HQ 555368: Duty-Free Treatment under the Generalized System of Preferences of wooden pedestals made in Mexico

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 555368

                         January 2, 1990


CLA-2 CO:R:C:V  555368 DSN

CATEGORY:  Classification

Allen E. Smith, Esquire
470 McAllen National Bank
McAllen, Texas 78503

RE:  Duty-Free Treatment under the Generalized System of
     Preferences of wooden pedestals made in Mexico

Dear Mr. Smith:

     This is in response to your letter of April 14, 1989, in
which you request a ruling under the Generalized System of
Preferences (GSP) (19 U.S.C. 2461-2466), on behalf of Austin
Sculpture & Decorative Art, Inc., that U.S. materials imported
into Mexico undergo a double substantial transformation in the
production of wooden pedestals.

FACTS:

     You state that the materials used to produce the wooden
pedestals, 4 by 8 foot particle boards, resin-and-paper laminate,
and glue, originate in the U.S.  You describe the processing
operations that will take place in Mexico as follows:

     1.  High pressure phenolic resin-and-paper laminate, which
is 1/32 inch thick, is bonded with glue to either a 3/8 inch or
1/2 inch 4 by 8 foot particle board panel.

     2.  Components of pedestals are created from the resulting
4 by 8 foot panels by cutting out into blanks which are further
cut into smaller pieces and beveled.

     3.  These components are then joined and glued to form a
pedestal.  The pedestals are then finished and cleaned.


ISSUE:

     Whether the cost or value of the U.S. materials imported
into Mexico may be included in the GSP 35% value-content
computation.

LAW AND ANALYSIS:

     Under the GSP, eligible articles which are imported directly
from a designated beneficiary developing country (BDC) into the
U.S. qualify for duty-free treatment if the sum of the cost or
value of the constituent materials produced in the BDC plus the
direct costs involved in processing the eligible article in the
BDC is at least 35% of the article's appraised value at the time
it is entered into the U.S.  See 19 U.S.C. 2463.

     Mexico is a BDC, see General Note 3(c)(ii)(A), Harmonized
Tariff Schedule of the United States Annotated (HTSUSA), and,
based on your description, it appears that the wooden pedestals
will be classified under subheading 9403.60.8080, HTSUSA, which
provides for other furniture and parts thereof, other wooden
furniture, other, other, which is a GSP eligible provision.
Assuming that the wooden pedestals will be imported directly to
the U.S., they will receive duty-free treatment if the GSP 35%
value-content minimum is met.

     The cost or value of materials which are imported into the
BDC and used in the production of the GSP eligible article may
be included in the 35% value-content computation only if the
imported materials undergo a double substantial transformation.
That is, the U.S materials imported into Mexico must be
substantially transformed in Mexico into a new and different
article of commerce, which is then used in the production of the
final article, the wooden pedestals.  See 19 CFR 10.177(a).

     A substantial transformation occurs when a new and different
article of commerce 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).

     We believe there is no question in this case that the U.S.
materials to be sent to Mexico will undergo a substantial
transformation in Mexico since the wooden pedestals are new and
different articles of commerce when compared to materials used in
producing them.  The question to be resolved is whether, during
the manufacture of the pedestals, the U.S. materials are
substantially transformed into a separate and distinct
intermediate article of commerce which is then used in the
production of the finished pedestals.
     The process of laminating the particle boards and cutting
out pedestal components from the boards clearly results in
articles with a distinctive name, character and use different
from that possessed by the materials exported to Mexico.
However, it is also necessary to show that the pedestal
components are new and different articles of commerce.  An
"article of commerce" must be commercially recognizable as a
different article, i.e., it must be readily susceptible of trade
and be an item that persons might well wish to buy and acquire
for their own purpose of consumption or production.  See The
Torrington Co., v. United States, 764 F.2d 1563, 1568 ((Fed. Cir.
1985).  In this regard, you have provided no information to
indicate that the pedestal components are distinct commercial
entities in the sense that they are separately bought and sold or
are ready to be marketed as such.  Therefore, it is our opinion
that the production of the wooden pedestals in Mexico constitutes
a continuous manufacturing process resulting in the creation of
only one separately identifiable article of commerce--the
article imported into the U.S.

HOLDING:

     The cost or value of the U.S. materials exported to Mexico
may not be counted toward the GSP 35% value-content requirement
in determining whether the wooden pedestals are eligible for
duty-free treatment under the GSP.

                                   Sincerely,



                                   John Durant, Director
                                   Commercial Rulings Division