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 557284

Previous Ruling Next Ruling
HQ 557284




July 26, 1993

CLA-2 CO:R:C:S 557284 WAW

CATEGORY: CLASSIFICATION

Mr. Shields T. Fair
8715 Wallen Ridge Drive
Tucson, AZ 85710

RE: Eligibility of night stand table for duty-free treatment under the Generalized System of Preferences; substantial transformation; double substantial transformation; wood; furniture

Dear Mr. Fair:

This is in response to your letter dated April 17, 1993, regarding the eligibility of a night stand table imported from Mexico for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466).

FACTS:

You state that you intend to manufacture among other things, chairs, tables -- including dining, end, coffee, and other tables -- cabinets, dressers, and beds in Mexico. All of the products which you intend to manufacture will consist predominantly of wood, and in some instances will also have some metal hardware and/or cloth with foam padding underneath. Most of the wood and hardware will be exported from the U.S. to your Mexican manufacturing facility. You state that, where possible, you will utilize wood which originates from Mexico. As you have only provided a description of the operations involved in the production of a night stand table, we are limiting this ruling to the facts relating to that item and, therefore, we are not considering at this time whether the other articles which you produce will also be eligible for duty-free treatment under this program.

A description of the operations which you intend to use in the production of a night stand table in Mexico are as follows:

Production of the night stand table individual components:

(1) From the wood stock, quality pieces of wood are selected which meet the parts list attached to drawing TNS-001. (2) In the production of the legs, four pieces of pine are cut to the proper dimensions measuring 28" x 1.5" x 1.5". The pieces are shaped according to pattern #TNS-001-L. In a telephone conversation with a member of my staff on May 26, 1993, you stated that the table leg is passed through a routing machine which slightly tapers the leg and rounds the edges. Four miter holes are routed in each leg according to pattern #TNS-001-L. Two holes are routed in each leg to anchor the lower shelf according to pattern TNS-001-L. The legs are sanded and smoothed.
(3) In the production of the top, two pieces of wood measuring 2" x 12" #1 pine are cut to 30" length. Blind miter slots are cut on the underside of the two pieces according to pattern #TNS-001-T. Four holes are cut for assembly with the legs of the night stand table. The two cut pieces are bonded and clamped together with wedges and contractors' cement for 24 hours. The table top is also passed through a routing machine which curves and slightly rounds off the edges. The top is sanded and smoothed. (4) In the production of the shelf, two pieces of 1" x 12" #1 pine are cut to 26" length. Blind miter slots are cut on the underside of the two pieces according to pattern #TNS-001-S. The two cut pieces are bonded and clamped together with wedges and contractors' cement for 24 hours. The bonded shelf board is cut to finished size measuring 25" x 20". Miter slots are cut in the ends of the shelf according to pattern TNS-001S. The shelf is sanded and smoothed.

Assembly of the night stand table:

(1) In the assembly of the night stand table, the top is first placed upside down on a workbench. The four legs are glued into the top. A leather mallet is used to tap the legs into place.
(2) The lower shelf is assembled into the legs by clamping the components together by means of pegs and glue. All glue drips are removed. The night stand is left to dry for at least 24 hours.

Inspection:

The clamps are removed and the night stand assembly is inspected and any repairs are made.

Finishing operations:

(1) All the surfaces are sanded until the table meets company standards.
(2) The appropriate stain is selected depending upon customer specification.
(3) The table is dried off and inspected thoroughly. (4) After 12 to 24 hours have elapsed, the table is inspected and touched-up as needed.
(5) The table is sprayed with wax and allowed to dry. (6) The underside of the table is stamped with the label "Made in Mexico".

Final Inspection:

All of the parts of the table are inspected for defects a final time.

Packaging:

The finished night stand table is tagged with a stock number and wrapped in blankets and prepared for shipment to the U.S.

Whether the operations performed in Mexico on the U.S. raw dimension lumber result in a double substantial transformation, thereby enabling the cost or value of the lumber to be counted toward the 35% value-content requirement for purposes of 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)).

As stated in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States (HTSUS), Mexico is a designated BDC. In addition, based on your description of the merchandise, it appears that the article at issue is classified under subheading 9403.50.9080, HTSUS, which provides for "[w]ooden furniture of a kind used in the bedroom: Other: Other." Articles classified under this provision are eligible for duty-free treatment under the GSP provided the article is a "product of" the BDC, it meets the 35% value-content requirement, and it is "imported directly" into the U.S. from the BDC. 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 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 night stand table 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 - night stand table.

Customs has previously held that cutting materials to defined shapes or patterns suitable for use in the assembly of a finished article, as opposed to mere cutting to length and/or width which does not render the article suitable for a particular use, constitutes a substantial transformation. In HRL 553878 dated October 28, 1985, raw dimension lumber and plywood sheets were exported to Mexico where they were cut and shaped into various components, i.e., cabinet doors, drawers, drawer front, face frames, mouldings, kick plates, cabinet sides and cabinet tops, suitable for assembly into cabinets. In HRL 553878 we examined commercial magazines and other documentary evidence to determine whether the component parts were in fact saleable articles of commerce. We concluded that "the foreign wooden raw materials have been substantially transformed into new and different articles of commerce in the beneficiary country and, therefore, may be considered intermediate constituent materials."

