CLA-02 RR:CR:SM 563086 AL
Category: Classification
Elizabeth J. Vann, Esq.
Law Offices of Elizabeth Janie Vann, P.C.
600 Sunland Park Drive, Suite 2-100
El Paso, Texas 79912
RE: Eligibility of wire harnesses imported from Honduras for duty-free treatment under the Caribbean Basin Economic Recovery Act (“CBERA”)
Dear Ms. Vann:
This is in response to your letter dated July 20, 2004, requesting a ruling on behalf of the Lear Corporation (“Lear”). Specifically, you ask whether wire harnesses from Honduras qualify for duty-free treatment under the CBERA.
FACTS:
According to your submission, Lear’s Honduras affiliate (“Lear Honduras”) operates a manufacturing facility located in Naco, Santa Barbara, Honduras, where it assembles various models of wire harnesses which it sells to its parent company, Lear. You state that Lear imports these wire harnesses into the United States directly from Honduras. The wire harnesses are for use in automotive electrical systems.
Your ruling request states the following manufacturing processes:
A. Manufacture of Insulated Multi-Stranded Cooper Wire
Coils of copper wire and Polyvinyl Chloride (“PVC”) or Cross-Link Polyethelene (“XLPE”) compounds are purchased in pellet form by AFL Automotive Honduras (“AFL Honduras”) from its suppliers. The copper wire and the PVC or XLPE are of U.S. origin. The copper wire and the PVC and XLPE pellets undergo the following processes at AFL Honduras.
Drawing Process: The copper wire having a diameter of 0.007 to 0.3125 inches will be drawn through a series of dies. Each die reduces, compresses and elongates the copper wire while being pulled by rotating capstans. Generally, the copper wire will be reduced approximately 12 percent in diameter at each die section.
Annealing Process: The annealer is a low oxygen-free zone used to eliminate oxygen and prevent the wire from oxidizing at elevated temperatures. The wire is heated by electrical current and then cooled by a water quench. This process relieves the stress caused by the mechanical drawing and restores the copper wire flexibility and makes the wire more ductile than hard copper.
Bunching Process: The wires are twisted with specific geometric patterns with specific twist length. This is to increase the ability of the wire to flex repeatedly without breaking and allow the wire to be used more easily.
PVC Extrusion Process: The reels of multi-stranded copper wire are welded end-to-end to form one continuous length of multi-stranded wire. This wire is then pulled down the production line. PVC pellets are fed into an extruder machine where they are melted. The melted compound is then pumped through a tip and die combination that forms the melted compound around the moving multi-stranded copper wire. The hot wire is cooled by use of a closed loop system of chilled water that is sprayed on the wire in the cooling trough. PVC insulated wire is used in applications where the required temperature range is up to 105°C.
XLPE Extrusion Process: The reels of multi-stranded copper wire are welded end-to-end to form one continuous length. This wire is then pulled down the production line. XLPE pellets are fed into an extruder machine where they are melted. This melted compound is then pumped through a tip and die combination that forms the melted compound around the moving multi-stranded copper wire. After the melted XLPE compound is formed around the stranded copper conductor, it passes into a tube filled with 280 psi steam. After it exits the steam tube, the hot wire is cooled by use of a closed loop system of chilled water that is sprayed on the wire in the cooling trough. XLPE insulated wire is used in applications where the required temperature range is up to 125°C.
Lear Honduras purchases the insulated multi-stranded copper wire from AFL Honduras for the manufacture and assembly of the wire harnesses.
B. Injection Molded Parts Production
Lear Honduras purchases U.S. origin PVC resin pellets (P480 and P460) and processes the resin pellets with electrical circuits manufactured from wire purchased in Honduras to produce various types of injection molded subassemblies (overmolds, socket molds, and connector molds). The raw material pellets are loaded into a hopper of an injection molding machine. As the pellets enter the barrel cylinder of the injection molding machine, they are heated until melted. The melted resin is then injected into a mold form to produce the required parts.
C. Manufacture and Assembly of Wire Harnesses
The wire harnesses are composed primarily of multi-stranded copper wire of varying sizes, colors, lengths, and current-carrying capacities. The harnesses may also include grommets, retainer clips, terminals, covers, rubber seals, spacer wire connectors, relay boxes, PVC-tube, convoluted or smooth tubes, and lamp sockets. Depending on the model, the number of components may vary widely. The number of electrical circuits may vary from a few to several hundred. The assembly of the harnesses involves two stages: pre-assembly and assembly.
At the pre-assembly stage, the insulated multi-stranded wire is first inspected for defects and then cut to a specified length. The insulating vinyl is removed from the ends of the wire and terminals are attached to form a circuit. Depending on the type of harness, further processes may be required, including: manual termination, soldering, molding, splicing and covering.
For circuits that cannot be handled by an automatic cutting machine or where an assembly of one or more components is required prior to termination, a terminal is manually crimped onto the end of the bare copper wire. Connections between the wire and terminal are subsequently soldered together by using the dip solder operation, point solder operation or the injection molding operation. For models that require a molding operation, a molten compound is poured into a metallic mold die to form a socket or connector. A mold is used in place of a hard shell connector when water or moisture sealing is required.
The splicing operation involves joining a group of circuits by welding. Welding is accomplished by either resistance or ultrasonic welding. After welding a splice, the bare weld is covered with a tape cover, heat shrink cover, mastic pad, or a thermoplastic mold.
After the above processing, the wires and components are ready to be assembled into wire harnesses. This process involves a rotating jig which carries the wires past work stations where operators add wires, protectors, grounders, corrugated tubes, rubber tubes, stoppers and other components to the assembly, and tape various sections of the harness.
ISSUES:
Whether the wire harnesses imported from Honduras are eligible for preferential tariff treatment under the CBERA.
LAW and ANALYSIS:
Pursuant to 19 U.S.C. 2701, et. seq., eligible articles the growth, product, or manufacture of a designated beneficiary country (“BC”), which are imported directly to the U.S. from a BC, qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or two or more BCs, plus (2) the direct costs of processing operations performed in a BC or BCs is not less than 35 percent of the appraised value of the article at the time it is entered into the U.S. 19 USC 2703(a)(1). In addition, the cost or value of materials produced in the U.S. may be applied toward the 35 percent value-content minimum in an amount not to exceed 15 percent of the imported article’s appraised value. See 19 CFR 10.195(c).
Pursuant to General Note 7(a) of the Harmonized Tariff Schedule of the United States (“HTSUS”), Honduras is a BC for purposes of the CBERA. Furthermore, you state that the articles from Honduras are classifiable under subheading 8544.30.00, HTSUS. Articles under subheading 8544.30.00, HTSUS are eligible for duty-free treatment under the CBERA. For purposes of this ruling, we will assume this classification is correct. Therefore, the wire harnesses will receive duty-free treatment if they are considered to be the “product of” Honduras, the 35 percent value-content requirement is met, and they are “imported directly” into the United States.
Where an article is produced from materials that are imported into the BC, the article is considered “the growth, product, or manufacture” of the BC, only if the imported materials are substantially transformed there into new and different articles of commerce. See 19 CFR 10.195(a). Moreover, the cost or value of those imported materials may be included in calculating the 35 percent value-content requirement only if they undergo a “double substantial transformation” in the BC. That is, the foreign materials will be considered “materials produced” in Honduras only if they are substantially transformed in Honduras into a new and different intermediate article of commerce, which is then used in Honduras in the production of the wire harnesses. See 19 CFR 10.196(a). A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, or use which differs from that of the original material subjected to the process. Texas Instruments v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).
The Court of Appeals for the Federal Circuit considered the issue of substantial transformation of wire rod in Superior Wire v. United States, 867 F.2d 1409 (Fed. Cir. 1989). In Superior Wire, the appellate court affirmed the Court of International Trade’s conclusion that wire rod that was drawn into wire was not substantially transformed as there was no significant change in use or character. The Court noted that the change in name was the “least persuasive factor and is insufficient by itself to support a holding that there is a substantial transformation.” Superior Wire, 867 F.2d at 1414. Following this reasoning, U.S. Customs and Border Protection (“CBP”) determined in Headquarters Ruling Letter (“HRL”) 555705, dated August 26, 1991, that drawing 14 AWG copper wire into 36 AWG wire did not constitute a substantial transformation.
