OT-RR:CTF:VS H041936 RSD
Port Director
U.S. Customs and Border Protection
Port of Atlanta
4341 International Parkway, Suite 600
Atlanta, Georgia 30354
RE: Protest 1704-08-100074; Generalized System of Preferences; Power Mirror Actuators Used in Motor Vehicles, Substantial Transformation
Dear Port Director:
This is in response to the memorandum of April 30, 2008, forwarding Protest 1704-08-100074 filed by Nissin Customs Service (the "protestant") with respect to the importation of power mirror actuators for motor vehicles imported by Honda Lock-America (“HL-A”) for our review. A supplemental submission dated March 27, 2009, contained a series of invoices and a revised spreadsheet. Our decision follows.
FACTS:
The products at issue in this protest are power mirror actuators, which are the mechanical and electronic components of power mirror assemblies that are used on motor vehicles. The protest covers two entries of the power mirror actuators imported by HL-A. United States Customs and Border Protection ("CBP") liquidated the entries of the power mirror actuators under subheading
8501.31.60, of the Harmonized Tariff Schedule of the United States (“HTSUS”) without preferential tariff treatment under the Generalized System of Preferences (“GSP”). The Protestant claims that the goods are entitled to duty-free treatment under the GSP. Your office states that Protestant did not submit sufficient documentation to support its claim for the duty-free tariff treatment under the GSP.
The record indicates that HL-A entered the two shipments of Power Mirror Actuators into the United States on March 27, 2007 and April 1, 2007. On June 26, 2007, CBP issued CBP Form 28 requesting additional information. The CBP Form 28 indicated that this was a notification that CBP is verifying the originating status of the goods. The purpose of the verification was to determine whether the goods were originating per the rules of origin set forth in General Note 4, of the HTSUS. The CBP Form 28 requested that the documentation be submitted to support GSP eligibility including:
A supporting statement as to whether the goods are the product of a GSP country or association of countries that are eligible for preferential treatment.
Documentation describing the processing operation, the country of processing and direct costs of processing/manufacture
Supplier information, including invoice affidavits, etc.
Following up on the CBP Form 28, CBP issued several Notices of Action, on October 10, 2007. The Notices of Action stated that U.S. CBP attempted to verify the validity of the claim for preferential duty treatment under the GSP of Preferences. The verification revealed that the goods do not qualify for preferential tariff treatment pursuant to General Note 4, to HTSUS. Supplier affidavits and or proof of payment to suppliers were not provided.
According to the Protestant’s submission, Honda Lock Thai Co. Ltd. manufactured the subject power mirror actuators at its facilities in Thailand. The power mirror actuators were manufactured from various parts and components, some of which were sourced from Thai suppliers, but other components may have been sourced from suppliers located in other countries. Honda Lock Thai Co. Ltd. manufactured some of the parts, components and subassemblies for the power mirror actuators, but other components were purchased from outside suppliers. The finished power mirror actuators were shipped into the United States for use in the door mirror assemblies that were used in the manufacture of various Honda automobiles and other motor vehicles.
In Thailand, the manufacturing process for making the power mirror actuators involved numerous assembly and subassembly processes where approximately 20-30 parts and components were combined to create the finished products. First, the motor subassembly was created by pressing the gear and motor together and assembling the combination to the cord comp. The cord comp is a bundle of three to four cords that were combined together. Next, this subassembly was combined with the actuator case which was created through plastic injection molding at the Thailand facility. Then, a tube was combined with the actuator case. After that, the wheel clutch subassembly was created by assembling the wheel clutch with the clutch ring. During this phase of the assembly, grease was applied to the wheel clutch in the appropriate quantity. The wheel clutch subassembly was then combined with the motor subassembly in the actuator case with the tube. Finally, the actuator cover, produced through plastic injection molding at the Thailand facility, was placed on top of the actuator case (containing the motor and the wheel clutch subassembly). More grease was applied to the cover in the appropriate quantity. After this processing, the power mirror actuators were subjected to the final assembly processes on the main production line.
