CLA-2 CO:R:C:S 557153 WAW
Dennis T. Snyder, Esq.
Dennis T. Snyder, P.A.
7600 Red Road
Suite 200
South Miami, FL 33143
RE: Eligibility of silica glass stemware for duty-free treatment
under the Caribbean Basin Economic Recovery Act; packaging;
19 CFR 10.195(a)(2)(ii)(D); 556902; 556646
Dear Mr. Snyder:
This is in reference to your letter dated February 15, 1993,
on behalf of Grand Bahama Crystal Inc., concerning the
eligibility of silica glass stemware from the Bahamas for duty-free treatment under the Caribbean Basin Economic Recovery Act
(CBERA) (19 U.S.C. 2701-2706).
FACTS:
You state that Grand Bahama Crystal Company, Ltd. plans to
produce sets of silica glass stemware in the Bahamas. The
finished sets will be imported into the U.S. by a-related
company, Grand Bahama Crystal, Inc., a Florida corporation.
Individual stemware pieces will be acquired from an unrelated
company in Czechoslovakia. In Czechoslovakia, the pieces are
machine molded, placed in bulk containers without further
processing, and shipped to the Bahamas. In the Bahamas, the
individual pieces are inspected, culled, cleaned, polished and
packaged into sets of four or six. The individual stemware sets
are boxed in professionally designed "self-sell" boxes which are
the product of the Bahamas. You state that this form of packaging
is essential to the retail marketing in the U.S., since cheap
glass stemware is sold only in packaged sets and not as
individual pieces. You also claim that the direct costs of the
materials and labor in the Bahamas is approximately equivalent to
the landed costs of the individual pieces.
It is your position that a set of silica glass stemware which
has been packaged in a "self-sell" box is a new and different
article of commerce from the individual mold-run pieces of
inexpensive stemware imported into the Bahamas and should,
therefore, be considered a "product of" the Bahamas.
Furthermore, you believe that, since the stemware is a "product
of" the Bahamas, it should be entitled to duty-free treatment
under the CBERA. In support of your claim for CBERA treatment,
you state that the cost of the packaging materials and labor are
extraordinarily high in relation to the cost of the individual
pieces, and there is a legitimate commercial justification for
the relatively expensive packaging, i.e., the packaged sets are
saleable on the retail market and the individual pieces are not.
ISSUE:
Whether the operations performed in the Bahamas to the
imported silica glass stemware result in a substantial
transformation of the stemware into "products of" the Bahamas for
purposes of the CBERA.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product, or
manufacture of a beneficiary oountry, ("BC"), which are imported
directly to the U.S. from a BC, qualify for duty-free treatment,
provided the sum of (1) the cost or value of materials produced
in a BC or two or more BC's, plus (2) the direct costs of
processing operations performed in a BC or BC's is not less than
35% of the appraised value of the article at the time it is
entered. 19 U.S.C. 2703(a)(1).
The Bahamas is a designated BC. See General Note 3(c)(V)(A),
Harmonized Tariff Schedule of the United States Annotated
(HTSUSA). The articles will receive duty-free treatment if they
are considered to be the "product of" the Bahamas, the 35% value-content minimum is met, and the goods are "imported directly"
into the U.S.
Under the Customs Regulations implementing the CBERA, an
eligible article may be considered a "product of" a BC if it is
either wholly the growth, product, or manufacture of a
beneficiary country, or a new or different article of commerce
which has been grown, produced, or manufactured in the BC. See 19
CFR 10.195. Accordingly, where materials are imported into a BC
from a non-BC, those materials must be substantially transformed
into a new and different article of commerce, a "product of" the
BC.
A substantial transformation occurs when an article emerges
from a process with a new name, character, or use different from
that possessed by the article prior to the processing. See Texas
Instruments; Inc, v. United States, 69 CCPA 152, 681 F.2d 778
(1982). See also The Torrington Company v. United States, 764
F.2d 1563, 1568 (Fed. Cir. 1985) ("[W]hen an article emerges from
a manufacturing process with a new name, character, or use which
differs from that of the original material subjected to the
process" a substantial transformation occurs).
The issue that we are asked to address is whether the
operations performed in the Bahamas (i.e., inspection, culling,
cleaning, polishing and packaging), to produce-individual sets of
silica glass stemware which are packaged in "self-sell" boxes
result in a substantial transformation of the imported glass
stemware into "products of" the Bahamas.
In determining whether the processing performed in the
Bahamas constitutes a substantial transformation, section
10.195(a), Customs Regulations (19 CFR 10.195(a)), is relevant.