In general, CBP has held that wire laminating, coating, and encapsulating operations do not result in a substantial transformation. In HRL 557201, dated November 17, 1993, CBP determined that, although encapsulation may enhance the wire, such operations do not change the essential character of bunched wire as a conductor of electricity. However, HRL 557201 did find that the heating and extruding of PVC compounds onto bunched wire resulted in a substantial transformation of the PVC compounds. Furthermore, in HRL 555705, supra, CBP found that the drawing, bunching and twisting, and annealing and encapsulating to insulate the wire strand did constitute a substantial transformation of the wire.
Similarly, in the instant case, the manufacture of the insulated multi-stranded copper wire involves drawing, annealing, bunching, twisting the copper and then encapsulating it by extrusion with a polyvinyl or polyethylene material to produce insulated copper wire. The resulting insulated copper wire has a name, character and use distinct from the coils of copper wire and PVC or XLPE pellets from which it was produced. Consequently, the copper wire, polyvinyl pellets, and polyethylene pellets are substantially transformed by the manufacturing process into products of Honduras.
We further determine that the production of overmolds, socket molds and connector molds is the result of a substantial transformation by injection molding of plastic PVC resin pellets together with electrical circuits. As counsel notes, CBP has previously held that forming synthetic materials into a new shape, either by thermal injection molding or extrusion, constitutes a substantial transformation. In HRL 557403, dated November 22, 1993, CBP found that molding of plastic into a specific shape is considered a substantial transformation.
The second issue is whether the manufacture of wire harnesses from the insulated copper wire and the other components results in a second substantial transformation. The manufacture of the wire harnesses involves cutting the insulated copper wire to specified lengths, stripping a portion of the insulation from the wires, attaching terminals to the end of the wire, forming sockets and connectors by injection molding, splicing groups of circuits, and covering the splice with a protective covering.
CBP has found a substantial transformation in the assembly of wire harnesses in several cases. In HRL 557087, dated July 22, 1993, the pre-assembly stage involved measuring, cutting and stripping the insulating wires. The terminals were then crimped manually. The assembly involved placing the wires on automated jig tables that pass through several workstations where various components were attached. A typical wire harness involved approximately 300 circuits, 300 types of insulated wires and 850 connectors, terminals, and other parts. In 557201, supra, CBP found that the assembly of a wire harness was a substantial transformation. In that case, the insulated wires were cut to length followed by a “precision application of electrical terminals.” The harness assembly involved the complex merger of 500-1500 wires which was accomplished at workstations using a rotary.
In this case, we find that a second substantial transformation results from the assembly of wire harnesses. In previous Generalized System of Preferences (“GSP”) cases concerning the processing of wire, we have noted that in cases where all of the processing is performed in one GSP country, the likelihood that the processing constitutes little more than a “pass-through” operation is diminished. If the entire processing operation performed in the BC is significant, and the intermediate and final articles are distinct articles of commerce, then the double substantial requirement will be satisfied. Such is the case even though the processing required to convert the intermediate article into the final article is relatively simple and standing alone, probably would not be considered a substantial transformation. See, e.g., HRL 557465 (Dec. 10, 1993), and HRL 555532 (Sept. 18, 1990).
In view of the overall processing operations performed in Honduras to produce the wire harnesses, we do not believe that these constitute a minimal, “pass-through” operation that would be disqualified from receiving the benefit under CBERA. Accordingly, the cost or value of the copper wire, polyvinyl pellets, polyethylene pellets, PVC resins and electrical circuits may be included as “materials produced” in the BC for purposes of calculating the 35% value-content requirement for purposes of the CBI.
HOLDING:
Based on the information provided, we determine that the copper wire, polyvinyl pellets, polyethylene pellets, PVC resins and electrical circuits undergo a double substantial transformation in Honduras and therefore, the cost or value of these materials may be included in the calculating the value of the BC content. Furthermore, the wire harnesses, which are “products of” Honduras will be entitled to duty-free treatment under the CBERA, assuming that the 35% value-content and “imported directly” requirements are satisfied.
A copy of this ruling letter should be attached to the entry documents filed at the time the merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Myles B. Harmon, Direction
Commercial Rulings Division