CLA-2 CO:R:C:S 557331 BLS
District Director of Customs
U.S. Customs Service
Lincoln Juarez Bridge, Bldg #2
Laredo, Texas 78044-3130
RE: I.A. 31/93; Eligibility of coffeemaker for duty-free
treatment under GSP; Reconsideration of HRL 063914;
shelter fee
Dear Sir:
This is in reference to your letter dated April 16, 1993,
requesting internal advice regarding the eligibility of a
coffeemaker imported from Mexico for duty-free treatment under the
Generalized System of Preferences (GSP). A second issue involves
the dutiability of a "shelter fee" included in the invoice price
to the purchaser.
FACTS:
Plastic pellets of U.S. origin are sent to Mexico to be molded
into coffeemaker components which are assembled with other
materials in creating the coffeemaker. The molded components are
the shell, base assembly, base bottom, carafe cover, and cover
(shell). These components are then assembled with the other
materials, also of U.S. origin, as follows:
A) Heating Element Assembly
1. Weld thermal limiter to thermostat.
2. Assemble thermostat assembly to heating element with
spring. Use fixture No. EA-1 to ensure proper location.
3. Dip ends of tubes in safflower oil and slide over ends of
element water tube. Use fixture No. EA-1.
4. Weld thermal liter to element terminal.
B) Switch Assembly
1. Insert switch into hole in base assembly. Slide two
gaskets over projections on shell. Place base assembly
on shell.
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2. Assemble base to shell with three screws using power
screwdriver.
3. Drop ball valve into outlet tube on shell. Place gasket
in groove in insulating ring. Place warming tray over
gasket with raised outer ring toward gasket.
Use support fixture SS-1.
4. Dip short ends of manifold in safflower oil and place in
MA-1 fixture. Assemble heating element assembly to
manifold by pushing tubes over projections on manifold.
Dip long end of manifold in safflower oil and assemble to
shell by pushing down over projections. Use support
fixture MA-2.
5. Center element on warming tray. Place support spring
over element and assemble with four screws. Use power
screwdriver and support fixture SS-1.
6. Assemble wire lead to thermostat and to terminal No. 1 on
switch with push-on connections. Assemble wire lead to
element and to terminal No. 3 on switch.
7. Place base bottom on fixture and hot stamp model number
and date. Insert cord in retainer in base bottom and
press into place.
8. Attach smooth cord lead to terminal No. 2 and ribbed cord
lead to piggy-back terminal on switch. Check all wiring
for proper clearances. Snap base bottom in place and
attach with two screws and support fixture SS-1.
9. Check hoses with air pressure test fixture.
10. Place unit on electrical test fixture and plug in. Test
for accidental ground and electrical continuity.
11. Assemble handle, handle band, and screw to glass carafe
using power screwdriver and assembly fixture CH-1.
Handle must be directly opposite pouring spout. Diecut
pad and place over carafe. Place carafe cover on carafe.
12. Put spout and literature inside tank. Slip over unit.
Place pad on warming tray and set carafe assembly on pad.
13. Glue carton label to blank panel of carton. Stamp date
code on carton.
14. Set-up carton and tape bottom flaps.
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15. Pack unit in carton. Slide shell cover in place beside
carafe with front edge of cover downward. Place pad on
carafe and basket on pad. Wrap cord around basket.
16. Close top of carton and tape.
17. Pack four units per master carton.
The seller and the importer have contracted to have the
coffeemakers assembled at a cost of $0.39 per unit. The total cost
is accounted for by the seller as follows:
Labor cost: .13/unit
Assist cost: .13/unit
Shelter fee: .13/unit
The seller claims that the $0.13/unit "shelter fee" is an
administrative expense incurred in the U.S. and not an expense
incurred abroad as part of the assembly process, and that this fee
is not part of the appraised value of the imported merchandise.
According to the concerned import specialist, the imported
merchandise is being appraised on the basis of transaction value.
Your office takes the position that the "shelter fee" is part of
the appraised value of the imported merchandise,and that the
"shelter fee" qualifies as a selling commission as defined in 19
CFR 152.103(b)(ii).
ISSUES:
1) Whether the molded plastic components produced from U.S.
origin material are considered constituent materials of the
completed coffeemaker, for purposes of determining whether the
imported article satisfies the 35% value-content requirement under
the GSP.
2) Whether the "shelter fee" paid to the seller is included
in the transaction value of the imported merchandise.
LAW AND ANALYSIS:
1) GSP
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 operations in the BDC, is equivalent to at
least 35 percent of the appraised value of the article at the time
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of entry. See, 19 U.S.C. 2463(b).
Mexico is a designated BDC. See, General Note 3(c)(ii)(A),
HTSUS. In addition, it appears from a description of the
merchandise that the articles in question are classified under
subheadheading 8516.71.0020, HTSUS, "Other electrothermic
appliances, Coffeemakers, Automatic drip and pump type", 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).
We have consistently held that products created by a thermal
injection molding process have undergone a substantial
transformation. See, Headquarters Ruling Letter (HRL) 071518,
dated November 8, 1984, HRL 071534, dated July 19, 1984, and HRL
555659, dated December 3, 1990 (molded plastic parts, such as
handles, folding hinges, and folding clips are different articles
from the plastic resins from which they are made). Accordingly,
the molded plastic coffeemaker components have undergone a
substantial transformation. The issue which now must be addressed
is whether such components undergo a second substantial
transformation and become constituent materials of the completed
coffeemaker.
In this regard, you believe that the subsequent processes
which involve assembly of the molded parts to the other materials
to create the finished article are minor operations and do not
qualify as a second substantial transformation. You advise that
HRL 063914, dated August 15, 1980, ruled in favor of the importer
on a similar issue, and you request that we reconsider that ruling.
We held in that case that the plastic components produced by a
thermoplastic injection molding process from polypropylene pellets
were considered Mexican constituent components of the coffeemaker
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for GSP purposes, and that accordingly their cost was includible
in computing the 35% value-content requirement.
In the instant case, the operations performed after the
molding process, to complete the coffeemaker, which include
welding, screwing, and force fitting, are clearly processes of
assembly. However, in this regard, we find the principle as
enunciated by the court in Texas Instruments v. United States, 681
F.2d 778 (Fed. Cir. 1982), to be relevant. In that case, the court
pointed out that 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 product
is relatively simple and by itself, would not be considered a
substantial transformation. See HRL 071620 dated December 24, 1984
(in view of the overall processing in the BDC, 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).
As applied to this case, while the assembly of the coffeemaker
does not appear to be exceedingly complex, we do not believe that
the overall processing necessary to create the completed article
is the type of simple or minimal "pass-through" operation that
should be disqualified from receiving GSP benefits. See C.S.D. 85-
25; HRL 071620. See also HRL 555921 dated June 17, 1991 (a
substantially transformed PCBA is subjected to a second substantial
transformation by final assembly with a plastic housing, cathode
ray tube, harnesses, and other parts to create a computer
terminal).
In determining whether the combining of parts or materials
constitutes a substantial transformation, the primary consideration
is whether a new and different article of commerce with a distinct
name, character, and use results from the operations which
constitute the final assembly. In this regard, the ultimate use
and essential character of the final article, the coffeemaker, is
not determined until completion of the assembly process. It is
further noted that the cost of assembly constitutes approximately
35% of the cost of the operations performed in Mexico, a not
insignificant sum which also reflects that this process is not
merely a "pass-through" operation.
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2) Shelter Fee
The preferred method of appraisement is transaction value
which is defined by section 402(b)(1) of the Tariff Act of 1930,
as amended by the Trade Agreements Act of 1979 (TAA, 19 U.S.C.
1401a(b)) as "the price actually paid or payable for the
merchandise when sold for exportation to the United States..."
plus certain additions specified in section 402(b)(1)(A) through
(E). The term "actually paid or payable" is defined in TAA section
402(b)(A) as:
...the total payment (whether direct or indirect...)
made, or to be made, for imported merchandise by the
buyer to, or for the benefit of, the seller.
It is the position of the Customs Service that all monies paid
to the seller, or a party related to the seller, are part of the
price actually paid or payable for the merchandise under
transaction value. See e.g., Generra Sportswear Co. v. United
States, 905 F.2d 377 (Fed. Cir. 1990); HRL 544640 dated April 26,
1991. Consequently, the payments made to the seller for the
assembly services provided by the assembler are part of the price
actually paid or payable.
As we find that the "shelter fee" is part of the price
actually paid or payable for the merchandise and there is no
authority to take it out, we do not reach the question of whether
the "shelter fee" is a selling commission.
HOLDING:
1) The molded coffeemaker components are substantially
transformed constituent components of the coffeemaker into which
such components are incorporated. Therefore, the cost of these
components may be included in the 35% value-content calculation
under the GSP for purposes of determining whether the imported
coffeemaker will be entitled to duty-free treatment under that
provision.
2) The "shelter fee" included in the unit price of the
imported merchandise is part of the price actually paid or payable
for the imported merchandise, and is therefore included in the
transaction value of the merchandise.
Sincerely,
John Durant, Director
Commercial Rulings Division