CLA-2 CO:R:CV:V 555265 BJO
Margaret R. Polito, Esq.
Robert L. Eisen, Esq.
Coudert Brothers
200 Park Avenue
New York, New York 10166
RE: Duty-Free Treatment under the Generalized System
of Preferences of Venetian Blinds Made in Mexico
Dear Ms. Polito and Mr. Eisen:
This is in response to your letters of January 18 and June
5, 1989, in which you request a ruling under the Generalized
System of Preferences (GSP)(19 U.S.C. 2461-2466), on behalf of
that aluminum strip imported into Mexico
undergoes a double substantial transformation in the production
of venetian blinds.
FACTS:
You state that the importer has established a plant in
Mexico to manufacture venetian blinds for sale in the U.S. and
Canada. The venetian blind slats are produced in Mexico from
aluminum strip imported in rolls from the Netherlands. The
imported strip will measure either 1 or .63 inch in width and
either .008 or .006 inch in thickness, depending upon whether it
is to be used in production of standard or micro venetian blinds.
In Mexico, the strip will be unwound and inspected for scratches
and defects. That strip which passes inspection will then be
"crowned." That is, the strip will be passed between convex and
concave egg-shaped steel rollers which permanently bow or "crown"
the strip. The purpose of this operation is to give the strip
dimensional stability to prevent the blinds from sagging and/or
bending, and to eliminate any bows or twists in the imported
strip to ensure that the venetian blind slats will be straight.
The crowned strip is then passed over another series of
steel rollers, and a series of routeholes are punched out of the
strip by a device known as a flying punch. The routeholes serve
as the guide through which the lifting cord, which enables the
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blind to be raised and lowered, will pass. The punched strip is
then cut to specific length by rapidly moving knives. You state
that at this point, the strip is known in the industry as
venetian blind slats. You further state that the importer sells
crowned and cut strip for use as decorative finishing for above-
ground pools, to produce louvers in air duct systems, and for use
in the manufacture of lattice fences. The importer may also sell
the crowned strip to surveyors, who have found the bright colors
and flexibility of the crowned strip to be suitable for use as
surveying stakes. Finally, you state, crowned, cut, drilled
slats are shipped separate from the completed blinds to the
importer's customers as replacements.
At a separate work station, employees will assemble the
head and bottom rails of the blinds and the lifting and tilting
devices, which control the height of the blind and the amount of
light which may pass through, and attach those devices to the
rails. The rails so assembled are then assembled with the
venetian blind slats to form the finished venetian blinds. This
is accomplished by cutting to length "ladder tape" (two long
vertical strings with short cross strings, or rungs, knotted at
precise intervals along the length of the vertical strings).
Each venetian blind will require three or four ladder tapes,
depending upon its length. The requisite number of slats are
stacked and inserted through the ladder tapes so that one slat
lies across each ladder rung. The lifting cord is then inserted
through the routeholes in the slats by attaching one end of the
cord to the bottom rail by knots or grommets, threading the cord
up through one set of routeholes, running it across the top rail
and down the side of the blind. Once a sufficient amount of cord
is hanging off to the side of the blind, the cord is looped up,
run across the top rail, and down through the other series of
routeholes. The end of the cord is attached to the opposite end
of the bottom rail by knots or grommets. This results in a
continuous cord, a portion of which is outside the blind so that
the consumer can raise and lower the blind. Wands that control
the tilt angle of the blinds and additional hardware are attached
to the blinds.
The diagram submitted with your ruling request indicates
that the venetian blinds, when finished, are composed of over 30
separate components. You further state that the Mexican facility
producing the venetian blinds is staffed by 60 production
employees (estimated to increase to 140 by the end of 1989) and
20 managerial employees.
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ISSUE:
Whether venetian blind slats, which are produced in Mexico
from rolls of imported aluminum strip that is cut to length,
punched with routeholes, and crowned, are substantially
transformed constituent materials of venetian blinds for
purposes of the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles which are imported directly
from a designated beneficiary developing country (BDC) 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% of the article's appraised value at the time
it is entered into the U.S. See 19 U.S.C. 2463.
Mexico is a BDC, see General Note 3(c)(ii)(A), Harmonized
Tariff Schedule of the United States (HTSUS), and, based on your
description, it appears that the venetian blinds will be
classified under subheading 7616.90.00, HTSUS ("Other articles of
aluminum: Other...Venetian blinds and parts thereof."), which is
GSP eligible. Assuming that the finished venetian blinds will be
imported directly to the U.S., they will receive duty-free
treatment if the GSP 35% value-content minimum is met.