According to Protestant’s counsel the final assembly processes involves discrete steps which were performed in the following order:
Assembly of the drive shaft (after grease application) and rubber
boot onto the motor and clutch assembly (with cover and case);
Assembly of the inner holder by press fit;
Assembly of tapping screws, washers, lock cap spring and lock caps to the actuator case and cover;
Assembly of the heater cord (as necessary); and
Wrapping of the tube with black electric tape.
Following the assembly and manufacturing processes described above, the finished power mirror actuators were subjected to a function test which included confirming that the wiring was done properly, flow of electric current, operation angle, operation of the actuator, and noise. Next, there was a final quality assurance check, and upon passage of this check, the finished power mirror actuators were shipped to HL-A in the United States.
Protestant points out that various plastic components for the actuators were made in Thailand from plastic resin or rubber that may have been of non-Thailand origin. These articles included the drive shaft, clutch wheel, actuator cover, actuator case, inner holder, shaft comp, rubber boot, and lock cap. In addition, various steel components for the power mirror actuators were made in Thailand from steel wire or steel sheet that may have been of non-Thai origin. These articles include the lock cap spring, plain washer and clutch ring. The power mirror actuators also contain various cord component subassemblies that were made from wire, tubing or terminals that may have been of non-Thai origin. These articles include all of the wiring harnesses which were manufactured in Thailand by SWS Logistics & Marketing (Thailand) Co., Ltd. (“SWS”). In Thailand, SWS swaged (reduced) the copper wiring to the appropriate size, combined the appropriate number and size of the wires required for the finished harness, encased the wiring in tubing, and added the terminals necessary for the connection of the wiring harness to other parts of the power mirror actuators.
ISSUE:
Whether the imported power mirror actuators for motor vehicles imported from Thailand were eligible for preferential tariff treatment under the GSP.
LAW AND ANALYSIS:
Title V of the Trade Act of 1974, as amended (19 U.S.C.A. 2461-65), authorizes the President to establish a Generalized System of Preferences to provide duty-free treatment for eligible articles from beneficiary developing countries (“BDCs”). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the goods are imported directly into the customs territory of the U.S. from the BDC and the sum or value of materials produced in the BDC plus the direct costs of the processing operations performed in the BDC is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the U.S. See 19 U.S.C. 2463(a)(2) and (3).
We first note that the imported power mirror actuators were classified in a GSP-eligible provision and that Thailand has been designated as a BDC for purposes of the GSP. Thus, if the products at issue were produced in Thailand, they may be afforded preferential treatment under the HTSUS. See GN 4(a), HTSUS. Accordingly, the first issue that must be resolved in this case is whether the power mirror actuators were “products of” Thailand.
A good is considered to be a “product of” a BDC if it is wholly the growth, product or manufacture of the BDC, or if made of materials imported into the BDC, those materials were substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.176(a). 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, 681 F.2d 778 (1982).
In this case, the manufacturing process involves numerous assembly and subassembly processes, where approximately 20-30 parts and components were combined to create the finished power mirror actuators. We note that the assembly of the power mirror actuators involves several discreet steps with different types of operations including pressing the gears and the motor together and assembling this combination to a bundle of three to four cords called the cord comp. We also note that the vast majority of the components and
subassemblies were of Thai origin. Based on the totality of the circumstances and the analysis of the precedent cited above, we find that the various components (individual parts and subassemblies) were substantially transformed as a result of the operations performed in Thailand to produce the power mirror actuators. Thus, we find that the power mirror actuators were a "product of" Thailand, a BDC, for the purposes of the GSP.
The next consideration of our analysis is that in order to be eligible for duty-free treatment under the GSP statute, merchandise must also satisfy the 35 percent value-content requirement. Under certain circumstances, the value of non-BDC materials may be included in the 35 percent minimum value-content requirement. In order for the value of these materials to be included, however, there must be a substantial transformation of the non-BDC material into a new and different article of commerce in a BDC (or other member of an association of countries treated as one BDC), which itself must then be substantially transformed in the BDC into a new and different article of commerce. That is, in this situation, the non-BDC materials must be substantially transformed in the Thailand into new and different intermediate articles of commerce, which are then used in Thailand in the production of the finished the power mirror actuators. See 19 C.F.R. § 10.177; see also Azteca Milling Co. v. United States, 703 F. Supp. 949 (Ct. Int’l Trade 1988), aff’d 890 F.2d 1150 (Fed Cir. 1989). If an article consists of materials that are imported into a BDC, as in the instant case, the cost or value of these materials may be counted toward the 35 percent value-content requirement only if they undergo a double substantial transformation in the BDC. See 19 CFR 10.177(a)(2). 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 or acquire for their own purposes of consumption or production.” The Torrington Co. v. United States, 764 F.2d 1563, (Fed. Cir. 1985). Therefore, the second issue that be considered must be considered is whether certain individual components used in producing the power mirror actuators underwent a double substantial transformation in Thailand when they were used to make power mirror actuators and thus may be counted toward the 35 percent requirement.
