CLA-2 CO:R:C:S 557201 BLS
Mark K. Neville, Esq.
51 Marion Road
Westport, Ct. 06880
RE: Eligibility of automotive wiring harness sets for duty-free
treatment under the GSP; substantial transformation
Dear Mr. Neville:
This is in reference to your letters dated March 19 and
September 28, 1993, on behalf of the Essex Group, Inc., requesting
a ruling that certain automotive wiring harness sets produced in
Mexico are eligible for duty-free treatment under the Generalized
System of Preferences (GSP).
FACTS:
1. Insulation of Wire
Bunched copper wire and PVC insulation compounds of U.S.
origin are imported into Mexico. Depending on the customer order,
the particular wire will be fed through a head, tip and die
assembly. The applicable PVC compound, with vacuum hose inserted
into the compound container, is fed into an extrusion device,
heated to the applicable temperature, and extruded onto the wire
to size as it passes through the head. The diameter of the wire
is controlled by an in-line controlling laser head. Certain
additional steps are required in connection with the extrusion
process depending on whether stripes and/or print is required.
The finished product is then packaged into fiber drums for
shipment to the customer, also in Mexico, for additional
processing.
2. Wire Circuits
At this second stage of processing, the insulated wires are
cut to length followed by precision application of electrical
terminals. These processes are carried out in one machine at very
high speeds, and will employ wires of different diameters cut to
different lengths, which require different types of terminals.
3. Sub-Assemblies
In order to facilitate harness manufacture, in many cases
several groups of wires are joined into sub-assemblies which are
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later used for harnesses. These sub-assemblies are made by joining
a non-terminated end of a circuit wire. Sometimes 20 wires are
joined together to form a sub-assembly. The typical joining method
is ultrasonic or resistance welding, although mechanical
termination and soldering are also used.
After joining, the electrical joint must be insulated and
protected from physical and chemical damage and mechanical abuse.
This is done by either injection molding a PVC sheath over the
joint or by covering the joint with "dual wall" heat shrink tubing.
"Dual wall" tubing is a special product which has a radiation
cured polyolefin outside jacket and a "hot-melt" adhesive inner
coating. The hot melt adhesive bonds to the metal joint to provide
a moisture seal. The jacket provides electrical, mechanical, and
chemical resistance.
4. Harness Assembly
The production of the final harness assembly involves the
complex merger of 500-1500 wires into a coordinated structure which
provides the electrical distribution for the car.
The prepared individual circuits or sub-assemblies which are
contained in special carriers are moved from different locations
in the production facility to the finished harness assembly
operation. These components then are sequentially added to
carline-dedicated harness tooling. This tooling may occupy up to
100 stations on a rotating multi-station transfer line known as a
"rotary."
Each station of the rotary is roughly 4 feet by 6 feet. The
rotary stations move on an oval track. As the stations move from
one location to the next, individual wires or sub-assemblies are
added in carefully engineered series of steps. The wires or sub-
assemblies are inserted into pre-positioned connectors which were
added at an earlier location on the track. Also, protective tapes,
tubing, clips, and other items may be added at any of the positions
on the track.
Several rotary positions have built-in test capability which
functionally tests the wires and the harness as it is being built
up. At the final rotary location, the harness is 100% in-line
tested for all electrical requirements.
Upon completion of manufacture, the finished harness is packed
in a shipping carton for delivery to the customer.
In addition to the 100% in-line testing, statistically
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selected finished harness assemblies are removed from their
respective shipping cartons to be thoroughly inspected and tested
prior to shipment to ensure quality and reliability.
ISSUE:
Whether the bunched wire and PVC material from which the
automotive wiring harness assembly is made are subject to a double
substantial transformation, thereby permitting the cost or value
of these components to be counted toward 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 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 (HTSUS). Based on
your description of the merchandise, it appears that the automotive
wiring harness assembly is classified under heading 8544.30.00,
"Ignition wiring sets and other wiring sets of a kind used in
vehicles, aircraft, or ships", a GSP eligible provision.
Therefore, the automotive wiring harness sets will receive duty-
free treatment if it is considered to be a "product of" Mexico, is
"imported directly" into the U.S., and the 35% value-content
requirement is satisfied. Merchandise is considered the "product
of" a BDC if it is 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 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
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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 automotive wiring harness assembly 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 - the automotive wiring harness set.
Clearly, the PVC compounds which are heated and extruded onto
the bunched wire, and the subsequent processes of cutting to
length, attachment of insulated wire terminals creating wire
circuits, joining of the individual wire circuits into sub-
assemblies by ultrasonic or resistance welding, or mechanical
termination and soldering, injection molding or heat shrinking, and
the assembly of the 500-1500 wire circuits into the final harness
assembly, results in a substantial transformation of the bunched
wire and the PVC material into a new and different article of
commerce. In this regard, we note that these operations involve
some fabrication, the assembly of a large number of components, and
a considerable amount of time, skill and attention to detail and
quality control. Accordingly, the resulting automotive wiring
harness set is considered a product of Mexico. The issue which we
must now address is whether, during the manufacture of the imported
article, the bunched wire and PVC compounds are substantially
transformed into separate and distinct intermediate articles of
commerce, which are then substantially transformed into the final
article.
