HQ 557200 - Eligibility of aluminum insect screening for duty-free treatment under the GSP; substantial transformation; weaving; drawing; wire - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1995 HQ Rulings > HQ 545721 - HQ 557445 > HQ 557200

Previous Ruling Next Ruling
HQ 557200

May 17, 1993

CLA-2 CO:R:C:S 557200 WAW

CATEGORY: CLASSIFICATION

Jose Alberto Marchina Daued
Productos de Alambre Si-Mar, S.A.C.V.
Mexicaltzingo #1602-A
44160, Guadalajar, Jalisco
Mexico

RE: Eligibility of aluminum insect screening for duty-free treatment under the GSP; substantial transformation; weaving; drawing; wire

Dear Mr. Daued:

This is in response to your letters dated March 18, and April 13, 1993, concerning the eligibility of aluminum insect screening from Mexico for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). A sample of the merchandise was enclosed for our review.

FACTS:

You state that aluminum rod, 5145 alloy, measuring 3/8 inches in diameter, will be imported into Mexico from the U.S. In Mexico, the first step in the production of the aluminum insect screening consists of drawing the aluminum rod in a drawing machine of 100 HP capacity from 3/8 inches in diameter to 0.187 inches in diameter. The drawing of the wire involves forcing the wire through a diamond die in eight different reduction steps. The second step consists of drawing the wire from 0.187 inches to 0.064 inches in a drawing machine of 200 HP capacity in seven different reduction operations. Next, the wire undergoes an annealing process to relieve the stress as a result of the drawing process. After the annealing process, the wire undergoes 16 different reductions from 0.064 inches to 0.011 inches or 0.0085 inches, depending upon customer specification, in nine separate drawing machines of 25 HP capacity each. The wire is then wound onto spools. A final heat treatment is applied to the wire to alleviate stress from the previous drawing process. The wire is inspected for proper measurement and roundness before it undergoes the next stage of processing.

The wire is then put through a "beamer/warping" machine where it is woven into screening. The particular width of the screening may vary depending upon customer specification. Upon completion of the weaving process, the screening is cleaned through a chemical process and then soaked in water and dried in an oven. Finally, the screening is dipped into aluminum paint and allowed to dry in an oven. The finished screening is then inspected for defects, rolled into 100 feet rolls and packaged in a cardboard box for shipment to the U.S.

ISSUE:

Whether the processing of the aluminum rod in Mexico into insect screening constitutes a double substantial transformation, thereby permitting the cost or value of the aluminum rod to be counted toward the 35 percent value-content requirement 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 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)).

Mexico is a designated BDC. See General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA). Therefore, the aluminum insect screening will receive duty-free treatment if it is classified under a GSP-eligible provision, is considered to be a "product of" Mexico, is "imported directly" into the U.S., 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.

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 Texas Instruments Incorporated v. United States, 2 CIT 36, 520 F. Supp. 1216 (CIT 1981), rev'd, 681 F.2d 778, 69 CCPA 151 (CCPA 1982).

If an article is comprised of materials that are imported into the BDC, the cost or value of those materials may be counted toward the, 35% value-content minimum only if they undergo a double substantial transformation in the BDC. See section 10.177, Customs Regulations (19 CFR 10.177), and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989). That is, the cost or value of the imported materials used to produce the aluminum insect screening may be included in the GSP 35% value-content computation only if they are first substantially transformed into a new and different article of commerce, which is itself substantially transformed into the final article - aluminum insect screening.

The first issue that we will address is whether drawing rod into wire constitutes a substantial transformation of the rod into a new and different article of commerce. The court in Superior Wire v. United States, 669 F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989), held that the drawing of wire rod into wire through a multi-stage process did not constitute a substantial transformation of the wire rod. The court found that there was not significant change in the use or character of the wire, and only a relatively insignificant change in name. Moreover, the court found that the operations performed on the wire red were minor rather than substantial and concluded that the "wire rod and wire may be viewed as different stages of the same product." Id. at 1414. See Headquarters Ruling Letter (HRL) 555705 dated August 26, 1991, in which we held that the drawing process of copper wire, whereby the wire is reduced through a multi-stage process from a diameter of 14 AWG (approximately 0,064 in.) to a diameter ultimately of 36 AWG (approximately 0,005 in.) did not constitute a substantial transformation.

A test recognized by the courts as indicative (although not dispositive) of a substantial transformation is whether the manufacturing process results in a transition from producers' goods to consumers' goods. Midwood Industries v. United States, 62 Cust. Ct. 499, 313 F. Supp. 951 (1970). The facts in question are similar to Superior Wire in that there is no clear change from a producer good to consumer good when the rod is drawn. The primary use of the red, without further manufacturing, has not significantly changed with the drawing. Furthermore, there is no significant change from a product suitable for many uses to one fit for only a few uses. Like the copper wire in Superior Wire, the aluminum rod in this case dictates the final form of the finished wire, as the basic properties of the wire are predetermined by the undrawn rod. Moreover, no significant change in the composition of the wire occurs between the stages of drawing. Thus, we are of the opinion that drawing red into wire does not substantially transform the rod into a new and different article of commerce.

You also state that during the drawing process of the wire, it undergoes a heat treatment process designed to alleviate stress in the aluminum. We have held that heat treatment which is not extensive or complex, and does not transform or narrow the uses of the article is not a substantial transformation. See HRL 555103 dated February 2, 1989 (solution quenching and annealing stainless steel bars and wire rod, which maximizes softness, ductility, and corrosion resistance in the steel, does not constitute a substantial transformation, where the steel retains its multi-functional utility); HRL 730648 dated August 14, 1987 (stainless steel pipe which is annealed, restraightened and pickled is not substantially transformed). Under the facts presented in this case, we are not convinced that the heat treatment in question is sufficiently extensive or complex to substantially transform the name, character or use of the aluminum.

It is our opinion that a substantial transformation results in the weaving stage where the wire is woven by machine into aluminum insect screening. It is during this stage of production that the aluminum rod which has been drawn into wire undergoes a substantial transformation into a new and different article of commerce with a new name, character and use. In HRL 085535 dated December 28, 1989, we held that wire rod drawn into wire and converted into nails constitutes a single substantial transformation. See HRL 055722 dated August 14, 1979 (the manufacture of tungsten carbide plunged tool blanks from rough tungsten carbide rod resulted in a single substantial transformation). Thus, the initial product imported into Mexico, aluminum rod, undergoes a substantial transformation in the manufacture of the final article, aluminum insect screening, into a "product of" Mexico.

Inasmuch as the subsequent operations performed on the completed aluminum screening which include cleaning and painting, are mere finishing operations, they do not result in a second substantial transformation of the imported aluminum rod. See HRL 729308 dated August 12, 1988 (painting of earrings in Canada does not result in a substantial transformation); and HRL 556060 dated August 27, 1991 (cleaning and polishing operations do not create a new article or alter the intended use of the article). Therefore, as the aluminum red has not undergone a double substantial transformation in the production of the aluminum insect screening, the cost or value of the red may not be counted toward the 35 percent value-content requirement for purposes of the GSP.

HOLDING:

Based on the information presented, the production of aluminum insect screening in Mexico by drawing aluminum rod into wire and weaving the wire into screening substantially transforms the aluminum rod into a "product of" Mexico. However, the cost or value of the aluminum red may not be counted toward the 35 percent value-content requirement as the subsequent processes do not result in the requisite double substantial transformation of the rod. Provided that the 35 percent requirement is satisfied by calculating the Mexican material costs and the direct costs of processing operations alone, the "imported directly" requirement is met and the article is classified under a GSP-eligible provision at the time of entry, the aluminum screening will be entitled to duty-free treatment under the GSP.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling