processed. See Texas Instruments,
Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982), and
Torrington Co. v. United States, 8 CIT 150, 596 F. Supp. 1083
(1984).
It is clear in this case that the three chemical substances
of U.S. origin will undergo a substantial transformation in
Mexico since the molded plastic lenses are new and different
articles of commerce when compared to the chemical substances
used in producing them. The question to be resolved is whether,
during the production of the lenses, the chemical substances
exported to Mexico are substantially transformed into a separate
and distinct intermediate article of commerce (the polymer) which
is then used in the production of the plastic lenses.
Based upon the information presented, we are unable to
conclude that the polymer produced by combining the U.S. raw
materials constitutes a separate and distinct article of commerce
which is marketed as such. No information or evidence has been
provided which indicates that the polymer involved in this case
is a distinct commercial entity in the sense that it is
separately bought-and-sold or is ready to be marketed as such.
Therefore, it is our opinion that the production of the molded
plastic lenses in Mexico constitutes a continuous manufacturing
process resulting in the creation of only one separately
identifiable article of commerce which is the article
imported into the U.S.
Concerning the country of origin marking issue, section 304
of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides
that every article of foreign origin (or its container) imported
into the U.S. shall be marked in a conspicuous place as legibly,
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indelibly and permanently as the nature of the article (or
container) will permit, in such a manner as to indicate to the
ultimate purchaser the English name of the country of origin of
the article.
Section 134.1(d), Customs Regulations (19 CFR 134.1(d)),
defines "ultimate purchaser" as "generally the last person in the
U.S. who will receive the article in the form in which it was
imported." Subparagraph (2) of that section provides that if an
article is subjected to a minor manufacturing process which
leaves the identity of the imported article intact, the consumer
or user of the article who obtains it after the processing will
be regarded as the "ultimate purchaser."
Section 134.35, Customs Regulations (19 CFR 134.35),
implementing the principle of U.S. v. Gibson-Thomsen Co., Inc.,
27 CCPA 267, C.A.D. 98 (1940), provides that an article used in
the U.S. in manufacture which results in an article having a
name, character, or use differing from that of the imported
article will be considered substantially transformed, and,
therefore, the manufacturer or processor in the U.S. who converts
or combines the imported article into the different article will
be considered the ultimate purchaser of the imported article
within the contemplation of 19 U.S.C. 1304(a). Accordingly, the
article shall be excepted from marking.
It is contended in this case that inserting the lenses into
eyeglass frames creates "commercial articles that are different
in name, character and use from the imported lenses." Customs
takes the position, most recently stated in a ruling dated
April 19, 1988 (HQ 730963), that "Personal prescription eyewear
consists of frames and lenses, neither of which lose their
separate identity when the latter are mounted in the former."
That ruling concerned the marking of eyeglass frames and although
the ruling conceded that purchasers face fewer choices in the
selection of lenses compared to frames and that lenses do not
come into contact with the wearer's face as frames do, we believe
the purchaser's entitlement to country of origin information is
at least equal if not greater in the case of lenses. The essence
of prescription eyewear is vision correction, and purchasers must
be informed of the country where the substantial transformation
of adding the corrective qualities, i.e., the "power" or
prescription of the lenses, took place.
Regarding the classification of the imported plastic lenses,
we agree that the lenses are properly classified under the
provision for Opthalmic lenses, not mounted, in item 708.01,
TSUS, with a duty rate of 5.6 percent ad valorem. The proposed
HTSUS is scheduled to replace the TSUS. The HTSUS provision
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applicable to the subject lenses is subheading 9001.50.00, HTSUS,
which provides for spectacle lenses of other than glass with a
duty rate of 5.6 percent ad valorem. This classification
represents the present position of this agency regarding the
dutiable status of the merchandise under the proposed HTSUS. If
there are changes before enactment, this advice may not continue
to be applicable.
HOLDING:
Based on the available evidence, we find that the U.S.
chemical substances exported to Mexico are not substantially
transformed into constituent materials of the imported plastic
lenses and, therefore, the cost or value of the chemical
substances may not be counted for purposes of satisfying the 35
percent requirement under the GSP.
Moreover, for country of origin marking purposes, we find
that the laboratories or optical houses are not the ultimate
purchasers of the plastic lenses. The lenses as imported and the
lenses as inserted in eyeglass frames have not undergone a
substantial transformation. Grinding the outer rim of the lens
to fit it into a frame effects only a minor change in the
article's shape; the lens remains a lens and its character and
use as an aid to correct the vision of the wearer remains
unchanged. Customs considers the ultimate purchasers of these
lenses to be the persons who receive eyeglass frames with the
lenses inserted therein. Country of origin marking of these
lenses may be accomplished by use of stickers on the lenses.
Since the Seiko logo is added before the lenses are ground and
fitted to a frame, we assume there is a spot on the lens where a
sticker would survive the grinding process as well, probably in
close proximity to the logo.
The imported plastic lenses are classifiable in item 708.01,
TSUS (subheading 9001.50.00, HTSUS).
Sincerely,
John Durant
Director, Commercial
Rulings Division