HQ 554919: Inquiry concerning the applicability of duty-free treatment, pursuant to the CBI, of certain roofing felt

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                                     HQ 554919

                                    May 25, 1988

          CLA-2 CO:R:C:V 554919 DJG

          CATEGORY: Value

          Tariff No.:  6807.90.00 (775.58, TSUS)

          Hans van Woerden
          ADCO ZUID B.V.
          Aijsterlaan 10
          5104 PE Dongen, the Netherlands

          RE:   Inquiry concerning the applicability of duty-free
                treatment, pursuant to the CBI, of certain roofing
                felt

          Dear Mr. van Woerden:

               Your letter of January 6, 1988, requests information on the
          applicability of CBI treatment for certain roofing felt you
          propose to import from Aruba.

          FACTS:

               Based on the information supplied in your submission, it
          appears that "Dakoflex" (SAS-modified bitumen roofing felt) is
          produced when certain amounts of polystyrene and polybutadiene
          (coarse grain) are heated with specific amounts of bitumen.
          After mixing, the resulting "batch" is molded into sheets
          measuring 40 in. wide and 160 mil. thick.  The sheets are then
          coated with particles of slate and cooled.  Once the roofing felt
          sheets are cooled they are cut to length, rolled, packed, placed
          on pallets, packaged and placed in containers for shipment.

          ISSUE:

               You raise the following issues:

                    (1) whether the product is eligible for CBI treatment;
                    (2) whether the value, of any or all of the materials
                        used in the manufacture of the product can be
                        counted toward the 35% value requirement (whether
                        indigenous or foreign);















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                    (3) whether any or all of the following costs may be
                        included in determining either cost of production
                        or cost of materials:
                             (i)   the lease costs of the storage facility
                                   and storage containers;
                             (ii)  the interest and amortization on the
                                   equipment and building, directly related
                                   to production;
                             (iii) the cost of rejected or scrap material,
                                   less its value when sold as low grade
                                   material; and
                             (iv)  all "normal costs" such as wages,
                                   utilities, packaging, etc.

          LAW AND ANALYSIS:

               As you know, unless otherwise excluded from eligibility, any
          article which is the growth, product, or manufacture of a
          beneficiary country, shall be eligible for duty-free treatment
          under the CBI, if that article is provided for in an item for
          which a rate of duty appears in the "Special Column" followed by
          the symbols "E" or "E*" in parentheses, and if:

                    (1) the article is imported directly from a beneficiary
                        country into the Customs Territory of the U.S.; and
                    (2) the sum of (A) the cost or value of the materials
                        produced in a beneficiary country or two or more
                        beneficiary countries; plus (B) the direct costs
                        of processing operations performed in a beneficiary
                        country or countries is not less than 35% of the
                        appraised value of such article at the time it is
                        entered.

               The subject, roofing felt, is classified under item 774.58,
          Tariff Schedules of the United States (TSUS), and is designated
          eligible for CBI treatment (provided all other requirements and
          regulations are met).  You seem to indicate that the completed
          product will be imported directly from Aruba to the U.S.  If that
          is the case, you will meet the direct shipment requirement, since
          Aruba, part of the Netherlands Antilles, is a designated
          beneficiary country.

               In this instance the final product will be produced from
          materials not the product of Aruba.  Therefore, it cannot be
          considered to be wholly the product of a beneficiary country.
















                                       -3-


          However, it is our opinion that the manufacture of the foreign
          materials in this case will result in their substantial
          transformation into a new and different article of commerce
          which, for purposes of the CBI, may be considered the product of
          Aruba within the meaning of section 10.195(a), Customs
          Regulations (19 CFR 10.195(a)).  This does not automatically mean
          that the cost or value of the foreign material (used in the
          creation of the new article) may be counted toward the 35% value
          requirement.  Since the foreign material, of which the imported
          article is composed, is not wholly the growth, product, or
          manufacture of a beneficiary country, we must find that the
          processing operation creates an intermediate article (constituent
          material) which is then used in the production or manufacture of
          the finished roofing felt, before this foreign material can be
          counted toward the 35% value requirement.  Therefore, without a
          finding of a "double substantial transformation", the roofing
          felt would be eligible for duty-free treatment, only if the
          direct costs attributable to its manufacture represent 35% of its
          appraised value as imported.

               The operation you describe does not appear to effect a
          "double substantial transformation".  That is, we do not
          recognize the production of a constituent material in the course
          of manufacturing (heating and mixing) polystyrene, polybutadiene
          and bitumen into rolled sheets of roofing felt.  Therefore, the
          value of these ingredients, if imported from outside a
          beneficiary country, may not be counted as products of Aruba when
          calculating the 35% value requirement.

               You state that, in the event that no "double substantial
          transformation" is found, you will purchase a large amount of
          ingredient material from the U.S., in an effort to meet the 35%
          value requirement.  We remind you that if the cost or value of
          materials produced in the U.S. is included, only an amount not to
          exceed 15% of the appraised value of the roofing felt at the time
          it is entered that is attributed to such U.S. cost or value may
          be applied toward satisfying the 35% value requirement.

               You may also include as cost of production, wages,
          utilities, export packaging and all costs either directly
          incurred in or which can be reasonably allocated to, the growth,
          production, manufacture, or assembly of the roofing felt.  This
          would include the actual cost of waste or spoilage less the value
          of recoverable scrap.  You may not include, as cost of
          production, the lease cost of the storage facility and storage
          containers.














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               If, considering our finding that no "double substantial
          transformation" occurs in the process you describe, the sum of
          the cost or value of the materials produced in a beneficiary
          country, plus the direct cost of processing operations performed
          in a beneficiary country, is not less than 35% of the appraised
          value of the imported roofing felt, then it would be eligible for
          duty-free treatment under the CBI, provided all other regulatory
          requirements are met.

               In further response to your request we have included with
          this letter additional CBI materials, which you may find helpful.

          HOLDING:

               The subject roofing felt may be eligible for duty-free
          treatment under the CBI if, the sum of the cost or value of the
          materials produced in a beneficiary country, plus the direct cost
          of processing performed in a beneficiary country, is not less
          than 35% of its appraised value and provided all other regulatory
          requirements are met.

                                       Sincerely,





                                       John Durant
                                       Director, Commercial
                                       Rulings Division