HQ 0556480 - Cutting and sewing of vinyl into pieces for dust covers; Substantial Transformation; Double Substantial Transformation; GSP; 19 U.S.C. 2463(b); 19 CFR 10.178 - United States International Trade Commision Rulings

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HQ 556480

May 5, 1992

CLA-2 CO:R:C:S 556480 RAH

CATEGORY: CLASSIFICATION

Ms. Melanie A. Sweeney
Prime Shelter, Inc.
2749 N. Grand Avenue
Nogales, Arizona 85621

RE: Cutting and sewing of vinyl into pieces for dust covers; Substantial Transformation; Double Substantial Transformation; GSP; 19 U.S.C. 2463(b); 19 CFR 10.178

Dear Ms. Sweeney:

This is in response to your letter of January 3, 1992, in which you request a ruling on behalf of Atlas Machine Cover Mfg. Co., as to whether the value of foreign materials used to manufacture vinyl dust covers in Mexico may be included in the 35 percent value-content calculation for purposes of the Generalized System of Preferences (GSP).

FACTS:

Your client is currently manufacturing vinyl dust covers in Nogales, Mexico, and importing them into the United States under subheading 3926.90.90908, Harmonized Tariff Schedule of the United States (HTSUS). The vinyl dust covers are used for keeping the dust off various parts of computer equipment.

The materials used to manufacture the vinyl dust covers include vinyl material from Taiwan (rolls, 54 inches wide and anywhere from 150 to 200 yards long), polyester thread and 7/8 inch vinyl binding from the United States.

In Mexico the vinyl rolls are laid out and cut into components consisting of three pieces (two sides and the body). The pieces are sewn together using the one inch binding and white thread. A label ("Made in Mexico") is also added at this time. Loose threads are trimmed and the dust cover is then forwarded
for inspection and packing. A sample of the completed vinyl dust cover and photographs of the operation were submitted for review.

ISSUE:

Whether the vinyl and thread from which the dust covers are created undergo a double substantial transformation in Mexico, thereby permitting the cost or value of those materials to be counted toward the GSP 35 percent value-content requirement.

LAW AND ANALYSIS:

Under the GSP, eligible products which are the growth, product, or manufacture of a designated beneficiary developing country (BDC), may enter the U.S. duty-free if such products are imported directly into the U.S. and the sum of 1) the cost or value of the 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 percent of the appraised value of the article upon its entry into the U.S. 19 U.S.C. 2463(b).

Mexico is a designated BDC. See, General Note 3(c)(ii)(A), HTSUS. The vinyl dust covers will be classified under subheading 3926.90.90908, HTSUS, which is a GSP-eligible provision. Therefore, the articles will receive duty-free treatment if they are considered to be the "product of" Mexico, the 35 percent GSP value-content minimum is met, and the goods are "imported directly" into the United States.

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 percent 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 (1989). A substantial transformation occurs "when an article emerges from a manufacturing process with a new name, character, or use which differs from that of the original material subjected to the process." The Torrington Company v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985). An "article of commerce" is one that is readily susceptible of trade, and is an item that persons might well wish to acquire for their own purposes of consumption or production. Id. at 1570. The substantially transformed constituent materials must then be used to produce the eligible article which is subsequently exported to the United States. Headquarters Ruling Letter (HRL) 055591, dated August 22, 1978.

Based on the foregoing and an examination of the sample, we are unable to conclude that the cutting process performed in Mexico on the vinyl results in the creation of separate and
distinct intermediate articles of commerce which are marketed as such. You have provided no information to indicate that the cut pieces from the vinyl are distinct commercial entities in the sense that they are separately bought and sold or are ready to be marketed as such. See, HRL 554941 dated October 24, 1989 (cowhides cut to 4 specific shapes which are attached to a wooden frame of a boot-jack are not substantially transformed into constituent materials of the boot-jack). Moreover, the cutting and sewing operations do not involve a large number of components, nor appear to require a significant number of different operations, period of time, skill, attention to detail, or other than minimal manufacturing. Therefore, the processing of the vinyl in Mexico does not result in a double substantial transformation. Accordingly, the cost or value of the vinyl and thread may not be counted toward the GSP 35 percent value-content requirement.

HOLDING:

The materials used to manufacture vinyl dust covers are not subjected to a double substantial transformation in Mexico. Accordingly, the cost or value of those materials may not be counted toward the GSP 35 percent value-content requirement.

Sincerely,

John Durant, Director
Commercial Operations Division

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