CLA-2 CO:R:C:S 557408 BLS
District Director of Customs
9400 Viscount Street
El Paso, Texas 79925
RE: Internal Advice 42/93; eligibility of bingo game cards
for duty-free treatment under the GSP
Dear Sir:
This is in reference to the request for internal advice made
by Arrow International, Inc., ("Arrow") concerning the eligibility
of certain bingo game booklets produced in Mexico for duty-free
treatment under the Generalized System of Preferences (GSP).
FACTS:
Counsel for Arrow has now advised that while the initial
entries which are the subject of this request involve the
processing of U.S. sheets of paper with printed bingo faces on
master sheets, under the current method of production, bare paper
of U.S. origin is sent to Mexico and the printing is now performed
there. Our analysis will therefore cover both scenarios. It is
further noted that the entries encompass the period October 1992
to the present.
According to the submission, each charitable bingo game
establishes its own program or sequence of bingo games to be played
at a bingo session. For control purposes, a specific color of a
bingo sheet will be used for each game. The sequence of colors and
the cut (number of bingo faces) is referred to as a booklet or pad
of bingo sheets. The large, printed master sheets of bingo paper
do not become a saleable, retail item until they are processed into
a final booklet configuration. Arrow currently produces over
13,000 different types of bingo books annually. Also acording to
the submission, the method of production is as follows:
Step 1: Sequentially ordered master sheets with bingo
faces are pulled from inventory for each customer
order in the required, customer specific master
sheets.
- 2 -
Step 2: Each color of the customer specific master sheets
is manually randomized by changing the order of the
customer specific master sheets, resulting in
customer specific randomized master sheets (RMS).
The randomization process must ensure that duplicate
faces will not be in play simultaneously and that
each end-user will have unique faces.
Step 3: RMS are placed in a specially designed cabinet for
collation.
Step 4: The RMS are collated by manually pulling RMS, one
sheet at a time in the color rotation demanded by
the customer order and inserting a printed wax
backing sheet after each color rotation cycle.
This results in customer specific collated master
sheets (CMS).
Step 5: CMS are jogged to properly align the edges of the
CMS.
After Step 5, the resulting product can be sold to
jobbers and in fact similar products produced in the
U.S. will actually be sold in the future to Cowells-
Arrow Bingo U.K. in England.
Step 6: CMS are placed on skids for transfer to a cutting
machine.
Step 7: CMS undergo an initial cut. The cutting changes the
CMS from a 36 face configuration into an 18 face
configuration. The resulting product is referred
to as cut collated master sheets (CCMS).
Step 8: The cut CCMS are glued along a single edge on a
specially designed gluing rack.
Step 9: The glued CCMS are hand sliced from the gluing
rack.
Step 10: The glued CCMS are fanned and inspected, forming
booklets which have the specified number of pages
plus a single backing sheet and the specified color
rotation and series demanded by the customer order.
At this stage, the product is referred to as customer
specific collated UPS booklets (CUB).
After Step 10, the CUB can be sold (and are sold) to
job shops that will complete the remaining cutting
stages as demanded by their customers in order to
- 3 -
provide them with a product in the specified size.
Step 11: Booklets are cut to the size demanded by
the specific customer order.
Step 12: Booklets are manually separated and inspected.
Step 13: Booklets are grouped into bundles and inspected.
Step 14: Booklets are transferred to the packing area.
ISSUE:
Whether U.S.-origin sheets of paper from which bingo game
booklets are created are subjected to a double substantial
transformation in Mexico under the following scenarios:
1) The paper sent abroad consists of master sheets with bingo
game faces;
2) Unprinted paper is sent abroad and printing of the bingo
game faces occurs in Mexico.
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
cost of the processing operations in the BDC, is equivalent to at
least 35 percent of the appraised value of the article at the time
of entry, See 19 U.S.C. 2463(b).
Mexico is a designated BDC. See General Note 3(c)(ii)(A),
Harmonized Tariff Schedule of the United States (HTSUS). In
addition, it appears from a description of the merchandise that the
articles in question are classified under subheading 9504.90.60,
HTSUS, "Articles for arcade, table or parlor games... Other", a GSP
eligible provision.
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 components 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
- 4 -
imported article. 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).
"[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." Torrington Co. v. United States, 764 F.2d 1563, 1568,
3 CAFC 158, 163 (Fed. Cir. 1985).
The initial question which must be resolved is whether the
imported bingo booklets are considered a "product of" Mexico. We
shall address this issue under the two scenarios presented, in the
first instance, where the printing was done in the U.S., and the
master sheets sent to Mexico, and secondly, where bare paper is
sent to Mexico for printing of the bingo faces.
Printing in the U.S.
Under this scenario, Arrow argues that substantial
transformations occur and intermediate articles of commerce are
produced after completion of Steps 5 and 10. In support thereof,
Arrow states that after Step 5, the collated master sheets will
actually be sold in that form as a producer good; and the collated
UPS booklets created after Step 10 may be sold to job shops. Arrow
contends that the final product is a consumer good, different from
both the product at Step 5 and the product after Step 10. The
importer cites Headquarters Ruling Letter (HRL) 555265, dated July
3, 1989, Torrington, supra, and National Juice Products Association
v. United States, 628 F. Supp. 978, (CIT 1986), to support its
contention that at least two substantial transformations result
from the processing in Mexico.
