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HQ 559092




July 11, 1995

CLA-2 R:C:S 599092 BLS

CATEGORY: CLASSIFICATION

Mr. Robert O. Kechian
Import Supervisor
NNR Aircargo Service (USA) Inc.
Hook Creek Blvd. and 145th Street
Valley Stream, New York 11581

RE: Eligibility of polished glass mirror panels for duty-free treatment under Israel FTA; product of; substantial transformation

Dear Mr. Kechian:

This is in reference to your letter dated February 1, 1995, on behalf of PLX, Inc., requesting a ruling that polished glass mirror panels sent to Israel for processing are substantially transformed into a "product of" Israel for purposes of determining whether the returned articles will be eligible for duty free treatment under the United States-Israel Free Trade Implementation Act of 1985 ("Israel FTA").

FACTS:

Polished glass mirror panels, in the shape and size intended for their end use, are shipped to Israel, where a special laser mirror coating is applied. The coating is designed to reflect light in the visible part of the optical spectrum and to transmit light in the infrared part of the optical spectrum. The coated mirror panels are shipped back to the U.S., to PLX, Inc., where they are assembled into optical instruments called retroreflectors, to be used by the U.S. Army on the MIAI tank. The information submitted also reflects that the value added in Israel equals 41 percent of the total value of the imported article.

ISSUE:

Whether the uncoated glass mirror panels are substantially transformed into a "product of" Israel, for purposes of determining whether the articles are eligible for duty-free treatment under the Israel FTA upon return to the U.S.

LAW AND ANALYSIS:
Under the Israel FTA, eligible articles which are the growth, product, or manufacture of Israel
and are imported directly to the U.S. from Israel qualify for duty-free treatment or a duty preference, provided the sum of 1) the cost or value of materials produced in Israel, plus 2) the direct costs of processing operations performed in Israel is not less than 35 percent of the appraised value of the article at the time it is entered. See General Note 8, Harmonized Tariff Schedule of the United States (HTSUS).

In our opinion, the articles are properly classifiable under subheading 9001.90.60, HTSUS, which provides for lenses, prisms, mirrors and other optical elements, of any material, unmounted, other than such elements of glass not optically worked; mirrors. Articles classified under this provision which otherwise satisfy the requirements of the Israel FTA will not be subject to duty upon return to the U.S.

Articles are considered "products of" Israel if they are made entirely of materials originating there or, if made from materials imported into Israel, they are substantially transformed into a new or different article of commerce. A substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to the processing. See Texas Instruments v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

In National Hand Tool v. United States, Slip Op. 92-61 (April 27, 1992, aff'd, 989 F.2d 1201 (1993), a country of origin marking case, certain hand tool components used to make flex sockets, speeder handles, and flex handles, were imported from Taiwan. The imported components were either cold-formed or hot-forged into their final shape before importation, with the exception of the speeder handle bars, which were reshaped by a power press after importation. In the U.S., the components were subject to heat treatment, which increased the strength of the components, sand-blasting (a cleaning process), and electroplating (enabling the components to resist rust and corrosion). After these processes were complete, the components were assembled into the final products, which were used to loosen and tighten nuts and bolts.

The Court of International Trade decided the issue of substantial transformation based on three criteria, i.e., name, character, and use. Applying these rules, the court found that the nameof the components did not change after the post-importation processing, and that the character of the articles similarly remained substantially unchanged after the heat treatment, electroplating and assembly, as this process did not change the form of the components as imported. The court further pointed out that the use of the articles was predetermined at the time of importation, i.e., each component was intended to be incorporated in a particular finished mechanic's hand tool. The court dismissed as a basis for a substantial transformation the value of the processing, stating that the substantial transformation test utilizing name, character and use criteria should generally be conclusive in country of origin marking determinations, and that this finding must be based on the totality of the evidence. Based on this test, the court concluded that the processing in the U.S. did not effect a substantial transformation of the foreign hand
tool components.

A similar finding was made in Superior Wire v. United States, 867 F.2d 1409 (Fed. Cir. 1989), where the appellate court affirmed the Court of International Trade's holding that no substantial transformation occurred from the multi-stage processing of drawing wire rod into wire. In that case, the court noted that the "end use of the wire rod is generally known before the rolling stage and the specifications are frequently determined by reference to the end product for which the drawing wire will.be used." Accordingly, the court found that the character of the final product was predetermined and that the processing did not result in a significant change in either character or use of the imported material. While the wire rod and processed rod had different names and identities in the industry, the court concluded that they were essentially different stages of the same product.

In the instant case, the components exported to Israel are in the same size and shape as the finished product. As in National Hand Tool and Superior Wire, the character and use of the final product are predetermined by the form of the exported components. Further, the name of the component does not change after the processing, but remains a "mirror panel." Accordingly, we find that the processing which occurs in Israel does not substantially transform the uncoated mirror panel into a new and different article, but rather constitutes a continuation of the production process leading to its completion as a finished component. Therefore, the laser-coated glass mirror panels are not considered "products of" Israel upon their return to the U.S.

HOLDING:

Polished glass mirror panels sent to Israel for a laser coating do not undergo a substantial transformation. Therefore, such articles are not considered "products of" Israel and are not eligible for preferential duty treatment under the Israel FTA upon return to the U.S..

Sincerely,

John Durant, Director

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