CLA-2 CO:R:C:V 555659 SER
Mr. Leslie A. Glick
Porter, Wright, Morris & Arthur
1233 20th St., N.W.
Washington, D.C. 20036-2395
RE: GSP eligibility of baby strollers produced in Mexico;
substantial transformation; Texas Instruments; 554027; 554025;
555189; 071518; 071534; 051189; 080189; 079125; 555377; 071620;
C.S.D. 85-25.
Dear Mr. Glick:
This is in reference to your letter of May 11, 1990, on
behalf of Graco Children's Products, Inc., requesting a ruling of
whether certain baby strollers produced in Mexico are entitled to
duty-free treatment under the Generalized System of Preferences
(GSP)(19 U.S.C. 2461-2466). You also request the proper tariff
classification of the strollers under the Harmonized Tariff
Schedule of the United States Annotated (HTSUSA).
FACTS:
The products at issue are various models of baby strollers.
These strollers are known by various trade names: Stroll-A-Bed;
Umbroller;; Travel Mate; Travel Rite; Premier; Regency; Regency,
Ltd.; Brougham; Elite and Duet. Although there are some
differences between the various models, the differences are
mainly in terms of appearance and style, and minor differences in
the features offered. Since the manufacturing process of the
strollers is substantially similar, this ruling will encompass
all models.
Graco intends to produce the strollers in Mexico, and
import them through the ports of Brownsville, Hidalgo and
Laredo, Texas. The manufacturing process of the strollers in
Mexico involves essentially four imported materials-- 1) steel
tubing cut to length, 2) unfabricated coil steel for use in
producing brackets, 3) plastic resins, and 4) rolls of fabric.
-2-
The steel tubing is formed and cut to length in the U.S.,
and then brought into Mexico. In Mexico, the cut steel tubes are
first punched, using special tooling and general purpose stamping
presses, to form holes to be used for bolting, etc., in the final
assembly. Following the punching, the fabricated tubes are
painted, using a paint system conveyor and racks. The tubes are
first pre-treated, and then a non-toxic paint or powder coating
is applied. Some of the painted tubes are then bent by machines
into their component shapes. A minimum of 1/3 to 1/2 of the
tube components of a particular model are bent.
The brackets are produced in Mexico from U.S. produced
coiled steel. Stamping machinery is used to convert the coil
steel into stamped parts specifically designed as brackets.
After the brackets are created, they are plated with various
materials (copper, nickel, zinc and chrome) using machinery
designed for plating.
The molded plastic parts, which comprise the handles,
folding hinges, brakes, and folding clip in the finished article,
are made from plastic resins of U.S. origin. These resins are
transformed into their final form by an injection molding
process. Extreme heat is applied to the plastic resin, turning
it into liquid form, which is then injected into molds, where it
cools and forms the various plastic parts.
The printed fabric is imported in rolls from Taiwan into
Mexico. In Mexico, the fabric is spread and die cut into
specific patterns and shapes. It is then sewn to form completed
seats for the baby carriages as well as backs and certain other
parts of the chair portion of the stroller.
The webbing, used in the strollers, is also imported into
Mexico from Taiwan. In Mexico the webbing is cut to length,
holes are punched into it, and "D" rings or buckles are sewn to
the webbing. The webbing and the completed fabric components are
then sewn into a finished seat.
Finally, the above-described major components are assembled
with other parts to create the final product, after which the
article is packaged for shipment to the U.S.
ISSUES:
1. What is the tariff classification of the baby strollers
under the HTSUSA?
-3-
2. Whether the non-Mexican materials imported into Mexico
and used in the production of the baby strollers undergo a
double substantial transformation so that the cost or value of
the materials may be counted toward satisfying the 35% value-
content requirement under the GSP.
LAW AND ANALYSIS:
Classification under the HTSUSA
Classification of goods under the HTSUSA is governed by the
General Rules of Interpretation (GRI's), taken in order. GRI 1
provides that classification shall be determined according to the
terms of the headings and any relative section or chapter notes.
The products at issue are classified in subheading
8715.00.00, which provides for "[b]aby carriages (including
strollers) and parts thereof . . . ."
Applicability of GSP
Under the GSP, eligible articles the growth, product, or
manufacture of a designated 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 cost 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(b).
As provided in General Note 3(c)(ii)(A), HTSUSA, Mexico is a
BDC. In addition, the tariff provision under which the strollers
are classified (subheading 8715.00.00, HTSUSA), is a GSP
eligible provision.
If an article is produced or assembled from materials which
are imported into the BDC, the cost or value of those materials
may be counted toward the 35% value-content minimum only if they
undergo a double substantial transformation in the BDC. See
section 10.177, Customs Regulations (19 CFR 10.177). Azteca
Milling Co. v. United States, 703 F.Supp. 949 (CIT 1988), aff'd
890 F.2d 1150 (Fed. Cir. 1989). That is, the cost or value of
the U.S. and Taiwanese materials imported into Mexico may be
included in the 35% calculation only if they are substantially
transformed in Mexico into new and different intermediate
articles of commerce, which, themselves, are substantially
transformed in the production of the final article-- the baby
strollers.
