CLA-2 CO:R:C:S 557403 WAS
District Director
U.S. Customs Service
880 Front Street
Room 5-S-9
San Diego, CA 92188
RE: Request for Internal Advice 26/93 on the eligibility of three
medical appliances from Mexico for duty-free treatment under the
GSP; double substantial transformation
Dear Sir:
This is in response to your letter dated March 15, 1993,
forwarding a request for Internal Advice from Sherwood Medical
regarding the eligibility of a urine meter, NS EZ cap set and
silicon foley catheter from Mexico for duty-free treatment under
the Generalized System of Preferences (GSP) (19 U.S.C. 24612466).
Samples of the merchandise were submitted to our office for our
review.
FACTS:
The urine meter is a graduated urinary drainage bag which
includes attachments such as plastic tubing, a catheter adapter and
a valve. It is used to collect and measure the amount of urine
drained from a patient. The urine meter is produced in Mexico as
follows:
1. The meter front, spacer and back are made from purchased rigid
polyvinyl chloride (PVC) sheeting of U.S. origin in a thermoforming
machine; the back piece is die punched and the front piece is hot
stamped with the fluid graduations.
2. Purchased vinyl sheeting of U.S. origin (clear and
white) is cut, and the clear vinyl is printed by
silkscreen, and placed on a conveyor to pass through an
ultraviolet light to dry it.
3.A purchased clear PVC tube is cut in diagonal lengths
to form a drip chamber. Another tube is die punched
through the body to form the burette tube.
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4. All of the components mentioned above, in addition to a
purchased plastic hanger and a filter with its retainer are "R.F.
welded" in four phases, to form a vinyl bag with a rigid meter over
the front face.
5. Once the bag is assembled, a twist valve is assembled with
solvent to a bushing and then to the meter using the same solvent.
6. At another workstation, two purchased plastic shells are
manually assembled to a ring, creating the drain valve. A
purchased latex is assembled to the bag and then the drain valve
to the latex tube.
7. The assembled bag is leak tested by introducing air with a
hose and submerging the bag into water, to check for bubbles.
8. The inlet line is heated and stretched onto one end, and
a vented connector, a PVC bushing, and a latex tube are
assembled to the other end of the tube with solvent.
Then the stretched end of tube is assembled with solvent
to the inlet tube of the assembled bag. Next, the line
is coiled and secured with a self stick paperband. A
punched bedsheet clip with a rubber band is attached to
the inlet line.
9. A purchased protector is assembled to the vented
connector of the urine meter bag.
10. A packaging machine thermoforms trays from purchased
film. The urine meter bag is placed into these trays.
The machine prints the tyvek cover and then seals it to
the clear tray with the meter bag inside.
11. The individual package is labeled with the lot number and
10 units are packed into a shipper carton and identified
with a label located on one corner of the shipper.
Shippers are then palletized, sent to the sterilizer and
distributed according to the schedule requirements.
The importer states that the assembly of the urine meter
into the finished article involves over 20 different steps.
The second article is described as a silicon foley catheter.
This article is a molded silicon catheter with an integrated
balloon. It is used to access the bladder through the urethra.
The rubber balloon is blown up after insertion to help keep the
catheter in place. The silicon foley catheter is produced in
Mexico as follows:
1~
10.
11.
12.
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An uncatalyzed silicone rubber, catalyst, and pigment of U.S.
origin are purchased and are brought into the plant where they
are mixed together at specific ratios to produce compounds for
either molding or extrusion.
These compounds are then either extruded to produce the shaft
of the catheter or molded to form the balloon of the catheter.
The compounds are vulcanized (cured) by passing them through
a high temperature furnace (HAV) in the case of the extrusion,
or having a high temperature on the molds in the case of the
balloon.
The extruded shaft and the molded balloon are further
vulcanized by placing them in a circulating hot air oven where
they are processed at specific temperatures and times.
The shaft is then punched to form the drainage eyes, and
notched to form the balloon inflation notch.
The inflation lumen (small lumen) of the shaft is then plugged
at the punched end with room temperature curing adhesive (RTV)
to prevent air leakage after final manufacturing has been
completed.
The completed shaft is then placed in a mold where the funnel
and tip are formed by injecting pigmented liquid silicone
rubber into the mold cavities which are at a high temperature
and are vulcanized to the shaft.
The assembly is then tested for functional integrity.
Acceptable assemblies are then placed in a fixture where the
previously molded and trimmed balloons are assembled in place
on the shaft.
The assemblies are then placed in a fixture where a room
temperature vulcanizing adhesive is injected around both ends
of the balloon.
The adhesive is then blended down to form a smooth transition
to the shaft.
The assemblies are then removed from the fixture and hung up
on racks to cure at room temperature.
Purchased plastic valve retainer sleeves are hot stamped with
variable information in a machine designed for this purpose.
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13. The printed retainers and purchased valves are assembled to
the catheter assembly, inflated with air, and examined for leakage
and/or non-inflation.
14. The final assembled catheters are then inflated and placed in
a water bath at a controlled temperature and inspected for
functionality.
15. The acceptable catheters are then cleaned and placed in a
packaging machine which assembles a poly sleeve around the
catheter.
16. The poly bagged catheters are then placed in another packaging
machine where the final poly/tyvek packaging of the unit is
completed.
17. The catheters are then sent to a sterilization facility.
After sterilization, the product is shipped to the various
distribution centers in the U.S.
The importer states that the assembly of the silicon foley
catheter involves over 30 assembly steps.
The third article is described as a "NS EZ cap set." It is
a bag with easy cap closure and ice pouch which is used for
dispensing a special nutritional formula directly into the
gastrointestinal track. The article is produced as follows:
1. The lower PVC feeding tube is fed through a machine
where it is cut to length, coiled and taped,
transferred down an assembly line where the purchased
components are assembled (dust cover, red connector,
silicone pump tube, ring magnet, plastic connector)
using solvent to bond the red connector and the plastic
connector to the PVC tube.
2. The upper PVC feeding tube is fed into an automatic
assembly machine where the tube is cut to length, the
pre-assembled drip chamber and bushing are solvent
bonded to the PVC tube, and the clamp body and roller
are assembled.
3. In Mexico, three sheets of vinyl are fed through an RF
welding machine to form the perimeter welds of the
feeding bag.
4. The welded bag is then placed in a silkscreen machine, where
the fluid graduations are silkscreened onto the bags. The bags are
then fed through an ultraviolet curing process to dry the ink.
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.
.
The involves
Bags are then placed in a fixture on a RF welding machine where the
purchased PVC closure cap is welded to the top end of the bag.
The bag assemblies are then placed on an air test conveyor and
inspected for non-leakage.
The acceptable bags are then placed in an assembly/packaging line
where the pre-assembled upper and lower feeding tubes are assembled
to the bag with a solvent. These assemblies are then folded up
with the coiled feeding tube and placed into a pre-printed polybag
along with a purchased patient label.
The polybagged unit is then placed in a sealer where the seal is
completed and the lot number hot stamped onto the polybag.
The sealed polybagged units are then placed in a carton and a label
is affixed onto the end of the carton.
The cartons are then placed on pallets where they are shipped to
the various distribution centers in the U.S.
importer states that the production of the NS EZ cap set over 20
different assembly steps.
ISSUE:
Whether the urine meter, NS EZ cap set and silicon foley
catheter are eligible for duty-free treatment under the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible products, 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 material
produced in a BDC, plus (2) the direct costs involved in processing
the eligible article in the BDC, is not less than 35% of the
appraised value of the article at the time it is entered into the
U.S. See section 10.176(a), Customs Regulations (19 CFR
10.176(a)).
As stated in General Note 3(c)(ii)(A), Harmonized Tariff
Schedule of the United States (HTSUS), Mexico is a designated BDC.
In addition, it appears from your description of the merchandise
that the products at issue are classified under subheadings
9018.90.80, HTSUS, which provides for "[i]nstruments and appliances
used in medical, surgical, dental or veterinary sciences,.
Other instruments and appliances and parts and accessories thereof:
Other," and 9018.39.00, HTSUS, which
provides for "[i]nstruments and appliances used in medical,
surgical, dental or veterinary sciences,. Syringes, needles,
catheters, Other." These subheadings are GSP-eligible
provisions and, therefore, the three medical devices will qualify
for duty-free treatment provided they are "imported directly" from
Mexico to the U.S., are a "product of" Mexico and the 35%
value-content requirement is satisfied.
If an article is produced or assembled from materials which
are imported into the BDC, as in the instant case, the cost or
value of those materials may be counted toward the 35% value-
content requirement 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), all'd, 890 F.2d 1150 (Fed.
Cir. 1989). This means that the cost or value of the imported
plastic and rubber silicone imported into Mexico and used to
produce the three medical devices may be included in the GSP 35%
value-content requirement only if the plastic and rubber silicone
are first substantially transformed into new and different articles
of commerce, which are themselves substantially transformed when
assembled into the final article.
The test for determining whether a substantial transformation
has occurred is whether an article emerges from a process with a
new name, character or use, different from that possessed by the
article prior to processing. See Texas Instruments Inc. v. United
States, 69 CCPA 152,681 F.2d 778 (1982).
Customs has held under certain circumstances that the cutting
of fabric into specific patterns and shapes suitable for use in the
assembly of a completed article is sufficient to substantially
transform the fabric. See Headquarters Ruling Letter (HRL) 731028
dated July 18, 1988 (cutting of fabric into garment parts for
wearing apparel constitutes a substantial transformation), and HRL
555693 dated April 15, 1991 (cutting of fabric to create pattern
pieces for an infant carrier results in a substantial
transformation).
In this case, based on the information provided, we find that
the die cutting of plastic sheets for drainage and feeding bag
components in Mexico is analogous to the cutting of garment parts
for wearing apparel and the cutting of pattern pieces for an infant
carrier. In the instant case, the plastic is cut into various
shapes and sizes suitable for use as drainage or feeding bag
components which, when assembled with other components, create the
finished article. Accordingly, we find that the cutting to shape
of the imported plastic in roll form creates new and different
articles.
Furthermore, with regard to extruding and molding the rubber
silicone in Mexico, Customs has consistently held that molding of
plastic into a specific shape which is then used in the production
of an eligible article is considered a substantial transformation.
See e.g., HRL 055611 dated October 13, 1978 (injection molding of
plastic pellets to form parts of toy pistols constitutes a
substantial transformation); HRL 556646 dated August 6, 1992
(injection molding of plastic pellets to form front piece and two
temple pieces of eyeglass frames constitutes a substantial
transformation). Therefore, the process of extruding the rubber
silicone to form the various components of a silicone foley
catheter (i.e., shaft, balloon), constitutes a substantial
transformation of the imported rubber silicone.
The importer must also demonstrate that the "new and
different" intermediate product is recognized as a separate article
of commerce. An article of commerce is one that is "readily
susceptible of trade, and [is] an item that persons might well wish
to buy and acquire for their own purposes of consumption or
production." Torrington Co. v. United States, 764 F.2d 1563, 3
CAFC 158 (Fed. Cir. 1985). Moreover, an article of commerce is
one that is ready to be put into the stream of commerce, but need
not previously have been actually bought-andsold or traded.
However, "the lack of purchases and sales is nevertheless a factor
to be considered in determining whether a product or merchandise
is an article of commerce." Azteca at 1160.
The court in Torrington found that swage needles were a
separate article of commerce because two large transfers of the
needles had occurred between plaintiff and a subsidiary. In
Azteca, however, the court held that the intermediate products were
not separate articles of commerce. The court concluded that the
intermediate products were not readily marketable since they were
only "materials in process, advancing toward the finished product."
AZteca at 1160.
In the present case, the importer has not provided any
evidence to show that the individual drainage and feeding bag
components used in the production of the finished bags were
articles of commerce. The importer provided evidence that there
is a market for the completed bags. We have not received any
information regarding either sales of the drainage and feeding bag
components at issue in this case or sales of the functional
equivalent of the bag components. Nor did the importer show that
the bag components were "readily susceptible of trade," or
possessed any potential for commercial sales. Torrington at 1570.
Therefore, based on the information presented, we must conclude
that the importer has failed to show that the drainage and feeding
bag components used in the production of the bags for
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the urine meter and NS EZ cap set were substantially transformed
into new and different articles of commerce.
However, the importer has provided evidence of sales of the
extruded rubber silicone tube in the form of an invoice. We have
previously stated that extruding the rubber silicone material into
the shape of a balloon or shaft for use in the silicone foley
catheter results in a substantial transformation of the imported
material. We also believe that extruding the rubber silicone
results in the creation of an intermediate article which is
recognized as a separate and distinct article of commerce.
The next issue to be addressed is whether the assembly of the
substantially transformed rubber catheter shaft and balloon with
other components results in a second substantial transformation of
the U.S.-origin rubber silicone material, so that the cost or value
of this material may be counted toward the 35% value-content
requirement for purposes of the GSP.
We have consistently held that, for purposes of the GSP, an
assembly process will not work a substantial transformation unless
the operation is "complex and meaningful." See C.S.D. 8525, 19 Cust.
Bull. 544 (1985). Whether an operation is complex and meaningful
depends on the nature of the operation. In making this
determination, we consider the time, cost, and skill involved, the
number of components assembled, the number of different operations,
attention to detail and quality control, as well as the benefit
accruing to the beneficiary developing country (BDC) as a result of
the employment opportunities generated by the manufacturing process.
In determining whether the combining operation performed in
Mexico constitutes a substantial transformation, section 10.195(a),
Customs Regulations (19 CFR 10.195(a)), also is relevant. According
to 19 CFR 10.195(a), which implements the Caribbean Basin Economic
Recovery Act (CBERA), no article shall be considered to have been
produced in a CBERA beneficiary country by virtue of having merely
undergone simple, as opposed to complex or meaningful, combining or
packaging operations. However, 19 CFR 10.195(a)(2)(ii)(D) provides
that this exclusion 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)
This regulation is instructive here inasmuch as the CBERA and GSP
programs have similar statutory aims, and the country of origin
criteria of the statutes are nearly identical.
We are of the opinion that the rubber silicone imported into
Mexico and used in the production of the silicone foley catheter
may be counted toward the 35% value-content requirement under the
GSP. Based on invoices submitted by the importer showing actual
sales of the extruded rubber components, we believe that these
articles constitute "new and different articles of commerce" from
the rubber silicone from which they are made. See Azteca Milling
at 1160. In view of the fact that the catheter shaft and balloon
in the silicone foley catheter are fabricated in Mexico from the
rubber silicone, we believe that the operations described above to
produce the finished silicone foley catheter constitute more than
a simple combining operation as set forth in 19 CFR 10.195(a).
We find that the assembly of the catheter balloon and shaft with
other materials in Mexico to create the finished article results
in new and different articles and constitutes a second substantial
transformation of the rubber silicone material imported into
Mexico.
We are also of the opinion that with the exception of the
rubber silicon, the various other U.S. components (i.e., tubes,
connectors, valves, etc.), which are sent to Mexico as already
completed components for assembly with the drainage and feeding bag
and catheter shaft and balloon in the production of the finished
articles do not undergo a double substantial transformation. The
importer has not shown that these components are first
substantially transformed into a new and different intermediate
article of commerce which is itself substantially transformed into
a new and different article.
In regard to the 35% value-content requirement, the importer
claims that more than 35% of the appraised value of the articles
is attributable to materials produced in Mexico plus the direct
costs of processing operations incurred in Mexico. We are of the
opinion that the entire cost of any Mexican-origin raw materials
used in the production of the drainage bag may be included in the
value-content calculation as they are considered "materials
produced" in a BDC or countries. See section 10.176(c), Customs
Regulations (19 CFR 10.176(c)). The cost or value of the U.S.-
origin PVC material which is used in the production of the drainage
and feeding bags for the urine meter and NS EZ cap set may not be
counted toward the 35% calculation, as the PVC has not undergone
the requisite double substantial transformation in Mexico.
However, the U.S.-origin rubber silicone material used in the
production of the shaft and balloon for the silicone foley catheter
may be counted toward the 35% calculation, as the rubber silicone
has undergone a double substantial transformation. In addition,
for all three of the medical devices, the direct costs of
processing incurred in Mexico to produce the final articles may be
applied toward the 35% value-content requirement. See section
10.178(a), Customs Regulations (19 CFR 10.178(a)), for those items
includable in the direct costs of processing operations.
Therefore, as the "product of" requirement has been
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satisfied for each of the three medical devices, provided that they
satisfy the 35% value-content requirement by the means prescribed
above, the merchandise is entitled to duty-free treatment under the
GSP.
Based on the information provided, it is our opinion that the
rubber silicone imported into Mexico will undergo the requisite
double substantial transformation when manufactured into parts of
the silicone foley catheter. Therefore, the cost or value of the
U.S.-origin rubber silicone may be counted toward the 35%
value-content requirement for purposes of the GSP. However, the
U.S.-origin PVC material has undergone a single substantial
transformation in Mexico, and therefore, the cost or value of the
PVC may not be included in the 35% value-content requirement for
purposes of the GSP. Accordingly the urine meter, NS EZ cap set
and silicone foley catheter is entitled to duty-free treatment
under the GSP, provided the 35% value-content requirement is met.
Sincerely,
John Durant, Director
Commercial Rulings Division