United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1991 HQ Rulings > HQ 0555426 - HQ 0555590 > HQ 0555578

Previous Ruling Next Ruling


HQ 555578


June 11, 1990

CLA-2 CO:R:C:V 555578 DSN

CATEGORY: CLASSIFICATION

Mr. Yves Clment Jumelle
Prominex-Haiti
PAP/MAF
P.O. Box 407103
Fort Lauderdale, Florida 33340

RE: CBERA treatment for certain overhead projectors. Substantial transformation; direct processing costs

Dear Mr. Jumelle:

This is in response to your letters of January 15, and May 15, 1990, requesting a ruling that certain overhead projectors imported from Haiti are entitled to duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701- 2706).

FACTS:

According to your submissions, the overhead projectors, models 600WA and 700WA, will be produced in Haiti from components of Belgian and U.S. origin. You state the manufacturing process in Haiti begins with the fabrication of certain of the projector parts from raw imported steel. The parts are made by subjecting the steel to operations consisting of cutting, punching, bending, spot welding and painting. Various parts are then assembled to create 11 separate projector subassemblies which are, in turn, assembled together to produce the overhead projector. Upon completion of these steps, the projectors are adjusted and tested for quality control before being packaged and shipped to the U.S.

You have provided the following cost information concerning the two projector models:

600WA 700WA

Cost of labor $5.00 $6.00

Allocated costs 15.00 20.00
(supervision, rental of space, electricity, depreciation of dies and tools, royalties from transfer of technology)

Cost of U.S. components 52.00 57.00

Cost of Belgian components 8.00 13.00

Shipping costs and profit 5.00 14.00

Estimated appraised value 85.00 110.00

ISSUE:

Whether the overhead projectors are entitled to duty-free treatment under the CBERA when imported into the U.S.

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 materials 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). The cost or value of materials produced in the U.S. may be applied toward the 35% value-content minimum in an amount not to exceed 15% of the imported article's appraised value. See section 10.195(c), Customs Regulations (19 CFR 10.195(c)).

Haiti is a BC. Based on the limited description given, it appears that both overhead projectors would be classified under subheading 9008.30.0000, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), which provides for image projectors, other than cinematographic, other image projectors, which is a CBERA eligible provision. Accordingly, if the overhead projectors are considered a "product of" Haiti and the 35% value- content minimum is met, the overhead projectors will be entitled to duty-free treatment under the CBERA.

Where an article is produced from materials imported into a BC from non-BC's, as in this case, the article is considered a "product of" the BC only if those materials are substantially transformed into a new and different article of commerces. See 19 CFR 10.195(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).

According to 19 CFR 10.195(a), no article shall be considered to have been produced in a BC by virtue of having merely undergone simple, as opposed to complex or meaningful, combining or packaging operations. However, 19 CFR 10.195(a)(2)(ii)(A) provides that a simple combining operation shall not be taken to include:

A simple combining ... operation ... coupled with any other type of processing such as testing or fabrication (e.g., a simple assembly of a small number of components, one of which was fabricated in the beneficiary country where the assembly took place).

The operations performed in the instant case to produce the overhead projectors clearly constitute more than a simple combining operation. Not only does the production of the projectors involve a significant number of different components and assembly operations, but certain of the projector parts are fabricated in Haiti. Moreover, when compared to the imported materials from which it is made, the finished projector clearly is a new and different article of commerce with a new name, character and use.

Finally, this fabrication and 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 overhead projectors are considered to be "products of" Haiti for purposes of the CBERA.

With respect to the 35% value-content requirement, you indicate that, based on your estimated cost information, the sum of the direct processing costs incurred in Haiti plus the cost of the components of U.S. origin (subject to the 15% cap) would represent 38.53% and 38.63% of the estimated appraised value of the models 600WA and 700WA projectors, respectively. However, without a more detailed breakdown of the "cost of labor" and "allocated costs," we are unable to state definitively that the CBERA value requirement will be met. Concerning labor costs, section 10.197(a)(1), Customs Regulations (19 CFR 10.197(a)(1)), provides that direct processing costs include "all actual labor costs involved in the growth, production, manufacture, or assembly of the specific merchandise, including fringe benefits, on the job training, and the cost of engineering, supervisory, quality control, and similar personnel." However, we have held that the cost of supervisory personnel may be included as a direct cost of processing only to the extent that they perform the functions of a first-line production foreman. See Headquarters Ruling Letter (HRL) 543748 dated June 18, 1987 (copy enclosed).

Moreover, we have ruled that costs of utilities, such as electricity and fuel, are direct processing costs to the extent that they are actually used in the production process. See HRL 555379 dated May 6, 1989 (copy enclosed), which also discusses the extent to which a number of other costs, such as plant rental, may be considered direct costs of processing. We have also enclosed for your information copies of HRL's 541080 dated February 25, 1977, and 055605 dated October 26, 1978 (C.S.D. 79- 312), which address, in part, whether royalty costs may be considered direct processing costs, and a copy of the Customs Regulations relating to the CBERA (19 CFR 10.191-10.198).

HOLDING:

The overhead projectors assembled in Haiti are considered "products of" a BC for purposes of the CBERA. Therefore, assuming that they are imported directly to the U.S., and the 35% value-content requirement is satisfied, the projectors will be entitled to duty-free treatment under the CBERA.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling

See also: