CLA-2 CO:R:C:V 555060 DBI
John Scanlon, Jr., Esq.
Kemp, Smith, Duncan and Hammond
Post Office Drawer 2800
El Paso, Texas 79999-2800
RE: Eligibility of ophthalmic plastic lenses manufactured in
Mexico for treatment under the GSP
Dear Mr. Scanlon:
This is in response to your letter of May 31, 1988 (JS No.
88-0369), seeking, on behalf of Silor Optical of Florida, Inc., a
reconsideration of the eligibility of certain ophthalmic plastic
lenses for treatment under the General System of Preferences
(GSP).
FACTS:
Your letters of January 14, 1986 and May 31, 1988, describe
a two step process for the manufacture of ophthalmic lenses. In
a meeting on February 7, 1988, with members of my staff and the
Technical Branch, you submitted additional facts and documents.
The following is a description of all the facts presented on this
issue.
In the first manufacturing step in Mexico, two U.S. origin
chemicals are reacted to form a polymerized mixture termed an
"initiated concentrate." The two reactants are diethylene glycol
bis (allyl carbonate) and isopropyl peroxydicarbonate. The trade
names for these chemicals are CR-39TM and IPPTM respectively.
CR-39TM serves as the monomer for the polymerization reaction
and the IPPTM is a free radical initiator. An important
property of a free radical initiator is that it is, by nature and
design, highly reactive.
In Mexico, the CR-39TM and the IPPTM are mixed and
begin to polymerize. When polymerization reaches a specific
point the reaction is halted. A major reason for stopping the
process at this point is that the partially polymerized product
is more stable than the highly reactive IPPTM. This initiated
concentrate and others like it, such as TRIGONOX ADC-NS60, have a
commercial identity since many lens manufacturers do not desire
to handle highly reactive initiators such as IPPTM. In the
meeting, invoices and sales literature were presented as proof
that the initiated concentrate is sold in the trade as an
independent entity.
-2-
In the second manufacturing step in Mexico, the initiated
concentrate is formed into the ophthalmic lenses and/or lens
blanks. This is accomplished by restarting the reaction in step
one using an external influence such as heat. The lenses are
then shipped to the U.S.
ISSUE:
Whether the operations performed in Mexico result in a dual
substantial transformation, thereby enabling the cost or value of
the constituent material to be counted toward the 35 percent
value-content requirement for purposes of the GSP.
LAW AND ANALYSIS:
An article imported directly from a beneficiary developing
country (BDC) may qualify for duty-free entry under the GSP only
if it meets the country of origin criterion set forth in section
10.176(a), Customs Regulations (19 CFR 10.176(a)). This
criterion provides that an article must be the growth, product,
manufacture, or assembly of the BDC. In other words, the article
must either be wholly the growth, product, or manufacture of a
BDC, or it must have undergone a substantial transformation in
the BDC so as to make it a product of the BDC. In addition, the
sum of the cost or value of the materials produced in the BDC,
plus the direct costs of processing operations performed in the
BDC, must not be less than 35 percent of the appraised value of
the imported article.
Section 10.177(a), Customs Regulations (19 CFR 10.177(a)),
provides that the words "produced in the beneficiary developing
country" refer to the constituent materials of which the eligible
article is composed which are either: (1) wholly the growth,
product, or manufacture of the BDC: or (2) substantially
transformed in the BDC into a new and different article of
commerce. In the case of materials imported into a BDC, the cost
or value of those materials may be counted towards the 35 percent
requirement only if the imported material is first substantially
transformed into a new and different intermediate article of
commerce which is then used in the BDC in the production of the
final imported article.
In our original ruling on this matter dated May 15, 1986
(HQ 554084), we stated that the mere mixing of CR-39TM and
IPPTM did not result in a substantial transformation.
-3-
We reasoned that the mixing constituted only a dilution, that
there was no substantial process involved and that no new and
different article was produced. We found that the mixing of CR-
39TM and IPPTM did not bring about the acquisition of a new
chemical character or quality that was beyond the essence or
identity of the original components. Rather, the mixing was
found to be one step of a continuous process, all of which was
dedicated only to the production of hard resin ophthalmic lenses.
After careful consideration of this matter, we are of the
opinion that a double substantial transformation occurs in Mexico
during the production of the ophthalmic lenses.
The issue in this case involves the difference in two
chemicals associated by a chemical reaction versus their
association as a solution. A basic principle of chemistry is
that a reaction has occurred if the two reactants no longer
possess the physical and chemical characteristics they possessed
prior to the reaction.
The chemicals involved in this case begin to polymerize
when mixed. Polymerization is defined by the Condensed Chemical
Dictionary, 10th Edition as:
"A chemical reaction ... in which a large number of
relatively simple molecules combine to form a chain-like
macromolecule."
The same source goes on to say that:
"This [polymerization] may occur by addition, in which free
radicals are the initiating agents that react with the
double bond of the monomer by adding to it on one side, at
the same time producing a new free electron on the other
... By this mechanism the chain become self-propagating."
This type of reaction is occurring in the processing
performed by your client in Mexico. It is our opinion that this
process involves a true chemical reaction and is not a dilution.
The process is irreversible and the initial reactants cannot be
recovered. Therefore, the CR-39TM the IPPTM have been
substantially transformed into the initiated concentrate which is
a new and different article of commerce.
-4-
Regarding the second step in the manufacturing process, we
are of the opinion that a second substantial transformation
occurs. The initiated concentrate is poured into a proper mold
and the temperature is raised resulting in the completion of the
polymerization process. The end product is a thermosetting
plastic. This type of plastic, once molded, cannot be recast
into a different article. It can be shaved to fit a particular
holder or ground to a particular prescription, but it cannot be
remelted to make any other product once it is cast into an
ophthalmic lens. The process is irreversible.
Therefore, it is our opinion that the manufacturing of the
initiated concentrate into ophthalmic lenses constitutes a second
substantial transformation. The completion of the polymerization
process changes the character of the constituent material
(initiated concentrate) enabling to become ophthalmic lenses.
Ophthalmic lenses are separate articles of commerce that
manufacturers wish to buy and sell for their own purposes. As a
result of the second step of manufacture, a finished product
emerges with a separate identity and, therefore, is a new article
of commerce.
Finally, these processes are not the type of "pass-through"
operations which Congress intended to prohibit from receiving GSP
benefits. "Keep[ing] in mind the GSP's fundamental purpose of
fostering industrialization in beneficiary developing countries,"
we believe that the operations performed in this instance are the
type of substantial operations contemplated by the GSP. See
Torrington v. United States, 8 CIT 150, 596 F.Supp. 1083 (1984),
aff'd 764 F.2d 1563 (1985).
HOLDING:
Based on the information submitted, we find your additional
arguments to be sufficient to reverse our prior ruling of May 15,
1986. The cost or value of the constituent material (initiated
concentrate) may be counted toward satisfying the GSP 35 percent
value-content requirement.
Sincerely,
John Durant
Director, Commercial
Rulings Division