CLA-2 CO:R:C:S 556106 KCC
Mr. Peter Glover
American National Can
8770 West Bryn Mawr Avenue
Chicago, Illinois 60631-3542
RE: Beverage can end with pull tab created by punching,
forming, scoring, and pressing.Assembly; further
fabrication; 19 CFR 10.16(c)(5); further processing; C.S.D.
84-49; Intelex; 555377; 554011; GSP; substantial
transformation; C.S.D. 85-25; 055684; 555532
Dear Mr. Glover:
This is in response to your letter dated June 19, 1991,
concerning the applicable duty imposed on beverage can ends with
pull tabs manufactured in Mexico from U.S.-origin materials.
FACTS:
You intend to ship U.S.-origin end aluminum stock and end
aluminum tab stock to Mexico to manufacture beverage can ends
with pull tabs. In Mexico, the foreign operations entail:
1) punching out circles from the narrow widths of end
aluminum stock;
2) forming the tab opening on the circle;
3) applying a lining compound to one side of the circle;
4) scoring the edges of the tab which allows the tab to
be opened correctly when pulled off the beverage can;
5) punching out the pull tab ring from end aluminum tab
stock; and
6) pressing together the pull tab ring and circle.
Upon completion of the foreign operations, the completed
beverage can ends with pull tabs will be imported into the U.S.,
where the beverage can ends will be attached to beverage cans.
ISSUE:
I. Whether the beverage can ends with pull tabs will qualify
for the partial duty exemption available under subheading
9802.00.80, Harmonized Tariff Schedule of the United States
(HTSUS), when imported into the U.S.
II. Whether the beverage can ends with pull tabs will qualify
for the partial duty exemption available under subheading
9802.00.60, HTSUS, when imported into the U.S.
III. Whether the beverage can ends with pull tabs will qualify
for duty-free treatment under the Generalized System of
Preferences (GSP) (19 U.S.C. 2461-2466).
LAW AND ANALYSIS:
All articles imported into the U.S. are subject to duty
unless specifically exempted therefrom under the HTSUS.
I. Applicability of subheading 9802.00.80, HTSUS
Subheading 9802.00.80, HTSUS, provides a partial duty
exemption for:
[a]rticles assembled abroad in whole or in part of
fabricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form, shape,
or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and
except by operations incidental to the assembly process,
such as cleaning, lubricating, and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be
satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty
upon the full cost or value of the imported assembled article,
less the cost or value of the U.S. components assembled therein,
upon compliance with the documentary requirements of section
10.24, Customs Regulations (19 CFR 10.24).
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)),
states in part that:
[t]he components must be in condition ready for assembly
without further fabrication at the time of their exportation
from the United States to qualify for the exemption.
Components will not lose their entitlement to the exemption
by being subjected to operations incidental to the assembly
either before, during, or after their assembly with other
components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides that the assembly operation performed abroad may consist
of any method used to join or fit together solid components, such
as welding, soldering, riveting, force fitting, gluing,
laminating, sewing, or the use of fasteners.
Operations incidental to the assembly process are not
considered further fabrication operations, as they are of a minor
nature and cannot always be provided for in advance of the
assembly operations. However, any significant process, operation
or treatment whose primary purpose is the fabrication,
completion, physical or chemical improvement of a component
precludes the application of the exemption under subheading
9802.00.80, HTSUS, to that component. See, 19 CFR 10.16(c).
We are of the opinion that beverage can ends with pull tabs
will not be eligible for the duty allowance available under
subheading 9802.00.80, HTSUS. Machining or punching out the
circles and the pull rings is not an acceptable assembly
operation or operation incidental to the assembly, but is a
further fabrication of the aluminum stock. In effect, the
machining and punching operations create the circles and pull
rings which will later be pressed together. See, 19 CFR
10.16(c)(5) which states that machining, pressing, stamping, and
any other operation, treatment or process which impart
significant new characteristics or qualities to the article
affected shall not be regarded as an operation incidental to
assembly.
II. Applicability of subheading 9802.00.60, HTSUS
Subheading 9802.00.60, HTSUS, provides a partial duty
exemption for:
[a]ny article of metal (as defined in U.S. note 3(d) of this
subchapter) manufactured in the United States or subject to
a process of manufacture in the United States, if exported
for further processing, and if the exported article as
processed outside the United States, or the article which
results from the processing outside the United States, is
returned to the United States for further processing.
This tariff provision imposes a dual "further processing"
requirement on eligible articles of metal--one foreign, and when
returned, one domestic. Metal articles satisfying these
statutory requirements may be classified under this tariff
provision with duty only on the value of such processing
performed outside the U.S., provided there is compliance with the
documentary requirements of section 10.9, Customs Regulations (19
CFR 10.9)
Not all "processing" to which articles of metal can be
subjected are significant enough to qualify as "further
processing," within the purview of subheading 9802.00.60, HTSUS.
In C.S.D. 84-49, 18 Cust.Bull. 957 (1983), we stated that:
[f]or purposes of item 806.30, Tariff Schedules of the
United States (TSUS), the term 'further processing' has
reference to processing that changes the shape of the metal
or imparts new and different characteristics which become an
integral part of the metal itself and which did not exist in
the metal before processing; thus, further processing
includes machining, grinding, drilling, threading, punching,
forming, plating, and the like, but does not include
painting or the mere assembly of finished parts by bolting,
welding, etc.
The aluminum is an eligible article of metal for purposes of
subheading 9802.00.60, HTSUS. The punching and forming
operations performed in Mexico are considered "further
processing" operations, as they change the metal and impart new
and different characteristics which become an integral part of
the metal. See, C.S.D. 84-49.
