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HQ 555893


November 12, 1991

CLA-2 CO:R:C:S 555893 WAW

CATEGORY: CLASSIFICATION

District Director
U.S. Customs Service
1100 Paseo Internacional
San Ysidro, CA 92073

RE: Internal Advice No. 5/91; eligibility of wood frames for pictures and clocks for duty-free treatment under the GSP;

Dear Sir:

This is in response to your memorandum of January 9, 1990, forwarding the internal advice request filed by Stein Shostak Shostak & O'Hara on behalf of Assemble in Mexico ("AIM"), concerning the eligibility of wood frames for pictures and clocks for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). No samples of the articles were submitted for our review. However, the importer has provided photographs illustrating the component parts of the clock frame. Additional information was submitted by counsel on July 25, 1991, in connection with this matter.

FACTS:

AIM wishes to obtain duty-free treatment under the GSP for wood picture and clock frames from Mexico. They currently import foreign wood mouldings into Mexico where they are cut to specified lengths. The cut mouldings are then mitered and angled at both ends to form parts of picture frames and clock frames. The importer states that the length and angle of the mouldings will vary depending upon the shape and size of the intended frames (i.e., square, hexagon, octagon). After the frame parts are cut, AIM assembles these parts and performs certain additional finishing operations to produce the finished clock frames and picture frames. The frame parts are first assembled with corrugated fasteners on a vise-like apparatus.

The wood frames which will be manufactured into clock frames require additional operations. The imported wood is cut to form what is referred to as "cleats," two of which are nailed to the sides of the assembled frame. The two side cleats measure approximately 1 inch by 1-1/2 inches by 15 inches. Grooves are then notched into the cleats to accomodate a back panel which is added in the U.S. A third cleat is then cut and atached at the top of the frame. Three holes are drilled into the third cleat, for hanging purposes and to accomodate nails for the attachment to the back panel. Finally, the picture and clock frames undergo finishing operations such as sanding, staining, laquering, and sealing with a wood sealer before shipment to the U.S.

ISSUE:

Whether the frame parts which are produced in Mexico from imported materials are substantially transformed constituent materials of the picture frames and clock frames into which they are subsequently incorporated in Mexico, thereby enabling the cost or value of the imported materials to be counted toward 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 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. See section 10.176(a), Customs Regulations (19 CFR 10.176(a)).

As stated in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA), Mexico is a designated BDC for purposes of the GSP. In addition, it appears from your description of the merchandise that the pictures frames at issue are classified under Heading 4414, HTSUSA, which provides for wooden frames for paintings, photographs, mirrors or similar objects. The clock frames appear to be classified under subheading 9112.90.00, HTSUSA, which provides for clock cases and cases of a similar type for other goods of this Chapter, and parts thereof. Articles classified under the above-referenced tariff provisions are eligible for duty-free treatment pursuant to the GSP, provided that they meet all of the legal requirements.

The cost or value of materials which are imported into the BDC to be used in the production of the article, as here, may be included in the 35% value-content computation only if the imported materials undergo a "double substantial transformation" in the BDC. That is, the non-Mexican materials must be substantially transformed in Mexico into a new and different intermediate article of commerce, which is then used in Mexico in the production of the final imported article - the picture or clock frame. See section 10.177(a), Customs Regulations (19 CFR

10.177(a)), and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989).

The test for determining whether a substantial transformation has occurred is whether 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, 156, 681 F.2d 778, 782 (1982).

We have previously 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 or width which does not render the article suitable for a particular use, constitutes a substantial transformation. See HRL 055684 dated August 14, 1979 (a substantial transformation results from cutting, bending, and crimping wire into identifiable trigger pins for spring rings); HRL 071788 dated April 17, 1984 (forming 18 karat gold wire into circles, ovals, and other specially desinged links for bracelets results in a substantial transformation); and HRL 555532 dated September 18, 1990 (shearing cold rolled steel to rectangular shape, piercing to form the various openings, and roll forming the steel into tubular shape results in a substantial tranformation).

We find that cutting and mitering the imported wood moulding into lengths suitable for use in picture and clock frame parts does not substantially transform the imported moulding into a new and different article of commerce. The wood moulding undergoes simple cutting to length and angling operations which do not alter the essential character or specific pattern of the material, nor does it affect the uses to which they may be put. Both before and after these operations, the wood moulding components are clearly recognizable and dedicated for use solely as frame parts. Based upon the information provided, we find that the operations of cutting to length and mitering the wood moulding are not encompassed within the principle of the above- cited rulings, and should not be considered a substantial transformation. Therefore, consistent with the above cases, it is our opinion that the wood moulding and the purported intemediate products -- picture frame parts and clock frame parts -- merely represent different stages of the same product.

You also submit that the name change is significant in finding that a substantial transformation results. The courts have held that although a name change may support a finding of substantial transformation, this fact is not necessarily determinative. Superior Wire v. United States, 11 CIT 608, 669 F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989).

In Superior Wire, the court held that for VRA purposes, wire rod drawn into wire was not substantially transformed into a product of Canada. In determining that there was no significant change in use or character, the court found that the operations performed on the wire rod were minor rather than substantial and concluded that the "wire rod and wire may be viewed as different stages of the same product." Id., 867 F.2d 1414. Moreover, it has been stated that "a change in the name of the product is the weakest evidence of a substantial transformation." National Juice Products Ass'n v. United States, 628 F. Supp. 978 (CIT 1986), citing, Uniroyal Inc. v. United States, 542 F. Supp. 1026 (1892), aff'd, 702 F.2d 1022 (Fed. Cir. 1983). We view the name change from "picture frame parts" or "clock frame parts" to "clock frame" or "picture frame" as the same product at different stages of production, and not evidence of a substantial transformation.

We note that you have provided evidence that the parts of picture frames are readily available and sold in the market place to establish that the parts are new and different articles of commerce. However, the fact that these picture frame parts may be considered articles of commerce is not dispositive of whether they are new and different articles of commerce. Based on our prior discussion, we are not persuaded that the picture frame parts and clock frame parts are new or different intermediate articles. Rather, we believe that they are materials undergoing a continuous manufacturing process which results in the creation of the picture frames and clock frames.

Finally, we note that on similar facts, Customs held in HRL 555779 dated March 7, 1991, that finished wood molding which is angle-cut to specified lengths and subsequently assembled by hand tacking or stapling together the cut pieces into a picture frame, does not undergo the requisite double substantial transformation. In that ruling, we stated that:

Cutting the molding to length and assembly of the cut lengths constitute the next stage of processing of the same product. Unlike the situation in the venetian blind case, HRL 555265, the intermediate product in this case has but one use. After the wood is fabricated into lengths of finished moulding, it possesses the essential characteristics of a picture frame. The purported intermediate article and the final article are not separate and distinct articles of commerce since the sole use of both items, finished wood moulding and picture frames, is to display artwork, prints, photographs, etc.
HOLDING:

Based on the information provided, it is our opinion that the picture and clock frame parts produced in Mexico by cutting and mitering imported wood moulding do not constitute substantially transformed constituent materials of the picture and clock frames. Therefore, as the wood moulding is not subjected to a double substantial transformation in Mexico, the cost or value of the wood may not be included in calculating the 35% value-content minimum for purposes of the GSP.

Sincerely,

John Durant, Director

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