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HQ 557423


November 19, 1993

CLA-2 CO:R:C:S 557423 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 8207.30.30

Mr. Mark E. Williams
524 Crescent Drive
Seguin, Texas 78155

RE: Eligibility of dies for duty-free treatment under the Generalized System of Preferences (GSP); double substantial transformation

Dear Mr. Williams:

This is in response to your letter dated June 14, 1993, requesting a ruling on the eligibility of dies from Mexico for duty-free treatment under the Generalized System of Preferences

FACTS:

The articles in question are dies used to cut and form in the stamping of sheet metal. The dies are placed into a power press to provide the force necessary to perform the work. The dies are referred to as progressive dies, forming dies, piercing dies, trim dies, etc.

Based on your letters of June 14 and September 15, 1993, and in a telephone conversation with a member of my staff, you indicate that you are planning to import these dies from Mexico. The die basically consists of die shoes, which is a pair of steel plates with mating guide posts and bushings; perforators, which are hardened steel pins with precise diameters and heads that retain the perforator in the die; tool steels, which are used to make the specialized shapes required for the metal stamping; springs; screws; and bolts. Most of the materials for these dies will be obtained in the U.S.

In Mexico, the die shoes are drilled and bored to make holes so that the perforators and other components may be mounted into them. Recesses are milled out to prevent the sideways movement of the mounted components. The combination of the drilled and bored dies shoes, bushings, and guide posts is referred to as a die set. The perforators are shipped to Mexico basically in their final form, except the heads and tips are ground off in Mexico so that they may fit the die shoes. Other components are made from tool steels, which are rectangular pieces of high chromium and vanadium steel. The blocks are machined while they are soft (before heat treatment), which includes sawing them to size, milling and drilling them to give them their shape, subjecting them to a heat treatment to harden the metal, and lastly, grinding them to their exact shape and size. You indicated that these components made from the tool steels may be purchased separately when breakage occurs.

Next, the components are screwed and doweled into position onto the die sets. You indicated that the perforators must be mounted in a precise manner in order for them to exactly match the holes in the die shoes. Lastly, the die is tested in a press and fine-tuned, making sure that the sheet metal parts it produces are correct and satisfactory to the customer. The die is then crated for shipment.

ISSUE:

Whether the die shoes, perforators, and tool steels imported into Mexico and used in the production of the finished dies undergo a double substantial transformation, thereby permitting the cost or value of these materials to be included in the 35 percent value-content calculation required for eligibility 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 performed in the BDC, is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the U.S. See 19 U.S.C. 2463(b).

As stated in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States (HTSUS), Mexico is a designated BDC for purposes of the GSP. To determine whether an article will be eligible to receive duty-free treatment under the GSP, it must first be classified under a tariff provision for which a rate of duty of "Free" appears in the "Special" subcolumn followed by the

The General Rules of Interpretation (GRI's) to the HTSUS govern the classification of goods in the tariff schedule. GRI 1 states in pertinent part that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes . . . ."

Heading 8207, HTSUS, provides for interchangeable tools for machine-tools (for example, for stamping). The Harmonized Commodity Description and Coding System Explanatory Note (EN) to heading 8207, HTSUS, pg. 1109, states that the heading "covers an important group of tools which are unsuitable for use independently, but are designed to be fitted . . . into . . . machine-tools of headings 84.57 to 84.65, or of heading 84.79 by reason of Note 7 to chapter 84 . . . for pressing, stamping, punching, . . . etc., metals . . . [emphasis in original]." The note further states that heading 8207, HTSUS, covers tools for pressing, stamping or punching, including dies for the stamping of sheet metal.

The dies in question are used with the die-stamping machines of heading 8462, HTSUS, to cut and form in the stamping of sheet metal. Moreover, they are unsuitable for use independently from the die-stamping machines. As such, the dies are classifiable under heading 8207, HTSUS, specifically under subheading 8207.30.30, HTSUS, which is a GSP-eligible provision.

Where an article is produced from materials imported into the BDC, as in this case, the article is considered to be a "product of" the BDC for purposes of the GSP only if those materials are substantially transformed into a new and different article of commerce. See 19 CFR 10.177(a)(2). The cost or value of materials which are imported into the BDC may be included in the 35 percent value-content computation only if the imported materials undergo a double substantial transformation in the BDC. That is, the non-Mexican components must be substantially transformed in Mexico into a new and different intermediate article of commerce, which is then used in Mexico in the production of the final imported article, the dies. See section 10.177(a), Customs Regulations {19 CFR 10.177(a)}; and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989).

The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).

The finished dies clearly emerge as new and different articles in comparison to the die shoes, perforators, and tool steels from which they are made; therefore, the dies would be considered a "product of" Mexico. However, the issue to be resolved is whether, during the manufacture of the dies, the die shoes, perforators, and tool steels are substantially transformed into separate and distinct intermediate articles of commerce which are then used in the production of the finished dies.

In general, 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. In HRL 055684 dated August 14, 1979, Customs held that those components of a water cooler gas absorption refrigeration unit which were formed by cutting to length, and bending imported steel tubes into the 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 articles were not.

Based on that ruling, the drilling and boring of the die shoes to make holes, and milling out recesses to prevent the sideways movement of the mounted components results in a substantial transformation. Furthermore, the top and bottom die shoe in combination with the guide posts and bushings are referred to as die sets which are sold as indicated in the Danly Die Set Catalog. In addition, machining the tool steels into various shapes by sawing, milling, and drilling, and subjecting them to a heat treatment to harden them also constitutes a substantial transformation. The components made from the tool steels are also articles of commerce which may be purchased when breakage occurs. However, the processes of grinding off the ends of the perforators, as in HRL 055684, does not result in their substantial transformation.

The remaining issue to be addressed concerns whether a substantial transformation results when the die sets, perforators, and components machined from the tool steels are assembled into the finished dies. It is indicated that the components made from the tool steels are screwed and doweled into position onto the die shoes, and that the perforators must be precisely mounted to exactly match the holes in the die shoes.

In Texas Instruments, the court found that the assembly of three integrated circuits, photodiodes, one capacitor, one resistor, and a jumper wire onto a flexible circuit board (PCBA) constituted a second substantial transformation. It was suggested that in situations where all of the processing is accomplished in one GSP beneficiary country, the likelihood that the processing constitutes little more than a pass-through operation is greatly diminished. Consequently, if the entire processing operation performed in the single BDC is significant, and the intermediate and final articles are distinct articles of commerce, then the double substantial transformation requirement will be satisfied. Such is the case even though the processing required to convert the intermediate article into the final article is relatively simple and, standing alone, probably would not be considered a substantial transformation. See HRL 071620 dated December 24, 1984, which held that in view of the overall processing done in the BDC, materials are determined to have undergone a double substantial transformation, although the second transformation is a relatively simple assembly process which, if considered alone, would not confer origin. See also HRL 555532 September 18, 1990.

Although the final assembly of the dies does not appear to be exceedingly complex, in view of the overall processing operations in Mexico, we do not believe that this is the minimal, "pass-through" operation that should be disqualified from receiving the benefit of the GSP. Accordingly, we find that, when the die shoes, perforators, and components made from the tool steels are assembled to create dies, a second substantial transformation of the die shoes and tool steels results. However, because the perforators were not substantially transformed by the grinding operation, their cost or value may not be included toward satisfying the 35 percent value-content requirement under the GSP.

HOLDING:

Based on the information submitted, we find that the dies are classifiable under subheading 8207.30.30, HTSUS, which provides for "[i]nterchangeable tools for handtools . . . or machine-tools (for example, for pressing, stamping, punching, tapping, threading drilling, boring, broaching, milling, turning or screwdriving) . . .; base metal parts thereof . . . [t]ools for pressing, stamping or punching, and parts thereof . . . [s]uitable for cutting metal, and parts thereof." We also find that the machining operations substantially transform the imported die shoes and tool steels into components of the finished dies, and when used in the production of the dies are substantially transformed constituent materials of the final article; therefore, their cost or value may be counted toward satisfying the 35 percent value-content requirement under the GSP. However, the perforators which are only ground to length in Mexico are not subjected to a double substantial transformation; therefore, their cost or value may not be counted toward satisfying the 35 percent value-content requirement. Consequently, the dies which are "products of" Mexico, will be entitled to duty-free treatment under the GSP, provided, the dies are imported directly into the U.S., and the 35 percent value- content requirement is satisfied.

Sincerely,

John Durant, Director

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