However, we are of the opinion that the operation of
attaching the beverage can end to the beverage can in the U.S. is
insufficient to satisfy the domestic "further processing"
requirement. In Intelex Systems, Inc. v. United States, 59 CCPA
138, C.A.D. 1055, 460 F.2d 1083 (1972), the court discussed the
type of processing that would entail "further processing." In
the Intelex case, copper wire and insulating paper were processed
into lead-covered telephone cable and imported into the U.S. on
cable rolls. The cable was then merely strung on poles after
wire stripping and splicing operations. The issue presented was
whether the imported telephone cable was "returned to the U.S.
for further processing," within the meaning of paragraph
1615(g)(2)(B), Tariff Act of 1930, as amended (a precursor
provision of subheading 9802.00.60, HTSUS). The court
considered the words "process" and "processing" and stated that:
...its meaning [processing] must be controlled by the
particular context in which it is used here and the
legislative intent. (Citation omitted). When we look to
the context of [paragraph] 1615(g)(2), we do not think that
Congress had in mind that any and all kinds of 'processing'
would suffice to bring the article within the purview of
that paragraph. Instead, we believe that the words 'further
processing' relate to the kind of processing to which the
article had been subjected before--namely, 'a process of
manufacture,' as expressed in [paragraph] 1615(g)(2)(A). We
continue of the view that Congress used the expression
'subjected to a process of manufacture' as synonymous with
'processing' (citation omitted), and that the 'further
processing' referred to in [paragraph] 1615(g)(2) is a
further manufacturing process.
The court stated that it did "...not think that processes to
which an already completed article were subjected, incident to
using it for the purpose intended, were necessarily part and
parcel of manufacturing processes performed on that article."
(Court's emphasis). Therefore, finding no evidence that the
operations performed in the U.S. on the imported telephone cable
constituted a process of manufacture in any common or commercial
sense, the court determined that the partial duty exemption was
inapplicable to the imported cable.
In the instant case, the operation of attaching the beverage
can ends to the beverage cans in the U.S. is merely an assembly
operation which does not constitute a process of manufacture in a
common or commercial sense. As stated in C.S.D. 84-49 and in
previous ruling letters, assembly operations do not satisfy the
further processing requirement of subheading 9802.00.60, HTSUS.
See, HRL 555377 dated October 16, 1989, which held that brazing,
a welding operation, is an assembly operation that does not
satisfy the requirements of the tariff provision, and HRL 554011
dated February 21, 1986, which held that preparation grinding for
welding and welding parts to form wheels do not constitute
"further processing" within the meaning of item 806.30, TSUS.
III. GSP Treatment
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).
Mexico is a BDC. See, General Note 3(c)(ii)(A), HTSUS.
Based on the information submitted, it appears that the beverage
can ends with pull tabs would be classified under subheading
8309.90.00, HTSUS, which provides for stoppers, caps and lids
(including crown corks, screw caps and pouring stoppers),
capsules for bottles, threaded bungs, bung covers, seals and
other packing accessories, and parts thereof, of base metal:
other, dutiable at the rate of 5.2% ad valorem. This 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), 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 materials imported into Mexico and used to produce the
beverage can ends with pull tabs 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 the beverage can ends
with pull tabs.
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, 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).
In general, Customs has held that cutting or bending
materials to defined shapes or patterns suitable for use in
making finished articles, as opposed to mere cutting to length
and/or width which does not dedicate the resulting material to a
particular use, constitutes a substantial transformation. See,
HRL 055684 dated August 14, 1979 (cutting and stamping of the
undefined sheet of metal and the lengths of square shafts into an
absorber box results in a substantially transformed product); and
HRL 555532 dated September 18, 1990 (creation of top and bottom
pans by blanking the steel materials, die forming (or drawing),
and die piercing constituted a substantial transformation).
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, including
the number of components assembled, number of different
operations, quality control, and the benefit to the BDC from the
standpoint of both the value added to the PCBA and the overall
employment generated thereby. 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 basis.
Based on the above-cited rulings, the foreign processes,
consisting of punching, forming, and scoring, result in the
substantial transformation of the aluminum stock into the circle
and pull ring. The next determination to be made is whether a
second substantial transformation occurs when the circle and pull
ring are connected together. Using the standards defined in
C.S.D. 85-25, this operation does not constitute the required
second substantial transformation. The operation merely involves
joining two components together by pressing. In sum, the time,
cost, and complexity (or degree of skill) which are used to
determine whether a substantial transformation occurs, indicate
that there is no second substantial transformation. Therefore,
the cost or value of the aluminum stock imported into Mexico may
not be counted toward the 35% value-content requirement. The GSP
value-content requirement will not be satisfied because the
"value added" in Mexico as a result of the processing performed
there is approximately 15% (based on your submitted figures).
HOLDING:
From the information presented, we are of the opinion that
the machining or punching of the U.S.-origin aluminum stock into
the circle and pull ring is not an acceptable assembly operation,
but is further fabrication of the U.S.-origin aluminum.
Therefore, the imported can ends with pull tabs will not qualify
for the duty allowance available under subheading 9802.00.80,
HTSUS.
Additionally, the beverage can ends with pull tabs will not
be subjected to "further processing" in the U.S., as required by
subheading 9802.00.60, HTSUS, and therefore, will not be eligible
for the partial duty exemption under this tariff provision.
The production of the circle and pull ring in Mexico
constitutes a substantial transformation. However, no additional
substantial transformation results from the final joining
operation. Therefore, the cost or value of the materials
imported into Mexico may not be included in the 35% value-content
minimum required for eligibility under the GSP. The beverage
can ends with pull rings are, therefore, dutiable on their full
value.
Sincerely,
John Durant, Director
Commercial Rulings Division