The cost or value of materials which are imported into the
BDC and used in the production of the GSP eligible article, as in
this case, may be included in the 35% value-content computation
only if the imported materials undergo a double substantial
transformation. That is, the aluminum strip imported into Mexico
must be substantially transformed in Mexico into a new and
different article of commerce, which is then used in the
production of the final article, the venetian blinds. See 19 CFR
10.177(a).
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).
We find that cutting the rolls of imported strip imported
into Mexico into lengths and crowning the cut strip substantially
transforms the imported strip into a new and different article of
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commerce. The cutting and crowning operations permanently alter
the physical characteristics of the strip, and affect the uses to
which it may be put. Prior to cutting and crowning, the strip is
a raw material and possesses nothing in its character which
indicates either the slat or the venetian blinds. After the
cutting and crowning operations, which permanently affect the
character of the strip, the strip may be used in the production
of a limited range of articles, e.g., venetian blind slats,
surveyor stakes, decorative border for swimming pools, lattice
fences, and louvers in air duct systems.
Our prior rulings have generally held that cutting or
bending material to a specific shape or pattern will result in a
substantial transformation. For example, in HQ 553574, dated
August 15, 1985, we ruled that while cutting aluminum strip to
specific length, and punching and/or drilling holes in the cut
lengths to form components of window frames and sashes did not
substantially transform the aluminum strip, that strip which was
cut to specific length, punched and/or drilled with holes, and
notched, which gave the strip a specific shape or pattern, was
substantially transformed. Similarly, in HQ 055684, dated August
14, 1979, we ruled that a substantial transformation occurs when
20 foot steel pipe is cut to specific length, cleaned, drilled or
swaged, and bent to the shape or configuration necessary to form
parts for a gas absorption unit. Based upon the information
provided, we find that cutting the aluminum strip to specific
length and crowning it to give it a permanent bow shape making it
suitable for use as a venetian blind slat, fits within the
principle of these prior rulings, and should likewise be
considered a substantial transformation.
We further find that cut and crowned slats are a distinct
article of commerce. In Torrington v. United States, 764 F. 2d
1563 (CAFC 1985), evidence that two shipments of swaged needle
blanks were transferred between the Portuguese manufacturer and
its U.S. parent company was deemed by the court to be "adequate"
evidence that the blanks were an "article of commerce." The
court defined an article of commerce for purposes of the GSP to
be "one that is ready to be put into the stream of commerce."
Torrington at 1570; see also Azteca Milling Co. v. United States,
Slip Op. 88-168, at (CIT December 20, 1988) (an article of
commerce for GSP purposes is one that is "readily susceptible of
trade, and...[one] that persons might well wish to buy and
acquire for their own purposes of consumption or production.").
The sale of the cut and crowned slats for use by surveyors, and
in the manufacture of lattice fences and air duct systems is
adequate evidence that the slats are distinct articles of
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commerce, that they are readily susceptible of trade, and are
bought for purposes of consumption and production.
Punching route holes in the cut and crowned slats, and
assembly of those slats into the venetian blinds constitutes a
second substantial transformation. The cut and crowned slats
acquire a new name, venetian blinds. As a result of the
punching and assembly operation, the cut and crowned slats, which
are multifunctional articles, are dedicated to a single use, that
of venetian blinds. The incorporation of the venetian blind
slats into the completed article appears to be a complex and
meaningful operation, rather than a simple, minimal assembly
operation, see C.S.D. 85-25, dated September 25, 1984 (HQ
071827), for it involves a large number of components, a number
of different assembly steps, and requires a number of employees,
who, you state, receive between three and six weeks of
supervised training. For these reasons, we find that the
aluminum strip imported into Mexico and used in the production of
venetian blinds undergoes a double substantial transformation.
CONCLUSION:
Rolls of aluminum strip which are cut, crowned, routehole
punched and assembled into venetian blinds, undergo a double
substantial transformation for purposes of the GSP.
Accordingly, the cost or value of the substantially transformed
intermediate article, cut and crowned strip, may be counted
toward the GSP 35% value-content requirement in determining
whether the venetian blinds are eligible for duty-free treatment
under that program.
Sincerely,
John Durant, Director
Commercial Rulings Division