CLA-2 CO:R:C:S 557075 BLS
Ms. Nanette Dean
Dean Steel Buildings, Inc.
2735 Hanson Street
Ft. Myers, Florida 33901
RE: CBERA treatment of pre-engineered metal structural building
frames; double substantial transformation ; 19 CFR 10.195(a);
HRL 555532; HRL 556483
Dear Ms. Dean:
This is in reference to your letters dated December 28, 1992,
and March 30, 1993, on behalf of Dean Steel Buildings, Inc.
("Dean"), requesting a ruling regarding the eligibility of pre-
engineered metal structural frames used in construction of a metal
building system, for duty-free treatment under the Caribbean Basin
Economic Recovery Act (CBERA) (19 U.S.C. 2701- 2706). The metal
components are to be produced in Honduras.
FACTS:
In Headquarters Ruling Letter (HRL) 556483, dated June 15,
1992, we responded to Dean's request for a ruling covering the
eligibility under the CBERA of the pre-engineered metal building
system, to be imported into the U.S. as kits consisting of various
component parts. You now advise that the offshore manufacturing
facility will be developed over a three to five year period of
time. As a result, the first components of the metal building
system that will be produced off-shore, and imported into the U.S.,
will be the structural frames, the subject of this request. As
further clarified during a conversation with Burton Schlissel of
my staff, we understand that that these frames will be fabricated
using the identical manufacturing procedures and design
specifications as described in HRL 556483, in which we ruled on the
complete metal building system.
The facts covering the production and assembly of the
imported structural frames (under "Rafter Sections and Columns
Composing Rigid Frames") were described in HRL 556483, and are
incorporated by reference. In summary, Dean claimed in that
earlier request that the steel material imported into Honduras will
undergo a double substantial transformation, in the production of
the rafter sections and columns, and other fabricated parts of the
building, so that its cost or value could be counted toward
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satisfying the 35% value-content requirement under the CBERA. The
subject request relates only to the rafter sections and columns,
which compose the structural frames.
ISSUE:
Whether the steel material imported into Honduras will undergo
a double substantial transformation in the production of rafter
sections and columns, so that its value may be counted toward
satisfying the 35% value requirement under the CBERA.
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 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 cost or value of materials
produced in 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. See, section 10.195(c), Customs Regulations (19
CFR 10.195(c)).
Honduras is a BC. See, General Note 3(c)(v)(A), Harmonized
Tariff Schedule of the United States (HTSUS). Based on the
photographs and descriptions of the pre-engineered structural
frame, it appears that it is classifiable under subheading
7308.90.30, or subheading 7308.90.60, HTSUS, "Columns, pillars,
posts, beams, girders and similar structural units, Other", either
"not in part of alloy steel" (subheading 7308.90.30) or "Other",
(subheading 7308.90.60). Both subheadings are CBERA eligible
provisions.
Where an article is produced from materials imported into a
BC from non-BC's, as in this case, the article is considered a
"product of" the BC only if those materials are substantially
transformed into a new or different article of commerce. See, 19
CFR 10.195(a). Moreover, the cost or value of materials from non-
BC's may be counted toward satisfying the 35% value-content
requirement only if there is a finding that the materials have been
subjected to a double substantial transformation in the BC. See,
(19 CFR 10.196(a)).
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
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Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982).
Summarizing our analysis in HRL 556483 covering the structural
frames, we found that the production of the I-beam by cutting bar
stock to length to make 2 flat bars, cutting sheet steel to length
and width to form a strip of sheet steel, welding the three pieces
together, and punching holes in the I-beam constitutes a
substantial transformation. We found further that a second
substantial transformation occurs as a result of the operations of
1) assembling the rafter section and column by means of welding the
I-beam and end plates together (in some instances, also welding
tabs), 2) painting the completed rafter section and column, and 3)
performing quality control and testing.
Accordingly, we find that the imported rafter sections and
columns are considered to be "products of" Honduras. Further, the
cost or value of the bar stock and sheet steel to be imported into
Honduras and used in the manufacture of the rafter sections and
columns may be included in the 35% value-content calculation.
HOLDING:
The imported rafter sections and columns will be considered
"products of" Honduras. In addition, the rafter sections and
columns will undergo a double substantial transformation as a
result of the processing operations performed in Honduras.
Therefore, the cost or value of the steel imported from foreign
countries and the U.S. that are used in the production of these
components may be included in the 35% value-content calculation for
purposes of the CBERA.
Sincerely,
John Durant, Director
Commercial Rulings Division