CLA-2 CO:R:C :S W556902 WAW
Mr. Fredrick D. Lawrence District Director
U.S. Customs Service
International and Terrace Streets
Nogales, Arizona 85621
RE: Internal Advice No. 47/92; eligibility of disposable safety razors and safety razor cartridges from Mexico for duty-free treatment under the GSP; substantial transformation; 9801.00.10; packaging
Dear Sir:
This is in response to your memorandum dated July 10, 1992, forwarding a request for Internal Advice 47/92, to our office regarding the eligibility of disposable safety razors and safety razor cartridges from Mexico for duty-free treatment under the Generalized System of Preferences (GSP)(19 U.S.C. 2461-2466). We had an opportunity to meet with counsel on January 14, 1993. Counsel submitted additional supporting information dated January 25, 1993.
FACTS:
The importer of record, American Safety Razor Corporation, manufactures both safety razor cartridges and disposable safety razors in its factory in Mexico. The cartridges are produced principally as refills for non-disposable razors. However, certain styles may be used in the production of the disposable safety razors. Both the razors and cartridges are packaged in Mexico in non-reusable materials of U.S.-origin. The manufacturing operations of the cartridges are as follows:
The cartridges are comprised of six component parts. The base of the cartridge is known in the trade as a "platform." The platforms are produced in Mexico from plastic pellets of U.S.-origin, by means of an injection molding process. The same injection molding process is used in the production of the cap, which is the upper portion of what is referred to as the cartridge housing. In the molding process, four posts are formed as part of the cap. In the actual production of the cartridge, a length of lubricating strip is cut and affixed to the upper front surface of the cap prior to the cartridge assembly. A cap is positioned upside down in a jig. A secondary blade of U.S.-origin is placed reverse side up on the cap over the four protruding plastic posts. Next, a spacer of approximately the same size as the secondary blade is positioned over the posts and placed atop the secondary blade. Then, the primary blade of U.S.-origin also is positioned reverse side up, on top of the spacer, using the same four posts to guide and hold it in position. Next, the platform, which has four holes molded into it to match the configuration of the holes in the cap, is placed over the posts permitting them to protrude slightly through the base of the platform. The cartridge assembly is then permanently joined together by positioning the protruding ends of the posts on a jig so that the plastic posts roll outward over the holes in the base of the platform.
The manufacture of the disposable razors requires two additional operations. First, plastic handles are produced through an injection molding process. Once the handles are formed, they are permanently joined by force-fitting to a specially-configured cartridge. Finally, a shield is placed over the cartridge head to protect the blades.
After the razors are produced, they are packaged in a plastic bag of U.S.-origin. The completed cartridges are packaged in pocket dispensers in groups of six or ten cartridges. The packages of ten cartridges are packed in a plastic dispenser, plastic blister cover, paper blister card and paper insert, all of U.S.-origin. The importer states that none of the U.S.-origin packing materials have been advanced in value or improved in condition by any means while in Mexico.
ISSUES:
Whether the plastic pellets imported into Mexico and used in the production of the disposable razors and cartridges have undergone a double substantial transformation, so that the cost or value of the imported materials may be used in the 35% value-content calculation for purposes of satisfying the GSP.
Whether the packaging materials of U.S.-origin are properly classified under subheading 9801.00.10, Harmonized Tariff Schedule of the United States Annotated (HTSUSA).
LAW AND ANALYSIS:
Eligibility of disposable razors and cartridges for duty-free treatment under the GSP
Under the GSP, eligible products, the growth, product or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the U.S. qualify for duty-free treatment if the sum of (1) the cost or value of the material produced in a BDC, plus (2) the direct costs involved in processing the eligible article in the BDC, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See section 10.176(a), Customs Regulations (19 CFR 10.176(a)).
As stated in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States (HTSUS), Mexico is a designated BDC. In addition, it appears from your description of the merchandise that the product at issue is classified under subheading 8212.10.00, HTSUS, which provides for "[r]azors and razor blades (including razor blade blanks in strips), and base metal parts thereof: Razors," and subheading 8212.20.00, HTSUS, which provides for "Razors and razor blades (including razor blade blanks in strips), and base metal parts thereof: Safety razor blades, including razor blade blanks in strips." These subheadings are GSP eligible provisions and, therefore, the disposable razors and cartridges qualify for duty-free treatment provided they are "imported directly" from Mexico to the U.S., are a "product of" Mexico and the 35% value-content requirement is satisfied.
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 final 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).
The test for determining whether a substantial transformation has occurred is whether 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 Instruments Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982).
Counsel for the importer maintains that two separate substantial transformations take place during the assembly of the disposable razors. Counsel states that the platforms and caps used in the production of the cartridges qualify as substantially transformed constituent materials of Mexican- origin. Additionally, counsel claims that the handles and cartridges used in the production of the razors qualify as substantially transformed constituent materials of Mexican-origin.
