CLA-2 CO:R:C:S 556301 LS
Leslie A. Glick, Esq.
Porter, Wright, Morris & Arthur
1233 20th Street, N.W.
Washington, D.C. 20036-2395
RE: Eligibility under GSP of cordage (insulated copper wire);
double substantial transformation; drawing; bunching with
slight twisting; annealing; encapsulating. Reconsideration
of 555705
Dear Mr. Glick:
This is in response to your letter of October 3, 1991, on
behalf of ACS Industries, Inc., requesting reconsideration of
Headquarters Ruling Letter (HRL) 555705 dated August 26, 1991.
That ruling found that certain copper wire imported into Mexico
and subjected to several processing operations did not undergo a
double substantial transformation. Therefore, we held that the
cost or value of the wire could not be counted toward satisfying
the 35% value-content requirement under the Generalized System of
Preferences (GSP). Further information provided at a meeting at
Customs Headquarters on February 28, 1992, and summarized in a
letter dated March 24, 1992, was also reviewed as part of this
reconsideration. A sample of the wire at each of four processing
stages was submitted.
FACTS:
The facts of HRL 555705 are incorporated herein by
reference. In summary, you claimed in your original ruling
request that soft bare copper wire, referred to as "14 AWG," is
imported into Mexico where four substantial transformations occur
to produce the final product, known as "cordage," which is used
to manufacture telephone cords. The first claimed substantial
transformation, a drawing process, results in a finer wire known
as "36 AWG." During the drawing process, the 14 AWG, which is
.064 inches in diameter, is reduced to a diameter ranging from
.020 inches to .005 inches. Next, seven of these wires are
bunched and slightly twisted together with a specified lay or
twist per inch to form "28 AWG stranded copper wire." The third
phase, encapsulation of the 28 AWG stranded copper wire with a
colored polypropylene insulation, results in "insulated wire."
The final cordage results when several of these insulated wire
strands are bundled together and further encapsulated with
polyvinylchloride (PVC). The additional facts submitted with
this request for reconsideration are summarized below.
You state that the character of the wire changes during the
first two claimed substantial transformations. You have provided
an affidavit of an employee of ACS Industries, Inc., who states
that the ampacity rating of 14 AWG wire is 20 amps whereas the
rating of the 28 AWG stranded wire is less than 1 amp. In
addition, the flexibility of the 28 AWG stranded wire is far
greater than that of the 14 AWG wire.
You also state that the uses of the products vary at each
claimed transformation primarily due to their changes in
flexibility and ampacity. In your letter of October 3, 1991, you
state that the 14 AWG wire is used primarily as building wire in
residential and commercial buildings because of its current
carrying capacity. During the conference held at Headquarters,
you provided information that this same wire is purchased by
other manufacturers to make a variety of products such as rivets,
springs, foil, electrical contacts, grounding straps, jewelry,
and staples. ACS Industries, Inc. uses this wire to manufacture
fine wire, stranded wire, or telephone tinsel. In your letter of
October 3, 1991, you state that the 36 AWG fine wire is used for
non-current carrying uses such as spiral or braid shielding on
coaxial or electronic cables; starting strand for tinsel; and to
make 28 AWG stranded wire. Some of the additional uses of the 36
AWG wire mentioned at the conference are: resistance heating
products, copper rope, motor windings, and copper sponges. The
28 AWG stranded wire is used in single conductors because of its
low amperage characteristics. These conductors are used to make
insulated wires. The 28 AWG stranded wire is also sold to
manufacturers of jewelry, copper rope, and antennas. In support
of your argument that the fine copper wire (36 AWG) and stranded
copper wire (28 AWG) are distinct articles of commerce, you
mention the names of other companies which market both articles.
An additional processing operation which was mentioned for
the first time during the conference of February 28, 1992, is the
annealing of the 28 AWG stranded wire. ACS Industries, Inc.
claims that this wire must undergo annealing before it can be
made into insulated wire. The annealing process is performed so
that the final product conforms with industry standards for bare
soft copper. The annealing also changes the 28 AWG stranded wire
from a brittle product to a soft, pliable product. The resulting
flexibility is important for the wire's ultimate application in
telephone cords. As a result of the annealing operation, the
tensile strength of the wire is decreased by 50 percent.
