CLA-02:RR:CR:SM 560321 KKV
Mr. Michael Tomenga
McKenna & Cuneo, L.L.P.
1900 K Street, N.W.
Washington, D.C. 20006
RE: Eligibility of melamine plates imported from
Thailand for preferential tariff treatment under
the Generalized System of Preferences (GSP);
double substantial transformation; melamine-formaldehyde prepolymer resin; melamine molding
compound
Dear Mr. Tomenga:
This is in response to your letter dated February 12,
1997 (and subsequent transmittal dated November 20, 1997),
on behalf of Simon Marketing, which requests a binding
ruling regarding the eligibility of certain melamine plates
for preferential duty treatment under the Generalized System
of Preferences (GSP) upon their importation into the U.S.
from Thailand. Upon review, your request for
confidentiality with regard to certain business information
relevant to the production of the subject merchandise is
approved. A sample of the finished plate was submitted with
your request.
FACTS:
Your letter indicates that Simon Marketing ("Simon")
intends to import plastic tableware into the United States
from Thailand. The merchandise to be imported consists of
plastic dinner plates manufactured from melamine. The
plates measure approximately 9¬ inches in diameter with a
wall thickness of 1.6 mm (.0630 inches) and will be
decorated with artwork from an upcoming animated feature
movie.
We are informed that the plates will be manufactured
from melamine molding compound, which is produced through
the chemical reaction that occurs when melamine crystals are
combined with formaldehyde to form a melamine/formaldehyde
co-polymer resin. The resulting resin is then blended with
alpha cellulose, placed in a kneader and dried to form a
base molding compound. Coloring material, lubricants and
catalysts are added to the compound. It is then sent
through a ball mill and a sieve, resulting in a granular
molding compound suitable for use in the manufacture of
melamine plates.
To produce the plates, the melamine molding compound is
first placed into a preheater that heats the compound to
205-225ø Fahrenheit. The preheated compound is then charged
into a plate-shaped mold. A hydraulic press is used to
apply pressure to the molded surface. As pressure is
applied, the compound is formed into the shape of a plate.
After the plate has been formed, a decorative overlay
impregnated with melamine resin and cut to fit the shape of
the mold is placed atop the plate. The press is then closed
again for several seconds, affixing the decorative overlay
to the plate. The plate is then placed on a cooling rack.
After cooling, any necessary finishing work is conducted.
The finished plates will be shipped directly from Thailand
to the United States.
ISSUE:
Whether the melamine dinner plates are eligible for
preferential tariff treatment under the Generalized System
of Preferences (GSP) upon importation into the United
States.
LAW AND ANALYSIS:
Under the Generalized System of Preferences (GSP),
eligible articles the growth, product or manufacture of a
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
of value of material 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 into the United States.
General Note 3(a)(iii), Harmonized Tariff Schedule of
the United States (HTSUS), states that special rates of duty
under one or more of the special tariff treatment programs
(including the GSP) apply to those products which are
classified under a provision for which a special rate is
indicated in the "Special" subcolumn and for which all of
the legal requirements for such program(s) have been met.
For an article to be eligible to receive duty-free
treatment under the GSP, it must be imported from a
designated BDC and classified under a tariff provision for
which a rate of duty of "Free" appears in the "Special"
subcolumn followed by the symbol "A" or "A*." As provided
in General Note 4(a), HTSUS, Thailand is a designated BDC.
In New York Ruling B83033, dated March 13, 1997, Customs
determined that the subject merchandise is classifiable
under subheading 3924.20.2000, HTSUS. Articles provided for
in this provision are eligible for duty-free treatment under
the GSP provided that they are a "product of" a BDC and meet
the value-content requirement and are "imported directly"
into the U.S. Inasmuch as you indicate that the plates will
be "imported directly" into the U.S. from Thailand, this
ruling will discuss only the remaining two requirements.
A) Country of origin ("Product of") requirement
In addition to being "imported directly" into the
U.S., the articles must be a "product of" a designated BDC
in order to be eligible for preferential treatment under the
GSP. Where an article is produced from materials imported
into the BDC, as in this case, the article is considered to
be a "product of" the BDC for purposes of the GSP only if
those materials are substantially transformed into a new and
different article of commerce. See 19 CFR 10.177(a)(2) and
Azteca Milling Co. v. United States, 703 F.Supp. 949 (CIT
1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989). The courts
have stated that 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." Texas Instruments Inc.
v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782
(1982).
