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HQ 556290


January 27, 1992

CLA-2 CO:R:C:S 556290 WAW

CATEGORY: CLASSIFICATION

District Director
U.S. Customs Service
1000 Second Ave., Suite 2200
Seattle, WA 98104-1049

RE: Request for Internal Advice concerning the eligibility of ski gloves for duty-free treatment under the GSP; substantial transformation; 732623; C.S.D. 90-20; 12.130; 555742; 555189; 554929; 10.195(a); 556104

Dear Sir:

This is in response to your letter dated September 20, 1991, forwarding a request for internal advice regarding whether certain ski gloves from Thailand are eligible for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). A sample of the merchandise was not submitted for review.

FACTS:

Palace Industries manufactures two different styles of ski gloves commonly referred to as style 361 and style "claw". The gloves are made of two different types of fabric -- NC-700 which originates from Japan, and Duratex, which originates from Taiwan. In addition, the gloves consist of an insulating material referred to as Polar light which is of U.S. origin. The gloves also consist of a pigskin material of Japanese origin. The pigskin is shipped from Japan in irregularly shaped pieces. In Thailand, the leather is cut to shape and sewn onto the palm of the glove for reinforcement purposes. The cut pieces of leather are attached to the cut fabric pieces before the fabric pieces are sewn together to form the glove. You state that the import specialist involved in this case and the National Import Specialist agree that the sewing of a glove from the component parts is "one of the most complex of all sewing operations. It is more complex than sewing a shirt, for instance."

Set forth below is a description of the processes performed in Thailand on the Duratex and Polar light fabrics. Although no description of the processing performed on the NC-700 fabric was provided, we are assuming that the processing of all three fabrics is essentially the same.

(1) The fabric is first shipped into Thailand in bolts;

(2) The fabric is placed on a cutting table and cut into back and palm tranks and other pieces referred to as "fourchettes" and "gussets"; and

(3) The back and palm tranks, the fourchettes and the gussets are then sewn together to form the outer shell of the glove and the insulating "glove within the glove."

The assembly of the gloves involves approximately 14 components, including a D-ring and clip which originate in Thailand.

ISSUE:

Whether the manufacture of the two types of ski gloves results in a double substantial transformation, thereby permitting the cost or value of the materials imported into Thailand to be included in the 35% value-content requirement for eligibility 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 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 involved in processing the eligible article in the BDC, is equivalent to at least 35% of the appraised value of the article upon its entry into the U.S. 19 U.S.C. 2463(b).

For purposes of the GSP, 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 Texas Instruments Incorporated v. United States, 681 F.2d 778, 69 CCPA 151 (CCPA 1982).

According to General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA), Thailand is a BDC. In addition, based on the information provided, we believe that the merchandise is classified in subheading 6216.00.4600, HTSUSA, which provides for "[g]loves, mittens and mitts: Other: Of man-made fibers: Other gloves, mittens and mitts, all the foregoing specially designed for use in sports, including ski and snowmobile gloves, mittens and mitts." Articles classified under this provision are eligible for duty-free treatment under the GSP provided they meet all of the requirements.

A. "Product Of" Requirement

To comply with the requirements of the GSP statute, we must first determine whether the bolts of fabric material imported into Thailand become a product or manufacture of that country by being substantially transformed there. The courts have held that 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).

Because the articles in question consist, in large part, of textile products, section 12.130, Customs Regulations (19 CFR 12.130), is applicable. Section 12.130, Customs Regulations (19 CFR 12.130), sets forth criteria for determining whether a textile or textile product has been substantially transformed. Pursuant to the regulations, a textile or textile product will be considered to have undergone a substantial transformation if it has been transformed by means of substantial manufacturing or processing operations into a new and different article of commerce. See 19 CFR 12.130(b). According to section 12.130(d)(2), the following will be considered in determining whether merchandise has been subjected to substantial manufacturing or processing operations: (1) the physical change in the material or article; (2) the time involved; (3) the complexity of the operations; (4) the level or degree of skill and/or technology required; and (5) the value added to the article in each country or territory. Any one or a combination of these factors may be determinative and other factors may also be considered. 19 CFR 12.130(d).

Examples of processes which generally will result in a substantial transformation and those which usually will not are set forth in 19 CFR 12.130(e). According to 19 CFR 12.130(e)(iv), the cutting of fabric into parts and the assembly of those parts into the completed article in a foreign country or insular possession will usually result in a substantial transformation of the fabric so as to confer country of origin. In this case, the cutting of the foreign fabric into various shapes and sizes suitable for use as tranks and other glove components, and the assembly of those parts to produce the ski gloves in Thailand, result in a substantial transformation of the imported fabric. Therefore, the ski gloves are considered to be "products of" Thailand for purposes of the GSP.

B. Double Substantial Transformation Requirement

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 fabric and pigskin leather imported into Thailand and used to produce the ski gloves may be included in the GSP 35% value-content computation only if the fabric and the pigskin leather are first substantially transformed into new and different articles of commerce, which are themselves substantially transformed when assembled into the final article - - ski gloves.

We have consistently held that the cutting of fabric into specific or defined shapes suitable for use as components in an assembly operation is sufficient to substantially transform the fabric into a new and different article of commerce. See Headquarter Ruling Letter (HRL) 555742 dated November 5, 1990, HRL 067823 dated June 2, 1982, HRL 555189 dated June 12, 1989, and C.S.D. 89-27(4) (HRL 554929 dated November 3, 1988). With respect to the facts in this case, we find that the foreign fabric which is cut into various shapes and sizes (e.g., fourchettes, tranks, and gussets) necessary to produce the ski gloves in Thailand, result in a substantial transformation of the foreign fabric into a new and different article of commerce. In addition, we believe that the ski glove components are intermediate articles which are ready to be put into the stream of commerce where they can be bought and sold. See Torrington, 764 F.2d at 1570.

