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HQ 555702

January 7, 1990

CLA-2 CO:R:C:V 55702 SER

CATEGORY: CLASSIFICATION

Steven S. Weiser, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, NY 10004

RE: Eligibility of industrial high density hydraulic balers from Mexico for duty-free treatment under the GSP

Dear Mr. Weiser:

This is in reference to your letter of July 25, 1990, on behalf of Piqua Engineering, Inc., in which you request a ruling on the applicability of the Generalized System of Preferences (GSP)(19 U.S.C. 2461-2465) to high density hydraulic balers from Mexico.

FACTS:

According to your submission, Piqua is contemplating importing industrial high density hydraulic balers ("balers"), which will be manufactured in Mexico. You state that most of the materials used in manufacturing the balers will be of non-Mexican origin.

The major components used in the production of the balers will be made in Mexico from large steel plates to be imported into Mexico. The dimensions of virtually all the steel plates imported into Mexico are as follows: 1/2" x 42" x 60"; 1/4" x or 1/4" x 48" x 96". Approximately ten sheets of the steel plate of the above sizes are used in the production of the baler components. In Mexico, the steel will be marked, cut, and then shaped into various components needed to manufacture the final article-- the baler. The cutting of the steel involves shearing and flame torch cutting. The shaping is done by means of folding, bending, scraping, drilling, grinding, etc.

The components manufactured in Mexico from the steel plate will include the base, crown, left and right sides, main door, safety gate, front cover plate, back, door flap, platen, and counter weight.

The manifold is manufactured from raw aluminum blocks, 3" x 4" x 5" in size. All six sides of the blocks are bored and fitted with valves to service the hydraulics of the baler. The base of the hydraulic cylinder is also manufactured from imported steel.

After the manufacture of the above-described baler components in Mexico from steel plate and other materials, these components will be combined with various components from other countries, mainly the U.S., to create the finished baler. These additional components include the junction box, manifold, gate up-limit switch, crown, motor/pump, hydraulic cylinder, control box, control box components and other miscellaneous parts.

The final assembly process to create the finished article is a very detailed, complex operation which involves significant welding, soldering, torching and bolting of numerous discrete components.

ISSUE:

Whether the steel plate imported into Mexico and used in the manufacture of the balers undergoes a dual substantial transformation so that the cost or value of these materials may be counted toward satisfying the 35% value-content requirement under the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product, or manufacture of a designated beneficiary developing country (BDC), which are imported directly from a BDC into the U.S. qualify for duty-free treatment if the sum of 1) the cost or value of the materials produced in the BDC, plus 2) the direct cost 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). In addition, Customs has previously ruled that the balers are classified as other packing or wrapping machinery in subheading 8422.40.9080, HTSUSA, which is a GSP eligible provision. See New York Ruling Letter (NYRL) 850321 dated March 22, 1990.

If an article is comprised of materials that are imported into the BDC, the cost or value of those materials may be included in calculating the 35% value-content requirement only if they undergo a "double substantial transformation" in the BDC. See section 10.177(a), Customs Regulations (19 CFR 10.177(a)). Azteca Milling Co. v. United States, 703 F.Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989).

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. Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

In general, Customs has held that cutting or bending materials to defined shapes or patterns suitable for use in making finished articles, as opposed to mere cutting to length and/or width which does not dedicate the resulting material to a particular use, constitutes a substantial transformation. In Headquarters Ruling Letter (HRL) 055684 of August 14, 1979, Customs held that those components of a water cooler gas absorption refrigeration unit which were formed by cutting to length, and bending imported steel tubes into the component shapes and configurations, or by cutting to length, flattening, and drilling holes into imported tubing, were substantially transformed constituent materials for GSP purposes, while those imported tubes which were simply cut to length and assembled into the final articles were not.

In addition, in HRL 555532 dated September 18, 1990, Customs held that the creation of top and bottom pans, used in the production of water heaters, by blanking the steel materials, die forming (or drawing), and die piercing constituted a substantial transformation. The case that you cite, HRL 055684 dated August 14, 1979, held that "the cutting and stamping of the undefined sheet of metal and the lengths of square shafts into an absorber box results in a substantially transformed product." In addition, in that ruling Customs found that the result of the above described process was the creation of new and different articles, each of which has a distinct character and use that is not inherent from the materials from which they were derived.

Based on the above cited rulings, the processes to which steel plates are subjected in Mexico-- cutting by means of shearing and flame torch cutting; shaping by means of folding, bending, scraping, drilling, and grinding-- results in various components that are dedicated to use in the assembly of the final article and are considered substantially transformed products.

The final assembly of the balers is a complex and detailed process. It involves not only the substantially transformed intermediate articles but also numerous other components, and requires a significant number of different operations to complete the product. Many of these operations involve significant welding procedures in addition to the soldering, torching and bolting operations. As a result of the final complex assembly operation, a new and different finished article of commerce emerges with a name, character and use different from the numerous components of which it is made. See C.S.D. 85-25 dated September 25, 1984 (HRL 071827). As the steel plate imported into Mexico is subjected to the requisite double substantial transformation, its cost or value may be counted toward the 35% value-content requirement.

HOLDING:

The components manufactured in Mexico from steel plate imported into that country are considered substantially transformed constituent materials of the hydraulic baler. Therefore, the cost or value of these materials may be counted toward satisfying the 35% value-content requirement under the GSP.

Sincerely,

John Durant, Director
Commercial Rulings Division

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