CLA-2 CO:R:C:S 555811 WAW
Allen E. Smith, Esq.
Allen E. Smith and Associates
470 McAllen National Bank
McAllen, TX 78503
RE: Eligibility of the Series 5000 Aluminum Diffusers, RH Return
Grille, Opposed Roll-Formed Blade Damper, "LS4" Supply
Grille, and 8" x 4" L.M.H. Supply Grille for duty-free
treatment under the GSP
Dear Mr. Smith:
This is in response to your letter of December 5, 1990, on
behalf of Metal Industries, Inc., requesting a ruling that
certain diffusers, dampers and grilles assembled in Mexico and
used in the U.S. in the production of HVAC air distribution
systems are entitled to duty-free treatment under the Generalized
System of Preferences (GSP) (19 U.S.C. 2466-2466). Additional
information was submitted by letters dated May 23, 1991,
September 26, 1991, and February 7, 1992. Samples of the
merchandise at issue were also received by this office.
FACTS:
You state that your client wishes to obtain duty-free
treatment under the GSP for certain diffusers, dampers and return
grilles which are currently being assembled in Mexico from
components imported into that country. The following is a list
of the products which are the subject of this ruling request:
"Series 5000 Aluminum Diffuser," "RH Return Grille," "Opposed
Roll-Formed Damper (OBDR)," "LS4 Supply Grille," "8" x 6" LMH
Supply Grille."
Product 1: Series 5000 Aluminum Diffuser
The Series 5000 Aluminum Diffuser unit is specifically
designed to be a three part assembly consisting of one outer
frame assembly, one blade core assembly and one extruded aluminum
opposed blade damper assembly. The diffuser is comprised of
foreign-origin aluminum shapes and strips of different lengths
and sizes, corner angles, frame keys, springs, latches, center
cones, aluminum stampings, bushings, and rivets which are
imported into Mexico. The specific details of the assembly
process of the three component parts of the Series 5000 Aluminum
Diffuser are set forth below.
Component 1: Frame Assembly
(1) Extruded aluminum shapes of different lengths are
miter cut to length to produce the frame shapes;
(2) Square holes to accept the blade core assembly
latches are slotted at each corner of the frame shapes;
(3) The frame assembly is formed with four corner frame
keys that are hydraulically staked and crimped to the
corners of the four shapes;
(4) Four corner angles are drive-riveted to the bottom
of the frame to secure and complete the frame assembly.
One worker is responsible for cutting and slotting the
shapes for the frames, and placing the frames in baskets for
delivery to a second worker. The second worker is responsible
for hydraulically crimping, staking and inspecting the frame.
You claim that this concludes the first substantial
transformation of the frame components.
Component 2: Blade Core Assembly
(1) Extruded aluminum shapes of different lengths are
miter cut to length to form blades;
(2) Each row of blade assemblies (the larger the
diffuser unit, the more blade assemblies required) is
secured by means of pre-stamped and pre-holed, corner
brackets which are placed on the corners of the four
blades and secured by pressure staking and crimping the
brackets to the blades;
(3) The bottom (smallest) blade assembly is also
slotted to accept an X braced pre-stamped and pre-
assembled center cone. The center cone braces are
inserted in the bottom blade assembly and crimped to
secure and form the base assembly for the blade core;
(4) Additional blade assemblies are riveted to the
previous blade assemblies in progressively larger
sizes. The larger blade assemblies are riveted to the
next smallest blade assemblies' corner brackets;
(5) An exterior core rail is cut to length from
aluminum shapes of different lengths, and punched;
(6) The core rail is assembled to the larger blade
assembly, riveted to the inserts, and the four core
rail ends are engaged and crimped to secure the blade
core assembly;
(7) Four pre-stamped curved latches, four springs, and
four plastic latch boxes are assembled and attached to
the inside of the core rail, with the end of the latch
protruding from the rail to complete the blade core
assembly.
One worker is responsible for cutting and slotting the
blades and shapes, and cutting, punching and forming the core
rails which are subsequently delivered to an assembly area. Two
workers are responsible for hydraulically crimping the blade
shapes to form the blades, crimping the center cones and riveting
the brackets to form the blade core. You claim that this
concludes the first substantial transformation of the blade core
components.
Component 3: Opposed Blade Damper-Extruded (OBDE) Assembly
(1) Blades are cut to length from multiple length
extruded aluminum strips;
(2) The ends are punched and cut to length from
multiple length extruded aluminum strips;
(3) Side Rails are cut to length from multiple length,
pre-punched aluminum strips. The bottom of one side
rail is then punched (slotted) to accept the operator
lever (top side rail);
(4) A pre-cut and pre-punched action rod is inserted
into grooves in the top side rail. The operator lever
is inserted into a slot of the top side rail and
riveted to the action rod;
(5) Active and passive injection molded nylon bushings
are attached to the blades. The blades are then
attached to the side rails;
(6) Tension clips are attached to the ends;
(7) Two ends are screwed to the two side rails to
complete the damper assembly.
Two workers are responsible for cutting, punching, and
slotting the blades, ends and side rails. Other workers are
responsible for assembling the blades and bushings, riveting the
action rod, assembling the frame and inserting the blades. The
importer claims that this constitutes a single substantial
transformation of the damper components.
Finally, once the frame assembly, blade core assembly and
damper assembly are completed, they are joined together to form
part of an engineered HVAC air distribution system that balances
and distributes air flow within a given area in a building. The
damper assembly is inserted into the base of the frame assembly,
the blade core assembly is mounted onto the frame assembly and
secured to the frame assembly by inserting the spring loaded
latches in the square holes punched in the corner of the frame
assembly to complete the diffuser. The finished article is then
wrapped and packaged for shipment to the U.S.
Product 2: RH Return Grille
The RH Return Grille is designed for all normal return or
exhaust applications which are located in the sidewall or
ceiling. The Return Grille is made of foreign-origin extruded
aluminum shapes of different lengths and sizes, frame keys, roll
formed aluminum strips, shapes, and rivets. The grille consists
of an inner core assembly and an outer frame assembly. The inner
core assembly and outer frame assembly are assembled together to
create the grille. The specific details of the assembly process
of the RH Return Grille are set forth below.
Component 1: Frame Assembly
(1) Extruded aluminum shapes of different lengths are
miter cut to length to produce the frame assembly;
(2) The frame assembly is framed with four corner frame
keys that are hydraulically staked and crimped to the
corners of the four shapes to complete the frame
assembly.
Two workers are responsible for cutting, staking and
inspecting the frame assembly.
Component 2: Blade Core Assembly
(1) Side rails are cut to length from multiple length
extruded and pre-punched aluminum shapes;
(2) Blades are cut to length from multiple length roll
formed aluminum strips;
(3) The right side rail is placed in an assembly
fixture. The blades are assembled to the right side
rail at the corresponding slots and aligned;
(4) The left side rails are fitted to blades at the
corresponding slots, and blade tabs on both sides are
bent to secure side rails;
(5) The center, top and bottom rails are cut to length
from multiple length pre-slotted roll formed aluminum
shapes;
(6) The center rails are fitted to the back of the
blade assembly to secure alignment of the blades;
(7) Top and bottom rails are assembled to the side and
center rails and their tabs are bent to complete the
blade core assembly.
One worker cuts and punches blades and rails for the core.
Meanwhile, two other workers assemble the blade assembly. Next,
the blade assembly is transported to two workers for fitting of
the rails to complete the blade core assembly. You claim that
this manufacturing process results in a substantial
transformation of the blade core components into a new and
different article of commerce.
Finally, the finished unit is assembled by means of mounting
the blade core assembly to the frame assembly. The blade core
assembly is secured to the frame assembly by drilling a hole in
each side of the frame and riveting them together. Next, the
grille is inserted into the frame and the core is attached to
produce the RH Return Grille unit.
Product 3: Opposed Roll-Formed Blade Damper (OBDR)
The Opposed Roll-Formed Blade Damper is used primarily in
conjunction with grilles, diffusers and other products produced
by Metal Industries, Inc., which do not require integral multi-
shutter dampers or extruded opposed blade volume control dampers.
The OBDR consists of roll-formed aluminum shapes and strips of
different lengths, pre-cut aluminum shapes, operators, aluminum
flat stock, rivets and bushings of foreign-origin. The specific
details of the assembly process of the OBDR is set forth below.
The first step in the production of the damper is the
manufacture of the two ends and two side rails as follows:
Component 1:
(1) The two ends are die cut, stamped and shaped from
aluminum flat stock.
Component 2:
(1) Pre-cut and pre-punched aluminum shapes are machine
bent at their ends to form C-shaped side rails.
Component 3:
(1) The bottom side rail is punched to form a housing
for the nylon operator.
You state that these operations result in a substantial
transformation of the imported materials into new and different
articles of commerce: ends and side rails. One worker is
responsible for stamping and forming the damper ends. Another
worker is responsible for bending and punching the side rails.
You claim that the assembly of the damper constitutes the
second substantial transformation. The assembly process is as
follows:
(1) The bottom (follower) bracket is riveted to the
pre-cut and pre-punched action rod;
(2) The action rod is placed in the pre-bent bottom
side rail (component 3). Bushings (butterflies) are
placed on the action rod, and all are then secured by
eyelets;
(3) Bushings (butterflies) are attached to the top side
rail (component 2) with eyelets;
(4) the nylon operator is inserted into the top bracket
and then the bracket (with operator) is riveted to the
bottom side rail (component 3);
(5) Imported blades that were cut to length in Mexico
are fitted to the bottom side rail (component 3);
(6) The pre-bent top side rail (component 2) is fitted
to the blades;
(7) Shaped and punched ends (component 1) are inserted
into the side rails and secured with eyelets to
complete the assembly.
One worker is responsible for cutting the blades. Four
workers place the action rod in the operators and side rails,
eyelet them, assemble the operator to brackets and rivet them.
Six workers assemble the blades and ends to the rails. Two
workers complete the damper by eyeletting the ends to the side
rails. Two workers back up any part of the line that slows down.
The finished damper is inspected, and either wrapped and packaged
for shipment to the U.S., or sent to another assembly line for
use in another product.
Product 4: "LS4" Supply Grille
The "LS4" Supply Grille is designed for use in ceiling
applications which require the distribution of air in four
different directions. Aluminum flat coil stock is imported into
Mexico, together with multiple length roll-framed aluminum
strips, pre-cut aluminum strips, shapes, stampings, molded nylon
tension blocks, gaskets and rivets. The grille consists of
blades which are assembled into an auxiliary core channel frame
which is then assembled with the outer frame. The specific
details of the assembly process of the component parts of the
Supply Grille are set forth below.
The long and short blades of the supply grille are
manufactured as follows:
(1) Aluminum flat coil stock is fed through a rotating
cold forming die which shapes the flat stock into a
curved (elliptical) shape with a horizontal lip on the
bottom of the shape;
(2) Long blades and short blades are cut to length from
the roll formed strip leaving an axis (formed by the
lip) on each end for assembly purposes.
One worker in the blade area is responsible for roll forming
the blades for this product and other products built in the
plant. One worker in the blade area is responsible for cutting
the blades to size and placing them in baskets for delivery to
the assembly area.
The supply grille is assembled by the following processes:
(1) Short blades are assembled to imported center rails
that were cut and punched in Mexico, and secured with
injection molded tension blocks;
(2) A pre-cut roll-formed aluminum cover strip is
attached to the center rail by crimping to form the
inside blade assembly;
(3) The inside blade assembly and the long blades are
assembled to the imported outside rails that were cut
and punched in Mexico, and secured with tension blocks
to complete the blade core assembly;
(4) Pre-slotted and pre-punched corners are riveted to
a pre-stamped frame;
(5) The blade core assembly is inserted into the frame
and secured mechanically to complete the assembly of
the grille;
(6) The grille is degreased, cleaned and the outer
surface is spray painted;
(7) An adhesive backed foam gasket is attached to the
bottom of the grille frame to complete the unit.
(8) The grille, together with a set of mounting screws,
are wrapped and packaged in a container for shipment to
the U.S.
You contend that this assembly process constitutes the
second substantial transformation of the imported materials into
a new and different article of commerce. One worker is
responsible for cutting and punching the side rails. Three
workers are responsible for assembling the blade core. Two
workers are responsible for completing the frame and assembling
the core assembly to it. One worker inspects and operates the
completed units and delivers them to the paint area. Four
workers degrease, prime, paint, inspect and gasket the units.
Lastly, two workers wrap, label and pack the units in shipping
containers destined for the U.S.
Product 5: 8" x 4" L.M.H. Supply Grille - Painted
The 8" x 4" L.M.H. Supply Grille is designed for ceiling and
side wall applications which require one-way air pattern
distribution. It consists of materials of foreign-origin such as
aluminum flat coil stock, multiple length roll-formed aluminum
strips, pre-cut aluminum strips, shapes, stampings, aluminum flat
stock, molded nylon tension blocks, operator levers, action rods,
eyelets, gaskets and rivets. The specific details of the
manufacture and assembly of the components which make up the
L.M.H. Supply Grille are set forth below.
(1) Aluminum flat coil stock is fed through a rotating
cold forming die which shapes the flat stock into a
curved (elliptical) shape with a horizontal lip on the
bottom of the shape;
(2) Main blades are cut to size from the roll formed
strip leaving an axis (formed by the lip) on each end
for assembly purposes; (blade component)
(3) A pan-shaped frame is die cut, stamped, and shaped
from flat stock; (frame component)
(4) The frame is slotted to receive operator lever and
punched to receive back blades and riveted.
One worker in the blade area is responsible for roll forming
the blades for the supply grille as well as other products
manufactured in this plant. Another worker in the blade area is
responsible for cutting the blades to size and placing them in
baskets for delivery to the assembly area. One worker in the
frame area is responsible for stamping and shaping the frame for
the supply grille. Another worker in the frame area is
responsible for punching and slotting the frames and riveting the
corners and placing them in baskets for delivery to the assembly
area.
The assembly of the supply grille is as follows:
(1) Blades are assembled to imported side rails that
were cut and pre-punched in Mexico to accept blades,
and secured with injection-molded nylon tension blocks,
to form a blade core assembly;
(2) The blade core assembly is inserted into the pre-
punched and riveted frame and secured to it
mechanically;
(3) Pre-shaped back blades are assembled to the pre-
punched frame and secured with eyelets;
(4) The action rod is assembled to the back blades with
eyelets;
(5) The operator lever is attached with eyelets to the
frame and action rod to complete the assembly of the
grille;
(6) The grille is degreased, cleaned and the outer
surface is spray painted;
(7) An adhesive backed foam gasket is attached to the
bottom of the grille frame to complete the unit.
In the assembly of the frame and blades, one worker is
responsible for cutting and punching the side rails. Three
workers assemble the blades to the side rails and insert the core
into the frame. Three workers assemble the back blades and
operator by eyeletting to the frame. One worker inspects and
operates the completed units and delivers them to the paint area.
Four workers degrease, prime, paint, inspect and gasket the
units. Two workers wrap, label and package the units for
shipment to the U.S.
You claim that the final assembly of the blades and frame,
along with the other constituent materials results in a double
substantial transformation of the imported materials. You state
that the LMH 8" x 4" painted supply grille is comprised of 19
components, that it takes approximately 0.13 man hours to
produce, and that the manufacturing procedures in Mexico add
approximately 36.1 percent in value to that of the imported
materials. In addition, you state that the components which
result from the first substantial transformation in some cases
may be put into the company's inventory as "discrete" items, and
may be shipped for use in other types of units not manufactured
in Mexico.
ISSUE:
Whether the materials and components imported into Mexico
and used in the production of HVAC air systems undergo a double
substantial transformation, thereby permitting the cost or value
of these materials to be included in the 35% value-content
calculation required for eligibility under the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible products which are 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 material produced in a BDC, plus (2) the direct costs
involved in processing the eligible article in the BDC, is not
less than 35% of the appraised value of the article at the time
it is entered into the U.S. See section 10.176(a), Customs
Regulations (19 CFR 10.176(a)).
As stated in General Note 3(c)(ii)(A), Harmonized Tariff
Schedule of the United States Annotated (HTSUSA), Mexico is a
designated BDC for purposes of the GSP. In addition, it appears
from your description of the merchandise that the product at
issue is classified under subheading 7616.90.0080, HTSUSA, which
provides for "Other articles of aluminum: Other: Other."
Articles classified under this subheading are eligible for duty-
free treatment under the GSP provided they satisfy all of the
legal requirements.
The cost or value of materials which are imported into the
BDC to be used in the production of the article, as here, may be
included in the 35% value-content computation only if the
imported materials undergo a "double substantial transformation"
in the BDC. That is, the non-Mexican materials must be
substantially transformed in Mexico into a new and different
intermediate article of commerce, which is then used in Mexico in
the production of the final imported article - the HVAC air
systems. See section 10.177(a), Customs Regulations (19 CFR
10.177(a)), and Azteca Milling Co. v. United States, 703 F. Supp.
949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989).
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, 156, 681 F.2d
778, 782 (1982).
With regard to the first product that you intend to import,
the Series 5000 diffuser unit, you claim that the imported
extruded aluminum will undergo a double substantial
transformation in Mexico. Specifically, you state that the
cutting, punching, assembling, and riveting operations
substantially transform the imported aluminum material into a new
and different article of commerce. You state that the frame,
damper and blade core subassembly are further substantially
transformed when the damper and blade core subassembly are
assembled to the frame to form the completed Series 5000 diffuser
unit.
Customs has previously held that cutting materials to
defined shapes or patterns suitable for use in making finished
articles, as opposed to mere cutting to length and/or width which
does not render the article suitable for a particular use,
constitutes a substantial transformation. See Headquarters
Ruling Letter (HRL) 055684 dated August 14, 1979 (holding that
those components of a water cooler gas absorption refrigeration
unit which were formed by cutting to length, cleaning, and
bending imported steel tubes into the required component shapes
and configurations, or by cutting to length, flattening, and
drilling holes into imported tubing, were substantially
transformed constituent materials for GSP purposes, while those
imported tubes which were simply cut to length and assembled into
the final article were not); HRL 071788 dated April 17, 1984
(forming 18 karat gold wire into circles, ovals, and other
specially designed links for bracelets results in a substantial
transformation); and HRL 555532 dated September 18, 1990
(shearing cold rolled steel to rectangular shape, piercing to
form the various openings, and roll forming the steel into
tubular shape results in a substantial transformation). In each
of the above cases, the raw material had numerous uses before
undergoing the cutting operations and possessed little or nothing
in its character to indicate its ultimate shape or purpose. The
number and variety of potential uses was restricted and the
essential character was permanently determined only after the
cutting processes were performed.
Moreover, we have consistently held that punching of holes
into pre-formed articles is insufficient to constitute a
substantial transformation of the article into a new or different
article of commerce. See HRL 555659 dated December 3, 1990 (the
process of punching holes in formed tubes does not constitute a
substantial transformation). Likewise, the process of punching
holes in an aluminum frame and blade parts, which have already
been cut to length, to facilitate the assembly process, does not
appear to be any more involved than punching holes in pre-formed
tubes.
Customs has previously held in HRL 555779 dated March 7,
1991, that finished wood molding which is angle-cut to specified
lengths and subsequently assembled by hand tacking or stapling
together the cut pieces into a picture frame, does not constitute
the requisite double substantial transformation. In that ruling,
we stated that:
Cutting the molding to length and assembly of the cut
lengths constitute the next stage of processing of the
same product. Unlike the situation in the venetian
blind case, HRL 555265, the intermediate product in
this case has but one use. After the wood is
fabricated into lengths of finished moulding, it
possesses the essential characteristics of a picture
frame. The purported intermediate article and the
final article are not separate and distinct articles of
commerce since the sole use of both items, finished
wood moulding and picture frames, is to display
artwork, prints, photographs, etc.
We find in the case of the Series 5000 Aluminum Diffuser,
that the cutting of the imported extruded aluminum into lengths
suitable for use as parts of the frame, blade core and damper
assemblies does not substantially transform the imported aluminum
into new and different articles of commerce. Consistent with our
holding in HRL 555779, the extruded aluminum components undergo
simple cutting to length and/or angling operations which do not
alter the specific shape or pattern of the material, nor does it
affect the uses to which they may be put. Both before and after
these operations, the extruded aluminum components are clearly
recognizable and dedicated for use solely as frame parts or as
blades suitable for use in blade core and damper assemblies.
Furthermore, based on the information submitted and the
above cases, it is our opinion that the extruded aluminum strips
and the purported intermediate products -- frame assembly, blade
core assembly and opposed blade damper-extruded assembly --
merely represent different stages of the same product. In
Superior Wire v. United States, 11 CIT 608, 669 F. Supp. 472 (CIT
1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989), the court held that
for VRA purposes, wire rod drawn into wire was not substantially
transformed into a product of Canada. In determining that there
was no significant change in use or character, the court found
that the operations performed on the wire rod were minor rather
than substantial and concluded that the "wire rod and wire may be
viewed as different stages of the same product." Id., 867 F.2d
1414.
In the present case, the extruded aluminum strips, whether
for use in a frame, damper, or diffuser core have a predetermined
quality, and as a result, Customs considers the strips, frame,
damper, and diffuser core as the same product at different stages
of production, rather than evidence that a substantial
transformation has taken place. You argue that the name change
is significant in finding that a substantial transformation
results. The courts have held that although a name change may
support a finding of substantial transformation, this fact is not
necessarily determinative. Id., 867 F.2d 1414.
Therefore, while the materials imported into Mexico are
substantially transformed when processed and assembled into the
completed Series 5000 diffuser unit, we find that no second
substantial transformation results.
With regard to the second product, the RH Return Grille,
based on the foregoing analysis, we are of the opinion that the
cutting and crimping operations performed on the extruded
aluminum in Mexico does not constitute a substantial
transformation. In the instant case, the aluminum strips and
shapes are simply cut to length rather than to defined shapes or
patterns. The cutting to length of the extruded aluminum strips
and shapes does not change the fundamental character of the
aluminum. Before the components undergo the cutting and mitering
operations, they are dedicated to a singular use as blades or
frame parts for use in a return grille unit. Therefore,
consistent with our discussion regarding the diffuser unit, no
substantially transformed intermediate article of commerce
results from the processing of the imported aluminum strips and
shapes into the completed return grille.
With regard to the third product, the Opposed Roll-Formed
Blade Damper (OBDR), we find that the die cutting, stamping and
shaping operations substantially transform the imported aluminum
flat stock into new and different articles of commerce. In HRL
555265 dated July 3, 1989, we held that cutting rolls of imported
aluminum strips into lengths and crowning the cut strip
substantially transform the imported strip into a new and
different article of commerce. We find that the bending and
cutting operations performed in the instant case are analogous to
the operations performed in HRL 555265 and, therefore, it is our
determination that the die cutting of the imported aluminum flat
stock into two ends for use in the assembly of the damper
constitutes a single substantial transformation of the imported
aluminum. However, we find that the simple bending of pre-cut
and pre-punched aluminum shapes and cutting to length of roll
formed aluminum shapes does not constitute a substantial
transformation of the imported materials into new and different
articles of commerce.
Next, it must be determined whether a second substantial
transformation of the constituent elements occurs so that the
cost or value of the imported aluminum flat stock material from
which the two ends are made may be counted toward the 35% value-
content requirement. The importer claims that a second
substantial transformation results from the final assembly of the
blades, rails, action rod and bushings and other parts into the
final product -- the opposed roll-formed blade damper.
C.S.D. 85-25 dated September 25, 1984 (HRL 071827) sets
forth the basic criteria for determining whether an assembly
operation will constitute a substantial transformation. In
C.S.D. 85-25, Customs considered the issue of whether the
assembly of components onto a circuit board results in a
substantially transformed constituent material. In that
decision, Customs held that an assembly process will not
constitute a substantial transformation unless the operation is
"complex and meaningful." Whether an operation is "complex and
meaningful" depends on the nature of the operation, including the
number of components assembled, number of different operations,
time, skill level required by the operation, attention to detail
and quality control, and the benefit to the BDC from the
standpoint of both the value added to each PCBA and the overall
employment generated thereby. In C.S.D. 85-25, it was stated
that the factors which determined whether a substantial
transformation occurred should be applied on a case-by-case
basis.
With regard to whether a processing operation constitutes a
substantial transformation, section 10.195(a), Customs
Regulations (19 CFR 10.195(a)), is also instructive. According
to 19 CFR 10.195(a), implementing the Caribbean Basin Economic
Recovery Act (CBERA), no article shall be considered to have been
produced in a CBERA beneficiary country by virtue of having
merely undergone a simple, as opposed to complex or meaningful,
combining or packaging operations. However, 19 CFR
10.195(a)(2)(ii)(D) provides that this exclusion shall not be
taken to include:
A simple combining or packaging operation or mere dilution
coupled with any other type of processing such as testing or
fabrication (e.g., a simple assembly of a small number of
components, one of which was fabricated in the beneficiary
country where the assembly took place.)
This regulation is instructive here inasmuch as the CBERA and GSP
programs have similar statutory aims, and the country of origin
criteria of the statutes are nearly identical.
In HRL 555195 dated July 13, 1989, U.S.-origin raw aluminum
flat coil stock was used in the assembly of mini-blinds. We held
that feeding the aluminum flat coil stock through a rotating cold
forming die which mechanically alters the flat stock into a
crowned conical shape, punching holes and cutting the slat
material to size results in a double substantial transformation,
thereby enabling the cost or value of the U.S.-origin aluminum
flat coil stock to be included in the 35% value-content minimum
requirement of the GSP.
In the instant case, consistent with HRL 555195, we find
that the final assembly of the two ends with numerous other
components to form the damper results in a second substantial
transformation. The assembly operation in the instant case is
substantial as it involves eyeletting, riveting, and assembling
approximately 50 separate components. The operations performed
are similar to the crowning, punching and cutting operations
performed on the aluminum flat coil stock in HRL 555195. In
addition, not only does the processing involve a large number of
component parts and assembly operations, but the two end
component pieces are actually fabricated in Mexico. Moreover,
the assembly processes require a relatively significant period of
time as well as skill, attention to detail, and quality control.
We believe that the production of the damper clearly results in a
significant economic benefit to the BDC from the standpoint of
both the value added to each component part and the overall
employment generated by the operations. See C.S.D. 85-25.
Based on the foregoing analysis, we find that the aluminum
flat stock material which is die cut, stamped and shaped into end
rails and then subsequently assembled into a damper has undergone
the requisite double substantial transformation. Therefore, the
cost or value of the imported aluminum flat stock may be included
toward the 35% value-content calculation for purposes of the GSP.
