CLA-2 CO:R:C:S 556290 WAW
District Director
U.S. Customs Service
1000 Second Ave., Suite 2200
Seattle, WA 98104-1049
RE: Request for Internal Advice concerning the eligibility of
ski gloves for duty-free treatment under the GSP;
substantial transformation; 732623; C.S.D. 90-20; 12.130;
555742; 555189; 554929; 10.195(a); 556104
Dear Sir:
This is in response to your letter dated September 20, 1991,
forwarding a request for internal advice regarding whether
certain ski gloves from Thailand are eligible for duty-free
treatment under the Generalized System of Preferences (GSP) (19
U.S.C. 2461-2466). A sample of the merchandise was not submitted
for review.
FACTS:
Palace Industries manufactures two different styles of ski
gloves commonly referred to as style 361 and style "claw". The
gloves are made of two different types of fabric -- NC-700 which
originates from Japan, and Duratex, which originates from Taiwan.
In addition, the gloves consist of an insulating material
referred to as Polar light which is of U.S. origin. The gloves
also consist of a pigskin material of Japanese origin. The
pigskin is shipped from Japan in irregularly shaped pieces. In
Thailand, the leather is cut to shape and sewn onto the palm of
the glove for reinforcement purposes. The cut pieces of leather
are attached to the cut fabric pieces before the fabric pieces
are sewn together to form the glove. You state that the import
specialist involved in this case and the National Import
Specialist agree that the sewing of a glove from the component
parts is "one of the most complex of all sewing operations. It
is more complex than sewing a shirt, for instance."
Set forth below is a description of the processes performed
in Thailand on the Duratex and Polar light fabrics. Although no
description of the processing performed on the NC-700 fabric was
provided, we are assuming that the processing of all three
fabrics is essentially the same.
(1) The fabric is first shipped into Thailand in bolts;
(2) The fabric is placed on a cutting table and cut
into back and palm tranks and other pieces referred to
as "fourchettes" and "gussets"; and
(3) The back and palm tranks, the fourchettes and the
gussets are then sewn together to form the outer shell
of the glove and the insulating "glove within the
glove."
The assembly of the gloves involves approximately 14
components, including a D-ring and clip which originate in
Thailand.
ISSUE:
Whether the manufacture of the two types of ski gloves
results in a double substantial transformation, thereby
permitting the cost or value of the materials imported into
Thailand to be included in the 35% value-content requirement for
eligibility 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 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 involved in processing the eligible article in the
BDC, is equivalent to at least 35% of the appraised value of the
article upon its entry into the U.S. 19 U.S.C. 2463(b).
For purposes of the GSP, 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, 681 F.2d 778, 69 CCPA 151 (CCPA
1982).
According to General Note 3(c)(ii)(A), Harmonized Tariff
Schedule of the United States Annotated (HTSUSA), Thailand is a
BDC. In addition, based on the information provided, we believe
that the merchandise is classified in subheading 6216.00.4600,
HTSUSA, which provides for "[g]loves, mittens and mitts: Other:
Of man-made fibers: Other gloves, mittens and mitts, all the
foregoing specially designed for use in sports, including ski and
snowmobile gloves, mittens and mitts." Articles classified under
this provision are eligible for duty-free treatment under the GSP
provided they meet all of the requirements.
A. "Product Of" Requirement
To comply with the requirements of the GSP statute, we must
first determine whether the bolts of fabric material imported
into Thailand become a product or manufacture of that country by
being substantially transformed there. The courts have held that
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).
Because the articles in question consist, in large part, of
textile products, section 12.130, Customs Regulations (19 CFR
12.130), is applicable. Section 12.130, Customs Regulations (19
CFR 12.130), sets forth criteria for determining whether a
textile or textile product has been substantially transformed.
Pursuant to the regulations, a textile or textile product will be
considered to have undergone a substantial transformation if it
has been transformed by means of substantial manufacturing or
processing operations into a new and different article of
commerce. See 19 CFR 12.130(b). According to section
12.130(d)(2), the following will be considered in determining
whether merchandise has been subjected to substantial
manufacturing or processing operations: (1) the physical change
in the material or article; (2) the time involved; (3) the
complexity of the operations; (4) the level or degree of skill
and/or technology required; and (5) the value added to the
article in each country or territory. Any one or a combination
of these factors may be determinative and other factors may also
be considered. 19 CFR 12.130(d).
