HQ 0556170 - Eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA, of molded case automatic circuit breakers; 555742; 055611; 555772; 555149; 055684; 555532; 555702; telex 9264071 - United States International Trade Commision Rulings

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HQ 556170

October 15, 1991

CLA-2 CO:R:C:S 556170 WAW

CATEGORY: CLASSIFICATION

Mr. Edmundo Rodriguez
Nestor Reyes, Inc.
P.O. Box 4528
Old San Juan Sta.
San Juan, Puerto Rico 00902-4528

RE: Eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA, of molded case automatic circuit breakers; 555742; 055611; 555772; 555149; 055684; 555532; 555702; telex 9264071

Dear Mr. Rodriguez:

This is in response to your letter dated June 24, 1991, on behalf of Breakers, Division of Westinghouse of Puerto Rico, Inc. (hereinafter "Breakers"), regarding whether molded case automatic circuit breakers from the Dominican Republic may enter the U.S. duty-free pursuant to U.S. Note 2(b), subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States Annotated (HTSUSA) ("Note 2(b)"). Your letter and a sample of the merchandise was forwarded to this office for a response. In addition, your request for a ruling on the country of origin marking requirements has been forwarded to the appropriate office and will be answered in a separate ruling letter.

FACTS:

According to your submission, Breakers utilizes plants in both Puerto Rico and the Dominican Republic for the manufacture of molded case automatic circuit breakers. You state that the circuit breakers will be assembled in the Dominican Republic exclusively from components manufactured in Puerto Rico. The components are made from raw materials which originate in the U.S. as well as foreign materials which are imported into Puerto Rico. You state that approximately 50% of the "Urea" utilized for the manufacture of the circuit breakers is of U.S. origin and 50% is purchased from a foreign vendor located in England. The brass which is used in the manufacture of the circuit breakers originates from Hungary and the steel originates from Brazil.

You state that the Urea powder will be substantially transformed in Puerto Rico into the three main external components of the circuit breakers, which include the lower base, upper base, and cover. The urea in powdered form is fed into molding presses which are already equipped with a plasticizer material. The urea is heated to 280 degrees Fahrenheit, and a slug is cut and deposited by gravity into a feeder mechanism. The feeder mechanism moves over the mold and drops the slugs into the mold cavities for the molding cycle. The mold consists of two platens that are closed for approximately 80 seconds at a pressure of up to 3,000 PSI, and are heated at over 300 degrees Fahrenheit to mold the material into the desired shapes (e.g., the base and cover). Once the cycle is completed the mold is opened and the molded parts are ejected. The molded parts are then inspected and processed in a steel tumbler to remove excess material before they are sandblasted (deflashing process). Finally, the components of the molded case circuit breakers are packaged and shipped to the Dominican Republic where they will be assembled with metal components to produce the finished molded case automatic circuit breakers.

The metal component parts (Arch Extinguisher LR, Cradle Regular, and Frame LR/MR) of the circuit breakers are produced in Puerto Rico from imported flat strips of metal in coils according to very strict specifications of chemical composition, hardness, thickness, width, finish, etc. First, the metal coils are inspected, after which they are unwound by using a decoiler. The material is put through a straightener unit which exerts pressure and alters the form of the metal strip from a round and curved shape to a straight one. After passing through the straightener, the strip goes through the feeder which is attached to the press. A feeder unit feeds the metal strips to the press by gripping, moving and releasing it at precise intervals of length. The metal strip is passed through the punching tool or die inside the press which pierces and bends the material. Individual parts come out of the die at a rate that fluctuates between 50 and 800 parts per minute, depending on the complexity of the part, the design of the die, and the type of press used. Those parts which require complex bending or forming are produced by the multi- slide machine, while other parts which require welding are made at the "Bihler" machines. In addition to the above processes, most of the metal components used in the assembly of the circuit breakers will be subjected to a chemical process which includes chemical hardening, nickel plating, or "parckerizing."

ISSUE:

Whether the molded case automatic circuit breakers will be entitled to duty-free treatment under Note 2(b).