However, we find that the pre-cut and pre-punched aluminum shapes
and roll formed aluminum shapes and strips which are machine bent
to form C-shaped side and bottom rails and cut to length to form
blades, do not result in a double substantial transformation of
the imported materials. Therefore, the cost or value of the
imported roll formed aluminum may not be included in the 35%
value-content minimum calculation of the GSP.
With regard to the fourth product, the "LS4" Supply Grille",
consistent with our prior rulings, we are of the opinion that the
process of feeding aluminum flat coil stock through a rotating
cold forming die which shapes the flat stock into a curved
(elliptical) shape with a horizontal lip suitable for use as
blades in the production of a LS4 Supply Grille results in a
substantial transformation of the imported material into a new
and different article of commerce. See HRL 555195. However, the
blades and other components which are simply cut to length rather
than to defined shapes and patterns from roll-formed aluminum
strips do not undergo a substantial transformation.
We also find that the assembly of the aluminum curved blades
with the other components, creating a supply grille, results in a
second substantial transformation of the imported materials.
Although the final assembly in the instant case may not be
complex enough to constitute a substantial transformation by
itself, nevertheless, we are of the opinion that in view of the
overall processing operations (i.e., cutting, riveting,
assembling and packing) performed in Mexico, including the
fabrication of some of the components from aluminum flat coil
stock, this is not the minimal "pass-through" operation that
should be disqualified from receiving the benefit of GSP.
Accordingly, we find that, when the aluminum flat coil stock is
die cut and shaped into curved shapes and then assembled into the
supply grille, a double substantial transformation of the flat
coil stock results. However, the roll-formed aluminum strips and
pre-cut roll-formed aluminum cover strips which are attached to
the center rail do not undergo a double substantial
transformation. Therefore, the cost or value of these materials
may not be included in the 35% value-content minimum.
With regard to the 8 x 4 L.M.H. Supply Grille, and
consistent with our above analysis, we are of the opinion that
the operation of feeding aluminum flat coil stock through a
rotating cold forming die to convert it into a curved
(elliptical) shape suitable for use as blades for a supply
grille, results in a substantial transformation of the imported
materials into a new and different article of commerce. See HRL
555195. Likewise, the flat coil stock which you describe as
being die cut, stamped, and shaped into components suitable for
use as a frame, also results in a substantial transformation of
the imported material into a new and different article of
commerce.
Although the final assembly of the blades and frame does not
appear to be exceedingly complex, in view of the overall
processing operations in Mexico, including the fabrication of the
blades and frame components from aluminum coil stock and flat
stock, we do not believe that this is the minimal, "pass-through"
type of operation that should be disqualified from receiving the
benefit of duty-free treatment under the GSP. Additionally, it
appears from your description of the assembly process, that the
final assembly of the L.M.H. Supply Grille involves a significant
number of different operations (i.e., cutting, punching,
riveting, and assembling), a significant period of time, as well
as skill and attention to detail. Also, you maintain that
approximately 36.1 percent is added in Mexico to the value of the
component materials. See C.S.D. 85-25, 19 Cust. Bull. 544
(1984). In sum, we believe that in applying the standards set
forth in C.S.D. 85-25 and consistent with our previous rulings,
the final assembly of the component materials into the L.M.H.
Supply Grille is sufficient to constitute the requisite second
substantial transformation.
HOLDING:
Based on the information provided and the foregoing
analysis, it is our opinion that the operations performed on the
aluminum material to produce the Series 5000 Aluminum Diffusers
and RH Return Grille do not result in the requisite double
substantial transformation of the imported materials. Therefore,
the cost or value of the imported aluminum may not be included in
calculating the GSP 35% value-content requirement for the Series
5000 Aluminum Diffusers and RH Return Grille.
However, we believe that the aluminum flat coil and flat
stock which has been die cut, stamped and shaped into components
which are used in the assembly of the Opposed Roll-Formed Blade
Damper, LS4 Supply Grille, and the L.M.H. Supply Grille, undergo
a double substantial transformation, and therefore, the cost or
value of these materials may be counted toward satisfying the 35%
value-content requirement of the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division