CLA-2 CO:R:C:V 555313 SFW
Mr. Enrique Resendez
General Manager
Industrias Nuevo Laredo, S.A. de C.V.
1904 Aduanales
Laredo, Texas 78041
RE: Double substantial transformation of remanufactured
automotive air-conditioning compressors. Generalized System of
Preferences.
Dear Mr. Resendez:
This is in response to your inquiry of February 7, 1989, in
which you request a ruling on the eligibility of U.S. automotive
air-conditioning compressors remanufactured in Mexico for duty-free status under the Generalized System of Preferences (GSP).
We regret the delay in responding to your request.
FACTS:
Non-functional automotive air-conditioning compressors from
the U.S. are sent to Mexico where they are disassembled,
machined, and reassembled into working products. First, all
units are completely disassembled. All component parts are
separated without regard to maintaining the integrity of the
original unit. Then the component parts are inspected, sorted,
de-greased, polished, sandblasted, machined on lathes, drill and
punch presses, and milling machines. The reconditioned parts are
used to construct subassemblies. The subassemblies are tested
and then stored in a central stockroom. From the stockroom they
are issued to assembly lines where, with new bearings, seals, o-rings, and gaskets, the subassemblies are pieced together to form
the compressors. The compressors are charged with new
refrigerant oil, tested, charged with nitrogen, painted, and
packaged. The functional compressors are sent to the U.S. to be
sold in the automotive after-market.
2
ISSUE:
Whether the operations performed on the automotive air-conditioning compressors result in a double substantial
transformation, thereby enabling the cost or value of the
compressors 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 beneficiary developing
country (BDC), which are imported directly into the U.S., qualify
for duty-free treatment if the sum of 1) the cost or value of the
materials produced in the BDC, plus 2) the direct costs involved
in processing the eligible article in the BDC, is equivalent to
at least 35 percent of the appraised value of the article upon
its entry into the U.S. 19 U.S.C. 2463(b).
Mexico is a BDC. See General Note 3(c)(ii)(A), Harmonized
Tariff Schedule of the United States (HTSUS). Based on your
description, it appears as though the remanufactured compressors
will be classified under subheading 8414.30.8030, HTSUS. This
provision is eligible for GSP treatment. Assuming that the items
will be imported directly into the U.S., they will receive duty-free treatment if the GSP 35% value-content minimum is met.
If the article is comprised of materials that are imported
into the BDC, the cost or value of those materials may be
included in the calculation of the 35 percent value-content
requirement only if the imported materials undergo a double
substantial transformation in the BDC. See
Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988),
aff'd, 890 F.2d 1150 (1989).
A substantial transformation occurs "when an article emerges from
a manufacturing process with a new name, character, or use which
differs from that of the original material subjected to the
process." The Torrington Company v. United States, 764 F.2d
1563, 1568 (1985).
In the present case, in order to satisfy the double
substantial transformation requirement, each non-functional
automotive air-conditioning compressor imported into Mexico from
the U.S. must first be substantially transformed, in Mexico, into
a new and different intermediate article of commerce. That
intermediate article must then be substantially transformed in
the manufacture of the final article, the reconditioned,
functioning air-conditioning compressor. See
Section 10.177(a), Customs Regulations (19 CFR 10.177(a)).
In our opinion, the operation you describe does not
even result in a single
substantial transformation. The initial product is an automotive
air-conditioning compressor. The final product is an automotive
air-conditioning compressor. The article does not
3
"emerge from [the] manufacturing process with a new name,
character, or use which differs from that of the original
material subjected to the process." Therefore, the cost or value
of the non-functional compressors may not be included in the 35
percent value-content calculation.
We note that, in support of your position, you cite
Headquarters Ruling Letter 554568 dated August 25, 1987. That
ruling was issued under item 806.20, Tariff Schedules of the
United States (now subheading 9802.00.50, HTSUS), the provision
that grants a partial duty exemption to items that are exported
for repairs or alterations and then returned to the U.S. In that
case, non-functional automotive starters and alternators were
exported from the U.S. to Mexico. In Mexico, they were
completely disassembled into multiple parts for inspection and
repair. The parts were stored and later reassembled into
functioning units.
In that ruling, we held that the operations described "not
only destroy[ed] the identity of the exported units but
result[ed] in new and different remanufactured articles." While
this language may appear to support your position, it is
important recognize that the ruling interprets a program
different from the GSP in both its requirements and purposes.
The fact that processing performed on a U.S. article in Mexico
may exceed the meaning of "repairs" or "alterations" under HTSUS
subheading 9802.0050 does not necessarily mean that the article
is considered to be substantially transformed in Mexico for
purposes of the GSP. Results reached under one statute are not
determinative when interpreting an unrelated statute.
As noted in your letter, the remanufacturing process
performed in Mexico in this case also will preclude
classification of the compressors under HTSUS subheading
9802.00.50, for the reasons set forth in ruling 554568.
CONCLUSION:
On the basis of the information submitted, we conclude that
the disassembly and subsequent reassembly of automotive air-conditioning compressors does not constitute a double substantial
transformation. Therefore, the cost or value of the compressors
imported into Mexico may not be included in the GSP 35 percent
value-content calculation.
Sincerely,
John Durant, Director
Commercial Rulings Division