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HQ 554914


August 11, 1988

CLA-2 CO:R:C:V 554914 CW/JD

CATEGORY: CLASSIFICATION VALUATION MARKING

TARIFF NO.: 9001.50.00, HTSUS (708.01, TSUS)

Mike Ainsa, Esq.
Grambling & Mounce
Seventh Floor
Texas Commerce Bank Building
El Paso, Texas 79901-1334

RE: Ruling request concerning the eligibility for duty-free treatment under the GSP of, and the tariff classification and country of origin marking requirements applicable to, certain opthalmic plastic lenses from Mexico.

Dear Mr. Ainsa:

This is in reference to a letter of December 31, 1987, from the law firm of Kemp, Smith, Duncan & Hammond, requesting a ruling on behalf of Epson El Paso, Inc. ("importer") concerning whether the cost or value of certain substances of U.S. origin used in the production in Mexico of molded plastic lenses may be included in the 35 percent value-content requirement for purposes of the Generalized System of Preferences (GSP). You advise that your law firm, Grambling & Mounce, has replaced the above firm as counsel for the importer in connection with this ruling request. In addition to the above issue, our advice also is requested in regard to the tariff classification and country of origin marking requirements applicable to the imported lenses.

FACTS:

The ruling request states that your client plans to import several types of opthalmic plastic lenses to be manufactured by its wholly-owned subsidiary in Mexico. According to the December 31, 1987, letter, each of the different types of lenses will be produced in essentially the same manner from raw materials of U.S. origin. These materials consist of the following three chemical substances: diallyl diglycol carbonate (a monomer in liquid form), diisopropyl peroxydicarbonate (an initiator in solid form), and Ultra Violet Absorber ("UVA", a solid). The monomer, a stable, passive substance, and the initiator, a highly active and reactive substance, are combined in distinct batches
to which is added the UVA, also a passive substance. We are informed that when the monomer and initiator are combined, they create a new and distinctly different substance -- a polymer. The combination of the monomer and initiator causes an irreversible chemical reaction to take place resulting in the growing viscosity of the polymer, until, unless cooled, the polymer becomes a solid mass.

The cooled polymer is then injected into a glass mold assembly which is placed in an air oven for heat curing at precisely-controlled temperatures over specific time sequences. The December 31, 1987, letter advises that during the curing process the polymer undergoes further irreversible chemical changes, resulting in a solid plastic lens. Upon completion of the curing process, excess polymer is removed from the glass mold assembly and the assembly is rough cleaned in an organic solvent and placed in the air oven to maintain the temperature of the mold assembly and the molded lens.

After the glass mold is removed from the air oven, the molded lens is released from the mold, cleaned, and placed in a Coating Basket. In this basket, the lens is dipped into a "Hard- Coat-Solution", slowly withdrawn, and then heated to vaporize any organic solvent present on the lens. Finally, the lens is removed from the Coating Basket, placed on an annealing pallet, and annealed in an Air Oven to stabilize the structure of the lens and to remove any structural stresses resulting from the molding and heating processes.

It is contended that because the combining of the monomer and the initiator produces a new chemical substance -- a polymer -- and begins a reaction process that, once started, is irreversible, a substantial transformation of the monomer, initiator, and UVA occurs. Thus, your client believes that the resulting polymer constitutes a new and different article of commerce, possessing a name, character and use that is different from those of the three predecessor chemical substances. Moreover, we are asked to confirm that the production of the finished plastic lenses from the polymer represents a second substantial transformation, permitting the cost or value of the monomer, initiator, and UVA to be counted for purposes of satisfying the GSP 35 percent requirement.

Regarding the tariff classification of the imported molded lenses, it is your client's position that these articles should properly be classified in item 708.01, Tariff Schedules of the United States (TSUS).

Concerning the applicability of country of origin marking requirements to the imported plastic lenses, we note that the Manufacturing Process Description enclosed with the December 31, 1987, ruling request refers in item XXIV to the fact that the lenses are marked by the use of marking machinery with the Seiko logo. In items XXV-XXVII, reference is made to inspection of and labeling of the "power" of each lens. In items XXVIII and XXIX, it is stated that each lens is placed in an envelope which bears country of origin information, the lens envelopes are placed in lens packages, and the packages are placed in lens cases that indicate country of origin.

In the U.S., laboratories or optical houses will grind and fit these lenses to eyeglass frames. You advised a member of my staff by telephone that the words "grind and fit" mean that the outer rim of the lenses will be shaped to allow insertion in various shapes of eyeglass frames. It is your understanding that the vision corrective qualities of the lenses are imparted during the manufacturing process in Mexico. That appears consistent with the fact that the "power" of each lens is labeled before export from Mexico.

ISSUE:

1. Whether the polymer produced in Mexico from certain chemical substances of U.S. origin constitutes a substantially transformed constituent material of the imported molded plastic lenses so as to permit the cost or value of the U.S. chemical substances to be counted toward the GSP 35 percent requirement.

2. Whether the imported lenses are substantially trans- formed in the U.S. by being ground and fitted to eyeglass frames so as to make the domestic grinder/fitter the ultimate purchaser of the lenses for country of origin marking purposes.

3. Whether the imported lenses are properly classifiable in item 708.01, TSUS (subheading 9001.50.00, Harmonized Tariff Schedule of the United States (HTSUS)).

