HQ 0555265 - Duty-Free Treatment under the Generalized System of Preferences of Venetian Blinds Made in Mexico - United States International Trade Commision Rulings

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HQ 555265

July 3, 1989

CLA-2 CO:R:CV:V 555265 BJO

CATEGORY: CLASSIFICATION

Margaret R. Polito, Esq.
Robert L. Eisen, Esq.
Coudert Brothers
200 Park Avenue
New York, New York 10166

RE: Duty-Free Treatment under the Generalized System of Preferences of Venetian Blinds Made in Mexico

Dear Ms. Polito and Mr. Eisen:

This is in response to your letters of January 18 and June 5, 1989, in which you request a ruling under the Generalized System of Preferences (GSP)(19 U.S.C. 2461-2466), on behalf of that aluminum strip imported into Mexico undergoes a double substantial transformation in the production of venetian blinds.

FACTS:

You state that the importer has established a plant in Mexico to manufacture venetian blinds for sale in the U.S. and Canada. The venetian blind slats are produced in Mexico from aluminum strip imported in rolls from the Netherlands. The imported strip will measure either 1 or .63 inch in width and either .008 or .006 inch in thickness, depending upon whether it is to be used in production of standard or micro venetian blinds. In Mexico, the strip will be unwound and inspected for scratches and defects. That strip which passes inspection will then be "crowned." That is, the strip will be passed between convex and concave egg-shaped steel rollers which permanently bow or "crown" the strip. The purpose of this operation is to give the strip dimensional stability to prevent the blinds from sagging and/or bending, and to eliminate any bows or twists in the imported strip to ensure that the venetian blind slats will be straight.

The crowned strip is then passed over another series of steel rollers, and a series of routeholes are punched out of the strip by a device known as a flying punch. The routeholes serve as the guide through which the lifting cord, which enables the
blind to be raised and lowered, will pass. The punched strip is then cut to specific length by rapidly moving knives. You state that at this point, the strip is known in the industry as venetian blind slats. You further state that the importer sells crowned and cut strip for use as decorative finishing for above- ground pools, to produce louvers in air duct systems, and for use in the manufacture of lattice fences. The importer may also sell the crowned strip to surveyors, who have found the bright colors and flexibility of the crowned strip to be suitable for use as surveying stakes. Finally, you state, crowned, cut, drilled slats are shipped separate from the completed blinds to the importer's customers as replacements.

At a separate work station, employees will assemble the head and bottom rails of the blinds and the lifting and tilting devices, which control the height of the blind and the amount of light which may pass through, and attach those devices to the rails. The rails so assembled are then assembled with the venetian blind slats to form the finished venetian blinds. This is accomplished by cutting to length "ladder tape" (two long vertical strings with short cross strings, or rungs, knotted at precise intervals along the length of the vertical strings). Each venetian blind will require three or four ladder tapes, depending upon its length. The requisite number of slats are stacked and inserted through the ladder tapes so that one slat lies across each ladder rung. The lifting cord is then inserted through the routeholes in the slats by attaching one end of the cord to the bottom rail by knots or grommets, threading the cord up through one set of routeholes, running it across the top rail and down the side of the blind. Once a sufficient amount of cord is hanging off to the side of the blind, the cord is looped up, run across the top rail, and down through the other series of routeholes. The end of the cord is attached to the opposite end of the bottom rail by knots or grommets. This results in a continuous cord, a portion of which is outside the blind so that the consumer can raise and lower the blind. Wands that control the tilt angle of the blinds and additional hardware are attached to the blinds.

The diagram submitted with your ruling request indicates that the venetian blinds, when finished, are composed of over 30 separate components. You further state that the Mexican facility producing the venetian blinds is staffed by 60 production employees (estimated to increase to 140 by the end of 1989) and 20 managerial employees.

ISSUE:

Whether venetian blind slats, which are produced in Mexico from rolls of imported aluminum strip that is cut to length, punched with routeholes, and crowned, are substantially transformed constituent materials of venetian blinds for purposes of the GSP.