In numerous GSP cases, we have noted that in instances where all of the processing is performed in one GSP country, the likelihood that the processing constitutes little more than a “pass-through” operation is diminished. If the entire processing operation performed in the BDC is significant and the intermediate and final articles are distinct articles of commerce, then the double substantial transformation requirement will be satisfied. Such is the case even though the processing required to convert the intermediate article into the final article may be relatively simple and, standing alone, probably would not be considered a substantial transformation. See, e.g., HQ 557465, dated December 10, 1993.
There are three groups of components in the power mirror actuators that Protestant claims to have undergone a double substantial transformation in Thailand. They are the plastic components, steel components, and the cord components. We first look at certain plastic components. Protestant’s counsel indicates that various plastic components for the power mirror actuators are made in Thailand from plastic resin or rubber that may be of non-Thai origin. These articles include the drive shaft, clutch wheel, actuator cover, actuator case, inner holder shaft comp, rubber boot and lock cap. CBP has held on numerous occasions that forming synthetic materials into a new shape, either by thermal injection molding or extrusion, constitutes a substantial transformation. In HQ 563518, dated June 21, 2006, CBP held that polycarbonate pellets, ultimately used for the manufacture of DVDs, were substantially transformed when they were formed into half-disc shapes as a result of injection molding. See also, HQ 563086, dated November 22, 2004 (finding that the injection molding of resin pellets to form overmolds, socket molds, and connector molds constitutes a substantial transformation); and HQ 055611, dated October 13, 1978 (finding that the injection molding of plastic pellets to form parts of toy pistols constitutes a substantial transformation). Therefore, we find that the processing performed on the molded plastic and rubber components (e.g. through injection molding of plastic used by HL-A in Thailand) constitutes a substantial transformation. Thus, the resulting small plastic and rubber parts are “products of” Thailand and may be counted toward the 35 percent valuation requirement for the GSP.
Counsel also notes that various steel components such as a lock cap spring, plain washer and a clutch ring used in the power mirror actuators were made in Thailand from steel wire or steel sheet that may be of non-Thai origin. In previous rulings, CBP has held that cutting or bending materials into 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 HQ 055726 dated September 18, 1979 (a substantial transformation results from cutting, bending, and crimping wire into identifiable trigger pins for spring rings); HQ 071788 dated April 17, 1984 (forming 18 karat gold wire into circles, ovals, and other specially designed links for bracelets results in a substantial transformation); HQ 556060 dated August 27, 1991 (gold and silver strip bent into ring or bracelet shape and soldered into one piece, gold sheet cut to desired size of a jewelry piece and soldering a bail onto the cut piece, or taking preformed ring blanks and cutting them in half and soldering a pin or a clip onto the cut ring blank to form an earring were considered substantially transformed. Accordingly, the processing of the steel components through wire forming and stamping of steel constitutes a substantial transformation. Thus, the resulting steel parts are products of Thailand for GSP eligibility purposes.
The third kind of parts in the power mirror actuators made in Thailand from non-Thai components were the various cord component subassemblies, such as the wiring harnesses. In Thailand, the copper wiring was reduced to the appropriate size and combined with the appropriate number and sized wires required for the finished wire harnesses. The wiring is encased in tubing and terminals are added for connection of the wiring harness to other parts of the power mirror actuators. In general, CBP has held that wire laminating, coating, and encapsulating operations do not result in a substantial transformation. In HQ 557201, dated November 17, 1993, CBP determined that, although encapsulation may enhance the wire, such operations do not change the essential character of bunched wire as a conductor of electricity. However, in HQ 557201, CBP did find that the heating and extruding of PVC compounds onto bunched wire resulted in a substantial transformation of the PVC compounds. Furthermore, in HQ 555705, dated August 26, 1991, CBP found that the drawing, bunching and twisting, and annealing and encapsulating to insulate the wire strand did constitute a substantial transformation of the wire.
