CLA-2 OT:RR:CTF:VS H041939 HkP
Port Director
Port of Atlanta
U.S. Customs and Border Protection
4341 International Parkway, Suite 600
Atlanta, GA 30354
RE: Protest no. 1704-08-100062; Generalized System of Preferences; Power Mirror Actuators for Motor Vehicles; Substantial Transformation
Dear Port Director:
This is in response to the Application for Further Review of Protest no. 1704-08-100062, timely filed by counsel on behalf of Honda Lock-America, Inc. (“HL-A”), on April 9, 2008. At issue is the eligibility of power mirror actuators imported from Thailand to benefit from preferential tariff treatment under the Generalized System of Preferences (“GSP”). In reaching our decision, we have taken into account a letter dated April 30, 2008, correcting certain information contained in the April 9, 2008, submission, and additional information submitted to this office on September 2, 2010. We apologize for our delay in responding to you.
FACTS:
The product at issue in this protest is power mirror actuators, which are the mechanical and electronic components of power mirror assemblies that are used on motor vehicles. Twenty-nine entries of the actuators were made between December 19, 2006, and September 2, 2007. For each entry, HL-A claimed that the goods were entitled to duty-free treatment under the GSP.
The record indicates that on June 26, 2007, CBP issued a Request for Information (CBP Form 28) to HL-A, concerning an entry made on May 8, 2007. The CBP Form 28 notified the importer that CBP was verifying the originating status of the goods under the rules of origin set forth in General Note 4, Harmonized Tariff Schedule of the United States (“HTSUS”). CBP requested that the following documentation be submitted to support the company’s GSP claim:
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.
CBP received no response to this request.
On July 27, 2007, CBP issued a Notice of Action (CBP Form 29) to HL-A, informing the importer that since no response to the Request for Information had been received, the importer’s GSP claim would be denied if the requested information was not supplied within 20 days. On August 13, 2007, HL-A responded to CBP’s request for information by submitting a certificate of origin, documentation describing the actuator processing operation, invoices, and a manufacturer’s affidavit. On September 12, 2007, CBP issued another Notice of Action to HL-A, informing the importer that its GSP claim was denied because of insufficient information. In particular, supplier affidavits and/or proof of payment to suppliers had not been provided.
On October 10, 2007, based on the information that had been provided in response to the Request for Information for the May 8, 2007, entry, CBP issued several Notices of Action, corresponding to the remaining entries, informing the importer that its GSP claims had been denied because there was insufficient information to substantiate the claims. Thereafter, CBP liquidated the entries of the power mirror actuators under subheading 8501.31.60, Harmonized Tariff Schedule of the United States (“HTSUS”), without according them preferential tariff treatment under the GSP. The importer protested these actions on April 9, 2008.
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.
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. The wheel clutch subassembly was then combined with the motor subassembly in the actuator case with the tube. Finally, the actuator cover, also 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. The power mirror actuators then underwent final assembly processes on the main production line.
According to Protestant’s counsel, the final assembly process 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, and the flow of electric current, operation angle, operation of the actuator, and noise. Next, there was a final quality assurance check, after which the finished power mirror actuators were shipped to HL-A in the United States.
According to the submission, various plastic components for the actuators were made in Thailand from plastic resin or rubber that may have been of non-Thai 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.
On September 2, 2010, counsel for the protestant submitted to this office GSP cost matrices and copies of supplier’s invoices in support of the claimed costs.
ISSUE:
Whether the imported power mirror actuators for motor vehicles imported from Thailand are 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. § 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 Section 10.176, CBP Regulations (19 C.F.R. §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 are 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 are 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. 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). 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). That is, in this situation, the non-BDC materials must be substantially transformed in Thailand into new and different intermediate articles of commerce, which are then used in Thailand in the production of the finished power mirror actuators. 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., Headquarters Ruling Letter (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.
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 plastic resin and rubber (e.g. injection molding) in Thailand constitutes a substantial transformation. Thus, the resulting small plastic and rubber parts are “products of” Thailand and, when used in the manufacture of the actuators, 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 are 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 are the various cord component subassemblies, such as the wiring harnesses. In Thailand, the copper wiring is reduced to the appropriate size and combined with the appropriate number and sized wires required for the finished wiring harness. The wiring is encased in tubing and terminals added to connect the wiring harness to other parts of the 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 are 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 is whether the protestant has submitted sufficient documentation to show that the imported power mirror actuators satisfy the 35 percent value-content requirement. In the supplemental submission, dated September 2, 2010, Counsel presented GSP cost matrices that showed for different models of Honda cars the costs of the various components of the actuators and their assembly operations, as well as copies of invoices supporting the claimed costs. Protestant’s counsel confirmed that HL-A’s vendors issued these invoices for components that were actually used in making the subject power mirror actuators. We note that, with the exception of some of the invoices for cord comps and tubes, each of the invoices is dated before September 2, 2007, which is the date of the last of the relevant protested entries.
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 sum of the costs of the Thai-made components exceeds the 35 percent requirement of the GSP, with the effect that when the value of the other processing performed in Thailand is added to the value of the Thai components, the 35 percent value-content requirement of the finished articles is also exceeded.
Finally, based on the record, it does not appear to be in issue that the “imported directly" requirement of Section 10.175, CBP Regulations (19 C.F.R. § 10.175) has been met. Consequently, we find that the involved entries are eligible for the GSP tariff preference.
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, Regulations and Rulings, Office of International Trade, 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 and Trade Facilitation Division