Customs has previously discussed the molding of plastic
into a specific shape. In Headquarters Ruling Letter (HRL)
055611 dated October 13, 1978, Customs held that the
injection molding of plastic pellets to form parts of toy
pistols constitutes a substantial transformation. Likewise,
in HRL 556646 dated August 6, 1992, Customs held that the
injection molding of plastic pellets to form front piece and
two temple pieces of eyeglass frames constitutes a
substantial transformation. In the case under
consideration, a portion of melamine molding compound will
be heated, placed into a plate-shaped mold and pressed into
the shape of a plate. The resulting article clearly has a
different name, character and use than the molding compound
from which it was made. Accordingly, it is our
determination that any imported materials used in the
manufacture of the finished plate would be substantially
transformed into a "product of" Thailand for purposes of
preferential tariff treatment under the GSP.
B) Value-Content Requirement
In addition to the "imported directly" and "product of"
requirements, to be eligible for duty-free treatment under
the GSP statute, merchandise must also satisfy a 35%
value-content requirement. If an article consists of
materials which are imported into a BDC, as in the instant
case, the cost or value of these materials may be counted
toward the 35% value-content requirement only if they
undergo a double substantial transformation in the BDC.
Customs application of the double substantial
transformation requirement in the context of the GSP
received judicial approval in The Torrington Company v.
United States, 8 CIT 150, 596 F.Supp. 1083 (1984), aff'd 764
F.2d 1563 (Fed. Cir. 1985). The Court of International
Trade, after affirming Customs application of the double
substantial transformation concept, said:
Regulations promulgated by Customs define
the term "materials produced" to include
materials from third countries that are
substantially transformed in the BDC into
a new and different article of commerce.
19 CFR 10.177(a)(2). It is not enough to
transform substantially the non-BDC
constituent materials into the final
article, as the material utilized to
produce the final article would remain a
non-BDC material. There must first be a
substantial transformation of the non-BDC
material into a new and different article
of commerce which becomes "material
produced," and these materials produced
in the BDC must then be substantially
transformed into the new and different
article of commerce. It is noted that 19
CFR 10.177(a) distinguishes between
"merchandise produced in the BDC" and the
cost or value of the "materials produced
in the BDC" which demonstrates the
contemplation of a dual substantial
transformation requirement.
Id. at 1086.
In Torrington, supra, the Court of Appeals for the
Federal Circuit (CAFC) affirmed the CIT holding that
industrial sewing machine needles exported from a BDC, but
manufactured from non-BDC wire, were eligible for duty-free
treatment under the GSP because the double substantial
transformation requirement had been satisfied. In
Torrington, the imported wire was first shaped into a swage
needle by cutting, beveling, and altering its length and
circumference. The swage needle was then further processed
into a finished sewing machine needle. The CAFC found that
swage needles were an intermediate "new and different"
article because they were more refined, and possessed a
definite size and shape suitable for further manufacturing
into needles, while having lost the identifying
characteristics of wire.
Thus, in the case before us, in order to achieve a
"double substantial transformation," any raw materials
imported into Thailand must be substantially transformed
into a new or different intermediate article of commerce,
which is then used in Thailand in the production of the
final imported article - the melamine plates. The
intermediate article itself must be an article of commerce,
which must be "readily susceptible of trade, and be an item
that persons might well wish to buy and acquire for their
own purposes of consumption or production." Torrington,
supra, at 1570.
It is alleged that the processing of the melamine
crystals and formaldehyde results in the substantial
transformation of these materials into a new and different
article of commerce - melamine resin. It is further alleged
that the processing of the melamine resin with the alpha
cellulose, coloring materials lubricants and catalysts
results in a substantial transformation of the latter four
materials during the creation of the melamine molding
compound, which is then substantially transformed into
finished melamine plates. As a result, it is asserted that
the cost or value of any imported melamine crystals,
formaldehyde, alpha cellose, coloring materials, and
lubricants, and the cost of such processing, should be
included within the cost of "materials produced" in Thailand
for purposes of the GSP.
The Customs Service Office of Laboratories and
Scientific Services was consulted with regard to the request
for a binding ruling. In a report issued by that office, we
are informed that, with regard to the manufacturing
processes performed in Thailand, the melamine crystals are
reacted with formaldehyde to form a melamine formaldehyde
prepolymer. In so doing, the monomeric melamine (one single
unit) crystals are linked together with formaldehyde to form
a polymer which has many repeating units. In this form, the
prepolymer can be used for many different purposes by any
number of different processors.
