CLA-2 CO:R:C:S 557200 WAW
Jose Alberto Marchina Daued
Productos de Alambre Si-Mar, S.A.C.V.
Mexicaltzingo #1602-A
44160, Guadalajar, Jalisco
Mexico
RE: Eligibility of aluminum insect screening for duty-free
treatment under the GSP; substantial transformation;
weaving; drawing; wire
Dear Mr. Daued:
This is in response to your letters dated March 18, and April
13, 1993, concerning the eligibility of aluminum insect screening
from Mexico for duty-free treatment under the Generalized System
of Preferences (GSP) (19 U.S.C. 2461-2466). A sample of the
merchandise was enclosed for our review.
FACTS:
You state that aluminum rod, 5145 alloy, measuring 3/8 inches
in diameter, will be imported into Mexico from the U.S. In
Mexico, the first step in the production of the aluminum insect
screening consists of drawing the aluminum rod in a drawing
machine of 100 HP capacity from 3/8 inches in diameter to 0.187
inches in diameter. The drawing of the wire involves forcing the
wire through a diamond die in eight different reduction steps.
The second step consists of drawing the wire from 0.187 inches to
0.064 inches in a drawing machine of 200 HP capacity in seven
different reduction operations. Next, the wire undergoes an
annealing process to relieve the stress as a result of the
drawing process. After the annealing process, the wire undergoes
16 different reductions from 0.064 inches to 0.011 inches or
0.0085 inches, depending upon customer specification, in nine
separate drawing machines of 25 HP capacity each. The wire is
then wound onto spools. A final heat treatment is applied to the
wire to alleviate stress from the previous drawing process. The
wire is inspected for proper measurement and roundness before it
undergoes the next stage of processing.
The wire is then put through a "beamer/warping" machine where
it is woven into screening. The particular width of the screening
may vary depending upon customer specification. Upon completion
of the weaving process, the screening is cleaned through a
chemical process and then soaked in water and dried in an oven.
Finally, the screening is dipped into aluminum paint and allowed
to dry in an oven. The finished screening is then inspected for
defects, rolled into 100 feet rolls and packaged in a cardboard
box for shipment to the U.S.
ISSUE:
Whether the processing of the aluminum rod in Mexico into
insect screening constitutes a double substantial transformation,
thereby permitting the cost or value of the aluminum rod to be
counted toward the 35 percent 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 U.S. qualify for duty-free
treatment if the sum of (1) the cost or value of the materials
produced in the BDC, plus (2) the direct costs involved in
processing the eligible article in the BDC, is at least 35% of
the appraised value of the article at the time of its entry into
the U.S. See section 10.176(a), customs Regulations (19 CFR
10.176(a)).
Mexico is a designated BDC. See General Note 3(c)(ii)(A),
Harmonized Tariff Schedule of the United States Annotated
(HTSUSA). Therefore, the aluminum insect screening will receive
duty-free treatment if it is classified under a GSP-eligible
provision, is considered to be a "product of" Mexico, is
"imported directly" into the U.S., and the 35 percent value-content requirement is satisfied. Merchandise is considered the
"product of" a BDC if it is either wholly the growth, product or
manufacture of a BDC or has been substantially transformed there
into a new or different article of commerce. 19 U.S.C.
2463(b)(2).
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), rev'd, 681 F.2d 778, 69
CCPA 151 (CCPA 1982).
If an article is comprised of materials that 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 aluminum insect screening 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 final article - aluminum insect screening.
The first issue that we will address is whether drawing rod
into wire constitutes a substantial transformation of the rod
into a new and different article of commerce. The court in
Superior Wire v. United States, 669 F. Supp. 472 (CIT 1987),
aff'd, 867 F.2d 1409 (Fed. Cir. 1989), held that the drawing of
wire rod into wire through a multi-stage process did not
constitute a substantial transformation of the wire rod. The
court found that there was not significant change in the use or
character of the wire, and only a relatively insignificant change
in name. Moreover, the court found that the operations performed
on the wire red were minor rather than substantial and concluded
that the "wire rod and wire may be viewed as different stages of
the same product." Id. at 1414. See Headquarters Ruling Letter
(HRL) 555705 dated August 26, 1991, in which we held that the
drawing process of copper wire, whereby the wire is reduced
through a multi-stage process from a diameter of 14 AWG
(approximately 0,064 in.) to a diameter ultimately of 36 AWG
(approximately 0,005 in.) did not constitute a substantial
transformation.
A test recognized by the courts as indicative (although not
dispositive) of a substantial transformation is whether the
manufacturing process results in a transition from producers'
goods to consumers' goods. Midwood Industries v. United States,
62 Cust. Ct. 499, 313 F. Supp. 951 (1970). The facts in question
are similar to Superior Wire in that there is no clear change
from a producer good to consumer good when the rod is drawn. The
primary use of the red, without further manufacturing, has not
significantly changed with the drawing. Furthermore, there is no
significant change from a product suitable for many uses to one
fit for only a few uses. Like the copper wire in Superior Wire,
the aluminum rod in this case dictates the final form of the
finished wire, as the basic properties of the wire are
predetermined by the undrawn rod. Moreover, no significant change
in the composition of the wire occurs between the stages of
drawing. Thus, we are of the opinion that drawing red into wire
does not substantially transform the rod into a new and different
article of commerce.
You also state that during the drawing process of the wire,
it undergoes a heat treatment process designed to alleviate
stress in the aluminum. We have held that heat treatment which is
not extensive or complex, and does not transform or narrow the
uses of the article is not a substantial transformation. See HRL
555103 dated February 2, 1989 (solution quenching and annealing
stainless steel bars and wire rod, which maximizes softness,
ductility, and corrosion resistance in the steel, does not
constitute a substantial transformation, where the steel retains
its multi-functional utility); HRL 730648 dated August 14, 1987
(stainless steel pipe which is annealed, restraightened and
pickled is not substantially transformed). Under the facts
presented in this case, we are not convinced that the heat
treatment in question is sufficiently extensive or complex to
substantially transform the name, character or use of the
aluminum.
It is our opinion that a substantial transformation results
in the weaving stage where the wire is woven by machine into
aluminum insect screening. It is during this stage of production
that the aluminum rod which has been drawn into wire undergoes a
substantial transformation into a new and different article of
commerce with a new name, character and use. In HRL 085535 dated
December 28, 1989, we held that wire rod drawn into wire and
converted into nails constitutes a single substantial
transformation. See HRL 055722 dated August 14, 1979 (the
manufacture of tungsten carbide plunged tool blanks from rough
tungsten carbide rod resulted in a single substantial
transformation). Thus, the initial product imported into Mexico,
aluminum rod, undergoes a substantial transformation in the
manufacture of the final article, aluminum insect screening, into
a "product of" Mexico.
Inasmuch as the subsequent operations performed on the
completed aluminum screening which include cleaning and painting,
are mere finishing operations, they do not result in a second
substantial transformation of the imported aluminum rod. See HRL
729308 dated August 12, 1988 (painting of earrings in Canada does
not result in a substantial transformation); and HRL 556060 dated
August 27, 1991 (cleaning and polishing operations do not create
a new article or alter the intended use of the article).
Therefore, as the aluminum red has not undergone a double
substantial transformation in the production of the aluminum
insect screening, the cost or value of the red may not be counted
toward the 35 percent value-content requirement for purposes of
the GSP.
HOLDING:
Based on the information presented, the production of
aluminum insect screening in Mexico by drawing aluminum rod into
wire and weaving the wire into screening substantially transforms
the aluminum rod into a "product of" Mexico. However, the cost or
value of the aluminum red may not be counted toward the 35
percent value-content requirement as the subsequent processes do
not result in the requisite double substantial transformation of
the rod. Provided that the 35 percent requirement is satisfied by
calculating the Mexican material costs and the direct costs of
processing operations alone, the "imported directly" requirement
is met and the article is classified under a GSP-eligible
provision at the time of entry, the aluminum screening will be
entitled to duty-free treatment under the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division