HQ 0557032 - Eligibility of automotive vacuum harness for duty-free treatment under the GSP; substantial transformation; Torrington; HRL 071788; HRL 555532; HRL 055684; 19 CFR 10.195(a) - United States International Trade Commision Rulings

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HQ 557032

March 30, 1993

CLA-2 CO:R:C:V 557032 BLS

CATEGORY: CLASSIFICATION

Bernard R. Nottling
Rudolph Miles & Sons
P.O. Box 11057
El Paso, Texas 79983

RE: Eligibility of automotive vacuum harness for duty-free treatment under the GSP; substantial transformation; Torrington; HRL 071788; HRL 555532; HRL 055684; 19 CFR 10.195(a)

Dear Sir:

This is in reference to your letter dated November 18, 1992, and subsequent communications, on behalf of Cadillac Rubber & Plastic ("Cadillac"), concerning the eligibility for duty-free treatment under the Generalized System of Preferences (GSP), of automotive vacuum harnesses imported from Mexico. Cadillac intends to import these articles through the port of El Paso. Samples have been submitted.

FACTS:

The harnesses are used in automotive applications to perform vacuum powered operations, such as opening the trunk lid, opening and closing air/heating ducts, etc. They are also used in engine emission controls and other systems. All components and materials used in the production of the harnesses are made in and are products of the U.S.

Cadillac exports to Mexico straight black nylon tubing and black convoluted (ribbed) preslit nylon tubing, on reels or in coils, rubber connectors, plugs used to test the finished harnesses, fabric tape, and labeling and packaging materials. In Mexico, the straight tubing is uncoiled and cut to two (2) specified lengths (Tube "A" and Tube "B"). A "barb" and "rill" are heat and pressure formed on each end of the two (2) lengths of tubing. The barb is the sharp raised ring at the extreme end of the tube and is used to securely hold the fitting soon to be assembled to the tubing. The rill is the softly raised ring approximately 1.4 cm from the end of the tube, and is used to accurately locate the fitting, when it is secured to the tubing. In a fax dated March 8, 1993, you advised that the tubing sold on reels or in coils had applications as "filler and drain tubes" in various industries and were also sold to hospitals. The tubes
that are cut and barbed are sold and used in automotive vacuum applications and pollution control systems.

The straight tubes are set into a forming mold, three 90 degree angles are formed in three different dimensions, baked @ 400 degrees F for 15 minutes, removed from the mold and rapidly cooled in water to "set" the forms permanently. The appropriate fittings are pressure assembled onto each end of the formed tube.

Two diameters of convoluted (ribbed) tubing are cut to length. This convoluted tubing is used to enclose the vacuum tubes and provide protection from heat, moisture, and abrasion during assembly, installation into the automobile, and during the life of the vehicle. The tubing is preslit lengthwise to provide for ease of assembly of the vacuum tubes.

The two convoluted tubes are opened lengthwise at the slit and the two formed vacuum tubes are inserted into the opened convoluted tubing. Each end of these ribbed tubes is wrapped two and one- half times around with a 1.2 cm wide black fabric tape to permanently secure the assembly.

The completed final assembly is inspected and tested to verify the quality and integrity of the vacuum harness. After passing the inspections and tests, a preprinted gray identification tape is wrapped onto the harness. This tape displays the vacuum harness part number and identifies that the harness has passed all appropriate inspections and tests.

An orange plug is inserted into the connection on the vacuum harness. This plug identifies the correct vacuum tube for a "hot test" to be later performed by the customer. The completed harnesses are bulk packed in cartons for shipping.

Cadillac has determined that it can meet the 35 percent value content requirement under GSP through the direct cost of processing in Mexico, without resort to adding the value of the materials imported into Mexico. However, in order to be eligible for the benefits under GSP, prior to consideration of the 35 percent value content requirement, the imported article must initially be considered a "product of" Mexico.

ISSUE:

Whether the operations performed in Mexico substantially transform the exported U.S. components into a product of the BDC, for purposes of determining the eligibility of the imported article for 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 of the processing operations in the BDC, is equivalent to at least 35 percent of the appraised value of the article at the time of entry. See, 19 U.S.C. 2463(b).

Mexico is a designated BDC. See, General Note 3(c)(ii)(A), HTSUS. In addition, it appears from a description of the merchandise that the articles in question are classified under subheading 8708.99.5085, HTSUSA, "Parts and Accessories of motor vehicles, Other," a GSP eligible provision. Therefore, the imported article will receive duty-free treatment if it is considered to be a "product of" Mexico and the 35 percent value content requirement is satisfied. Merchandise is considered the "product of" a BDC if it is either wholly the growth, product or manufacture of a BDC or has been substantially transformed there into a new or different article of commerce. 19 U.S.C. 2463(b)(2). 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 (Fed. Cir. 1985).

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); and HRL 071788 dated April 17, 1984 (forming 18 carat gold wire into circles, ovals, and other specially designed links for bracelets results in a substantial transformation). Courts have also pointed in some cases to a distinction between the material as a producer good upon entry into the BDC, and the transformation to a consumer good after the operations performed in the BDC. See, Torrington, supra, at Pg 10, citing Midwood Industries v. United States, 64 Cust. Ct. 499, 313 F. Supp. 951 (1970).

In the instant case, the cutting to length, barbing, rilling, and heat forming, result in the manufacture of an article which has the essential characteristics of the final product, i.e., the automotive vacuum harness. The only steps remaining are assembly
of the rubber connectors to the ends of the harness and insertion of the article into the protective ribbed tubing. These operations render the article suitable for only one use, as an automotive vacuum harness, and transform the straight tubing, which heretofore had various applications, from a producer good to a consumer good. Accordingly, it is clear that the cutting to length, barbing, rilling, and heat forming, results in a substantial transformation of the straight plastic tubing into a new and different article of commerce. Therefore, the straight plastic tubing comprising the automotive harness is considered to be a product of Mexico for purposes of the GSP.

The additional issue to be considered is the effect of the assembly process upon the eligibility of the completed article for GSP treatment.

In determining whether the processing performed in Mexico constitutes a substantial transformation, section 10.195(a), Customs Regulations (19 CFR 10.195(a)), also is relevant. Pursuant to this regulation, which implements the Caribbean Basin Economic Recovery Act (CBERA), no article shall be considered to have been produced in a CBERA beneficiary country by virtue of having merely undergone simple, as opposed to complex or meaningful, combining or packaging operations. However, 19 CFR 10.195(a)(2)(ii)(D) provides that this exclusion shall not be taken to include:

A simple combining or packaging operation or mere dilution coupled with any other type of processing such as testing or fabrication (e.g., a simple assembly of a small number of components, one of which was fabricated in the beneficiary country where the assembly took place.)

Since both the CBERA and GSP have similar statutory goals, and the country of origin criteria are nearly identical, we may apply this regulation to the issue at hand.

In our opinion, the pressure fitting of the rubber connectors, insertion of the formed harness into the ribbed tubing, and subsequent taping of the ends of this tubing, are simple assembly operations. However, as a result of fabrication of the straight tubing, 19 CFR 10.195(a)(2)(ii)(D) is applicable. Therefore, these assembly operations do not prevent a finding that the processing in Mexico, viewed in its totality, constitutes a substantial transformation.

HOLDING:

On the basis of the information submitted, we find that the operations performed in Mexico in the production of the automotive
vacuum harness, including fabrication and assembly operations, substantially transform the U.S. components into a new and different article of commerce. As a result, the imported articles are considered products of Mexico for purposes of determining the eligibility of the articles for duty-free treatment under the GSP.

Sincerely,

John Durant, Director
Commercial Rulings Division

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