Customs has also held that wood doors made in Costa Rica from lumber from various countries was entitled to duty-free treatment under the Caribbean Basin Economic Recovery Act. See HRL 555338 dated July 10, 1989. In HRL 555338, the lumber was cut and shaped into doors, sometimes carved with decorative designs or grooved using special wood working machines and sanded, glued, and stained in Costa Rica. Customs ruled that "the lumber itself is substantially transformed in Costa Rica when it is cut and shaped to create doors and door frames, which are distinct articles of commerce with a completely new and different name, character, and use."

Consistent with HRLs 555338 and 553878, we are of the opinion that the operations of cutting and further processing, e.g., cutting into smaller pieces, routing, precision-hole drilling, etc., to create furniture parts suitable for assembly into a finished night stand table, constitute a single substantial transformation of the lumber imported into Mexico. In the instant case, all of the night stand table components have been further processed beyond merely cutting to smaller sizes, and all have characteristics that render them suitable for a particular use.

In another ruling concerning, among other things, the assembly of loudspeakers and television cabinets in Mexico from imported raw dimension lumber, we held that cutting the lumber into smaller pieces, beveling, routing, precision-tolerance tenoning, edge band application, precision-hole drilling, bending, etc., to create furniture parts suitable for assembly into the finished articles, constituted a single substantial transformation of the raw dimension lumber. See HRL 555683 dated February 15, 1991. In HRL 555683, we also found that the subsequent assembly of the cut lumber components into the finished assembled speakers resulted in a second substantial transformation. See also HRL 555156 dated August 8, 1990 (the manufacture of speakers in which dimensional lumber is cut to shape and then assembled into fully functional articles, subjected to quality control and testing, resulted in a double substantial transformation of the imported lumber).

We have held that, for purposes of the GSP, an assembly process will not work a substantial transformation unless the operation is "complex and meaningful." See C.S.D. 85-25, 19 Cust. Bull. 544 (1985). Whether an operation is complex and meaningful depends on the nature of the operation. In making this determination, we consider the time, cost, and skill involved, the number of components assembled, the number of different operations, attention to detail and quality control, as well as the benefit accruing to the beneficiary developing country (BDC) as a result of the employment opportunities generated by the manufacturing process.

In Texas Instruments. Inc. v. United States, 681 F.2d 778 (Fed. Cir. 1982), the court implicitly found that the assembly of three integrated circuits, photodiodes, one capacitor, one resistor, and a jumper wire onto a flexible circuit beard (PCBA) constituted a second substantial transformation. It would appear that the assembly procedure which took place in Texas Instruments does not achieve the level of complexity contemplated by C.S.D. 85-25. However, as the court pointed out in Texas Instruments, in situations where all 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 (in view of the overall processing in the BDC, the materials were determined to have undergone a double substantial transformation, although the second transformation was a relatively simple assembly process which, if considered alone, would not have conferred origin).

In the instant case, pursuant to HRLs 555683 and 555156 and the court's holding in Texas Instruments, we find that the final assembly of the component night stand parts to form the finished night stand table results in a second substantial transformation. Even though we believe that the assembly operation in the instant case, which involves gluing the legs into the top and the lower shelf into the legs, sanding the legs, top and shelf, and staining the wood, may not be complex enough to constitute a substantial transformation by itself, nevertheless, we are of the opinion that the overall processing operations (i.e., cutting, routing, precision-hole drilling, etc.) performed in Mexico are substantial.

In addition, the production processes involved in creating the night stand table are not the type of "pass-through" operations which Congress intended to prohibit from receiving GSP benefits. "The provision would not preclude meaningful assembly operations utilizing foreign components, provided the assembly is of significance to the local economy, meets the 35% local content rule, and results in a new and different article." H.R. Rep. No. 98-266, 98th Cong., 1st Sess. 13 (1983). Based on the foregoing analysis and consistent with our prior rulings, we find that the materials used in the production of the night stand table have undergone the requisite double substantial transformation.

HOLDING:

Based on the information provided, we find that the cutting and assembly operations performed on the imported lumber to produce the night stand table in Mexico result in a double substantial transformation of the imported material. Therefore, the cost or value of the U.S.-origin lumber may be included toward the 35% value-content calculation for purposes of the GSP.

On July 4, 1993, the GSP program expired. Therefore, merchandise which is entered, or withdrawn from warehouse, on or after July 5, 1993, will be subject to duty. If the GSP program is reinstated by Congress in the future, this ruling will be applicable to the merchandise described in your ruling request, provided that the information you have provided remains the same. For your information, Customs has issued a general notice describing the procedures an importer should follow if the GSP expires. See 27 Cust. Bull. 19 (July 14, 1993).

Sincerely,

John Durant, Director
Commercial Rulings Division


Previous Ruling Next Ruling

See also: