HQ 554629: CBERA treatment of plasmacell-C devices

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 554629

                         March 13, 1990

CLA-2 CO:R:C:V  554629 DSN

CATEGORY:  Classification

Mark S. Zolno, Esquire
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60606-3693

RE:  CBERA treatment of plasmacell-C devices

Dear Mr. Zolno:

     This is in response to your letters of June 16, 1987,
October 11, 1988, December 9, 1988, and March 23, 1989, on behalf
of Baxter Healthcare Corporation, requesting a ruling that
plasmacell-C devices produced in the Dominican Republic are
entitled to duty-free treatment under the Caribbean Basin
Economic Recovery Act (CBERA) (19 U.S.C. 2701-2706).  We regret
the delay in responding.

FACTS:

     According to your submissions, the plasmacell-C devices will
be produced in the Dominican Republic from components of Puerto
Rican origin and a small number of U.S. components.  You state
that thirty separate components are used in the manufacture of
the devices.  A summary of the operations performed on the
plasmacell-C devices is as follows:

     1.  an inspection of the components received from Puerto
         Rico (and, presumably, the U.S.) is made to ensure
         their quality and lack of contamination;

     2.  the harness subassembly and the plasmacell separator
         device are manually solvent sealed;

     3.  the red cell reservoir and the plasma line is solvent
         sealed to the above assembly;

     4.  the unit is placed in an overwrap and sealed using a
         band sealer; and


     5.  final packaging and quality control checking is done
         and the product is shipped to Puerto Rico for
         sterilization and distribution.

You state that the plasmacell-C devices undergo extensive
testing at different stages of production.  Samples of plastic
tubing components are first tested by measuring the inside and
outside diameter and the wall thickness of the tubing in four
places.  In addition, the tubing is tested to ensure tensile
properties and optical clarity.  The samples must meet all of
your client's specifications, otherwise the entire batch of
tubing is discarded.

     The harness is tested three times before final testing.  The
tubing is tested where it is bonded to the connector.  The length
and evenness of the cuts are also measured.  The second test
performed on the harness is for leaks.  Third, each bonded point
is subjected to a pull test.  The harness must pass all three
tests.

     You state that the final testing of the placemell-C devices
is quite time consuming.  Thirty-two samples are pulled from the
production line four times per shift.  These samples are leak-
tested, and, in addition, lot numbers and expiration dates are
inspected for correctness and legibility.

     After the above procedures, the devices are ready for
shipment to Puerto Rico where they are sterilized and undergo
microbiological testing before they are marketed.

ISSUE:

     Whether the plasmacell-C devices will be entitled to duty-
free treatment under the CBERA.

LAW AND ANALYSIS:

     Under the CBERA, eligible articles the growth, product or
manufacture of designated beneficiary countries (BC's) may
receive duty-free treatment if such articles are imported
directly to the U.S. from a BC, and if the sum of (1) the cost or
value of the material produced in a BC or BC's, plus (2) the
direct cost of processing operations performed in a BC or BC's,
is not less than 35% of the appraised value of the article at
the time it is entered into the U.S.  See 19 U.S.C. 2703(a).
Section 10.195(b), Customs Regulations (19 CFR 10.195(b)),
provides that for purposes of calculating the 35% value-content
requirement, Puerto Rico is considered to be a BC.  Therefore,
the cost or value of those components used in the assembly of the
plasmacell-C devices which originate in Puerto Rico may be
included in the 35% calculation.  Moreover, the cost or value of
materials produced in the customs territory of the U.S. (other
than Puerto Rico) may be applied toward the 35% value-content
minimum in an amount not to exceed 15% of the imported articles'
appraised value.

     The Dominican Republic is a BC.  Plasamacell-C devices are
classified under subheading 9018.90.8000, HTSUSA, which provides
for instruments and appliances used in medical, surgical, dental
or veterinary sciences, other instruments and appliances and
parts and accessories thereof, other, other, which is a CBERA
eligible provision.  Accordingly, if the devices are a product of
the Dominican Republic and the 35% value-content minimum is met,
the plasmacell-C devices will be entitled to duty-free treatment
under the CBERA.

