HQ 0555641 - GSP treatment of aluminum plastic reflectors.Substantial transformation; electroplating; molding; Azteca; Torrington; Texas Instruments; 555511; 732159; 554692; 055611; 051198; 555149 - United States International Trade Commision Rulings

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HQ 555641

October 18, 1990

CLA-2 CO:R:C:V 555641 KCC

CATEGORY: CLASSIFICATION

Mr. Gordon W. Larson
Rudolph Miles & Sons, Inc.
4950 Gateway East
P.O. Box 144
El Paso, Texas 79942

RE: GSP treatment of aluminum plastic reflectors.Substantial transformation; electroplating; molding; Azteca; Torrington; Texas Instruments; 555511; 732159; 554692; 055611; 051198; 555149

Dear Mr. Larson:

This is in response to your letter dated April 10, 1990, on behalf of BRK Electronics Corporation, in which you request a ruling that the cost or value of aluminum plastic reflectors produced in Mexico and incorporated into rechargeable flashlights, which will be imported into the U.S., may be counted toward the 35% value-content requirement of the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). Samples of the plastic reflector before and after the aluminum electroplating process were submitted for examination. We regret the delay in responding.

FACTS:

You state that BRK's subsidiary in Mexico is presently producing rechargeable flashlights, and that they are being entered into the U.S. as articles entitled to GSP treatment. The Mexican subsidiary is presently purchasing the aluminum plastic reflectors at arms length from a Mexican manufacturer who molds the plastic into the required shape and creates the reflector by an aluminum electroplating process. However, BRK is now contemplating changing their source of the reflector and is looking at the following options to obtain this component.

BRK's first option is to purchase the molded plastic reflector in the U.S. and export it to Mexico. BRK's subsidiary will place the plastic reflector in a vacuum chamber with an aluminum electrode. An electric discharge will be applied in
the vacuum which will cause aluminum to be deposited as a film on the plastic. This creates the finished aluminum plastic reflector which later will be incorporated into the rechargeable flashlight.

BRK's other option is to purchase U.S. origin plastic pellets and export them to Mexico. In Mexico, the pellets will be molded into the proper plastic shape by BRK's subsidiary. The plastic reflector will then be exported to the U.S. where it will undergo the above described electroplating process, after which it will be returned to Mexico for incorporation into the rechargeable flashlight.

ISSUE:

Whether the aluminum plastic reflectors are substantially transformed constituent materials of the rechargeable flashlights for purposes of the 35% value-content requirement of the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary country (BDC) which are imported directly into the customs territory of the U.S. from a BDC may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BDC, plus 2) the direct costs of the processing operation in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See, 19 U.S.C. 2463(b).

If an article is produced or assembled from materials which are imported into the BDC, the cost or value of those materials may be counted toward the 35% value-content minimum only if they undergo a double substantial transformation in the BDC. See, section 10.177, Customs Regulations (19 CFR 10.177), and Azteca Milling Co. v. United States, 703 F.Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed.Cir. 1989). That is, the cost or value of the imported materials used to produce the aluminum plastic reflectors may be included in the GSP 35% value-content computation only if they are first substantially transformed into a new and different article of commerce, which is itself substantially transformed into a rechargeable flashlight.

A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." See, The Torrington Co., v. United States, 764 F.2d 1563 (Fed. Cir. 1985), citing Texas Instruments Incorporated v. United States, 681 F.2d 778, 69 CCPA 151 (1982).

We have held that electroplating, in and of itself, does not result in a substantial transformation. We found that the electroplating operation is essentially a finishing operation which neither creates a new article nor alters the intended use of the article. See, Headquarters Ruling Letter (HRL) 555511 dated September 13, 1990, which held that the electroplating of metallic blanks did not result in a substantial transformation of the imported metallic blanks; HRL 732159 dated September 7, 1990; and 554692 dated March 8, 1988.

In this case, we are of the opinion that the aluminum electroplating operation does not result in a substantial transformation. Based on the information and samples presented, the plastic reflector before the aluminizing process is dedicated to use as, and has the essential character of, an aluminum plastic reflector. The aluminum electroplating operation is merely a finishing operation which does not create a new article nor alter the intended use of the article. Therefore, in regard to the first option, U.S. molded plastic reflectors which are electroplated in Mexico are not substantially transformed into constituent materials of the rechargeable flashlights. As a result, the cost or value of the reflectors may not be counted toward the 35% value-content requirement.

However, we have previously held that molding of plastic into a specific shape which is then used in the manufacture of an eligible article is considered a substantial transformation. See, HRL 055611 dated October 13, 1978 (injection molding of plastic pellets to form parts of toy pistols constitutes a substantial transformation); HRL 051198 dated April 18, 1977 (injection molding of plastic to form parts of motors constitutes a substantial transformation); and HRL 555149 dated May 11, 1989 (melting and molding of plastic resin into plastic parts constitutes a substantial transformation). Therefore, in regard to the second option, molding the U.S. origin pellets into the plastic reflector in Mexico constitutes a substantial transformation. As a result, the cost or value of the Mexican molded plastic reflectors, which would not include the cost of the electroplating process in the U.S., may be counted toward the 35% value-content requirement.

HOLDING:

On the basis of the information presented, we find that a substantial transformation does not occur where the U.S. molded plastic reflectors are electroplated in Mexico. Therefore, under the first option, the cost or value of the reflectors may not be counted toward the 35% value-content minimum.

However, the aluminum plastic reflectors molded in Mexico are substantially transformed constituent materials of the rechargeable flashlights into which they will be incorporated. Therefore, the cost or value of the aluminum plastic reflectors (not including the cost of the U.S. electroplating process) may be counted toward the GSP 35% value-content minimum.

Sincerely,

John Durant, Director

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