In HQ 563086, dated November 4, 2004, CBP found that the manufacture of the insulated multi-stranded copper wire involves drawing, annealing, bunching, twisting the copper and then encapsulating it by extrusion with a polyvinyl or polyethylene material to produce insulated copper wire. The resulting insulated copper wire had a name, character and use distinct from the coils of copper wire and PVC or XLPE pellets from which it was produced. Consequently, the copper wire, polyvinyl pellets, and polyethylene pellets were substantially transformed by the manufacturing process into products of Honduras. Similarly in this case, we also find that the cord component wiring harnesses were products of Thailand for GSP eligibility purposes. Accordingly, the cost or value of the components or materials used to produce the various cord components subassemblies, various steel components and the small plastic parts may be included as “materials produced” in the BDC for purposes of calculating the 35 percent value-content requirement of the GSP.
The next issue in this case that must be considered is whether the protestant has submitted sufficient documentation to show that the imported power mirror actuators satisfy the 35 percent value-content requirement. Protestant has provided a spread sheet with copies of the relevant invoices. In a supplemental submission dated March 27, 2009, Counsel presented a new set of fifteen invoices for component parts that were used in manufacturing the power mirror actuators in Thailand. In an email sent on December 4, 2009, Protestant’s counsel confirmed that HL-A’s vendors issued these invoices for components that were actually used in making the power mirror actuators, the subject of the protested entries covered by this decision. We note that each of the fifteen invoices are dated before March 27, 2007 and April 1, 2007, which are the dates of the relevant protested entries of the power mirror actuators. The sum of the costs of the Thai made components shown on the fifteen submitted invoices exceeds the 35 percent requirement of the GSP. Protestant’s counsel also
presented a spread sheet that shows the costs of the various components and assembly operations that were used in producing the power mirror actuators for the different Honda model cars. The spread sheet shows that for each of these different power mirror actuators, the value of the components and the other processing performed in Thailand exceeded the 35 percent value-content of the finished articles. The more recent set of invoices that Protestant has submitted supports this conclusion. Based on our review of the information presented, we conclude that the protestant has submitted sufficient documentation to show that the 35 percent value-content requirement for the GSP has been satisfied.
The final issue in this case that must be resolved in determining whether the imported merchandise was eligible for the GSP tariff preference is whether the Protestant has submitted sufficient documentation to support that the power mirror actuators were imported directly into the U.S. as required by the GSP. The "imported directly" requirement is defined in Section 10.175, CBP Regulations (19 C.F.R. 10.175) defines the term "imported directly” for purposes of the GSP. Paragraph (a) of these regulation, which sets forth the most restrictive definition of the term, provides that "imported directly" means "direct shipment from the beneficiary country to the U.S. without passing through the territory of any other country."
Under 19 C.F.R. 10.175(b), merchandise shipped from a BDC through any other country to the U.S. is “imported directly" if the merchandise does not enter into the commerce of any other country while en route to the U.S., and the invoices, bills of lading, and other shipping documents show the U.S. as the final destination. Protestant has submitted shipping documents, including a combined transport bill of lading and the arrival notice and invoices that indicate that the power mirror actuators were imported directly from Thailand into the U.S.
Therefore, we find that Protestant has presented sufficient evidence to establish that the requirements for eligibility under the GSP have been satisfied. Accordingly, we hold that the imported power mirror actuators qualify for duty-free treatment under the GSP.
HOLDING:
Based on the facts described above, the imported power mirror actuators have met the requirements for qualifying for the GSP duty-free tariff preference. Therefore, the protest should be granted in full.
In accordance with the Protest/Petition Processing Handbook (CIS HB December 2007), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision should be accomplished prior to mailing of this decision. Sixty days from the date of this decision, the Office of Regulations and Rulings will make the decision available
to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cpb.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon,
Director, Commercial & Trade Facilitation Division