     According to the information supplied in your submissions,
it appears that the sum of the cost or value of the materials
produced in the BC's, plus the direct cost of processing
operations performed in the BC's will exceed 35% of the
appraised value of the devices at the time they are entered.
Therefore, the only remaining question is whether these devices
are considered to be a "product of" the Dominican Republic.

     You correctly state that, generally, no article shall be
considered to have been produced in a BC by virtue of having
merely undergone a simple combining or packaging operation.  19
U.S.C. 2703(a)(2)(A).  You further state that section
10.195(a)(2)(ii)(D), Customs Regulations (19 CFR
10.195(a)(2)(ii)(D)), provides that simple combining or packaging
operations shall not include a simple combining or packaging
operation or a mere dilution that is coupled with any other type
of processing such as testing or fabrication.  Consequently, you
claim that the extensive assembly, quality control, and testing
operations performed in the Dominican Republic clearly fall
within the provisions of 19 CFR 10.195 (a)(2)(ii)(D).  Therefore,
since these operations will amount to more than simple combining
or packaging, the devices should be considered the product of the
Dominican Republic, entitled to free entry in accordance with
the requirements of the CBERA.

     While the ultimate finding in this case may result in the
same conclusion, this line of reasoning is not entirely correct.
Your proposed process is not a simple combining or packaging
operation, and, as such, may not be eliminated from consideration
as the product of the Dominican Republic, on that basis.
However, the transformation of materials imported into a BC into
an article considered to be the product of a BC must, as a
result of operations performed thereon, result in a new product
having a new name, character, or use.  See Torrington Co. v.
United States, 8 CIT 150, 596 F. Supp. 1083 (1984), aff'd 764
F.2d 1563 (1985).  Simply because an assembly operation falls
within the scope of 19 CFR 10.195(a)(2)(ii)(D), it does not
automatically qualify as one which substantially transforms
materials into an  article of a BC for CBERA purposes.  See TD-
76-100 of March 30, 1976.

     There is no indication, in either the regulations
promulgated to implement the terms of General Note 3(c), HTSUSA,
or in the legislative history to Title II of Public Law 98-67,
CBERA, that it was the intent of Congress to set a minimum
standard beyond which all operations would be deemed to effect a
substantial transformation under the CBERA, by its expressed
preclusion of certain operations from satisfying the country of
origin criteria.  To the contrary, the courts and Customs have
evaluated operations, other than those so specified by Congress,
on a case-by-case basis to determine if the CBERA requirements
have been met.  It is correct to say, however, that 19 CFR
10.195(a)(2)(ii)(D) implies that a simple assembly or packaging
operation, coupled with another type of processing, may not
automatically preclude a finding that the "product of"
requirement has been met.  As previously stated, if, as a result
of a complex or meaningful assembly, a new article results, with
a new name, character or use, that article would be considered
substantially transformed into a product of the Dominican
Republic.

     In the present case, we find that the assembly of the
plasmacell-C devices constitutes a substantial transformation.
The 30 separate components imported into the Dominican Republic
acquire new attributes when they come together in a meaningful
and technically precise assembly operation, and the plasmacell-C
device differs in character and use from the component parts of
which it is composed.  The production of the devices involves a
significant number of different operations, requires a relatively
significant period of time, skill, attention to detail, as
evidenced by the extensive testing that is done at each stage of
production.  This results in an economic benefit to the BC from
the standpoint of both the value added to each plasmacell-C
device and the overall employment generated by the operations.

     Finally, this assembly process is not the type of "pass
through" operation which Congress intended to prohibit from
receiving CBERA 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).


     For the above stated reasons, the plasmacell-C devices are
considered products of the Dominican Republic for purposes of the
CBERA.

HOLDING:

     The plasmacell-C devices are entitled to duty-free entry
under the CBERA if they are imported directly from the Dominican
Republic into the customs territory of the U.S. and the 35%
value-content requirement is satisfied.

                              Sincerely,



                              John Durant, Director
                              Commercial Rulings Division