CLA-2 CO:R:C:S 556020 KCC
Mr. Bruce H. Leeds
A.Z. Engineering Co. Inc.
c/o Hughes Aircraft Company
Export/Import Operations M/S B112
P.O. Box 45066
Los Angeles, California 90045
RE: Electrical connectors in cables.GSP; substantial
transformation; constituent material; C.S.D. 85-25;
assembly; 555660
Dear Mr. Leeds:
This is in response to your letters dated April 30, and May
22, 1991, regarding whether the cost or value of electrical
connectors, which are later assembled into cables, may be counted
toward the 35% value-content requirement of the Generalized
System of Preferences (GSP) (19 U.S.C. 2461-2466). Samples and
pictures were submitted for examination.
FACTS:
A.Z. Engineering manufactures various electrical products in
Mexico. In this case, the electrical product under consideration
is an electrical cable (cable) which consists of a group of
wires, covered in a sheath or encapsulated in plastic, with two
or more electrical connectors at the ends. Although there may be
some variation, the cable is usually produced in the following
manner:
1) in Mexico, brass rod is machined into contact pins;
2) the brass pins are then shipped to the U.S. and plated;
3) upon return to Mexico, the plated pins are inserted
into plastic connector housings;
4) the plated pins are sealed in place with adhesive and,
where necessary, bent to the necessary alignment which
creates the completed electrical connectors;
5) wire is cut to length;
6) the wire is connected to the terminals on the back of
the electrical connectors;
7) two or more connectors are assembled into a cable
assembly;
8) the interconnecting wires are covered in head shrink
sheathing or encapsulated in plastic to create the
completed cable; and
9) the cable is tested.
Upon completion of the foreign operations, the completed
cable is imported into the U.S.
ISSUE:
Whether the electrical connectors produced in Mexico qualify
as substantially transformed constituent material of the cable,
thereby enabling the cost or value of these materials to be
counted toward the 35% value-content requirement for purposes of
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 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 imported materials used to produce the electrical connectors
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 itself substantially transformed
into a cable.
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, Texas Instruments Incorporated v. United States,
2 CIT 36, 520 F. Supp. 1216 (CIT 1981), reversed, 681 F.2d 778,
69 CCPA 151 (CCPA 1982).
Mexico is a BDC. See, General Note 3(c)(ii)(A), HTSUS. You
state that the completed cables are classified under subheading
8544.41.00, HTSUS, which provides for insulated (including
enameled or anodized) wire, cable (including coaxial cable) and
other insulated electric conductors, whether or not fitted with
connectors; optical fiber cables, made up of individually
sheathed fibers, whether or not assembled with electric
conductors or fitted with connectors: other electric conductors,
for a voltage not exceeding 80 V: fitted with connectors. This
tariff provision is a GSP eligible provision.
In C.S.D. 85-25, 19 Cust. Bull. 844 (1985) (HRL 071827 dated
September 25, 1984), 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. It is
necessary to consider the time, cost, and skill involved, the
number of components assembled, the number of different
operations, the 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.
Additionally, C.S.D. 85-25 stated that the factors which
determine if a substantial transformation occurs should be
applied on a case-by-case.
Although it appears that the initial fabrication of the
contact pins from brass rod results in a substantial
transformation, we are of the opinion that the assembly of the
electrical connectors and the later assembly of the electrical
connectors with the cable does not result in a second substantial
transformation. The assembly operations in both situations
involve a small number of components which are merely attached,
inserted and affixed to one another to form the components.
These types of operations are considered simple assembly
operations which will not result in a substantial transformation,
as they do not appear to involve a considerable amount of time,
skill, attention to detail or quality control. See, HRL 555660
dated September 15, 1991 (production of an LED assembly by
inserting an LED into a plastic housing, attaching LED leads to
conducting wires, inserting the wires into an insulating tube,
and affixing pins and terminals to the lead wires does not result
in a substantial transformation). Therefore, neither the cost or
value of the contact pins nor the electrical connectors to which
the pins are attached may be counted toward the GSP 35% value-
content requirement.
HOLDING:
On the basis of the information and samples submitted, we
are of the opinion that the materials imported into Mexico are
not subjected to a double substantial transformation in the
creation of the electrical cable. Therefore, the cost or value
of these materials may not be counted toward the GSP 35% value-
content calculation.
Sincerely,
John Durant, Director
Commercial Rulings Division