HQ 0556643 - Request for Reconsideration of HRL 555811; eligibility of the Opposed Roll-Formed Blade Damper for duty-free treatment under the GSP; 055684; 071788; 555532; 555659; 555357; Superior Wire - United States International Trade Commision Rulings

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HQ 556643

July 24, 1992

CLA-2 CO:R:C:S 556643 WAW

CATEGORY: CLASSIFICATION

Allen E. Smith, Esq.
Allen E. Smith and Associates
1801 South Second Street
Suite 470
470 McAllen National Bank
McAllen, TX 78503

RE: Request for Reconsideration of HRL 555811; eligibility of the Opposed Roll-Formed Blade Damper for duty-free treatment under the GSP; 055684; 071788; 555532; 555659; 555357; Superior Wire

Dear Mr. Smith:

This is in response to your letter of April 7, 1992, requesting a reconsideration of Headquarters Ruling Letter (HRL) 555811, in which we considered the eligibility of certain diffusers, dampers and grilles assembled in Mexico and used in the U.S. in the production of HVAC air distribution systems for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). Specifically, you request that we reconsider our decision regarding the "Opposed Roll-Formed Blade Damper" (OBDR). A sample of the merchandise was submitted for examination.

FACTS:

In HRL 555811 dated March 20, 1992, we held that the imported aluminum flat stock which is die cut, stamped and shaped into end rails and then subsequently assembled into an OBDR has undergone the requisite double substantial transformation. However, we also found that the pre-cut and pre-punched aluminum shapes and roll formed aluminum shapes and strips which were machine bent to form C-shaped side and bottom rails and cut to length to form blades, did not result in a double substantial transformation of the imported materials. You have asked us to reconsider whether the side rails which make up the OBDR undergo a double substantial transformation.

The specific details of the assembly process of the OBDR is set forth below. The first step in the production of the damper is the manufacture of the two ends and two side rails as follows: Component 1:

(1) The two ends are die cut, stamped and shaped from aluminum flat stock.

Component 2:

You state that two different side rails are required for each damper. The side rails are referred to as "active" and "passive" rails. The rail lengths, angles and hole patterns are identical for both types of rails. However, the active rail requires an additional embossing (forming) operation which is necessary to enable the attachment of the damper operator bracket to the rail. The rails are manufactured as follows:

(A) Punching and bending of the active and passive side rails

(1) Imported roll formed and pre-cut aluminum shapes are taken from storage and placed on a work feed table located adjacent to a hydraulically powered punch press.

(2) The press operator proceeds to insure that all built-in safety mechanisms are in place prior to applying power to the machine.

(3) The trimmed, notched and cut to length part is placed in a die. Power is applied which causes the die to hole punch the upper part of the side rail and bend the ends. This operation forms a "C" shaped passive side rail with notched ends. The holes punched in the upper part of the side rail are used for mounting purposes when the damper is attached to a diffuser.

(4) The side rail component is then removed from the die and both visually and mechanically inspected to insure compliance with specifications.

(B) Embossing (forming) and punching of the active side rail

(1) The die operator places the cut "C" shaped notched passive side rails on a work table adjacent to an embossing die. The operator then adjusts the die stop to a position corresponding to the correct emboss location.

(2) The operator proceeds to insure that all built-in safety mechanisms are in place prior to applying power to the machine.

(3) The operator selects and inserts a single rail through the die and against the end locating stop. Power is then applied allowing the die to cycle and complete the embossing (forming) operation and punching. This operation forms a punched mounting support and a housing in the side rail for attaching the operator mechanism.

(4) The piece is removed from the die and both visually and mechanically inspected to insure compliance with specifications.

Component 3:

(1) The bottom side rail is punched to form a housing for the nylon operator.

You state that these operations result in a substantial transformation of the imported materials into new and different articles of commerce: ends and side rails. One worker is responsible for stamping and forming the damper ends. Another worker is responsible for bending and punching the side rails.

You claim that the assembly of the damper constitutes the second substantial transformation. The assembly process is as follows:

(1) The bottom (follower) bracket is riveted to the pre-cut and pre-punched action rod;

(2) The action rod is placed in the pre-bent bottom side rail (component 3). Bushings (butterflies) are placed on the action rod, and all are then secured by eyelets;

(3) Bushings (butterflies) are attached to the top side rail (component 2) with eyelets;

(4) the nylon operator is inserted into the top bracket and then the bracket (with operator) is riveted to the bottom side rail (component 3);

(5) Imported blades that were cut to length in Mexico are fitted to the bottom side rail (component 3);

(6) The pre-bent top side rail (component 2) is fitted to the blades;

(7) Shaped and punched ends (component 1) are inserted into the side rails and secured with eyelets to complete the assembly.

