CLA-2 CO:R:C:S 555893 WAW
District Director
U.S. Customs Service
1100 Paseo Internacional
San Ysidro, CA 92073
RE: Internal Advice No. 5/91; eligibility of wood frames for
pictures and clocks for duty-free treatment under the GSP;
Dear Sir:
This is in response to your memorandum of January 9, 1990,
forwarding the internal advice request filed by Stein Shostak
Shostak & O'Hara on behalf of Assemble in Mexico ("AIM"),
concerning the eligibility of wood frames for pictures and clocks
for duty-free treatment under the Generalized System of
Preferences (GSP) (19 U.S.C. 2461-2466). No samples of the
articles were submitted for our review. However, the importer
has provided photographs illustrating the component parts of the
clock frame. Additional information was submitted by counsel on
July 25, 1991, in connection with this matter.
FACTS:
AIM wishes to obtain duty-free treatment under the GSP for
wood picture and clock frames from Mexico. They currently import
foreign wood mouldings into Mexico where they are cut to
specified lengths. The cut mouldings are then mitered and angled
at both ends to form parts of picture frames and clock frames.
The importer states that the length and angle of the mouldings
will vary depending upon the shape and size of the intended
frames (i.e., square, hexagon, octagon). After the frame parts
are cut, AIM assembles these parts and performs certain
additional finishing operations to produce the finished clock
frames and picture frames. The frame parts are first assembled
with corrugated fasteners on a vise-like apparatus.
The wood frames which will be manufactured into clock frames
require additional operations. The imported wood is cut to form
what is referred to as "cleats," two of which are nailed to the
sides of the assembled frame. The two side cleats measure
approximately 1 inch by 1-1/2 inches by 15 inches. Grooves are
then notched into the cleats to accomodate a back panel which is
added in the U.S. A third cleat is then cut and atached at the
top of the frame. Three holes are drilled into the third cleat,
for hanging purposes and to accomodate nails for the attachment
to the back panel. Finally, the picture and clock frames
undergo finishing operations such as sanding, staining,
laquering, and sealing with a wood sealer before shipment to the
U.S.
ISSUE:
Whether the frame parts which are produced in Mexico from
imported materials are substantially transformed constituent
materials of the picture frames and clock frames into which they
are subsequently incorporated in Mexico, thereby enabling the
cost or value of the imported materials to be counted toward the
35% value-content requirement under the GSP.
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 customs territory of the
U.S. from a BDC may receive duty-free treatment if the sum of (1)
the cost or value of materials produced in the BDC, plus (2) the
direct costs involved in processing the eligible article in the
BDC, is equivalent to at least 35% of the appraised value of the
article upon its entry 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 pictures frames
at issue are classified under Heading 4414, HTSUSA, which
provides for wooden frames for paintings, photographs, mirrors or
similar objects. The clock frames appear to be classified under
subheading 9112.90.00, HTSUSA, which provides for clock cases and
cases of a similar type for other goods of this Chapter, and
parts thereof. Articles classified under the above-referenced
tariff provisions are eligible for duty-free treatment pursuant
to the GSP, provided that they meet 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 picture or
clock frame. 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).
We have previously held that cutting or bending materials to
defined shapes or patterns suitable for use in making finished
articles, as opposed to mere cutting to length or width which
does not render the article suitable for a particular use,
constitutes a substantial transformation. See HRL 055684 dated
August 14, 1979 (a substantial transformation results from
cutting, bending, and crimping wire into identifiable trigger
pins for spring rings); HRL 071788 dated April 17, 1984 (forming
18 karat gold wire into circles, ovals, and other specially
desinged 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 tranformation).
We find that cutting and mitering the imported wood moulding
into lengths suitable for use in picture and clock frame parts
does not substantially transform the imported moulding into a new
and different article of commerce. The wood moulding undergoes
simple cutting to length and angling operations which do not
alter the essential character or specific pattern of the
material, nor does it affect the uses to which they may be put.
Both before and after these operations, the wood moulding
components are clearly recognizable and dedicated for use solely
as frame parts. Based upon the information provided, we find
that the operations of cutting to length and mitering the wood
moulding are not encompassed within the principle of the above-
cited rulings, and should not be considered a substantial
transformation. Therefore, consistent with the above cases, it
is our opinion that the wood moulding and the purported
intemediate products -- picture frame parts and clock frame parts
-- merely represent different stages of the same product.
You also submit 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. Superior Wire v. United States, 11 CIT 608, 669
F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989).
In Superior Wire, 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. Moreover, it
has been stated that "a change in the name of the product is the
weakest evidence of a substantial transformation." National
Juice Products Ass'n v. United States, 628 F. Supp. 978 (CIT
1986), citing, Uniroyal Inc. v. United States, 542 F. Supp. 1026
(1892), aff'd, 702 F.2d 1022 (Fed. Cir. 1983). We view the name
change from "picture frame parts" or "clock frame parts" to
"clock frame" or "picture frame" as the same product at different
stages of production, and not evidence of a substantial
transformation.
We note that you have provided evidence that the parts of
picture frames are readily available and sold in the market place
to establish that the parts are new and different articles of
commerce. However, the fact that these picture frame parts may
be considered articles of commerce is not dispositive of whether
they are new and different articles of commerce. Based on our
prior discussion, we are not persuaded that the picture frame
parts and clock frame parts are new or different intermediate
articles. Rather, we believe that they are materials undergoing
a continuous manufacturing process which results in the creation
of the picture frames and clock frames.
Finally, we note that on similar facts, Customs 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 undergo 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.
HOLDING:
Based on the information provided, it is our opinion that
the picture and clock frame parts produced in Mexico by cutting
and mitering imported wood moulding do not constitute
substantially transformed constituent materials of the picture
and clock frames. Therefore, as the wood moulding is not
subjected to a double substantial transformation in Mexico, the
cost or value of the wood may not be included in calculating the
35% value-content minimum for purposes of the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division