It is well-established that a "complex and meaningful"
assembly operation can result in the emergence of a new and
different article of commerce with a name, character and use
different from the components of which it was made. See, Texas
Instruments v. United States, 681 F.2d 778, 69 CCPA 151 (1982), and
C.S.D. 85-25, 19 Cust. Bull. 544 (1985). However, such operations
must result in the emergence of an article which differs in
character and use from the component parts of which it is composed.
See, HRL 557316, dated November 4, 1993. In Uniroyal, Inc. v.
United States, 3 C.I.T. 220, 542 F.Supp. 1026 (1982), a country of
origin marking case, the court found that a substantial
transformation in the U.S. did not occur through the attachment of
an outsole to a shoe upper. In the course of its opinion, the
court pointed out that this operation was a minor manufacturing or
- 5 -
combining process which left the identity of the shoe upper intact,
and that the completed upper was the very essence of the finished
shoe.
The concept of the "very essence" of a product was applied in
National Juice Products, where the court determined that imported
frozen concentrated orange juice was not substantially transformed
in the U.S. when it was domestically processed into retail orange
juice products. The court agreed with Customs that the orange
juice concentrate "imparts the essential character to the juice and
makes it orange juice... thus, as in Uniroyal, the imported product
is the very essence of the retail product." (See also HRL
555982/556704, blending of non-Belizan orange juice to produce
frozen concentrated orange juice not considered substantial
transformation.)
Applying the principles of Uniroyal and National Juice
Products to the instant case, we find that through the various
assembly operations performed in Mexico, i.e., cutting, collating,
and gluing, the exported master sheets retain their essential
character, that of bingo face sheets. The sheets are dedicated for
use as bingo face sheets when printed in the U.S., and this use
remains unchanged through completion of the bingo booklets.
Whether in its imported condition as bingo booklets, or as master
sheets, and through the intermediate assembly processes, the
material is essentially the same product at different stages of
manufacture. We do not find that National Juice Products, nor the
other cited authorities, lend support to Arrow's position of a
double substantial transformation.
In HRL 555365, we found that cutting rolls of aluminum strip
into lengths and crowning the cut strips resulted in a new and
different article of commerce which had limited uses, e.g.,
venetian blind slats, surveyor stakes, and lattice fences. Prior
to these operations, the aluminum strip was a raw material which
possessed nothing in its character which indicated any of these
uses. The second substantial transformation occurred through
various operations including the assembly of the slats with other
components resulting in venetian blinds. In the instant case, the
exported master sheet is not a raw, multi-functional material, as
the rolls of aluminum strip in HRL 555365, but rather is a product
dedicated to use as bingo faces throughout the processing in
Mexico.
In Torrington, the court found that wire with a multitude of
possible uses underwent a double substantial transformation in
becoming sewing machine needles. The initial substantial
transformation occurred when processing of the wire resulted in
swaged needle blanks. We have limited Torrington to the specific
- 6 -
factual situation found therein (See, T.D. 86-7, 20 Cust. Bull.
(1986)), and therefore do not recognize Torrington as precedent for
the factual situation in the subject case. Even if we were to
consider that case, we find no basis for support for the importer's
position, since in Torrington the identity of the final product
was clearly distinct from the wire from which it was made, while
in the subject case the master sheet retains its identity as bingo
faces throughout the foreign processing. We would also note that
a change in commercial identity of the material, at different
stages of production, and the fact that the materials prior to
completion of the bingo booklets may be sold or offered for sale,
is evidence of, but is not dispositive of the issue as to whether
a substantial transformation has occurred.
Accordingly, we find that under this scenario, the operations
in Mexico do not substantially transform the master sheets into
"products of" Mexico, for purposes of the GSP.
Printing Performed in Mexico
Based on the reasoning set forth in Torrington, National
Juice, and the other cited authorities, it is apparent that a
substantial transformation occurs when unprinted paper is printed
in Mexico with bingo game faces. Upon exportation from the U.S.,
the paper is a raw material of a generic nature with varied uses,
but is dedicated to use as bingo game faces after the printing is
completed. At this point, the sheets have a new identity, name,
and character. Prior to this processing, the paper possessed
nothing in its character which would indicate the nature of the
final product. Therefore, we find under this second scenario that
the master sheets are considered "products of" Mexico for purposes
of the GSP.
The next question we must address, under this scenario, is
whether the master sheets will be considered constituent materials
of the completed bingo booklets.
We find that the requisite double substantial transformation
does not occur, for the same reason we found no single substantial
transformation under the first scenario. That is, the essential
character of the master sheets, as bingo game faces, is retained
through completion of the bingo booklets. Whether in its condition
as master sheets, or in a secondary stage as customer collated
master sheets, or customer specific collated booklets, the material
is essentially the same product at different stages of production.
Accordingly, while the completed booklets are considered "products
of" Mexico, the cost or value of the materials cannot be used in
determining the 35% value-content requirement under the GSP.
.
- 7 -
HOLDING:
1) Bingo game booklets produced from U.S.-origin master sheets
are not "products of" Mexico and therefore are not entitled to
duty-free treatment under the GSP.
2) Bingo game booklets produced from U.S.-origin unprinted
paper are considered "products of" Mexico. However, such booklets
do not undergo a double substantial transformation in Mexico and
accordingly, their cost or value cannot be counted in determining
the 35% value-content requirement under the GSP.
This decision should be mailed by your office to the internal
advice requester no later than 60 days from the date of this
letter. On that date the Office of Regulations and Rulings will
take steps to make the decision available to Customs personnel via
the Customs Module in ACS and the public via the Diskette
Subscription Service, Lexis, Freedom of Information Act and other
public access channels.
Sincerely,
John Durant, Director
Commerial Rulings Division