One worker is responsible for cutting the blades. Four workers place the action rod in the operators and side rails, eyelet them, assemble the operator to brackets and rivet them. Six workers assemble the blades and ends to the rails. Two workers complete the damper by eyeletting the ends to the side rails. Two workers back up any part of the line that slows down. The finished damper is inspected, and either wrapped and packaged for shipment to the U.S., or sent to another assembly line for use in another product.

ISSUE:

Whether the materials imported into Mexico that undergo punching, bending and embossing operations in the production of the side rails undergo a double substantial transformation, thereby permitting the cost or value of these materials to be included in the 35% value-content calculation required for eligibility under the GSP.

LAW AND ANALYSIS:

A complete enunciation of the law pertaining to eligibility of articles under the GSP was provided in HRL 555811 and, therefore, it will not be repeated here. Discussion of the applicable law will be limited to the current issue -- whether the side rail components used in the production of the OBDR have undergone a double substantial transformation.

Customs has previously held that cutting or bending materials to defined shapes or patterns suitable for use in making finished articles constitutes a substantial transformation. See Headquarters Ruling Letter (HRL) 055684 dated August 14, 1979 (holding that those components of a water cooler gas absorption refrigeration unit which were formed by cutting to length, cleaning, and bending imported steel tubes into the required 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 article were not); HRL 071788 dated April 17, 1984 (forming 18 karat gold wire into circles, ovals, and other specially designed 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 transformation). In each of the above cases, the raw material had numerous uses before undergoing the cutting operations and possessed little or nothing in its character to indicate its ultimate shape or purpose. The number and variety of potential uses was restricted and the essential character was permanently determined only after the cutting processes were performed.

Moreover, we have consistently held that punching of holes into pre-formed articles is insufficient to constitute a substantial transformation of the article into a new or different article of commerce. See HRL 555659 dated December 3, 1990 (the process of punching holes in formed tubes does not constitute a substantial transformation). Likewise, the process of punching holes in an aluminum frame and blade parts, which have already been cut to length, to facilitate the assembly process, does not appear to be any more involved than punching holes in pre-formed tubes.

Customs has previously 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 constitute 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 molding, 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 molding and picture frames, is to display artwork, prints, photographs, etc.

In support of your contention that the side rails undergo a single substantial transformation by the process of bending, punching and extruding the pre-cut aluminum components, you cite HRL 555357 dated July 19, 1985. In HRL 555357, we ruled that while cutting aluminum strip to specific length, and punching and/or drilling holes in the cut lengths to form components of window frames and sashes did not substantially transform the aluminum strip, that strip which was cut to specific length, punched and/or drilled with holes, and notched, which gave the strip a specific shape or pattern, was substantially transformed. The cutting, punching, drilling and notching operations in this case alter the physical characteristics of the aluminum, and affect the uses to which it may be put. Prior to undergoing the foregoing operations, the aluminum strip was a raw material which did not possess anything in its character which indicated that it was intended to serve as a window frame or window sash. However, after the cutting, punching, drilling and notching operations, the aluminum components were suited for only a limited number of uses.

We find in the instant case, unlike the operations performed in HRL 555357, that the bending, punching and embossing of the of the roll formed and pre-cut aluminum strips for use as side rails in an OBDR do not substantially transform the imported aluminum into new and different articles of commerce. It is our opinion that the roll formed and pre-cut aluminum strips both before and after these operations are clearly recognizable and dedicated for use solely as side rails for damper assemblies. In Superior Wire v. United States, 11 CIT 608, 669 F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989), 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. In the instant case, the imported roll formed and pre-cut aluminum strips already possess a pre-determined quality and use, they are imported into Mexico already trimmed, notched and cut to length. Therefore, Customs considers the aluminum strips both before and after they have undergone the foreign processing operations, as the same product at different stage of production, rather than evidence that a substantial transformation has taken place. Accordingly, we find that the bending, punching and embossing operations of the roll formed and pre-cut aluminum strips in Mexico does not constitute a substantial transformation of the imported materials into new and different articles of commerce.

HOLDING:

Based on the information and samples submitted, it remains our opinion that the imported aluminum strips which are bent, punched and embossed in Mexico into components which are used in the assembly of the OBDR, do not undergo the requisite double substantial transformation. Therefore, the cost or value of the imported aluminum may not be included in calculating the GSP 35% value-content requirement for the OBDR. Our decision in HRL 555811, is hereby affirmed.

Sincerely,

John Durant, Director

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