With regard to the bunched wire, you contend that there is a
double substantial transformation, the first transformation arising
from the processing of the bunched wire and the PVC compounds into
insulated wire, and the second substantial transformation resulting
from the processing of the insulated wire into the automotive
wiring harness assembly. You point out that the insulating
material will impart varying physical properties to the bunched
wire, i.e., tensile strength, heat, abrasion, and chemical
resistance, which makes the insulated wire fit for different end
uses than the bare bunched wire. You also state that the insulated
wire is commercially recognized as a distinct product and is not
dedicated to be used as automotive wiring harness assemblies. In
this regard, you state that it may be used as fittings for motor
leads and for wiring in lighting fixtures, and is often sold for
commercial use in 1,000 foot spools. You also note that the
insulating material is a major cost element of the insulated wire,
comprising for example, materials and labor representing 37.6% of
the total cost for one type of 18 gauge insulated wire, and 58% of
the total cost of the product for one type of 12 gauge insulated
wire.
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In further support of the claimed first substantial
transformation, you point out that the bunched copper wire is
classifiable under heading 7408, HTSUS, while the insulated wire
is classifiable under heading 8544, HTSUS. This change of tariff
treatment is, in your opinion, significant in establishing that the
bunched wire has undergone a substantial transformation in the
process of becoming insulated wire.
In Superior Wire v. United States, 669 F. Supp. 472 (1987),
aff'd, 867 F.2d 1409 (1989), wire rod in coils was shipped to
Canada where it was drawn into wire. The resulting product had
various applications, but was primarily used for concrete sewer
pipe reinforcement. The Court of International Trade found that
the wire rod dictated the final form of the finished wire, and that
wire rod and wire could be viewed as different stages of the same
product. The court noted that while the wire emerged stronger and
rounder after the drawing process, its strength characteristic was
metallurgically predetermined through fabrication of the wire rod.
Thus, the court found no significant change in the use or character
of the wire rod. (See also Headquarters Ruling Letter (HRL)
555705, dated August 26, 1993, where we found that the process of
drawing 14 AWG copper wire into 36 AWG wire (a finer wire) did not
constitute a first substantial transformation; see also HRL 556301,
dated May 4, 1992, which affirmed HRL 555705.)
In the instant case, while the encapsulation process adds
certain qualities to the wire which did not exist prior to such
operation, the essential character of the bunched wire, which is
to conduct electricity, is not changed because of these
enhancements, which are attributable to the insulating material.
Just as the court viewed the wire rod in Superior Wire, we view the
process of producing the insulated wire as a step in the production
of the final product. The fact that the insulated wire and bare
wire may be classified in different headings of the HTSUS is
evidence of a substantial transformation, but is not dispositive
of the issue. Nor, in our opinion, does the additional step of
cutting the wire to length and attaching terminals to create a
single circuit, change the bunched wire's essential character or
create an intermediate article of commerce. (See HRL 555474, dated
January 14, 1993, in which we held that a substantial
transformation occurred in the U.S. where insulated wire of foreign
origin was cut to length and U.S. electrical connectors attached.)
Accordingly, we find that the bunched wire is not a substantially
transformed constituent material of the automobile wiring harness
assembly. Therefore, the cost or value of the bunched wire may not
be used in computing the 35% value-content requirement under the
GSP.
On the other hand, we find that the PVC material which is
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heated and extruded onto the bunched wire is substantially
transformed into a new and distinct intermediate article of
commerce at this stage of the operation since its essential
character has been changed by this process. The PVC compounds
acquire new attributes, and the resulting product (wire insulation)
differs in character and use from the material from which it was
made. (See, e.g., HRL 556462, dated April 24, 1992, U.S. origin
polyethylene resin transformed by injection molding process to
create drainage pipes.) The subsequent steps, as discussed, supra,
result in a second substantial transformation which transforms this
intermediate product into the automotive wiring harness assembly,
a product with a character and use distinct from the extruded PVC
material. Accordingly, the cost or value of the PVC compounds may
be used in computing the 35% value-content requirement under the
GSP.
HOLDING:
Bunched wire exported to Mexico does not undergo a double
substantial transformation in the creation of an automotive wiring
harness assembly. Therefore, the cost or value of the bunched wire
cannot be used in computing the 35% value-content requirement under
the GSP. However, PVC material exported to Mexico does undergo a
double substantial transformation in the production of the
automotive wiring harness assembly, and accordingly, the cost or
value of this material may be used in computing the 35% value-
content requirement of the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division