CLA-2 CO:R:CV:V 555338 BJO
Kevin J. Mullin, Esq.
6845 Elm Street
Suite 305
McLean, Virginia 22101
RE: CBI Duty-Free Entry of Wooden Doors and Door Frames
Dear Mr. Mullin:
This is in response to your letter of March 13 and June 28,
1989, in which you request a ruling that solid wooden doors and
door frames produced in Costa Rica are entitled to duty-free
treatment under the Caribbean Basin Economic Recovery Act
(CBERA)(19 U.S.C. 2701-2706).
FACTS:
The wooden doors and door frames will be made in Costa Rica
from lumber imported from either the U.S., Guyana, or Honduras,
or will be made from wood logs imported from Nicaragua. The
lumber imported from Guyana or Honduras will be produced from
logs grown in those countries. You describe the lumber imported
from those countries and the U.S. as "shop-grade boards" in
rough, unfinished condition, measuring two by six, two by eight,
and two by ten feet, and in random lengths ranging from eight to
24 feet. If the doors are made from logs imported from
Nicaragua, then the logs will first be cut into lumber in Costa
Rica. The lumber, whether produced from the Nicaraguan logs, or
imported from the U.S., Guyana, or Honduras, will be dried in a
wood kiln before processing into doors.
The lumber will be cut and shaped into doors and door frames
in the style of "entrance doors," "louvered doors," and "French
doors." Some doors will be carved with decorative designs, and
some doors and door frames will be grooved using special wood
working machines. The doors and frames will then be sanded,
glued, stained, and processed in
condition (the French doors, however, will be fitted for glass
panels in the U.S.). The doors will be loosely fitted into their
frames, and shipped directly to the U.S.
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You state that the importer will pay the Costa Rican
manufacturer $50 per door if the lumber is produced in the U.S.,
$47 per door if the lumber is produced in Guyana or Honduras,
and $44 per door is the lumber is produced in Costa Rica from
Nicaraguan grown logs. You further state that the direct costs
of processing the doors and door frames in Costa Rica are
estimated as follows (Nicaragua lumber cost includes cost of
cutting the Nicaraguan-grown logs into lumber in Costa Rica):
U.S. Guyana/Honduras Nicaragua
Lumber $16.00 $14.00 $14.00
Transportation to
Costa Rica $4.00 $3.00 $0
Transportation w/in
Costa Rica $2.00 $2.00 $2.00
Drying Lumber $5.00 $5.00 $5.00
Cutting/Shaping/
Sanding/Finishing $7.00 $7.00 $7.00
$34.00 $31.00 $28.00
ISSUE:
Whether solid wooden doors and door frames made in Costa
Rica from lumber imported from the U.S., Guyana, or Honduras, or
from logs imported from Nicaragua, may receive duty-free
treatment under the CBERA when imported into the U.S.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product or
manufacture of designated beneficiary countries (BC's) may
receive duty-free treatment if such articles are imported
directly to the U.S. from a BC, and if the sum of 1) the cost or
value of the materials produced in a BC or BC's, plus 2) the
direct cost of processing operations performed in a BC or BC's,
is not less than 35% of the appraised value of the article at the
time it is entered into the U.S. See 19 U.S.C. 2703(a). The
CBERA further provides that the cost or value of materials
produced in the customs territory of the U.S. may be applied
toward the 35% value-content minimum, in an amount not to exceed
15% of the imported article's appraised value.
Costa Rica, Honduras, and Guyana are BC's. Wooden doors and
frames, which are classifiable for tariff purposes under
subheading 4418.20.00, Harmonized Tariff Schedule of the United
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States (HTSUS) ("Builders' joinery and carpentry of wood,
including cellular wood panels and assembled parquet panels;
shingles and shakes: Doors and their frames and thresholds."),
are CBERA eligible. You state that the articles will be imported
directly from Costa Rica to the U.S. Accordingly, if the doors
and frames are a product of Costa Rica (or other BC or BC's) and
the 35% value-content minimum is met, the doors and frames will
be entitled to duty-free under CBERA.
You state that the costs directly incurred in the drying,
cutting, shaping, sanding, and finishing the lumber for each door
and door frame will be $13, which, in all cases, is equivalent
to approximately 25% of the estimated appraised value of the
finished articles. Because these costs are direct costs of the
processing operation, as that phrase is defined at 19 CFR 10.197,
they may be included toward the 35% value-content minimum.
The material costs, which includes cost of transporting
materials to the Costa Rican manufacturer, see 19 CFR 10. 196(c),
of those doors and frames made from lumber imported from Guyana
or Honduras, where the lumber was produced from logs grown in
those countries, will be wholly attributable to a BC or BC's, and
will exceed 35% of the doors and frames estimated appraised
value. Because such doors and frames are processed entirely in a
BC or BC's, they are necessarily a product of a BC or BC's.
Accordingly, the doors and frames made from lumber from Guyana or
Honduras will receive duty-free treatment under the CBERA upon
entry to the U.S.
The doors and frames produced from Nicaraguan logs will
also receive duty-free treatment upon entry to the U.S.
Materials grown or produced in a non-BC, such as Nicaragua, which
are substantially transformed in any BC into a new and different
article of commerce which is then used in any BC in the
production of a new or different article, are considered
materials produced in a BC, and the cost or value of the
substantially transformed materials may be counted toward the 35%
value-content minimum. A substantial transformation occurs when
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).
The logs imported into Costa Rica from Nicaragua undergo
this double substantial transformation. The logs are first
substantially transformed into lumber of specific dimensions,
which has a different name, character, and use than that
possessed by the logs. See HQ 554649, dated July 15, 1987
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(Spruce and hemlock in log form which are cut into two by fours
or two by sixes, trimmed, edged, planed, and chemically treated
or kiln dried are substantially transformed for CBERA purposes).
The lumber itself is substantially transformed in Costa Rica when
it is cut and shaped to create doors and door frames, which are
distinct articles of commerce with a completely new and different
name, character, and use. See Internal Advice 21-76, dated March
31, 1976 (Processing boards of lumber in random widths and
lengths into wood doors is a substantial transformation for
purposes of the Generalized System of Preferences). Accordingly,
the cost or value of the lumber, produced in Costa Rica from
Nicaraguan logs, may be counted toward the 35% value-content
requirement. Because the value of the lumber, in addition to the
direct processing costs incurred in producing the doors from the
lumber, exceeds 35% of the appraised value of the finished
articles, the doors and frames produced from Nicaraguan logs may
be entered duty-free under CBERA.
Finally, as stated above, the cost or value of U.S. origin
materials used in the production of the eligible article may be
applied toward the 35% value-content requirement in an amount not
to exceed 15% of the article's appraised value. The cost or
value of the U.S. produced lumber, which you state is equivalent
to 32% of the appraised value of the doors and frames, may
therefore be counted toward the 35% value-content minimum,
subject to the 15% cap on U.S. origin materials. Because that
material cost in addition to the direct processing cost exceeds
35% of the estimated appraised value, and, as in the case of the
processing of the Nicaraguan logs, the U.S. lumber is
substantially transformed into a product of Costa Rica when
converted to doors and frames, the doors and frames produced in
Costa Rica from U.S. origin lumber will also receive duty-free
treatment under the CBERA.
CONCLUSION:
Solid wooden doors and frames produced in Costa Rica as
described above from lumber imported from the U.S., Guyana, or
Honduras, or from logs imported from Nicaragua, may be entered
duty-free under the CBERA.
Sincerely,
John Durant, Director
Commercial Rulings Division