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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

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