CLA-2 CO:R:C:S 556249 WAW
Mr. David S. Simpson, Jr.
William Joffroy Customs
Brokers, Inc.
P.O. Box 698
Inogales, AZ 85628-0698
RE: Eligibility of Retractile Cord Assemblies for duty-free
treatment under the GSP; substantial transformation
Dear Mr. Simpson:
This is in response to your letter dated July 22, 1991, on
behalf of Whitney Blake Company, in which you request a ruling
concerning whether retractile cord assemblies are eligible for
duty-free treatment under the Generalized System of Preferences
(GSP) ( 19 U.S.C. 2461-2466). Samples were submitted for
examination.
FACTS:
You state that Whitney Blake Company will ship reels of
straight electronic wire which has been insulated with polyvinyl
chloride (PVC) hi-gloss polyurethane, to Mexico for processing
into retractile cord assemblies. In Mexico, the wire undergoes
the following processes:
(1) The wire is despooled and cut to length;
(2) The strain relief is molded;
(3) Wire is coiled onto mandrel rods;
(4) Coils are heated in ovens;
(5) Coils are unwound from the mandrel;
(6) Coils are reverse wound on a rotating arbor;
(7) The outer jacket of the wire is removed from the
ends;
(8) The filler from the ends is trimmed;
(9) On one end of the wire, the conductors are cut
back, stripped and the contacts are attached;
(10) On end two, the conductors are cut back, shroud is
slid over the cord, conductors are spread out in
sequence, the modular connector is attached, crimped,
and the shroud is slid over the connector;
(11) The conductor cord is electronically inspected;
and
(12) The final product is inspected, packaged and
shipped to the U.S.
ISSUE:
Whether the electronic wire from which the retractile cord
assemblies are created is subjected to a double substantial
transformation in Mexico, thereby permitting the cost or value of
the imported wire 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 of the processing operations in the BDC, is
equivalent to at least 35% of the appraised value of the article
at the time of entry. See 19 U.S.C. 2463(b).
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), and Azteca
Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd,
890 F.2d 1150 (Fed. Cir. 1989). That is, the cost or value of
the imported materials used to produce the wound retractile cords
may be included in the GSP 35% value-content computation only if
they are first substantially transformed into a new and different
article of commerce, which is itself substantially transformed
into a retractile cord assembly.
A substantial transformation occurs "when an article emerges
from a manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process." See Texas Instruments Incorporated v. United States, 2
CIT 36, 520 F. Supp. 1216 (CIT 1981), rev'd, 681 F.2d 778, 69
CCPA 151 (CCPA 1982).
Mexico is a BDC. See General Note 3(c)(ii)(A), HTSUSA.
Based on your description of the merchandise, it appears that the
retractile cord assemblies are classified under subheading
8544.41.0000, Harmonized Tariff Schedule of the United States
Annotated (HTSUSA), which provides for insulated (including
enameled or anodized) wire, cable (including coaxial cable) and
other insulated electric conductors, whether or not fitted with
connectors; optical fiber cables, made up of individually
sheathed fibers, whether or not assembled with electric
conductors or fitted with connectors; other electric conductors,
for a voltage not exceeding 80 V: fitted with connectors, which
is a GSP-eligible provision. Therefore, if the retractile cord
assemblies are considered "products of" mexico, they are imported
directly into the U.S. from Mexico and the GSP 35% value-content
minimum is met, they will receive duty-free treatment.
We believe that the cutting, coiling, heating, curing,
reverse winding, stripping and assembly operations clearly
substantially transform the electronic wire into a new and
different article of commerce. The question that we must address
is whether, during the manufacture of the rectractile cord
assemblies, the electronic wire of U.S.-origin is substantially
transformed into a separate and distinct intermediate article of
commerce which is then substantially transformed into the final
article.
We do not find that a second substantial transformation
results from the processing in Mexico. Your argument for this
substantial transformation is based on The Torrington Co., v.
United States, 8 CIT 150, 596 F. Supp. 1083 (CIT 1984), 3 CAFC
158, 764 F.2d 1563 (Fed. Cir. 1985). We have limited Torrington
to the specific factual situation found therein. See T.D. 86-7,
20 Cust. Bull. 7 (1986). Therefore, we do not recognize
Torrington as precedent for this case. However, even if we were
to consider Torrington, it is factually distinguishable from the
present case. Torrington held that a double substantial
transformation occurred abroad when wire was transformed into
swaged needle blanks, which were then transformed into sewing
needles. We do not believe that the manufacture of retractile
cord assemblies is analogous to the manufacture of sewing
needles.
It should be noted that we have held in Headquarters Ruling
Letter (HRL) 556020 dated July 1, 1991, that the cost or value of
brass rod imported into a BDC for use in making contact pins may
not be included in the 35% requirement for purposes of
determining whether a completed cable with electrical connectors
qualifies for duty-free treatment under the GSP. We concluded in
HRL 556020 that while the initial fabrication of the contact pins
from brass rods substantially transforms the brass rods into
products of the BDC, the final assembly of the electrical
connectors with the cable does not result in a second substantial
tranformation of the imported materials.
Consistent with HRL 556020, we find that a second
substantial transformation does not occur as a result of the
assembly of the connectors or contacts with other materials to
create a retractile cord assembly. The assembly operation in the
instant case involves a small number of components which are
merely attached, inserted and affixed to one another to form the
completed article. This type of operation is considered a simple
assembly operation which generally will not result in a
substantial transformation, as it does not involve a considerable
amount of time, skill, attention to detail or quality control.
See C.S.D. 85-25, 19 Cust. Bull. 844 (1985) (HRL 071827 dated
September 25, 1984) and HRL 555660 dated September 15, 1991
(production of an LED assembly by inserting an LED into a plastic
housing, attaching LED leads to conducting wires, inserting the
wires into an insulating tube, and affixing pins and terminal to
the lead wires does not result in a substantial transformation).
Therefore, the cost or value of the electrical wire imported into
Mexico may not be counted toward the 35% value-content
requirement of the GSP.
HOLDING:
On the basis of the information submitted, it is our
position that the operations performed in Mexico to create the
retractile cord assembles substantially transform the U.S.
electrical wire into a new and different article of commerce.
However, as the processing performed in Mexico does not result in
a second substantial transformation, the cost or value of the
materials imported into Mexico may not be counted toward the 35%
value-content calculations required for eligibility under the
GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division