HQ 555060: Eligibility of ophthalmic plastic lenses manufactured in Mexico for treatment under the GSP

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 555060

                                    March 20, 1989

          CLA-2  CO:R:C:V 555060 DBI

          CATEGORY:  Classification

          John Scanlon, Jr., Esq.
          Kemp, Smith, Duncan and Hammond
          Post Office Drawer 2800
          El Paso, Texas 79999-2800

          RE:   Eligibility of ophthalmic plastic lenses manufactured in
                Mexico for treatment under the GSP

          Dear Mr. Scanlon:

                This is in response to your letter of May 31, 1988 (JS No.
          88-0369), seeking, on behalf of Silor Optical of Florida, Inc., a
          reconsideration of the eligibility of certain ophthalmic plastic
          lenses for treatment under the General System of Preferences
          (GSP).

          FACTS:

                Your letters of January 14, 1986 and May 31, 1988, describe
          a two step process for the manufacture of ophthalmic lenses.  In
          a meeting on February 7, 1988, with members of my staff and the
          Technical Branch, you submitted additional facts and documents.
          The following is a description of all the facts presented on this
          issue.

                In the first manufacturing step in Mexico, two U.S. origin
          chemicals are reacted to form a polymerized mixture termed an
          "initiated concentrate."  The two reactants are diethylene glycol
          bis (allyl carbonate) and isopropyl peroxydicarbonate.  The trade
          names for these chemicals are CR-39TM and IPPTM respectively.
          CR-39TM serves as the monomer for the polymerization reaction
          and the IPPTM is a free radical initiator.  An important
          property of a free radical initiator is that it is, by nature and
          design, highly reactive.

                In Mexico, the CR-39TM and the IPPTM are mixed and
          begin to polymerize.  When polymerization reaches a specific
          point the reaction is halted.  A major reason for stopping the
          process at this point is that the partially polymerized product
          is more stable than the highly reactive IPPTM. This initiated
          concentrate and others like it, such as TRIGONOX ADC-NS60, have a
          commercial identity since many lens manufacturers do not desire
          to handle highly reactive initiators such as IPPTM.  In the
          meeting, invoices and sales literature were presented as proof
          that the initiated concentrate is sold in the trade as an
          independent entity.  











                                         -2-



                In the second manufacturing step in Mexico, the initiated
          concentrate is formed into the ophthalmic lenses and/or lens
          blanks.  This is accomplished by restarting the reaction in step
          one using an external influence such as heat.  The lenses are
          then shipped to the U.S.

          ISSUE:

                Whether the operations performed in Mexico result in a dual
          substantial transformation, thereby enabling the cost or value of
          the constituent material to be counted toward the 35 percent
          value-content requirement for purposes of the GSP.

          LAW AND ANALYSIS:

                An article imported directly from a beneficiary developing
          country (BDC) may qualify for duty-free entry under the GSP only
          if it meets the country of origin criterion set forth in section
          10.176(a), Customs Regulations (19 CFR 10.176(a)).  This
          criterion provides that an article must be the growth, product,
          manufacture, or assembly of the BDC.  In other words, the article
          must either be wholly the growth, product, or manufacture of a
          BDC, or it must have undergone a substantial transformation in
          the BDC so as to make it a product of the BDC.  In addition, the
          sum of the cost or value of the materials produced in the BDC,
          plus the direct costs of processing operations performed in the
          BDC, must not be less than 35 percent of the appraised value of
          the imported article.

                Section 10.177(a), Customs Regulations (19 CFR 10.177(a)),
          provides that the words "produced in the beneficiary developing
          country" refer to the constituent materials of which the eligible
          article is composed which are either: (1) wholly the growth,
          product, or manufacture of the BDC: or (2) substantially
          transformed in the BDC into a new and different article of
          commerce.  In the case of materials imported into a BDC, the cost
          or value of those materials may be counted towards the 35 percent
          requirement only if the imported material is first substantially
          transformed into a new and different intermediate article of
          commerce which is then used in the BDC in the production of the
          final imported article.