With regard to the injection molding process performed in Mexico, Customs has consistently held that products created by a thermal injection molding process have undergone a substantial transformation. See HRL 071518 dated November 8, 1984; 071534 dated July 19, 1984; HRL 555659 dated December 3, 1990 (molded plastic parts, such as handles, folding hinges, brakes, and folding clip are new and different articles from the resins from which they are made); HRL 055611 dated Octobe5r 13, 1978
(injection molding of plastic pellets to form parts of toy pistols constitutes a substantial transformation). In the instant case, it is clear that using plastic pellets in an injection molding process to create platforms, caps and handles in Mexico which are used in the production of razor cartridges and razors results in a substantial transformation of the plastic pellets into new and different articles of commerce. Therefore, the plastic components comprising the disposable razors and cartridges are considered to be "products of" Mexico for purposes of the GSP. The caps, handles and platforms are also considered articles of commerce. Counsel has provided documentation in the form of purchase orders placed on a number of vendors which supply American Safety Razor with molded caps, platforms, and handles which sufficiently demonstrates that these articles may, in fact, be bought and sold commercially.
The next issue to be considered concerns whether the operations of assembling the cap and platform to form a cartridge and assembling the handle to the cartridge to form the completed razor constitute a second substantial transformation of the plastic pellets imported into Mexico.
In determining whether the processing performed in Mexico constitutes a substantial transformation, section 10.195(a), Customs Regulations (19 CFR 10.195(a)), also is relevant. According to 19 CFR 10.195(a), which implements the Caribbean Basin Economic Recovery Act {CBERA), no article shall be considered to have been produced in a CBERA beneficiary country by virtue of having merely undergone simple, as opposed to complex or meaningful, combining or packaging operations. However, 19 CFR 10.195(a)(2)(ii)(D) provides that this exclusion shall not be taken to include:
A simple combining or packaging operation or mere dilution coupled with any other type of processing such as testing or fabrication (e.g., a simple assembly of a small number of components, one of which was fabricated in the beneficiary country where the assembly took place.) (Emphasis added)
This regulation is instructive here inasmuch as the CBERA and GSP programs have similar statutory aims, and the country of origin criteria of the statutes are nearly identical.
In HRL 556646 dated August 6, 1992, we held that the cost or value of plastic pellets imported into Mexico and processed into finished frames, which are assembled with lenses to make finished glasses, may be counted toward the 35% value-content requirement under the GSP. In this case, we found that a second substantial transformation occurred as a result of the combined operations of trimming, cutting, smoothing, polishing, cleaning, heat pressing, assembling the front to the temples, bending the temples, dipping the frames in chemicals, hot stamping, painting, inspection, and final insertion of the lenses into the frames by force fitting. In HRL 556646, we stated that even if the assembly of the frames and lenses itself by pressure insertion is considered a simple operation, it would still fall within the ambit of 19 CFR 10.195(a)(2)(ii)(D), because of the complete fabrication of the frame components from the plastic pellets and the further processing performed upon the lenses in the BDC.
Consistent with HRL 556646, we are of the opinion that the plastic pellets imported into Mexico and used in the production of the razors and cartridges may be counted toward the 35% value content requirement under the GSP. In view of the fact that the cartridge components and the razor handle are fabricated in Mexico from plastic components, we believe that the operations described above to produce the razors and cartridges constitute more than a simple combining operation as set forth in 19 CFR 10.195(a). We find that the assembly of the razor and cartridge components with other materials in Mexico to create the finished articles results in a new and different article and constitutes a second substantial transformation of the materials imported into Mexico.
Finally, the fabrication and assembly process involved in producing the razors and cartridges are not the type of "pass through" operations which Congress intended to prohibit from receiving GSP benefits. "The provision would not preclude meaningful assembly operations utilizing foreign components, provided the assembly is of significance to the local economy, meets the 35% local content rule, and results in a new and different article." H.R. Rep. No. 98-266, 98th Cong., 1st Sess. 13 (1983).
Eligibility of Packing Material for duty-free treatment under HTSUS subheading 9801.00.10, HTSUS
Subheading 9801.00.10, HTSUS, provides for the free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFRE 10.1), are met. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. See Border Brokerage Company Inc. v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).
With respect to the packaging materials in the instant case, (i.e., header cards, plastic bags), we are of the opinion that they are separately entitled to duty-free treatment under subheading 9801.00.10, HTSUS. We held in HRL 731806 of November 18, 1988, that containers of U.S. origin are entitled to duty free treatment under subheading 9801.00.10, HTSUS, when returned with their contents. Therefore, since the packaging materials are of U.S.-origin and have not been advanced in value or improved in condition while abroad, they are entitled to duty-free entry under HTSUS subheading 9801.00.10 when returned to the U.S. As the packaging materials are separately entitled to classification under this tariff provision, their value would not be included in the appraised value of the razors and cartridges.
HOLDING:
On the basis of the information submitted, it is our opinion that the operations performed in Mexico in the production of the plastic components comprising the disposable razor and cartridge components substantially transform the U.S. materials into a new and different article of commerce. In addition, we find that because the plastic pellets undergo a double substantial transformation in Mexico, their cost or value may be included in the GSP 35% value-content requirement. Therefore, provided that the sum of the cost of materials produced in Mexico plus the direct costs of processing operations performed there equals at least 35% of the appraised value of the finished razors and cartridges, and the razors and cartridges are imported directly into the U.S. from Mexico, they will be entitled to duty-free treatment under the GSP.
Moreover, as the materials used for packing the razors and cartridges of U.S.-origin (i.e., plastic bag, plastic dispenser, plastic blister cover, paper blister card, paper insert), are not advanced in value or improved in condition abroad as a result of the packaging operation in Mexico, they are separately entitled to duty-free treatment under subheading 9801.00.10, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.1.
Sincerely,
John Durant, Director
Commercial Rulings Division