HQ 555189: Request for Internal Advice Regarding GSP Eligibility of Umbrellas Imported from the Philippines

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 555189

                                    June 12, 1989

          CLA-2  CO:R:C:V  555189  BJO

          CATEGORY: Classification

          District Director of Customs
          Philadelphia, Pennsylvania 19106

          RE: Request for Internal Advice Regarding GSP Eligibility of
              Umbrellas Imported from the Philippines

          Dear Sir:

               This is in response to your memorandum of November 22, 1988
          (MAN-1-DD:CO:MMcG), forwarding the internal advice request
          submitted by John M. Peterson, Esq. on behalf of Totes,
          Incorporated ("importer").  Mr. Peterson asks that you seek our
          advice concerning the eligibility under the Generalized System of
          Preferences (GSP)(19 U.S.C. 2461-2465) of certain umbrellas
          imported from the Philippines.

          FACTS:

               The importer states that it is currently importing hand-
          held, self-folding, collapsible umbrellas with a telescopic
          shaft, which are manufactured in the Philippines from Philippine
          and Taiwanese components.  The materials imported into the
          Philippines and used in the production of the umbrellas are:
          collapsible metal umbrella frames, waterproof nylon fabric in
          continuous lengths, printed hang tags, and PVC plastic umbrella
          cases.  The remaining umbrella parts and packing materials
          -cotton thread, sewing labels, snap buttons, elastic bands,
          rugby, packing cartons, packing tape, packing strap, and packing
          clips- are purchased from Philippine manufacturers.

               According to the importer, production of the umbrellas in
          the Philippines involves two steps: first, manufacture of the
          umbrella top, and second, joining the umbrella top with other
          components to form the completed umbrella.  In the first step,
          the Philippine umbrella manufacturer inspects and edge folds the
          continuous length nylon fabric imported from Taiwan.  The fabric
          is cut into three pieces of equal width, which are hemmed on both
          sides.  Triangular panels are cut with a gore from the cut
          lengths of nylon.  The sides of each triangular panel are cut to
          give each a slightly curved shape.  Eight such triangular top
          panels are then sewn together.  A piece of top cloth is cut from















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          the nylon fabric, pressed, and inserted under the center of the
          umbrella top.  The small hole cut at the center of the umbrella
          top is reinforced by round stitching.  A tie measuring
          approximately 6 1/2 inches long is cut and sewn from the same
          nylon fabric, and is sewn to the umbrella top, and velcro
          material or snaps are attached to the opposite ends of the tie.
          At this point in the process, the umbrella top is complete.

               In the second step, the completed umbrella top is attached
          to the frame by "tacking, tipping, and tethering" operations.
          This process involves (1) threading fabric through apertures at
          the end of each of the umbrella frame's spokes and stitching
          thereto, (2) joining one point on each spoke to the umbrella top
          by threading a small fabric loop through a frame aperture and
          sewing it to the underside of the umbrella top, and (3) joining
          another point on each spoke to a frame aperture, with a large,
          elastic loop sewn to the underside of the umbrella top.  The top
          is sewn or otherwise affixed to the umbrella frame at 24
          separate points.  A plastic ferrule is then inserted through the
          opening in the umbrella top and snapped or screwed onto the
          frame, joining the umbrella top and frame.  Handles are assembled
          on the frame, and, where necessary, key springs are aligned with
          the shaft.  The umbrella is then furled, inspected, and packed
          for shipment.

               The importer claims that if the umbrella tops are found to
          be products of the Philippines, then the Philippine content of
          the finished umbrella is equivalent to 36.2% of the umbrella's
          dutiable transaction value.  However, if the umbrella tops are
          found not to be products of the Philippines, then the cost of
          Philippine materials and processing operations would be
          equivalent to 22.3% of the entered value of the umbrellas.  The
          umbrellas have been entered under subheading 6601.91.00 of the
          Harmonized Tariff Schedules of the United States ("HTSUS").

          ISSUE:

               Whether umbrella tops, which are manufactured in the
          Philippines from continuous lengths of nylon fabric imported from
          Taiwan, and joined with other components to form finished
          umbrellas, are substantially transformed constituent materials
          for purposes of the GSP.

          LAW AND ANALYSIS:

               Under the GSP, eligible products of a designated beneficiary
          developing country (BDC) which are imported directly into the















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          U.S. qualify for duty-free treatment if the cost or value of the
          constituent materials produced in the BDC plus the direct costs
          of processing the eligible article in the BDC is equivalent to at
          least 35 percent of the article's appraised value. See 19 U.S.C.
          2463.

               The Philippines is a designated beneficiary developing
          country for GSP purposes, and umbrellas classified under
          subheading 6601.91.00 of the HTSUS are GSP-eligible articles.
          Accordingly, the articles may be entered without payment of duty
          if the sum of the cost of materials produced in the Philippines
          plus the direct costs of the Philippine processing operation is
          not less than 35 percent of the value of the umbrella at the time
          of entry into the U.S.

               The cost or value of materials which are imported into the
          BDC and used in the production of the GSP-eligible article, as in
          this case, may be included in the 35 percent value-content
          computation only if the imported materials undergo a double
          substantial transformation.  That is, the waterproof nylon fabric
          imported into the Philippines in continuous lengths must be
          substantially transformed in the Philippines into a new and
          different intermediate article of commerce, which is then used in
          the production of the final imported article, the umbrella. See
          19 CFR 10.177(a).

               A substantial transformation occurs when 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).

               The importer claims that the cutting of the nylon fabric
          and/or the assembly thereof into umbrella tops results in a
          substantial transformation of the Taiwanese-origin fabric into
          new articles of commerce of Philippine origin, and that the
          manufacture of the umbrella tops into a finished collapsible
          umbrella constitutes the requisite second substantial
          transformation.

               In support of its claim that the imported fabric is
          substantially transformed by cutting, or by cutting and assembly
          into umbrella tops, the importer cites a number of rulings which
          generally hold that the cutting of fabric of undefined shape into
          specific patterns or shapes substantially transforms the fabric
          into a new and different article of commerce. See HQ 055591,
















                                         - 4 -

          dated August 22, 1978; HQ 055680, dated June 18, 1979; HQ 055694,
          dated August 15, 1979; HQ 067823, dated June 2, 1982; HQ 554025,
          dated December 16, 1986; and HQ 554027, dated January 13, 1987.
          The importer also cites section 12.130(e) of the Customs
          Regulations (19 CFR 12.130(e)) (Textile and textile products
          country of origin)("An article or material usually will be a
          product of a particular foreign territory or country...when it
          has undergone prior to importation into the U.S. in that foreign
          territory or country...cutting of fabric into parts and assembly
          of those parts into the completed article; or substantial
          assembly by sewing and or tailoring of all cut pieces of apparel
          articles which have been cut from fabric in another foreign
          territory or country...into a completed garment.")

               In support of its claim that the assembly of the umbrella
          top into the finished umbrella constitutes a second substantial
          transformation, the importer claims that the completed umbrella
          has a name, character, and use different from its constituent
          materials, is separately classified for tariff purposes, and is a
          consumer good, while the umbrella top is a producer good.

               We believe that the importer's arguments have merit.  We
          have consistently held that the cutting of fabric imported in
          continuous lengths into specific pattern and shapes constitutes a
          substantial transformation, as the importer claims, and we find
          that this principle applies to the facts in this case.  We
          further find that the assembly of the umbrella from the umbrella
          top and other imported components in the described tacking,
          tipping and tethering operations constitutes a second substantial
          transformation.  As the importer observes, the finished umbrella
          is a new and different article of commerce with a name,
          character, and use different from its component parts.

               In light of the foregoing, we find that the umbrella tops
          are substantially transformed constituent materials for purposes
          of the GSP, and therefore their cost or value may be counted
          toward the 35 percent value-content requirement.  Your forwarding
          memorandum states that you do not believe that the cost data
          supplied by the importer is sufficient to support the conclusion
          that the 35 percent value-content requirement will be met.
          Pursuant to 19 CFR 10.172, a claim for exemption from duty under
          the GSP may be denied by the district director if he is not
          satisfied that the country of origin criteria and other
          regulatory requirements have been met.  Accordingly, you may deny
          the importer's claim for exemption on that basis, or require
          presentation of additional evidence verifying the importer's cost
          data.















                                         - 5 -

          CONCLUSION:

               Umbrella tops produced in the Philippines from imported
          continuous lengths of nylon fabric and assembled into umbrellas
          are substantially transformed constituent materials of the
          umbrellas for purposes of the GSP where the imported fabric is
          cut into panels and sewn together to form umbrella tops, which
          are then joined with an umbrella frame and other components to
          form the completed umbrellas in the above described operations.
          However, your office may deny the importer's claim for exemption
          from duty under the GSP, or may require presentation of
          additional verifying evidence, if you are not satisfied that the
          cost data presented to support the claim is sufficient.

                                         Sincerely,




                                         John Durant, Director
                                         Commercial Rulings Division