CLA-2 CO:R:C:V 555195 DBI
Mr. William F. Joffroy, Jr.
Custom House Brokers, Inc.
P.O. Box 698
Nogales, Arizona 85628-0698
RE: Eligibility of certain mini-blinds for duty-free treatment
under the Generalized System of Preferences
Dear Mr. Joffroy:
This is in response to your letter of November 8, 1988, on
behalf of Elkhart Door, Inc., requesting a ruling that mini-
blinds manufactured in Mexico are eligible for duty-free
treatment under the Generalized System of Preferences (GSP). We
regret the delay in responding to your request.
FACTS:
You advise that your client will be shipping U.S.-origin
raw aluminum flat coil stock in rolls of 36,000 inches to undergo
the following manufacturing process:
(1) The aluminum flat coil stock will be fed through a
rotating cold forming die which mechanically alters the flat
stock into a crowned conical shape. Prior to this forming
operation, the flat coil stock had been mechanically straightened
to relieve the horizontal arc caused by the rolled stock.
(2) The crowned stock will be punched, producing 2 to 6
eliptical holes for the assembly of the ladder cord. The center
lines of the holes must be maintained within very tight
tolerances. The number of holes depends on the overall length of
the slat. A longer slat requires more holes.
(3) The final operation involves the crowned stock to be
cut to a finished length and for the four corners to be rounded
and deburred.
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The manufacturing of the complete mini-blind consists of
the following steps:
(1) The headrail, bottomrail and tilt rod are cut to
length.
(2) Holes are punched in both the headrail and bottomrails.
(3) Slat material is crowned, punched and cut to length.
(4) Cable tape and cords are cut to length.
(5) Cable tape is attached to the tape rolls.
(6) Tape roll supports are attached to the tape roll with
cable tape. Then the cord lock, tilt rod, tilter, lock nut,
headrail endcap and cord are fit into the headrail.
(7) Bottomrail endcaps are inserted into the ends of the
bottomrail.
(8) Tape spacers are placed on the cable tape.
(9) Slats are inserted into the cable tape.
(10) Cord is threaded through the rout holes of the slat.
(11) Bottomrail is attached to cable tape and cord at the
proper height with cable tape grommet.
(12) Tape lock is attached to tilter.
(13) Completed blind is inserted into plastic sleeve.
(14) Finished mini-blind is boxed for shipment.
You state that the manufacturing steps performed on the raw
aluminum adds $0.261 of value in Mexico. The value added in
Mexico accounts for 27.2% to 54.4% of the articles' total cost.
You also note that the slats which are made in Mexico from the
raw aluminum are sold in the U.S. and Mexico as replacement
slats. It is your position that the value of the U.S. aluminum
in a raw state should be considered to be substantially
transformed into a product of Mexico for GSP purposes because (1)
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extensive manufacturing steps are performed in Mexico (2) the
value added in Mexico is 27.2% to 54.4% of the value of the slat
material and (3) an intermediate article of commerce is produced
in Mexico (slats) from the imported raw aluminum which is then
used in the assembly of the mini-blinds that will be imported
into the U.S.
Samples of the aluminum slats and a diagram has been
submitted for examination.
ISSUE:
Whether the operations performed on the raw aluminum flat
coil stock result in a double substantial transformation, thereby
enabling the cost or value of the constituent material to be
counted toward the 35 percent value-content requirement for
purposes of the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible products of a designated
beneficiary 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 non-Mexican materials 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 mini-blinds.
The test for determining whether a substantial
transformation has occurred is whether 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).
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Customs application of the double substantial
transformation requirement in the context of the GSP received
judicial approval in The Torrington Company v. United States, 8
CIT 152, 596 F.2d 1563 (1985). The court, after affirming
Customs application of the double substantial transformation
concept, said:
Regulations promulgated by Customs define the term
"materials produced" to include materials from third
countries that are substantially transformed in the BDC
into a new and different article of commerce. 19 CFR
10.177(a)(2). It is not enough to transform substantially
the non-BDC constituent materials into the final article,
as the material utilized to produce the final article would
remain non-BDC material. There must first be a substantial
transformation of the non-BDC material into a new and
different article of commerce which becomes "material
produced," and these materials produced in the BDC must
then be substantially transformed into a new and different
article of commerce. It is noted that 19 CFR 10.177(a)
distinguishes between "merchandise produced in the BDC" and
the cost or value of the "materials produced in the BDC"
which demonstrates the contemplation of a dual substantial
transformation requirement.
In Treasury Decision 78-400, 12 Cust. Bull. 875 (1978), the
rear housing assembly of a motor was manufactured from flat steel
stock of U.S. origin which was drawn through a series of dies in
the BDC to form a cup-shaped rear housing. We held that the flat
steel stock which was drawn into the cup-shaped rear housing was
a substantially transformed constituent material, and the entire
cost of its component was includable in the costs of materials in
computing the 35 percent criterion.
The facts in the present case are very similar to those in
T.D. 78-400. Here, the aluminum flat coil stock is fed through a
rotating cold die which mechanically alters the flat stock into a
crowned conical shape. According to our previous ruling, the
processes performed on the raw aluminum constitutes a substantial
transformation.
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We also find that the assembly of the finished aluminum
slats with the other components, creating the final product,
results in a second substantial transformation. The assembly of
the constituent materials (aluminum slats) changes their
character and results in a finished product which is recognized
as a new and different article of commerce with a distinct name,
character and use.
Additionally, the assembly process involved a large number
of components and a significant number of different operations,
requires a relatively significant period of time as well as
skill, and attention to detail, and results in a significant
economic benefit to the BDC from the standpoint of both the value
added to each component part and the overall employment generated
by the operations. C.S.D. 85-25, 19 Cust. Bull. 544 (1984).
Finally, these operations are not the type of "pass-
through" operations which Congress intended to prohibit from
receiving GSP benefits. "Keeping in mind the GSP's fundamental
purpose of fostering industrialization in beneficiary developing
countries," we believe that the operations performed in this
instance are the type of substantial operations contemplated by
the GSP statute. See Torrington v. United States, 764 F.2d at
1571.
HOLDING:
On the basis of the information submitted, it is our
opinion that the cost or value of the constituent materials
(aluminum slats) used in the assembly of the mini-blinds may be
included for purposes of satisfying the 35 percent value-content
requirement.
Sincerely,
John Durant
Director, Commercial
Rulings Division