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HQ 556930

January 15, 1993

CLA-2 CO:R:C:S 556930 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 8544.41.0000, 9802.00.80

Ms. Laura Lyons
AT&T
1090 East Duane Avenue
Sunnyvale, California 94086

RE: Telephone Line Cord; GSP; sugheading 9802.00.80; substantial transformation; incidental to assembly; fitting of U.S. components; cutting wire to length; "latching"; "hacking"; 19 CFR 10.176(a); 19 CFR 10.14(a); 19 CFR 10.16(b)(6); T.D. 91-7; C.S.D. 85-25

Dear Ms. Lyons:

This is in reference to your letter dated August 28, 1992, requesting a ruling with regard to the tariff treatment of telephone line cords which may be imported into the United States under certain described scenarios. The cords are used to connect telephones and telephone answering systems to the wall plug.

FACTS:

Plastic-encased copper wire and plastic end clips with metal blades, of U.S. origin, will be exported to Thailand. The wire, in 50,000 foot rolls, will be cut to length and "hanked", by wrapping it with a metal tie. The two ends then will be stripped of insulation and the plastic cap pieces will then be "latched" onto each end. The cords then will be placed in individual poly bags for shipment. A sample of the final product has been submitted.

There are two possible routes the cords may take:

1) The cords in their individual poly bags will be shipped to the U.S. for use in repair operations;

2) The cords in their individual poly bags will be shipped from Thailand to manufacturing locations in various Far Eastern countries, where they will be placed in retail boxes containing completed telephone/answering system sets.

ISSUES:

1) Whether the Generalized System of Preferences (GSP) is applicable when the cords are shipped directly to the U.S. and when they are sent to an intermediary country and used as an accessory with the completed sets; both in instances where the set is a product of a GSP country and when the set is a product of a non-eligible GSP country.

2) Whether the cords are eligible for the partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), when the cords are shipped in conjunction with the completed sets.

3) What is the proper HTSUS designation for the articles imported directly into the U.S.?

4) What are the country of origin marking requirements for the finished cords when shipped directly to the U.S. and when they are shipped with the telephone/answering system?

LAW & ANALYSIS:

1) GSP Eligibility

Under the GSP, eligible articles the growth, product, or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the U.S. qualify for duty-free treatment if 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 at least 35% of the appraised value of the article at the time of its entry into the U.S. See section 10.176(a), Customs regulations (19 CFR 10.176(a)).

Thailand is a BDC. See General Note 3(c)(iii)(A), HTSUS.

When an article is made in a BDC from materials imported into that country, the article is considered to be a "product of" the BDC only if the materials are substantially transformed into a new or different article of commerce. See 19 U.S.C. 2463(b). 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 manufacturing process". See, Texas Instruments v. United States, 2 CIT 36, 520 Fed. Supp, 1216 (CIT 1981), rev'd, 681 F.2d 778, 69

CCPA 151 (CCPA 1982).

Customs has previously held that an assembly process will not constitute a substantial transformation unless the operation is "complex and meaningful". Whether an operation is "complex and meaningful" depends on the nature of the operation, including the number of components assembled, number of different operations, time, skill level required by the operation, attention to detail and quality control, as well as the benefit accruing to the BDC as a result of the employment opportunities generated by the manufacturing process. See, C.S.D. 85-25, dated September 25, 1984 (Headquarters Ruling Letter (HRL) 071827).

It is clear that the operations performed in Thailand, consisting of cutting the wire to length, wrapping it with a wire, stripping it of insulation, and "latching" it with plastic end pieces, do not constitute "complex and meaningful" assembly processes which result in a substantial transformation. Therefore, in any of the scenarios described above, the line cords would not qualify as articles which are the growth, product or manufacture of a designated BDC.

2) Subheading 9802.00.80

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

(a)rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubrication and painting.

All three requirements of subheading 9802.0080, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.14(a), Customs Regulations (19 CFR 10.24).

Section 10.14(a), Customs regulations (19 CFR 10.14(a)), states in part:

[t]he components must be in condition ready for assembly
without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subject to operations incidental to the assembly either before, during, or after their assembly with other components.

Section 10.16(a), Customs regulations (19 CFR 10.16(a)), provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, rivting, force fitting, gluing, laminating, sewing, or the use of fasteners.

Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to that component. (See, 19 CFR 10.16(c).) Included among the operations considered incidental to the assembly process are the cutting to length of wire thread, tape, foil, and similar products exported in continuous length. (See, 10.16(b)(6), and General Instrument Corporation v. United States, 499 F.2d 1318 (1974), which included the stripping of insulation from the wire for electrical connection.)

In the instant case, the fitting together of the line cords and plastic cap pieces by "latching" and wrapping the cord with a wire tie constitute acceptable assembly processes within the meaning of 19 CFR 10.16(a). Cutting the cords to length and stripping the ends of insulation are considered operations incidental to the assembly process.

When shipped to the U.S. for use in repair operations, the completed line cords will be entitled to the partial duty exemption under subheading 9802.00.80, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.24. Similar treatment will be accorded the line cords when shipped to another foreign country for inclusion in a telephone/answering system, which is subsequently shipped to the U.S. for retail sale. If the set or composite good consists of articles of both U.S. origin components and items of foreign manufacture, duties will be assessed pursuant to subheading 9802.00.80, HTSUS, upon the full value of the set less the cost or value of the U.S. fabricated components. The duty rate to be applied to the dutiable value of the set will be determined by classifying the entered set or composite good pursuant to the General Rules of

Interpretation as if subheading 9802.00.80, HTSUS, were inapplicable to any portion of the set. See, T.D. 91-7, dated January 16, 1991.

3) Classification

Based on the description of the merchandise, it appears that the telephone line cord is classified under subheading 8544.41.0000, HTSUSA, which provides for,insulated...wire, cable...whether or not fitted with connectors...: Other electric conductors, for a voltage not exceeding 80 V: Fitted with connectors. Articles classified in this provision are subject to a duty rate of 5.3% ad valorem.

Your questions regarding the marking requirements for the finished cords will be the subject of a separate ruling to be issued subsequent to this decision.

HOLDING:

1) Telephone line cords to be assembled in Thailand (a BDC) of U.S. components are not substantially transformed in Thailand into a new or different article of commerce. Therefore, under any of the proposed scenarios, the line cords would not be entitled to duty-free treatment under the GSP, as they are not the growth, product or manufacture of a designated BDC.

2) The processing in Thailand is considered to constitute acceptable assembly operations or operations incidental thereto, within the meaning of 19 CFR 10.16. Therefore, under any of the proposed scenarios, the line cords will be entitled to an allowance in duty under subheading 9802.00.80, HTSUS, for the value of the U.S.-made components incorporated therein, upon compliance with the documentary requirements of 19 CFR 10.24.

3) Based upon the description of the merchandise, the line cords are classifiable under subheading 8544.41.0000, HTSUS, which provides for a duty rate of 5.3% ad valorem.

Sincerely,

John Durant, Director
Commercial Rulings Division

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