CLA-2 CO:R:C:S 555705 SER
Leslie A. Glick, Esq.
Porter, Wright, Morris & Arthur
1233 20th Street, N.W.
Washington, D.C. 20036-2395
RE: Eligibility under GSP of copper wire from Mexico; 554246;
Superior Wire v. U.S.; Belcrest Linens v. U.S.
Dear Mr. Glick:
This is in reference to your letters of July 27, 1990, March
8, 1991, and March 14, 1991, on behalf of ACS Industries, Inc.
(ACS), concerning the eligibility for duty-free treatment under
the Generalized System of Preferences (GSP) of certain copper
wires from Mexico.
FACTS:
You state that 14 AWG (American Wire Gauge)(.064 inch in
diameter), soft bare copper wire is imported into Mexico where it
undergoes a multi-step drawing process. The wire is reduced by
more than 75% of the original wire product into a finer wire (36
gauge-- .0050 inch diameter), in a four-step drawing process in
which the wire is reduced at each step.
The 36 gauge wire is then stranded by twisting together
seven individual copper wires concentrically with a specified lay
or twists per inch. The stranded copper wire is then coated with
a polypropylene insulation. This is followed by a second coating
of the wire with PVC. ACS insulates 2, 4, 6 or 8 wires at a
time. These insulated wires are then respooled onto various size
spools with lengths ranging from 500 to 5000 feet.
ISSUE:
Whether the copper wire imported into Mexico undergoes a
double substantial transformation so that the cost or value of
the wire may be counted toward satisfying the 35% value-content
requirement under the GSP.
-2-
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 U.S., qualify for
duty-free treatment if the sum of 1) the cost or value of the
materials produced in the BDC plus, 2) the direct cost involved
in processing the eligible article in the BDC is at least 35% of
the article's appraised value at the time it is entered into the
U.S. See 19 U.S.C. 2463(b).
As provided in General Note 3(c)(ii)(A), HTSUSA, Mexico is a
BDC. In addition, it appears that the copper wires are
classified in subheading 8544.11.00, HTSUSA, a GSP eligible
provision.
If an article is produced or assembled from materials which
are imported into the BDC, the cost or value of those materials
may be counted toward the 35% value-content minimum only if they
undergo a double substantial transformation in the BDC. See
section 10.177, Customs Regulations (19 CFR 10.177). Azteca
Milling Co. v. United States, 703 F.Supp. 949 (CIT 1988), aff'd
890 F.2d 1150 (Fed. Cir. 1989).
A substantial transformation occurs when a new and different
article of commerce emerges from a process with a new name,
character or use different from that possessed by the article
prior to processing. Texas Instruments Incorporated v. United
States, 69 CCPA 152, 681 F.2d 778, 782.
You claim that the drawing process of the copper wire,
whereby the wire is reduced through a multi-stage process from a
diameter of 14 AWG, or .064 inch, to a diameter ultimately of 36
AWG, or .005 inch, constitutes an initial substantial
transformation. To support your conclusion you cite
Headquarters Ruling Letter (HRL) 554246 dated July 29, 1987,
which held that a two-step process of drawing wire rod into fine
wire constituted a substantial transformation where the wire was
reduced by 92 percent and the drawing process represented over 50
percent of the cost of the production of the wire to that point.
In a subsequent case, Superior Wire, a Div. of Superior
Products Co. v. United States, 669 F.Supp. 472 (CIT 1987), aff'd,
Superior Wire v. United States, 867 F.2d 1409 (Fed. Cir. 1989),
the court held that the drawing of wire rod into wire through a
multi-stage process did not constitute a substantial
transformation of the wire rod. We believe that the holding in
Superior Wire is controlling as to whether a substantial
transformation occurs in the drawing of the copper wire in the
instant case.
-3-
The court in Superior Wire found that there was no
significant change in the use or character of the wire, and only
a relatively insignificant change in name. In examining whether
there was a change in character or use, and, therefore, a
substantial transformation, the court looked to whether the
articles underwent a transition from producer goods to consumer
goods. In this case, as in the Superior Wire case, there is no
clear change from a producer good to consumer good when the wire
is drawn from a 14 AWG to a 36 AWG. The main use of the copper
wire, electrical wiring, has not significantly changed with the
drawing and subsequent stranding processes that the wire
undergoes. Furthermore, there is no significant change from a
product suitable for many uses to one fit for only one purpose.
Here, as in Superior Wire, the copper wire dictates the final
form of the finished wire, as the basic properties of the wire
are predetermined by the copper wire. Moreover, no real change
in the composition of the copper wire occurs between the 14 AWG
initial stage and the 36 AWG stage. It is our position that the
36 AWG stranded copper wire does not possess a significantly
different character or use in comparison to the 14 AWG copper
wire imported into Mexico.
You also claim that the change in tariff classification of
the copper wires is an indication of a substantial
transformation. The courts have held that a change in tariff
classification is not dispositive, although it may be supportive
of a substantial transformation. Belcrest Linens v. United
States, 741 F.2d 1368 (1984). The classification change is from
one heading to another within the same chapter and it is our
position that the tariff classification change in this case is
not indicative of a substantial transformation of the 14 AWG
copper wire to the 36 AWG stranded copper wire.
HOLDING:
Although the final article, insulated copper, wire may
constitute a new and different article of commerce when compared
to the copper wire imported into Mexico, it is our opinion that
no intermediate article of commerce results from the processing
performed in Mexico. Therefore, as the copper wire imported into
Mexico does not undergo a double substantial transformation in
that country, the cost or value of the wire may not be included
in the GSP 35% value-content calculation.
Sincerely,
John Durant, Director
Commercial Rulings Division