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HQ 555368


January 2, 2990

CLA-2 CO:R:C:V 555368 DSN

CATEGORY: CLASSIFICATION

Allen E. Smith, Esquire
470 McAllen National Bank
McAllen, Texas 78503

RE: Duty-Free Treatment under the Generalized System of Preferences of wooden pedestals made in Mexico

Dear Mr. Smith:

This is in response to your letter of April 14, 1989, in which you request a ruling under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466), on behalf of Austin Sculpture & Decorative Art, Inc., that U.S. materials imported into Mexico undergo a double substantial transformation in the production of wooden pedestals.

FACTS:

You state that the materials used to produce the wooden pedestals, 4 by 8 foot particle boards, resin-and-paper laminate, and glue, originate in the U.S. You describe the processing operations that will take place in Mexico as follows:

1. High pressure phenolic resin-and-paper laminate, which is 1/32 inch thick, is bonded with glue to either a 3/8 inch or 1/2 inch 4 by 8 foot particle board panel.

2. Components of pedestals are created from the resulting 4 by 8 foot panels by cutting out into blanks which are further cut into smaller pieces and beveled.

3. These components are then joined and glued to form a pedestal. The pedestals are then finished and cleaned.

ISSUE:

Whether the cost or value of the U.S. materials imported into Mexico may be included in the GSP 35% value-content computation.

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 Annotated (HTSUSA), and, based on your description, it appears that the wooden pedestals will be classified under subheading 9403.60.8080, HTSUSA, which provides for other furniture and parts thereof, other wooden furniture, other, other, which is a GSP eligible provision. Assuming that the wooden pedestals 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 may be included in the 35% value-content computation only if the imported materials undergo a double substantial transformation. That is, the U.S materials 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 wooden pedestals. See 19 CFR 10.177(a).

A substantial transformation occurs when a new and different article of commerce 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 believe there is no question in this case that the U.S. materials to be sent to Mexico will undergo a substantial transformation in Mexico since the wooden pedestals are new and different articles of commerce when compared to materials used in producing them. The question to be resolved is whether, during the manufacture of the pedestals, the U.S. materials are substantially transformed into a separate and distinct intermediate article of commerce which is then used in the production of the finished pedestals.
The process of laminating the particle boards and cutting out pedestal components from the boards clearly results in articles with a distinctive name, character and use different from that possessed by the materials exported to Mexico. However, it is also necessary to show that the pedestal components are new and different articles of commerce. An "article of commerce" must be commercially recognizable as a different article, i.e., it must be readily susceptible of trade and be an item that persons might well wish to buy and acquire for their own purpose of consumption or production. See The Torrington Co., v. United States, 764 F.2d 1563, 1568 ((Fed. Cir. 1985). In this regard, you have provided no information to indicate that the pedestal components are distinct commercial entities in the sense that they are separately bought and sold or are ready to be marketed as such. Therefore, it is our opinion that the production of the wooden pedestals in Mexico constitutes a continuous manufacturing process resulting in the creation of only one separately identifiable article of commerce--the article imported into the U.S.

HOLDING:

The cost or value of the U.S. materials exported to Mexico may not be counted toward the GSP 35% value-content requirement in determining whether the wooden pedestals are eligible for duty-free treatment under the GSP.

Sincerely,

John Durant, Director
Commercial Rulings Division

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