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HQ 556788


October 22, 1992

CLA-2 CO:R:C:S 556788 WAW

CATEGORY: CLASSIFICATION

Mr. Victor Escamilla
Vicman Enterprises
3522 Avenue S
Galveston, TX 77550

RE: Reconsideration of HRL 556636; Eligibility of book straps for duty-free treatment under the GSP; 12.130; "product of"; substantial transformation

Dear Mr. Escamilla:

This is in response to your letter of June 16, 1992, requesting a partial reconsideration of Headquarters Ruling Letter (HRL) 556636 dated May 30, 1992, concerning the eligibility of book straps from Mexico for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). We held in HRL 556636 that the materials imported into Mexico were not subjected to a substantial transformation to render the article a "product of" Mexico and, therefore, the book straps were not eligible for duty-free treatment under the GSP.

FACTS:

In your recent submission, you state that you have made arrangements to have approximately 90 percent of the foreign materials cut to specifications in Mexico, rather than in the U.S. You have asked us to determine whether, under the present facts, the book straps will qualify for duty-free treatment under the GSP.

The following is a list of the materials which are exported to Mexico and used in the production of the book straps:

(a) polypropylene strips measuring .125 by 1.00 by 5.75 inches;
(b) poly bags measuring 7 by 23 inches;
(c) 3/8 inch bias tape;
(d) texacro hook and loop which will be cut to specifications in Mexico;
(e) two inch elastic 100 percent stretch which will be cut to specifications in Mexico;
(f) polypropylene webbing measuring 1 by 1 1/2 inches which is cut to specifications in Mexico;
(g) 16 mil vinyl which is cut to specifications in Mexico; (h) 1 inch nickel-plated D rings, 1/2 inch nickel-plated slide; 1 1/2 inch nickel-plated snap;
(i) header card measuring 12 by 7 1/2 inches which is attached to the poly bag;
(j) cardboard box for shipping;
(k) nylon sew on tags measuring 3/4 by 3/4 inches and 1 by 2 inches;
(l) cotton/poly blend multi color cover material which will be cut to specification in Mexico;
(m) nylon thread.

In Mexico, all of the above components are assembled to create the Vicman "Strap-It Book Strap." The 16 mil vinyl component will act as the base materials for the strap which will measure 6 by 36 inches. The texacro hook and loop will be attached to the vinyl 16 mil component. The cotton/poly blend multi color cover material will be attached to the 16 mil vinyl component. Bias tape will cover the outside perimeter of the strap and pockets. The 2 inch elastic component will be attached close to the pocket. The 1 inch polypropylene webbing will be assembled with the D ring to serve as a handle. The polypropylene webbing measuring 1 1/2 inches will be assembled with the snap and slide to create the shoulder assembly. The polypropylene strips measuring .125 by 1 by 5.75 inches will serve to stiffen the handle. The name tags will be sewn on at the small pocket and a larger tag will be sewn on the back of the 16 mil vinyl component. The completed article will be packaged in the poly bag and stapled together with the header card. The bagged article will then be packaged in a cardboard box and shipped to the U.S. for distribution.

You state that the book straps are comprised of approximately 15 components. The cost of assembling the book straps in Mexico constitutes approximately 90 percent of the total cost of the product.

ISSUE:

Whether the book straps are entitled to duty-free treatment 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).

According to General Note 3(c)(ii)(A), HTSUS, Mexico is a BDC. In addition, based on the information provided, we believe that the merchandise is classified in subheading 6307.90.94, HTSUS, which provides for "Other made up articles, including dress patterns: Other: Other," and are dutiable at 7 percent ad valorem. Articles classified under this provision are eligible for duty-free treatment under the GSP provided they meet the "product of", 35% value-content minimum and "imported directly" requirements.

To comply with the requirements of the GSP statute, we must first determine whether the bolts of fabric material imported into Mexico 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 subject merchandise consists, in large part, of textile materials, 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 U.S.-origin fabric and other materials into various shapes and sizes suitable for use as components for a book straps, and the assembly of those parts to produce the book straps in Mexico, result in a substantial transformation of the imported materials. Therefore, the book straps are considered "products of" Mexico for purposes of the GSP and will be entitled to duty-free treatment, provided the imported directly and 35% value-content requirements are satisfied.

HOLDING:

Based on the information provided, we find that the cutting of the U.S.-origin fabric and other materials into various shapes and sizes suitable for use as components for book straps, and the subsequent assembly of these parts into finished book straps in Mexico result in a substantial transformation of the imported materials into "products of" Mexico. Therefore, the book straps may be eligible for duty-free treatment, provided the GSP 35% value-content requirement is satisfied, and the merchandise is imported directly into the U.S.

Sincerely,

John Durant, Director

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