Examples of processes which generally will result in a
substantial transformation and those which usually will not are
set forth in 19 CFR 12.130(e). According to 19 CFR
12.130(e)(iv), the cutting of fabric into parts and the assembly
of those parts into the completed article in a foreign country or
insular possession will usually result in a substantial
transformation of the fabric so as to confer country of origin.
In this case, the cutting of the foreign fabric into various
shapes and sizes suitable for use as tranks and other glove
components, and the assembly of those parts to produce the ski
gloves in Thailand, result in a substantial transformation of the
imported fabric. Therefore, the ski gloves are considered to be
"products of" Thailand for purposes of the GSP.
B. Double Substantial Transformation Requirement
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 fabric and pigskin leather imported into Thailand
and used to produce the ski gloves may be included in the GSP 35%
value-content computation only if the fabric and the pigskin
leather are first substantially transformed into new and
different articles of commerce, which are themselves
substantially transformed when assembled into the final article -
- ski gloves.
We have consistently held that the cutting of fabric into
specific or defined shapes suitable for use as components in an
assembly operation is sufficient to substantially transform the
fabric into a new and different article of commerce. See
Headquarter Ruling Letter (HRL) 555742 dated November 5, 1990,
HRL 067823 dated June 2, 1982, HRL 555189 dated June 12, 1989,
and C.S.D. 89-27(4) (HRL 554929 dated November 3, 1988). With
respect to the facts in this case, we find that the foreign
fabric which is cut into various shapes and sizes (e.g.,
fourchettes, tranks, and gussets) necessary to produce the ski
gloves in Thailand, result in a substantial transformation of the
foreign fabric into a new and different article of commerce. In
addition, we believe that the ski glove components are
intermediate articles which are ready to be put into the stream
of commerce where they can be bought and sold. See Torrington,
764 F.2d at 1570.
With regard to the pigskin material from Japan, the limited
information provided indicates that the pigskin is cut in
Thailand to specific sizes and shapes suitable for use in the
assembly of gloves. Clearly, the cutting of pigskin into
reinforcing glove parts is analogous to the cutting of fabric to
specific shapes and sizes and, therefore, results in a
substantial transformation.
The next issue to be considered concerns whether the
assembly of the cut pieces of fabric and leather to create the
finished gloves constitutes a second substantial transformation.
In this regard, we have held that, for purposes of the GSP, an
assembly process will not work a substantial transformation
unless the operation is "complex and meaningful." See C.S.D. 85-
25, 19 Cust. Bull. 544 (1985). Whether an operation is complex
and meaningful depends on the nature of the operation. In making
this determination, we consider the time, cost, and skill
involved, the number of components assembled, the number of
different operations, attention to detail and quality control, as
well as the benefit accruing to the beneficiary developing
country (BDC) as a result of the employment opportunities
generated by the manufacturing process.
In Texas Instruments, Inc. v. United States, 681 F.2d 778
(Fed. Cir. 1982), the court implicitly found that the assembly of
three integrated circuits, photodiodes, one capacitor, one
resistor, and a jumper wire onto a flexible circuit board (PCBA)
constituted a second substantial transformation. It would appear
that this assembly procedure does not achieve the level of
complexity contemplated by C.S.D. 85-25. However, as the court
pointed out in Texas Instruments, in situations where all the
processing is accomplished in one GSP beneficiary country, the
likelihood that the processing constitutes little more than a
pass-through operation is greatly diminished. Consequently, if
the entire processing operation performed in the single BDC is
significant, and the intermediate and final articles are distinct
articles of commerce, then the double substantial transformation
requirement will be satisfied. Such is the case even though the
processing required to convert the intermediate article into the
final article is relatively simple and, standing alone, probably
would not be considered a substantial transformation. See HRL
071620 dated December 24, 1984 (in view of the overall processing
in the BDC, the materials were determined to have undergone a
double substantial transformation, although the second
transformation was a relatively simple assembly process which, if
considered alone, would not have conferred origin).
