CLA-2 CO:R:C:V 554919 DJG
Tariff No.: 6807.90.00 (775.58, TSUS)
Hans van Woerden
ADCO ZUID B.V.
Aijsterlaan 10
5104 PE Dongen, the Netherlands
RE: Inquiry concerning the applicability of duty-free
treatment, pursuant to the CBI, of certain roofing
felt
Dear Mr. van Woerden:
Your letter of January 6, 1988, requests information on the
applicability of CBI treatment for certain roofing felt you
propose to import from Aruba.
FACTS:
Based on the information supplied in your submission, it
appears that "Dakoflex" (SAS-modified bitumen roofing felt) is
produced when certain amounts of polystyrene and polybutadiene
(coarse grain) are heated with specific amounts of bitumen.
After mixing, the resulting "batch" is molded into sheets
measuring 40 in. wide and 160 mil. thick. The sheets are then
coated with particles of slate and cooled. Once the roofing felt
sheets are cooled they are cut to length, rolled, packed, placed
on pallets, packaged and placed in containers for shipment.
ISSUE:
You raise the following issues:
(1) whether the product is eligible for CBI treatment;
(2) whether the value, of any or all of the materials
used in the manufacture of the product can be
counted toward the 35% value requirement (whether
indigenous or foreign);
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(3) whether any or all of the following costs may be
included in determining either cost of production
or cost of materials:
(i) the lease costs of the storage facility
and storage containers;
(ii) the interest and amortization on the
equipment and building, directly related
to production;
(iii) the cost of rejected or scrap material,
less its value when sold as low grade
material; and
(iv) all "normal costs" such as wages,
utilities, packaging, etc.
LAW AND ANALYSIS:
As you know, unless otherwise excluded from eligibility, any
article which is the growth, product, or manufacture of a
beneficiary country, shall be eligible for duty-free treatment
under the CBI, if that article is provided for in an item for
which a rate of duty appears in the "Special Column" followed by
the symbols "E" or "E*" in parentheses, and if:
(1) the article is imported directly from a beneficiary
country into the Customs Territory of the U.S.; and
(2) the sum of (A) the cost or value of the materials
produced in a beneficiary country or two or more
beneficiary countries; plus (B) the direct costs
of processing operations performed in a beneficiary
country or countries is not less than 35% of the
appraised value of such article at the time it is
entered.
The subject, roofing felt, is classified under item 774.58,
Tariff Schedules of the United States (TSUS), and is designated
eligible for CBI treatment (provided all other requirements and
regulations are met). You seem to indicate that the completed
product will be imported directly from Aruba to the U.S. If that
is the case, you will meet the direct shipment requirement, since
Aruba, part of the Netherlands Antilles, is a designated
beneficiary country.
In this instance the final product will be produced from
materials not the product of Aruba. Therefore, it cannot be
considered to be wholly the product of a beneficiary country.
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However, it is our opinion that the manufacture of the foreign
materials in this case will result in their substantial
transformation into a new and different article of commerce
which, for purposes of the CBI, may be considered the product of
Aruba within the meaning of section 10.195(a), Customs
Regulations (19 CFR 10.195(a)). This does not automatically mean
that the cost or value of the foreign material (used in the
creation of the new article) may be counted toward the 35% value
requirement. Since the foreign material, of which the imported
article is composed, is not wholly the growth, product, or
manufacture of a beneficiary country, we must find that the
processing operation creates an intermediate article (constituent
material) which is then used in the production or manufacture of
the finished roofing felt, before this foreign material can be
counted toward the 35% value requirement. Therefore, without a
finding of a "double substantial transformation", the roofing
felt would be eligible for duty-free treatment, only if the
direct costs attributable to its manufacture represent 35% of its
appraised value as imported.
The operation you describe does not appear to effect a
"double substantial transformation". That is, we do not
recognize the production of a constituent material in the course
of manufacturing (heating and mixing) polystyrene, polybutadiene
and bitumen into rolled sheets of roofing felt. Therefore, the
value of these ingredients, if imported from outside a
beneficiary country, may not be counted as products of Aruba when
calculating the 35% value requirement.
You state that, in the event that no "double substantial
transformation" is found, you will purchase a large amount of
ingredient material from the U.S., in an effort to meet the 35%
value requirement. We remind you that if the cost or value of
materials produced in the U.S. is included, only an amount not to
exceed 15% of the appraised value of the roofing felt at the time
it is entered that is attributed to such U.S. cost or value may
be applied toward satisfying the 35% value requirement.
You may also include as cost of production, wages,
utilities, export packaging and all costs either directly
incurred in or which can be reasonably allocated to, the growth,
production, manufacture, or assembly of the roofing felt. This
would include the actual cost of waste or spoilage less the value
of recoverable scrap. You may not include, as cost of
production, the lease cost of the storage facility and storage
containers.
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If, considering our finding that no "double substantial
transformation" occurs in the process you describe, the sum of
the cost or value of the materials produced in a beneficiary
country, plus the direct cost of processing operations performed
in a beneficiary country, is not less than 35% of the appraised
value of the imported roofing felt, then it would be eligible for
duty-free treatment under the CBI, provided all other regulatory
requirements are met.
In further response to your request we have included with
this letter additional CBI materials, which you may find helpful.
HOLDING:
The subject roofing felt may be eligible for duty-free
treatment under the CBI if, the sum of the cost or value of the
materials produced in a beneficiary country, plus the direct cost
of processing performed in a beneficiary country, is not less
than 35% of its appraised value and provided all other regulatory
requirements are met.
Sincerely,
John Durant
Director, Commercial
Rulings Division