-4-
A substantial transformation occurs when a new and different
article of commerce emerges from a process with a new name,
character or use different from that possessed by the article
prior to processing. Texas Instruments Incorporated v. United
States, 69 CCPA 152, 681 F.2d 778, 782.
You claim that each of the four basic imported materials
discussed above are substantially transformed into an
intermediate product before final completion into the finished
consumer product--the baby strollers. More specifically, you
claim that eight substantial transformations occur during the
course of the manufacturing process, and a ninth substantial
transformation occurs in the production of the final product.
You summarize the substantial transformations as follows: 1)
conversion of formed tubing by punching; 2) conversion of formed
tubing by bending; 3) painting of tubing; 4) transformation of
coil steel for brackets by stamping into brackets; 5) plating of
the brackets; 6) transformation of the plastic resins pellets by
melting and injection molding into parts; 7) transformation of
rolls of fabric into patterns through cutting to patterns and
shapes; 8) transformation of the cut fabric into finished seats
and backs for strollers through sewing; 9) transformation of all
the above parts when assembling to create the finished baby
stroller.
Clearly there is a substantial transformation of the U.S.
and Taiwanese materials imported into Mexico during the
production of the baby strollers. The question to be resolved is
whether the imported materials undergo a substantial
transformation to become intermediate articles of commerce.
Customs has consistently held that the cutting of fabric
into specific patterns and shapes suitable for use in an assembly
operation constitutes a substantial transformation. See
Headquarters Ruling Letters (HRL) 555189 dated June 12, 1989,
554027 dated January 13, 1987, and 554025 dated December 16,
1986. Therefore, we find in regard to this case that the cutting
to shape in Mexico of the imported rolls of fabric to create the
components for the strollers' seat and back results in a
substantial transformation of the imported fabric.
You also state that the plastic resins which are processed
by thermal injection molding undergo a substantial
transformation. Customs has consistently held that products
created by a thermal injection molding process have undergone a
substantial transformation. See HRL 071518 dated November 8,
1984, 071534 dated July 19, 1984. The handles, chips, etc.,
clearly are different articles from the resins from which they
are made.
-5-
It is also contended that the production of the brackets
from coil steel constitutes a substantial transformation. We
agree. The stamping of the brackets from coil steel results in
parts which are specifically designed for incorporation into the
strollers. The completed brackets clearly are new and different
articles in comparison to the materials from which they are
derived.
You also argue that the plating of the brackets alone can be
considered a substantial transformation. In this regard, we have
held that galvanizing or plating will not result in a substantial
transformation, as it is essentially a finishing operation which
neither creates a new article nor alters the intended use of the
article. See HRL's 554692 dated March 8, 1988, 081088 dated
August 1, 1988, and 732159 dated September 7, 1990.
It is claimed that the tubing, imported from the U.S.
already formed and cut to length, undergoes a substantial
transformation by the process of punching, painting and bending
in Mexico. More specifically you state that each individual
operation results in a substantial transformation. It is our
position that the punching of holes in the pre-formed tubing is
insufficient by itself to result in a substantial transformation
of the tubing into a new or different article of commerce. We
have ruled that procedures such as chamfering of pipes, (grinding
the ends of pipes) constitutes a process too minor in nature to
result in a substantial transformation. See HRL 080189 dated
June 8, 1987. The process of punching holes in the formed tubes
does not appear to be any more involved than a chamfering
operation. We have also consistently held that mere painting of
tubes is not a substantial transformation, and, therefore, the
process of painting in the case at hand is also not considered a
substantial transformation. See HRL 079125 dated May 3, 1987.
Customs has ruled that bending already cut-to-length tubing
into a shape dedicated to a specific use constitutes a
substantial transformation. See HRL 555377 dated October 16,
1989. It was stated in your submission that the amount of tubing
which undergoes bending varies per model, but that only a minimum
of 1/3 to 1/2 of the parts of a particular model are bent. Only
those tubes which undergo the bending process will be considered
to have undergone a substantial transformation.
After completion of the above described operations, the
steel tubing, molded plastic parts, fabric seats, and steel
brackets are assembled with other parts, such as wheels and
hardware, to create the final article. This is accomplished
through the use of screwdrivers, rivet machines, conveyors,
packaging equipment, etc. Although the final assembly of the
baby strollers does not appear to be exceedingly complex, in view
-6-
of the overall operations in Mexico, we do not believe that this
is the minimal, "pass-through" operation that should be
disqualified from receiving the benefit of GSP. See HRL 071620
dated December 12, 1984, which held that in view of the overall
processing done in the BDC, the materials are determined to have
undergone a double substantial transformation, although the
second transformation is a relatively simple assembly operation
which, if considered alone, would not confer origin. C.S.D. 85-
25, 19 Cust. Bull. 544 (1985). Accordingly, we find that the
assembly of the final product constitutes a second substantial
transformation of the fabric which is cut to shape, the tubing
which is bent to shape, the molded plastic parts, and the steel
brackets.
HOLDING:
The strollers at issue are classified in subheading
8715.00.00, HTSUSA, which provides for baby carriages (including
strollers) and parts thereof.
The cost or value of the materials imported into Mexico,
which, as discussed above, are substantially transformed into
constituent materials of the baby strollers may be included in
the GSP 35% value-content calculation.
Sincerely,
John Durant, Director
Commercial Rulings Division