CLA-2 CO:R:C:S 555693 SER
Steven S. Weiser, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, NY 10004
RE: GSP eligibility of "infant carriers"; substantial
transformation; C.S.D. 85-25, HRL 555659, 555532
Dear Mr. Weiser:
This is in reference to your letters of July 12, 1990, and
December 13, 1990, on behalf of your client, Cosco, Inc.,
concerning the eligibility of the "Heart to Heart" infant
carrier, imported from Mexico, for duty-free treatment under the
Generalized System of Preferences (GSP) (19 U.S.C. 2461-2465).
FACTS:
The product at issue is called the "Heart to Heart" infant
carrier, which is used for carrying an infant on a person's
chest. The article is primarily composed of textile materials,
and additionally has foam padding and plastic inserts which are
sewn into a section of the fabric to form a back support.
The infant carrier will be manufactured in Mexico from
materials primarily of U.S. origin. The article is comprised
primarily of U.S.-made fabric which is imported into Mexico in
the form of unmarked bolts which measure as follows: 50%
polyester/ 50% cotton gray chintz fabric-- 58 inches wide by 300
yards in length; 65% polyester/ 35% cotton white flannel fabric--
46 inches wide by 200 yards in length; and 50% polyester/ 50%
cotton printed mauve fabric-- 58 inches wide by 300 yards in
length.
In Mexico, the fabric will be cut to specific lengths,
which will then be marked and cut into specific patterns and
shapes which will become components of the assembled infant
carriers. These components include the front panels and shoulder
straps which are cut from the gray chintz fabric, back support
panels and seat which are cut from the gray chintz and printed
mauve fabrics, and the bib portion which is cut from the white
flannel fabric.
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After the initial manufacture in Mexico of the components
from U.S. fabric, they will be assembled with other materials to
complete the infant carrier into its final form. These
additional U.S. materials include various pre-cut polyurethane
foam pieces for the shoulder straps and back support; a pre-cut
plastic back support insert; a nylon draw string; polypropylene
webbing straps; various metal snaps, fasteners and eyelets;
plastic buckles; and a zipper. All of these components will be
incorporated in the production of the finished infant carrier in
Mexico through an assembly process consisting primarily of
numerous sewing operations.
ISSUE:
Whether the U.S. fabric imported into Mexico and used in
the manufacture of the infant carriers undergoes a double
substantial transformation so that the cost or value of these
materials may be counted toward satisfying the 35% value-content
requirement under the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product, or
manufacture of a designated beneficiary developing country (BDC),
which are imported directly from a BDC into the U.S., qualify for
duty-free treatment if the sum of 1) the cost or value of the
constituent 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.
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 requirement only if
they undergo a double substantial transformation in the BDC.
See, section 10.177, Customs Regulations (19 CFR 10.177), and
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 imported materials used to produce the infant
carriers may be included in the GSP 35% value-content computation
only if they are first substantially transformed into a new and
different article of commerce, which is of itself substantially
transformed into the final article.
A substantial transformation occurs "when an article emerges
from a manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process." Texas Instruments Inc. v. United States, 69 CCPA, 152,
156, 681 F.2d 778, 782 (1982).
-3-
As provided in General Note 3(c)(ii)(A), Harmonized Tariff
Schedule of the United States Annotated (HTSUSA), Mexico is a
BDC. In addition, the article is properly classified under the
provision for other made up textile articles, other, other, in
subheading 6307.90.9590, HTSUSA, which is a GSP eligible
provision.
Customs has consistently held that the cutting of fabric
into specific patterns and shapes suitable for use to form the
completed article constitutes a substantial transformation. See
Headquarters Ruling Letter (HRL) 555659 dated December 3, 1990.
Therefore, we find in regard to this case that the cutting to
specific patterns and shapes in Mexico of the imported bolts of
fabric to create the components for the infant carriers result in
a substantial transformation of the imported fabric.
The next issue to be resolved is whether a second
substantial transformation of the imported fabric results from
the completion of the article. The completion of the infant
carrier consists primarily of assembly operations, involving
numerous steps of sewing the fabric components together, sewing
on the straps, punching on the ties, and snaps, and labelling and
packaging the article.
In C.S.D. 85-25, dated September 25, 1984 (HRL 071827),
Customs considered the issue of whether the assembly of
components can result in a substantial transformation. In that
decision, Customs held that an assembly process will not
constitute a substantial transformation unless the operation is
"complex and meaningful." Whether an operation is "complex and
meaningful" depends on the nature of the operation, including the
number of components assembled, number of different operations,
time, skill level required by the operation, attention to detail
and quality control, as well as the benefit accruing to the BDC
as a result of the employment opportunities generated by the
manufacturing process.
The focus of C.S.D. 85-25 was a printed circuit board
assembly (PCBA) produced by assembling in excess of 50 discrete
fabricated components onto a Printed Circuit Board (PCB).
Customs determined that the assembly of the PCBA involved a very
large number of components and a significant number of different
operations, required a relatively significant period of time as
well as skill, attention to detail, and quality control, and it
resulted in significant economic benefits to the BDC from the
standpoint of both value added to the PCBA and the overall
employment generated thereby.
Although the final assembly operations at issue do not
achieve the level of complexity contemplated by C.S.D. 85-25, in
view of the overall processing operations in Mexico, we do not
believe that this is the minimal, "pass-through" operation that
should be disqualified from receiving the benefit of the GSP.
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See HRL 555532 dated September 18, 1990, which held that in view
of the overall processing done in the BDC, materials are
determined to have undergone a double substantial transformation,
although the second substantial transformation is a relatively
simple assembly process which, if considered alone, would not
confer origin. Accordingly, we find that, when the cut to shape
fabric pieces are assembled with the other components to create
the new and different article-- the infant carriers, this results
in a second substantial transformation of the fabrics imported
into Mexico.
HOLDING:
The U.S. fabric imported into Mexico undergoes a double
substantial transformation in the production of the finished
infant carriers. Therefore, the cost or value of the fabric may
be used in the calculation of the GSP 35% value-content
requirement.
Sincerely,
John Durant, Director
Commercial Rulings Division