                In our original ruling on this matter dated May 15, 1986
          (HQ 554084), we stated that the mere mixing of CR-39TM and
          IPPTM did not result in a substantial transformation.















                                         -3-



          We reasoned that the mixing constituted only a dilution, that
          there was no substantial process involved and that no new and
          different article was produced.  We found that the mixing of CR-
          39TM and IPPTM did not bring about the acquisition of a new
          chemical character or quality that was beyond the essence or
          identity of the original components.  Rather, the mixing was
          found to be one step of a continuous process, all of which was
          dedicated only to the production of hard resin ophthalmic lenses.

                After careful consideration of this matter, we are of the
          opinion that a double substantial transformation occurs in Mexico
          during the production of the ophthalmic lenses.

                The issue in this  case involves the difference in two
          chemicals associated by a chemical reaction versus their
          association as a solution.  A basic principle of chemistry is
          that a reaction has occurred if the two reactants no longer
          possess the physical and chemical characteristics they possessed
          prior to the reaction.

                The chemicals involved in this case begin to polymerize
          when mixed.  Polymerization is defined by the Condensed Chemical
          Dictionary, 10th Edition as:

                "A chemical reaction ... in which a large number of
                relatively simple molecules combine to form a chain-like
                macromolecule."

          The same source goes on to say that:

                "This [polymerization] may occur by addition, in which free
                radicals are the initiating agents that react with the
                double bond of the monomer by adding to it on one side, at
                the same time producing a new free electron on the other
                ... By this mechanism the chain become self-propagating."

                This type of reaction is occurring in the processing
          performed by your client in Mexico.  It is our opinion that this
          process involves a true chemical reaction and is not a dilution.
          The process is irreversible and the initial reactants cannot be
          recovered.  Therefore, the CR-39TM the IPPTM have been
          substantially transformed into the initiated concentrate which is
          a new and different article of commerce.

















                                         -4-



                Regarding the second step in the manufacturing process, we
          are of the opinion that a second substantial transformation
          occurs.  The initiated concentrate is poured into a proper mold
          and the temperature is raised resulting in the completion of the
          polymerization process.  The end product is a thermosetting
          plastic.  This type of plastic, once molded, cannot be recast
          into a different article.  It can be shaved to fit a particular
          holder or ground to a particular prescription, but it cannot be
          remelted to make any other product once it is cast into an
          ophthalmic lens.  The process is irreversible.

                Therefore, it is our opinion that the manufacturing of the
          initiated concentrate into ophthalmic lenses constitutes a second
          substantial transformation.  The completion of the polymerization
          process changes the character of the constituent material
          (initiated concentrate) enabling to become ophthalmic lenses.
          Ophthalmic lenses are separate articles of commerce that
          manufacturers wish to buy and sell for their own purposes.  As a
          result of the second step of manufacture, a finished product
          emerges with a separate identity and, therefore, is a new article
          of commerce.

                Finally, these processes are not the type of "pass-through"
          operations which Congress intended to prohibit from receiving GSP
          benefits.  "Keep[ing] in mind the GSP's fundamental purpose of
          fostering industrialization in beneficiary developing countries,"
          we believe that the operations performed in this instance are the
          type of substantial operations contemplated by the GSP.  See
          Torrington v. United States, 8 CIT 150, 596 F.Supp. 1083 (1984),
          aff'd 764 F.2d 1563 (1985).

          HOLDING:

                Based on the information submitted, we find your additional
          arguments to be sufficient to reverse our prior ruling of May 15,
          1986.  The cost or value of the constituent material (initiated
          concentrate) may be counted toward satisfying the GSP 35 percent
          value-content requirement.

                                     Sincerely,





                                     John Durant
                                     Director, Commercial
                                     Rulings Division