LAW AND ANALYSIS:

With respect to the first issue, section 10.176(a) of the Customs Regulations (19 CFR 10.176(a)) provides that an article may qualify for duty-free treatment under the GSP only if the sum of the cost or value of the materials produced in the beneficiary developing country (BDC), plus the direct costs of processing operations performed in the BDC, are not 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. Thus, the cost or value of materials not wholly the growth, product, or manufacture of the BDC (i.e., materials imported into the BDC) may be counted toward the 35 percent requirement only if those materials are first substantially transformed into a new and different intermediate article of commerce which is then used in the BDC in the production of an eligible article which is imported directly into the U.S.

A substantial transformation occurs when a new and different article of commerce emerges from a process with a distinctive name, character or use different from that possessed by the original material that was processed. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982), and Torrington Co. v. United States, 8 CIT 150, 596 F. Supp. 1083 (1984).

It is clear in this case that the three chemical substances of U.S. origin will undergo a substantial transformation in Mexico since the molded plastic lenses are new and different articles of commerce when compared to the chemical substances used in producing them. The question to be resolved is whether, during the production of the lenses, the chemical substances exported to Mexico are substantially transformed into a separate and distinct intermediate article of commerce (the polymer) which is then used in the production of the plastic lenses.

Based upon the information presented, we are unable to conclude that the polymer produced by combining the U.S. raw materials constitutes a separate and distinct article of commerce which is marketed as such. No information or evidence has been provided which indicates that the polymer involved in this case is a distinct commercial entity in the sense that it is separately bought-and-sold or is ready to be marketed as such. Therefore, it is our opinion that the production of the molded plastic lenses in Mexico constitutes a continuous manufacturing process resulting in the creation of only one separately identifiable article of commerce which is the article imported into the U.S.

Concerning the country of origin marking issue, section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly,
indelibly and permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser the English name of the country of origin of the article.

Section 134.1(d), Customs Regulations (19 CFR 134.1(d)), defines "ultimate purchaser" as "generally the last person in the U.S. who will receive the article in the form in which it was imported." Subparagraph (2) of that section provides that if an article is subjected to a minor manufacturing process which leaves the identity of the imported article intact, the consumer or user of the article who obtains it after the processing will be regarded as the "ultimate purchaser."

Section 134.35, Customs Regulations (19 CFR 134.35), implementing the principle of U.S. v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940), provides that an article used in the U.S. in manufacture which results in an article having a name, character, or use differing from that of the imported article will be considered substantially transformed, and, therefore, the manufacturer or processor in the U.S. who converts or combines the imported article into the different article will be considered the ultimate purchaser of the imported article within the contemplation of 19 U.S.C. 1304(a). Accordingly, the article shall be excepted from marking.

It is contended in this case that inserting the lenses into eyeglass frames creates "commercial articles that are different in name, character and use from the imported lenses." Customs takes the position, most recently stated in a ruling dated April 19, 1988 (HQ 730963), that "Personal prescription eyewear consists of frames and lenses, neither of which lose their separate identity when the latter are mounted in the former." That ruling concerned the marking of eyeglass frames and although the ruling conceded that purchasers face fewer choices in the selection of lenses compared to frames and that lenses do not come into contact with the wearer's face as frames do, we believe the purchaser's entitlement to country of origin information is at least equal if not greater in the case of lenses. The essence of prescription eyewear is vision correction, and purchasers must be informed of the country where the substantial transformation of adding the corrective qualities, i.e., the "power" or prescription of the lenses, took place.

Regarding the classification of the imported plastic lenses, we agree that the lenses are properly classified under the provision for Opthalmic lenses, not mounted, in item 708.01, TSUS, with a duty rate of 5.6 percent ad valorem. The proposed HTSUS is scheduled to replace the TSUS. The HTSUS provision
applicable to the subject lenses is subheading 9001.50.00, HTSUS, which provides for spectacle lenses of other than glass with a duty rate of 5.6 percent ad valorem. This classification represents the present position of this agency regarding the dutiable status of the merchandise under the proposed HTSUS. If there are changes before enactment, this advice may not continue to be applicable.

HOLDING:

Based on the available evidence, we find that the U.S. chemical substances exported to Mexico are not substantially transformed into constituent materials of the imported plastic lenses and, therefore, the cost or value of the chemical substances may not be counted for purposes of satisfying the 35 percent requirement under the GSP.

Moreover, for country of origin marking purposes, we find that the laboratories or optical houses are not the ultimate purchasers of the plastic lenses. The lenses as imported and the lenses as inserted in eyeglass frames have not undergone a substantial transformation. Grinding the outer rim of the lens to fit it into a frame effects only a minor change in the article's shape; the lens remains a lens and its character and use as an aid to correct the vision of the wearer remains unchanged. Customs considers the ultimate purchasers of these lenses to be the persons who receive eyeglass frames with the lenses inserted therein. Country of origin marking of these lenses may be accomplished by use of stickers on the lenses. Since the Seiko logo is added before the lenses are ground and fitted to a frame, we assume there is a spot on the lens where a sticker would survive the grinding process as well, probably in close proximity to the logo.

The imported plastic lenses are classifiable in item 708.01, TSUS (subheading 9001.50.00, HTSUS).

Sincerely,

John Durant
Director, Commercial

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