Following the annealing and first encapsulation processes, you
state that the resulting insulated wire becomes suitable for a
new and different use as communication cords which carry low
voltage and high speed signals to transmit voice and data. The
encapsulation also isolates the wires and keeps them from short-
circuiting. This insulated wire, also known as "hookup wire," is
used to make telephone cords, as in the instant case, and is also
used in the manufacture of such items as stereos, refrigerators,
thermostats, alarms, and radios. You have provided the names of
some companies which market the color-coded insulated wire.
After the second encapsulation, the resulting cordage is used by
ACS Industries, Inc. to make telephone cords. The cordage is
also sold to companies that manufacture fax machines, modems,
printer cables, scales, and equipment with remote thermostats.
You contend that these facts demonstrate significant changes
in the use and character of the wire as it is transformed from 14
AWG copper wire into cordage. In addition, you assert that the
36 AWG, 28 AWG stranded copper wire, and insulated wire are
distinct intermediate articles of commerce. You reiterate your
contention that each encapsulation process by itself constitutes
a substantial transformation because of changes in name and use.
In addition, you rely upon Ferrostaal Metals Corp. v. United
States, 664 F. Supp. 535 (CIT 1987), for your contention that the
annealing process is an important factor in determining whether a
double substantial transformation has occurred in this case. You
have also provided figures showing the percentage of value added
to the initial 14 AWG wire as a result of each claimed
substantial transformation.
ISSUE:
Whether the 14 AWG copper wire imported into Mexico
undergoes a double substantial transformation so that its cost
or value 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 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).
As provided in General Note 3(c)(ii)(A), HTSUS, Mexico is a
BDC. In addition, it appears that the copper wire is classified
in subheading 8544.11.00, HTSUS, which is a GSP eligible
provision.
The cost or value of materials which are imported into the
BDC to be used in the production of the article, as here, may be
included in the 35% value-content computation only if the
imported materials undergo a double substantial transformation in
the BDC. That is, the non-Mexican components must be
substantially transformed in Mexico into a new and different
intermediate article of commerce, which is then used in Mexico
in the production of the final imported article. See section
10.177(a), Customs Regulations (19 CFR 10.177(a)), and Azteca
Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988),
aff'd, 890 F.2d 1150 (Fed. Cir. 1989).
"[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." Torrington Co. v. United States, 764 F.2d 1563,
1568, 3 CAFC 158, 163 (Fed. Cir. 1985).
Despite the additional facts you have submitted as to
changes in character and a narrowing of uses of the wire through
the various processing operations, we remain of the opinion that
the 14 AWG wire imported into Mexico does not undergo a double
substantial transformation in that country. We confirm our
finding in HRL 555705 that no substantial transformation results
from the process of drawing the 14 AWG wire to 36 AWG wire
because the character of the wire is not sufficiently changed and
the uses not sufficiently narrowed. See Superior Wire v. United
States, 669 F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed.
Cir. 1989) (the drawing of wire rod into wire through a multi-
stage process did not constitute a substantial transformation of
the wire rod). Similarly, the subsequent bunching and slight
twisting of several 36 AWG wires to form 28 AWG stranded wire
does not result in a new and different intermediate article of
commerce. We believe that a combination of the drawing,
bunching and twisting, and subsequent steps of annealing and
encapsulating with a colored polypropylene to form an insulated
wire strand does constitute a substantial transformation. An
insulated wire strand does not undergo a second substantial
transformation when it is bundled with others and further
encapsulated with PVC to form cordage. See 555170 dated May 30,
1989 (encapsulating bulk etched sheets in tape or foil, as one of
the steps involved in the production of foil strain gages, does
not constitute a substantial transformation). Thus, it appears
that the initial product imported into Mexico, 14 AWG wire,
undergoes only one substantial transformation in the manufacture
of the final article, cordage.
HOLDING:
Because the 14 AWG wire does not undergo a double
substantial transformation in Mexico, its cost or value may
not be included in the GSP 35% value-content calculation.
Accordingly, HRL 555705 is affirmed.
Sincerely,
John Durant, Director
Commercial Rulings Division