With regard to whether a processing operation constitutes a
substantial transformation, section 10.195(a), Customs
Regulations (19 CFR 10.195(a)), also is relevant. According to
19 CFR 10.195(a), implementing the Caribbean Basin Economic
Recovery Act (CBERA), no article shall be considered to have been
produced in a CBERA beneficiary country by virtue of having
merely undergone simple, as opposed to complex or meaningful,
combining or packaging operations. However, 19 CFR
10.195(a)(2)(ii)(D) provides that this exclusion shall not be
taken to include:
A simple combining or packaging operation or mere
dilution coupled with any other type of processing such
as testing or fabrication (e.g., a simple assembly of a
small number of components, one of which was fabricated
in the beneficiary country where the assembly took
place.) (Emphasis added)
This regulation is instructive here inasmuch as the CBERA and GSP
programs have similar statutory aims, and the country of origin
criteria of the statutes are nearly identical.
We have previously issued several rulings pertaining the
country of origin marking of gloves which are cut in one BDC from
imported material and sewn in another BDC. In the instant case,
you have asked us to determine whether the principles set forth
in these rulings will apply. In HRL 732623 dated November 6,
1989, subsequently published as C.S.D. 90-20 (24 Cust. Bull. 10
(March 7, 1990)), cotton industrial work glove pieces were cut in
country A, and the parts were sent to country B, where they were
sewn together into gloves, turned, pressed and packaged before
being exported to the U.S. In this case, we held that the sewing
together of cotton industrial work gloves was not a complex
operation, and therefore, was not analogous to sewing suit-type
jackets, suits or shirts. Furthermore, we stated that although
cutting may not involve much labor, it often involves a
substantial capital input. For these reasons, we concluded that
country A was considered the country of origin of the imported
work gloves.
However, we believe that the holding in HRL 732623 is not
controlling in regard to the issue presented here: whether the
assembly in a BDC of ski glove components, which were cut to
shape in the same BDC, results in a second substantial
transformation, thereby permitting the cost or value of fabric
and leather to be included in the GSP 35% calculation. HRL
732623 involved a determination of the country of origin of the
assembled gloves. As previously stated, we have held under
certain circumstances, that the double substantial transformation
requirement may be satisfied even though the second
transformation was a relatively simple assembly process which, if
considered alone, would not have conferred origin.
In the instant case, we find that the final assembly of the
component parts to form a glove results in a second substantial
transformation. Even though we believe that the assembly
operation in the instant case, which involves sewing the
approximately 14 glove parts together, may not be complex enough
to constitute a substantial transformation by itself,
nevertheless, we are of the opinion that the overall processing
operations (i.e., cutting, sewing, and packing) performed in
Mexico are substantial. In addition, not only does the
processing involve a number of component parts and assembly
operations, but the glove parts are fabricated in Mexico.
Moreover, the assembly processes require a relatively significant
period of time as well as skill, attention to detail, and quality
control. We believe that the production of the ski gloves
clearly results in a significant economic benefit to the BDC from
the standpoint of both the value added to each component part and
the overall employment generated by the operations. See C.S.D.
85-25 dated September 25, 1984 (HRL 071827); HRL 556104 dated
September 10, 1991, in which foreign fabric imported into the
Northern Mariana Islands to be marked, cut, assembled by various
sewing operations, ironed, and packed, undergoes a double
substantial transformation when manufactured into men's cotton
trousers.
Finally, the fabrication and assembly process involved in
producing the ski gloves is not the type of "pass-through"
operation which Congress intended to prohibit from receiving GSP
benefits. "The provision would not preclude meaningful assembly
operations utilizing foreign components, provided the assembly is
of significance to the local economy, meets the 35% local content
rule, and results in a new and different article." H.R. Rep. No.
98-266, 98th Cong., 1st Sess. 13 (1983). Based on the foregoing
analysis, we find that the materials used in the production of
the ski gloves have undergone the requisite double substantial
transformation.
HOLDING:
Based on the information provided, we find that the cutting
and sewing operations performed on the imported fabric and
pigskin material result in a double substantial transformation of
the imported materials used to produce the ski gloves.
Therefore, the cost or value of the imported materials of
Japanese, Taiwanese, and U.S.-origin may be included toward the
35% value-content calculation for purposes of the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division