With regard to the pigskin material from Japan, the limited information provided indicates that the pigskin is cut in Thailand to specific sizes and shapes suitable for use in the assembly of gloves. Clearly, the cutting of pigskin into reinforcing glove parts is analogous to the cutting of fabric to specific shapes and sizes and, therefore, results in a substantial transformation.

The next issue to be considered concerns whether the assembly of the cut pieces of fabric and leather to create the finished gloves constitutes a second substantial transformation. In this regard, we have held that, for purposes of the GSP, an assembly process will not work a substantial transformation unless the operation is "complex and meaningful." See C.S.D. 85- 25, 19 Cust. Bull. 544 (1985). Whether an operation is complex and meaningful depends on the nature of the operation. In making this determination, we consider the time, cost, and skill involved, the number of components assembled, the number of different operations, attention to detail and quality control, as well as the benefit accruing to the beneficiary developing country (BDC) as a result of the employment opportunities generated by the manufacturing process.

In Texas Instruments, Inc. v. United States, 681 F.2d 778 (Fed. Cir. 1982), the court implicitly found that the assembly of three integrated circuits, photodiodes, one capacitor, one resistor, and a jumper wire onto a flexible circuit board (PCBA) constituted a second substantial transformation. It would appear that this assembly procedure does not achieve the level of complexity contemplated by C.S.D. 85-25. However, as the court pointed out in Texas Instruments, in situations where all the processing is accomplished in one GSP beneficiary country, the likelihood that the processing constitutes little more than a pass-through operation is greatly diminished. Consequently, if the entire processing operation performed in the single BDC is significant, and the intermediate and final articles are distinct articles of commerce, then the double substantial transformation requirement will be satisfied. Such is the case even though the processing required to convert the intermediate article into the final article is relatively simple and, standing alone, probably would not be considered a substantial transformation. See HRL 071620 dated December 24, 1984 (in view of the overall processing in the BDC, the materials were determined to have undergone a double substantial transformation, although the second transformation was a relatively simple assembly process which, if considered alone, would not have conferred origin).

With regard to whether a processing operation constitutes a substantial transformation, section 10.195(a), Customs Regulations (19 CFR 10.195(a)), also is relevant. According to 19 CFR 10.195(a), implementing the Caribbean Basin Economic Recovery Act (CBERA), no article shall be considered to have been produced in a CBERA beneficiary country 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)(D) provides that this exclusion shall not be taken to include:

A simple combining or packaging operation or mere dilution 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.) (Emphasis added)

This regulation is instructive here inasmuch as the CBERA and GSP programs have similar statutory aims, and the country of origin criteria of the statutes are nearly identical.

We have previously issued several rulings pertaining the country of origin marking of gloves which are cut in one BDC from imported material and sewn in another BDC. In the instant case, you have asked us to determine whether the principles set forth in these rulings will apply. In HRL 732623 dated November 6, 1989, subsequently published as C.S.D. 90-20 (24 Cust. Bull. 10 (March 7, 1990)), cotton industrial work glove pieces were cut in country A, and the parts were sent to country B, where they were sewn together into gloves, turned, pressed and packaged before being exported to the U.S. In this case, we held that the sewing together of cotton industrial work gloves was not a complex operation, and therefore, was not analogous to sewing suit-type jackets, suits or shirts. Furthermore, we stated that although cutting may not involve much labor, it often involves a substantial capital input. For these reasons, we concluded that country A was considered the country of origin of the imported work gloves.

However, we believe that the holding in HRL 732623 is not controlling in regard to the issue presented here: whether the assembly in a BDC of ski glove components, which were cut to shape in the same BDC, results in a second substantial transformation, thereby permitting the cost or value of fabric and leather to be included in the GSP 35% calculation. HRL 732623 involved a determination of the country of origin of the assembled gloves. As previously stated, we have held under certain circumstances, that the double substantial transformation requirement may be satisfied even though the second transformation was a relatively simple assembly process which, if considered alone, would not have conferred origin.

In the instant case, we find that the final assembly of the component parts to form a glove results in a second substantial transformation. Even though we believe that the assembly operation in the instant case, which involves sewing the approximately 14 glove parts together, may not be complex enough to constitute a substantial transformation by itself, nevertheless, we are of the opinion that the overall processing operations (i.e., cutting, sewing, and packing) performed in Mexico are substantial. In addition, not only does the processing involve a number of component parts and assembly operations, but the glove parts are fabricated in Mexico. Moreover, the assembly processes require a relatively significant period of time as well as skill, attention to detail, and quality control. We believe that the production of the ski gloves clearly results in a significant economic benefit to the BDC from the standpoint of both the value added to each component part and the overall employment generated by the operations. See C.S.D. 85-25 dated September 25, 1984 (HRL 071827); HRL 556104 dated September 10, 1991, in which foreign fabric imported into the Northern Mariana Islands to be marked, cut, assembled by various sewing operations, ironed, and packed, undergoes a double substantial transformation when manufactured into men's cotton trousers.

Finally, the fabrication and assembly process involved in producing the ski gloves is not the type of "pass-through" operation which Congress intended to prohibit from receiving GSP 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). Based on the foregoing analysis, we find that the materials used in the production of the ski gloves have undergone the requisite double substantial transformation.

HOLDING:

Based on the information provided, we find that the cutting and sewing operations performed on the imported fabric and pigskin material result in a double substantial transformation of the imported materials used to produce the ski gloves. Therefore, the cost or value of the imported materials of Japanese, Taiwanese, and U.S.-origin may be included toward the 35% value-content calculation for purposes of the GSP.

Sincerely,

John Durant, Director

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