HQ 555195: Eligibility of certain mini-blinds for duty-free treatment under the Generalized System of Preferences

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 555195


                                    July 13, 1989


          CLA-2  CO:R:C:V 555195 DBI

          CATEGORY:  Classification

          Mr. William F. Joffroy, Jr.
          Custom House Brokers, Inc.
          P.O. Box 698
          Nogales, Arizona 85628-0698

          RE:   Eligibility of certain mini-blinds for duty-free treatment
                under the Generalized System of Preferences

          Dear Mr. Joffroy:

                This is in response to your letter of November 8, 1988,  on
          behalf of Elkhart Door, Inc., requesting a ruling that mini-
          blinds manufactured in Mexico are eligible for duty-free
          treatment under the Generalized System of Preferences (GSP).  We
          regret the delay in responding to your request.

          FACTS:

                You advise that your client will be shipping U.S.-origin
          raw aluminum flat coil stock in rolls of 36,000 inches to undergo
          the following manufacturing process:

                (1) The aluminum flat coil stock will be fed through a
          rotating cold forming die which mechanically alters the flat
          stock into a crowned conical shape.  Prior to this forming
          operation, the flat coil stock had been mechanically straightened
          to relieve the horizontal arc caused by the rolled stock.

                (2) The crowned stock will be punched, producing 2 to 6
          eliptical holes for the assembly of the ladder cord.  The center
          lines of the holes must be maintained within very tight
          tolerances.  The number of holes depends on the overall length of
          the slat.  A longer slat requires more holes.

                (3) The final operation involves the crowned stock to be
          cut to a finished length and for the four corners to be rounded
          and deburred.


















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                The manufacturing of the complete mini-blind consists of
          the following steps:

                (1) The headrail, bottomrail and tilt rod are cut to
          length.

                (2) Holes are punched in both the headrail and bottomrails.

                (3) Slat material is crowned, punched and cut to length.

                (4) Cable tape and cords are cut to length.

                (5) Cable tape is attached to the tape rolls.

                (6) Tape roll supports are attached to the tape roll with
          cable tape.  Then the cord lock, tilt rod, tilter, lock nut,
          headrail endcap and cord are fit into the headrail.

                (7) Bottomrail endcaps are inserted into the ends of the
          bottomrail.

                (8) Tape spacers are placed on the cable tape.

                (9) Slats are inserted into the cable tape.

                (10) Cord is threaded through the rout holes of the slat.

                (11) Bottomrail is attached to cable tape and cord at the
          proper height with cable tape grommet.

                (12) Tape lock is attached to tilter.

                (13) Completed blind is inserted into plastic sleeve.

                (14) Finished mini-blind is boxed for shipment.

                You state that the manufacturing steps performed on the raw
          aluminum adds $0.261 of value in Mexico.  The value added in
          Mexico accounts for 27.2% to 54.4% of the articles' total cost.
          You also note that the slats which are made in Mexico from the
          raw aluminum are sold in the U.S. and Mexico as replacement
          slats.  It is your position that the value of the U.S. aluminum
          in a raw state should be considered to be substantially
          transformed into a product of Mexico for GSP purposes because (1)
















                                         -3-



          extensive manufacturing steps are performed in Mexico (2) the
          value added in Mexico is 27.2% to 54.4% of the value of the slat
          material and (3) an intermediate article of commerce is produced
          in Mexico (slats) from the imported raw aluminum which is then
          used in the assembly of the mini-blinds that will be imported
          into the U.S.

                Samples of the aluminum slats and a diagram has been
          submitted for examination.

          ISSUE:

                Whether the operations performed on the raw aluminum flat
          coil stock result in a double 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:

                Under the GSP, eligible products of a designated
          beneficiary country (BDC) which are imported directly 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 percent of the article's appraised value at
          the time of its entry into the U.S.  See 19 U.S.C. 2463.

                The cost or value of materials which are imported into the
          BDC to be used in the production of the article, as here, may be
          included in the 35 percent value-content computation only if the
          imported materials undergo a double substantial transformation in
          the BDC.  That is, the non-Mexican materials must be
          substantially transformed in Mexico into a new and different
          intermediate article of commerce, which is then used in Mexico in
          the production of the final imported article, the mini-blinds.

                The test for determining whether a substantial
          transformation has occurred is whether 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).


















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                Customs application of the double substantial
          transformation requirement in the context of the GSP received
          judicial approval in The Torrington Company v. United States,  8
          CIT 152, 596 F.2d 1563 (1985).  The court, after affirming
          Customs application of the double substantial transformation
          concept, said:

                Regulations promulgated by Customs define the term
                "materials produced" to include materials from third
                countries that are substantially transformed in the BDC
                into a new and different article of commerce.  19 CFR
                10.177(a)(2).  It is not enough to transform substantially
                the non-BDC constituent materials into the final article,
                as the material utilized to produce the final article would
                remain non-BDC material.  There must first be a substantial
                transformation of the non-BDC material into a new and
                different article of commerce which becomes "material
                produced," and these materials produced in the BDC must
                then be substantially transformed into a new and different
                article of commerce.  It is noted that 19 CFR 10.177(a)
                distinguishes between "merchandise produced in the BDC" and
                the cost or value of the "materials produced in the BDC"
                which demonstrates the contemplation of a dual substantial
                transformation requirement.

                In Treasury Decision 78-400, 12 Cust. Bull. 875 (1978), the
          rear housing assembly of a motor was manufactured from flat steel
          stock of U.S. origin which was drawn through a series of dies in
          the BDC to form a cup-shaped rear housing.  We held that the flat
          steel stock which was drawn into the cup-shaped rear housing was
          a substantially transformed constituent material, and the entire
          cost of its component was includable in the costs of materials in
          computing the 35 percent criterion.

                The facts in the present case are very similar to those in
          T.D. 78-400.  Here, the aluminum flat coil stock is fed through a
          rotating cold die which mechanically alters the flat stock into a
          crowned conical shape.  According to our previous ruling, the
          processes performed on the raw aluminum constitutes a substantial
          transformation.




















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                We also find that the assembly of the finished aluminum
          slats with the other components, creating the final product,
          results in a second substantial transformation.  The assembly of
          the constituent materials (aluminum slats) changes their
          character and results in a finished product which is recognized
          as a new and different article of commerce with a distinct name,
          character and use.

                Additionally, the assembly process involved a large number
          of components and a significant number of different operations,
          requires a relatively significant period of time as well as
          skill, and attention to detail, and results in a significant
          economic benefit to the BDC from the standpoint of both the value
          added to each component part and the overall employment generated
          by the operations.  C.S.D. 85-25, 19 Cust. Bull. 544 (1984).

                Finally, these operations are not the type of "pass-
          through" operations which Congress intended to prohibit from
          receiving GSP benefits.  "Keeping 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 statute.  See Torrington v. United States, 764 F.2d at
          1571.

          HOLDING:

                On the basis of the information submitted, it is our
          opinion that the cost or value of the constituent materials
          (aluminum slats) used in the assembly of the mini-blinds may be
          included for purposes of satisfying the 35 percent value-content
          requirement.

                                     Sincerely,




                                     John Durant
                                     Director, Commercial
                                     Rulings Division