Subsequently, the prepolymer is mixed with pigment,
filler and processing agents to form the molding compound.
Despite the addition of these materials, the melamine
remains the same - both the prepolymer and the molding
compound are "uncrosslinked" or uncured crude polymers, i.e.
raw plastics. Although the first article is a pure
prepolymer and the second is a filled and colored
prepolymer, no basic change in the melamine polymer has
occurred. The compounded product is pressed and heated into
a thermosetting plate which is the final product. During
the formation of the plate, the melamine formaldehyde
polymer is "crosslinked" or cured to the plate form. Once
the polymer is cured it cannot be further transformed, i.e.,
melted or pressed, and is in final form.
Having determined that the finished plate is a "product
of" a qualifying BDC, as set forth above, the issue to be
resolved, then, is whether, at any point during the
manufacture of the melamine plates, the melamine crystals,
formaldehyde, alpha cellulose, coloring materials,
lubricants and catalysts are substantially transformed into
a separate and distinct intermediate article of commerce
which is then used in the production of the finished
melamine plates.
The melamine monomeric crystals and formaldehyde
undergo one substantial transformation when they are reacted
together to create a new and different article - a
prepolymer - with a multitude of differing uses. Because
this new article is a general type of plastic material with
a multitude of commercial applications, it qualifies as a
intermediate article which is itself an article of commerce,
which must be "readily susceptible of trade, and be an item
that persons might well wish to buy and acquire for their
own purposes of consumption or production." Torrington,
supra, at 1570. These materials are transformed a second
time when the melamine molding compound is substantially
transformed into another new and different article - the
finished, undecorated melamine plate. Accordingly, the
value of any imported melamine crystals and formaldehyde
will be eligible to be include in determining whether the
melamine plates will meet the 35% value-content requirement.
Likewise, the alpha cellulose, pigments, lubricants and
catalysts are substantially transformed when subsumed into
the melamine-formaldehyde prepolymer. Although the melamine
resin itself does not lose its essential identity , and
thus, is not transformed upon being compounded, each of the
other materials themselves - alpha cellulose, pigments,
lubricants and catalysts - lose their individual properties
when subsumed into the prepolymer resin. Thus, these
materials also undergo a single substantial transformation
at this step in the manufacturing process, becoming a new
and different article - melamine molding compound - which we
are informed is a qualifying "article of commerce." These
materials are also transformed a second time when the
melamine molding compound is substantially transformed into
another new and different article - the finished,
undecorated melamine plate. Accordingly, the value of any
imported alpha cellulose, pigments, lubricants and catalysts
will be eligible to be include in determining whether the
melamine plates will meet the 35% value-content requirement.
We are unable to state definitively that the melamine
plates will or will not satisfy the 35% value content
requirement. Whether the requirement is satisfied can only
be ascertained when the "appraised value" of the melamine
plates is determined at the time of entry into the United
States.
HOLDING:
Based on the information provided, we find that (1) the
imported melamine plates will be classified under subheading
3924.20.2000, HTSUS, a provision eligible for preferential
treatment under the GSP; (2) upon importation into the U.S.,
the imported melamine plates will be considered "products
of" Thailand; and (3) the imported melamine plates will
qualify for duty-free treatment under the GSP, provided the
sum of (a) the cost or value of the materials produced in
Thailand, plus (b) the direct costs of processing operations
performed in Thailand is not less than 35 percent of the
appraised value of the melamine plates at the time of entry.
A determination as to whether the 35 % value-content
requirement has been met must await actual entry of the
merchandise.
The holding set forth above applies only to the
specific factual situation and merchandise identified in the
ruling request. This position is clearly set forth in
section 19 CFR 177.9(b)(1), which states that a ruling
letter is issued on the assumption that all information
furnished in connection with the ruling request and
incorporated therein, either directly, by reference, or by
implication, is accurate and complete in every material
respect. Should it be subsequently determined that the
information furnished is not complete and does not comply
with 19 CFR 177.9(b)(1), the ruling will be subject to
modification or revocation. In the event there is a change
in the facts previously furnished, this may affect the
determination of eligibility for preferential duty
treatment.
A copy of this ruling letter should be attached to the
entry documents filed at the time this merchandise is
entered. If the documents have been filed without a copy,
this ruling should be brought to the attention of the
Customs officer handling the transaction.
Sincerely,
John Durant
Director
Commercial Rulings Division