According to 19 CFR 10.195(a), no article shall be considered to
have been produced in a CBERA BC by virtue of having merely
undergone simple, as opposed to complex or meaningful, combining
or packaging operations. 19 CFR 10.195(a)(2)(i)(E) provides that
a simple combining or packaging operation includes "repacking or
packaging components together." However, 19 CFR
10.195(a)(2)(ii)(D) provides that a simple combining or packaging
operation under this section 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)
We have held in certain instances that an assembly operation
will not be considered "simple," pursuant to 19 CFR
10,195(a)(2)(ii)(D), where the components are actually fabricated
in the BC where the assembly takes place. In HRL 556646 dated
August 6, 1992, we held that the cost or value of plastic pellets
imported into Mexico and processed into finished frames, which
are assembled with lenses to make finished glasses, may be
counted toward the 35% value-content requirement under the GSP.
We found that a second substantial transformation occurred as a
result of the combined operations of trimming, cutting,
smoothing, polishing, cleaning, heat pressing, assembling the
front to the temples, bending the temples, dipping the frames in
chemicals, hot stamping, painting, inspection, and final
insertion of the lenses into the frames by force fitting. In HRL
556646, we stated that even though the assembly of the frames and
lenses itself by pressure insertion may be considered a simple
operation, it would still fall within the ambit of 19 CFR
10.195(a)(2)(ii)(D), because of the complete fabrication of the
frame components from the plastic pellets and the further
processing performed upon the lenses in the BDC.
Likewise, in HRL 556902 dated February 3, 1993, we found that plastic
pellets imported into Mexico and used in the production of disposable razors
and cartridges could be counted toward the 35% value-content requirement under
the GSP. We stated that in view of the fact that the cartridge components and
the razor handle were completely fabricated in Mexico by means of injection
molding the imported plastic pellets, the assembly operations required to
produce the razors and cartridges constituted more than a simple combining
operation as set forth in 19 CFR 10.195(a). Therefore, we held that the
assembly of the razor and cartridge components with other materials in Mexico
to create the finished articles resulted in a new and different article and
constituted a second substantial transformation of the materials imported into
Mexico.
In the instant case, we are of the opinion that the operations which take
place in the Bahamas are considered simple packaging or combining operations
pursuant to 19 CFR 10.195(a). The only operations which occur in the Bahamas
are the inspection, culling, cleaning, polishing and packaging into boxes of
the individual stemware. None of these operations qualify as the type of
processing which would fall within the exclusion under 19 CFR
10.195(a)(2)(ii)(D). Unlike the production of the disposable razors and
cartridges in HRL 556902 and the glasses in HRL 556646, none of the components
which comprise the glass stemware in this case are actually fabricated in the
Bahamas.
The operation of repackaging finished components into containers suitable
for resale does not constitute a substantial transformation of the imported
components into a new and different article of commerce. The very essence of
the final product in this case is imparted by the silica glass stemware which
is produced in Czechoslovakia, prior to any of the operations performed in the
Bahamas. See Uniroyal. Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026
(1982). Before the glasses are cleaned, polished and packaged, they are
dedicated to a singular use as drinking containers and already possess the
essential character of a drinking container. The fact that the stemware may
not be saleable on the retail market until it is packaged is not determinative
in this case of whether the packaging constitutes a substantial transformation
of the individual components. Moreover, we view the cleaning, polishing, and
packaging operations merely as finishing processes which do not alter the
essential character of the glass stemware. See HRL 556060 dated August 27,
1991 (stating that jewelry pieces are not subjected to a second substantial
transformation when enameled, engraved, decoratively cut, polished, and
cleaned as these operations are embellishments and finishing operations which
do not create a new article or alter the intended use of the articles).
Therefore, we are of the opinion that the cleaning, polishing and packaging
operations performed in Mexico are the simple. type of "pass-through"
operations that Congress meant to prohibit from receiving duty-free treatment
under the CBERA. Accordingly, the silica glass stemware imported from
Czechoslovakia into the Bahamas for inspection, culling,
cleaning, polishing and packaging do not undergo a substantial transformation
into "products of" the Bahamas.
HOLDING:
The silica glass stemware imported from Czechoslovakia into the Bahamas for
inspection, culling, cleaning, polishing and packaging do not undergo a
substantial transformation into "products of" the Bahamas. Therefore, as the
"product of" requirement is not satisfied, the packaged silica glass stemware
will not be eligible for duty-free treatment under the CBERA upon entry into the
U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division