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 (HTSUS), and, based on your description, it appears that the venetian blinds will be classified under subheading 7616.90.00, HTSUS ("Other articles of aluminum: Other...Venetian blinds and parts thereof."), which is GSP eligible. Assuming that the finished venetian blinds 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, as in this case, may be included in the 35% value-content computation only if the imported materials undergo a double substantial transformation. That is, the aluminum strip 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 venetian blinds. See 19 CFR 10.177(a).

A substantial transformation occurs when 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).

We find that cutting the rolls of imported strip imported into Mexico into lengths and crowning the cut strip substantially transforms the imported strip into a new and different article of
commerce. The cutting and crowning operations permanently alter the physical characteristics of the strip, and affect the uses to which it may be put. Prior to cutting and crowning, the strip is a raw material and possesses nothing in its character which indicates either the slat or the venetian blinds. After the cutting and crowning operations, which permanently affect the character of the strip, the strip may be used in the production of a limited range of articles, e.g., venetian blind slats, surveyor stakes, decorative border for swimming pools, lattice fences, and louvers in air duct systems.

Our prior rulings have generally held that cutting or bending material to a specific shape or pattern will result in a substantial transformation. For example, in HQ 553574, dated August 15, 1985, we ruled that while cutting aluminum strip to specific length, and punching and/or drilling holes in the cut lengths to form components of window frames and sashes did not substantially transform the aluminum strip, that strip which was cut to specific length, punched and/or drilled with holes, and notched, which gave the strip a specific shape or pattern, was substantially transformed. Similarly, in HQ 055684, dated August 14, 1979, we ruled that a substantial transformation occurs when 20 foot steel pipe is cut to specific length, cleaned, drilled or swaged, and bent to the shape or configuration necessary to form parts for a gas absorption unit. Based upon the information provided, we find that cutting the aluminum strip to specific length and crowning it to give it a permanent bow shape making it suitable for use as a venetian blind slat, fits within the principle of these prior rulings, and should likewise be considered a substantial transformation.

We further find that cut and crowned slats are a distinct article of commerce. In Torrington v. United States, 764 F. 2d 1563 (CAFC 1985), evidence that two shipments of swaged needle blanks were transferred between the Portuguese manufacturer and its U.S. parent company was deemed by the court to be "adequate" evidence that the blanks were an "article of commerce." The court defined an article of commerce for purposes of the GSP to be "one that is ready to be put into the stream of commerce." Torrington at 1570; see also Azteca Milling Co. v. United States, Slip Op. 88-168, at (CIT December 20, 1988) (an article of commerce for GSP purposes is one that is "readily susceptible of trade, and...[one] that persons might well wish to buy and acquire for their own purposes of consumption or production."). The sale of the cut and crowned slats for use by surveyors, and in the manufacture of lattice fences and air duct systems is adequate evidence that the slats are distinct articles of
commerce, that they are readily susceptible of trade, and are bought for purposes of consumption and production.

Punching route holes in the cut and crowned slats, and assembly of those slats into the venetian blinds constitutes a second substantial transformation. The cut and crowned slats acquire a new name, venetian blinds. As a result of the punching and assembly operation, the cut and crowned slats, which are multifunctional articles, are dedicated to a single use, that of venetian blinds. The incorporation of the venetian blind slats into the completed article appears to be a complex and meaningful operation, rather than a simple, minimal assembly operation, see C.S.D. 85-25, dated September 25, 1984 (HQ 071827), for it involves a large number of components, a number of different assembly steps, and requires a number of employees, who, you state, receive between three and six weeks of supervised training. For these reasons, we find that the aluminum strip imported into Mexico and used in the production of venetian blinds undergoes a double substantial transformation.

CONCLUSION:

Rolls of aluminum strip which are cut, crowned, routehole punched and assembled into venetian blinds, undergo a double substantial transformation for purposes of the GSP. Accordingly, the cost or value of the substantially transformed intermediate article, cut and crowned strip, may be counted toward the GSP 35% value-content requirement in determining whether the venetian blinds are eligible for duty-free treatment under that program.

Sincerely,

John Durant, Director

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