LAW AND ANALYSIS:

Section 222 of the Customs and Trade Act of 1990 (Public Law 101-382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUSA, to provide for the duty-free treatment of articles (other than textile and apparel articles, petroleum and petroleum products) which are assembled or processed in a Caribbean Basin Economic Recovery Act (CBERA) beneficiary country (BC) wholly of fabricated components or ingredients (except water) of U.S. origin. This amendment was effective with respect to goods entered on or after October 1, 1990.

Note 2(b) provides as follows:

(b) No article (except a textile article, apparel article, or petroleum, or any product derived from petroleum, provided for in heading 2709 or 2710) may be treated as a foreign article, or as subject to duty, if--

(i) the article is--

(A) assembled or processed in whole of fabricated components that are a product of the United States, or

(B) processed in whole of ingredients (other than water) that are a product of the United States, in a beneficiary country; and

(ii) neither the fabricated components, materials or ingredients, after exportation from the United States, nor the article itself, before importation into the United States, enters the commerce of any foreign country other than a beneficiary country.

As stated in this paragraph, the term "beneficiary country" means a country listed in General Note 3(c)(v)(A).

Pursuant to General Note 3(c)(v)(A), HTSUSA, the Dominican Republic has been designated as a beneficiary country (BC) for CBERA purposes. Note 2(b) specifies four categories of products which are excluded from duty-free treatment under this provision: textile articles; apparel articles; petroleum; and certain products derived from petroleum. Therefore, the circuit breakers housings are eligible for duty-free treatment under this provision provided that all of the other requirements are satisfied.

Furthermore, Section 10.11(e), Customs Regulations (19 CFR 10.11(e)), defines "product of the United States" as an article manufactured within the Customs territory of the U.S. General Note 2, HTSUSA, states that "[t]he term 'customs territory of the United States,' as used in the tariff schedule, includes only the States, the District of Columbia and Puerto Rico." Thus, the question presented in this case is whether the operations performed on the foreign-origin material in Puerto Rico substantially transform the material into a "product of" the U.S.

Customs has consistently held that the molding of plastic into a specific shape is considered a substantial transformation. See Headquarters Ruling Letter (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); HRL 555149 dated May 11, 1989 (melting and molding of plastic resin into plastic parts constitutes a substantial transformation; and HRL 555772 dated January 14, 1991 (molding phenol molding compound into plastic appliance parts constitutes a substantial transformation). Based on the foregoing cases, we believe that in the instant case, the molding of the urea powder with a plasticizer into specific shapes suitable for use as the lower base, upper base and cover of the circuit breaker, constitutes a substantial transformation of the imported urea powder into a "product of" the U.S.

The next issue that we must address is whether the metal of foreign-origin which has been straightened, pierced, bent, formed and cut in Puerto Rico is substantially transformed into a "product of" the U.S. 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 HRL 055684 dated 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. Moreover, in HRL 555702 dated January 7, 1990, Customs held that steel plates which were subject to cutting by means of shearing and flame torch cutting; shaping by means of folding, bending, scraping, drilling, and grinding, results in a substantial transformation.

Based on the foregoing cases, the processes to which the metal parts of the circuit breaker are subjected in Puerto Rico -- straightening, piercing, bending, and shaping into desired shapes, and welding -- result in various components that are dedicated to use in the assembly of the final article and are considered substantially transformed into "products of" the U.S.

As previously stated, articles which are assembled or processed in a BC in whole of U.S.-origin components or ingredients are eligible for duty-free treatment under Note 2(b). Accordingly, if the finished molded case automatic circuit breakers are shipped directly to the U.S. from the Dominican Republic without entering into the commerce of any foreign country other than a BC, and the applicable documentation requirements are satisfied, the molded case circuit breakers assembled in whole of U.S. component parts will be entitled to duty-free treatment under Note 2(b).

We have enclosed a copy of Headquarters telex 9264071 dated September 28, 1990, to Customs field offices, setting forth procedures for the entry of articles under Note 2(b).

HOLDING:

Based on the information presented, the molded case automatic circuit breakers which are assembled in the Dominican Republic entirely of U.S.-origin components may enter the U.S. duty-free pursuant to Note 2(b), provided the documentation requirements set forth in the attached telex are satisfied. The external components and the metal component parts of the circuit breakers, manufactured in Puerto Rico in part from foreign materials, are considered "products of" the U.S.

Sincerely,

John Durant, Director

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