CLA-2 CO:R:C:S 555772 KCC
Ms. Elida Garcia
Oster
P.O. Box 4270
Rio Grande Road
Del Rio, Texas 78841-4270
RE: Appliance parts created by injection molding compound in
Mexico.Alteration; manufacturing process; GSP; double
substantial transformation; 055611; 051198; 555149; direct
costs
Dear Ms. Garcia:
This is in response to your undated letter, received on
October 30, 1990, requesting a ruling concerning the
applicability of subheading 9802.00.50, Harmonized Tariff
Schedule of the United States (HTSUS), and the Generalized System
of Preferences (GSP) (19 U.S.C. 2461-2467) to appliance parts
manufactured from phenol formal achyde molding compound (phenol
molding compound) in Mexico. Samples of the phenol molding
compound and completed appliance part (blender cap) were
submitted for examination.
FACTS:
You intend to ship phenol molding compound in powder form to
Mexico for manufacture into plastic appliance parts. In Mexico,
the phenol molding compound will be placed in a hot barrel which
heats the phenol molding compound to 250 degrees Fahrenheit,
thereby converting it into a plastic mass. The plastic mass will
then be fed into a mold in a molding machine which maintains a
constant temperature of 350-380 degrees Fahrenheit. Once the
mold is filled, it will be closed with a pressure of 2500-2800
pounds per square inch for 75 seconds. The mold will then be
opened and a finished appliance part will be removed and packaged
for shipment to the U.S.
ISSUE:
I. Whether the appliance parts will be eligible for the
partial duty exemption under subheading 9802.00.50, HTSUS.
II. Whether the appliance parts produced from the phenol molding
compound will be entitled to duty free treatment under the GSP.
LAW AND ANALYSIS:
I. Applicability of Subheading 9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides for the assessment of
duty on the value of repairs or alterations performed on articles
returned to the U.S. after having been exported for that purpose.
However, the application of this tariff provision is precluded in
circumstances where the operations performed abroad destroy the
identity of the articles or create new or commercially different
articles. See, A.F. Burstrom v. United States, 44 CCPA 27,
C.A.D. 631 (1956), aff'd, C.D. 1752, 36 Cust.Ct. 46 (1956); and
Guardian Industries Corporation v. United States, 3 CIT 9 (1982),
Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS,
treatment is also precluded where the exported articles are
incomplete for their intended use and the foreign processing
operation is a necessary step in the preparation or manufacture
of finished articles. See, Dolliff & Company, Inc. v. United
States, 81 Cust.Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd,
66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979). Articles entitled
to this partial duty exemption are dutiable only upon the cost or
value of the foreign repairs or alterations, provided the
documentary requirements of section 10.8, Customs Regulations (19
CFR 10.8), are satisfied.
We are of the opinion that the operations performed abroad
exceed an alteration and, therefore, the appliance parts will not
be entitled to the partial duty exemption available under
subheading 9802.00.50, HTSUS. The phenol molding compound is
transformed by heating and molding into a new article--a plastic
appliance part. Contrary to the underlying premise of this
tariff provision, the articles that are imported into the U.S.
are not the same articles that were exported.
II. GSP Eligibility
Under the GSP, eligible articles the growth, product or
manufacture of a designated beneficiary developing country (BDC)
which are imported directly into the customs territory of the
U.S. from a BDC may receive duty-free treatment if the sum of 1)
the cost or value of materials produced in the BDC, plus 2) the
direct costs of the processing operation in the BDC, is
equivalent to at least 35% of the appraised value of the article
at the time of entry. See, 19 U.S.C. 2463(b).
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), 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 phenol molding compound to be imported into Mexico may be
counted towards the 35% value-content requirement only if it is
substantially transformed in Mexico into a new and different
intermediate article of commerce which is, itself, substantially
transformed when used in the production of the final article (the
appliance parts).
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." See, The Torrington Co., v. United States, 764 F.2d
1563 (Fed. Cir. 1985), citing Texas Instruments Incorporated v.
United States, 681 F.2d 778, 69 CCPA 151 (1982).
Mexico is a BDC. See, General Note 3(c)(II)(A), HTSUS.
Based on the sample submitted, it would appear that the appliance
part (blender cap) would be classified under subheading
8509.90.4000, HTSUS, which provides for Electromechanical
domestic appliances, with self-contained electric motor: parts
thereof: parts: other parts, which is a GSP eligible provision.
We have previously held that the molding of plastic into a
specific shape is considered a substantial transformation. See,
Headquarters Ruling Letter (HRL) 055611 dated October 13, 1978
(injection molding of plastic pellets to form parts of toy
pistols constitutes a substantial transformation); HRL 051198
dated April 18, 1977 (injection molding of plastic to form parts
of motors constitutes a substantial transformation); and HRL
555149 dated May 11, 1989 (melting and molding of plastic resin
into plastic parts constitutes a substantial transformation).
Molding the phenol molding compound into plastic appliance
parts in Mexico constitutes a substantial transformation.
However, the cost or value of the phenol molding compound from
which the appliance parts are made may not be counted toward the
35% value-content requirement because it does not appear that the
phenol molding compound is subjected to a second substantial
transformation in Mexico. Therefore, the appliance parts will
not be entitled to duty-free treatment under the GSP unless the
direct costs of processing incurred in Mexico to produce the
appliance parts represent 35% or more of the appraised value of
the appliance parts when imported into the U.S. Consequently,
without further information regarding the direct costs of
processing operations performed in Mexico, we are unable to
determine if the appliance parts would be eligible for duty-free
treatment under the GSP. See, section 10.171-178, Customs
Regulations (19 CFR 10.171-178) (copy enclosed).
HOLDING:
On the basis of the information and samples presented, it is
our opinion that the foreign molding operation comprises a
manufacturing process which creates a new article. Accordingly,
the appliance parts are not eligible for the partial duty
exemption available under subheading 9802.00.50, HTSUS, when
imported into the U.S.
The appliance parts will be entitled to duty-free treatment
under the GSP only if the direct costs of processing incurred in
Mexico represent 35% or more of the appraised value of parts when
imported into the U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division