CLA-2 RR:TC:SM 560747 BLS
Ms. Donna Scholler
Ka-Sha' Customhouse Broker
7550 23rd Avenue S.
Minneapolis, MN 55450
RE: Eligibilty of Atrazine Technical for duty-free treatment
under the GSP; double substantial
transformation; 35% value-content requirement; T.D. 77-273;
Torrington
Dear Ms. Scholler:
This is in reference to your letters dated November 13
and14, 1997, on behalf of Sanachem Ltd., requesting a ruling as
to whether the product known as Atrazine Technical is eligible
for duty-free treatment under the Generalized System of
Preferences (GSP).
FACTS:
Certain raw materials are imported into South Africa from
Germany to be processed. It appears that these raw materials
comprise about 70 percent of the final product. The completed
product, Atrazine Technical, is then imported into the U.S.
Based on the description of the processing and flow sheet
submitted with your request, water methyl isobutyl ketone,
cyanuric chloride, isopropyl amine and caustic soda are reacted
to form the "reaction mass." This "reaction mass" is cooled and
transferred to a second reaction vessel where it is further
reacted with monoethylamine and caustic soda to produce crude
atrazine. The crude atrazine is washed, dried, milled and packed
to form Atrazine, technical grade ("Atrazine Technical").
ISSUE:
Whether the production of Atrazine Technical results in a
double substantial transformation for purposes of including the
cost or value of the materials imported into South Africa in the
35% value-content requirement under the GSP.
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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 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 operation in the BDC, is
equivalent to at least 35% of the appraised value of the article
at the time of entry. See 19 U.S.C. 2463(b).
South Africa is a BDC. See General Note 4, Harmonized
Tariff Schedule of the United States (HTSUS). Based on a prior
Customs ruling submitted with your request, the imported article
is classifiable under subheading 2933.69.6020, Harmonized Tariff
Schedule of the United States (HTSUS), which provides for
"Heterocyclic compounds with nitrogen hetero-atoms(s) only:
Compounds containing an infused triazine ring (whether or not
hydrogenated) in the structure: Other: Other: Pesticides," a GSP
eligible provision. See NY Ruling B89352 dated October 2, 1997.
Where an article is produced from materials imported into a
BDC from non-BDC's, the article is considered a "product of" the
BDC only if those materials are substantially transformed into a
new or different article of commerce. See section 10.195(a),
Customs Regulations (19 CFR 10.195(a)). In addition, if an
article is comprised of materials that are imported into the BDC,
the cost or value of those materials may be included in
calculating the 35% value-content requirement only if they
undergo a "double substantial transformation" in the BDC. See 19
CFR 10.196(a). Azteca Milling Co. V. United States, 703 F. Supp.
949 (CIT 1988), aff'd 890 F.2d 1150 (Fed. Cir. 1989). That is,
the German-origin materials must be substantially transformed in
South Africa into a new and different intermediate article of
commerce, which is then used in the production of the final
article which is yet another new and different article.
See Torrington Co. v. United States, 8 CIT 150, 596 F. Supp. 1083
(1984), aff'd,
764 F. 2d 1563 (Fed. Cir. 1985). Torrington has been limited to
the specific factual situation found therein. See T.D. 86-7, 20
Cust. Bull. (1986).
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).
In Torrington, the appellate court cited with approval T.D.
77-273, 11 Cust. Bull. 557 (1977), where the Government held that
the dual substantial transformation standard was not satisfied
with the production of dichloro, an intermediate step in the
production
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of Technical Atrazine. Even though the dichloro differed
chemically from the constituent articles from which it was made
and the final article, it was not considered an article of
commerce, since the process used to manufacture the atrazine was
a continuous one, and thus, the dichloro was not generally bought
and sold. In that situation, we noted that the dichloro
resulting from the first step of the manufacturing process would
have to be refined to make shipping practicable.
In the instant case, the processing in South Africa results
in chemical reactions which change the involved materials, having
a wide variety of uses, into an article (Atrazine Technical)
suited for specific purposes. This product, used as a herbicide,
is an article with a new name, character and use when compared to
the materials used in its production. Therefore, we find that
the materials imported from Germany and used in the processing of
the Atrazine Technical undergo a substantial transformation into
a "product of" South Africa. The question now to be resolved is
whether, for purposes of the 35% value-content requirement, the
same materials undergo a "double substantial transformation,"
i.e., they are substantially transformed into a separate and
distinct intermediate article of commerce which is then used in
the production of Atrazine Technical, the completed product.
As described in the attachments to the submission, the
process occurring in South Africa is a simple organic synthesis
consisting of two reaction steps and a "clean up " process. Once
the original reactants, i.e., water, cyanuric chloride, ...., are
blended and have begun to react, the reaction must, from an
engineering point of view continue until the Atrazine Technical
is formed. As in T.D. 77-273, supra, there is no logical
stopping place during the synthesis, as the process used to
produce the final article is continuous. Further, no
information or evidence has been provided which indicates that an
intermediate product emerges from the operations in South Africa
that can be separately bought and sold or is ready to be marketed
as such.
Therefore, it is our opinion that the production of the
Atrazine Technical in South Africa constitutes a continuous
manufacturing process resulting in the creation of only one
separately identifiable article of commerce which is the article
imported into the U.S. Accordingly, as the materials imported
into South Africa undergo only one substantial transformation,
the cost or value of those materials may not be included in
calculating the 35% value-content requirement.
HOLDING:
The production of Atrazine Technical in South Africa
constitutes a single substantial transformation. As a result,
the cost or value of the materials imported into South Africa
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for purposes of producing Atrazine Technical cannot be included
in determining the 35% value-content requirement under the GSP.
A copy of this letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction.
Sincerely,
John Durant,
Director
Commercial
Rulings Division