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HQ 558979




June 6, 1995

MAR-2-05 R:C:S 558979 DEC

CATEGORY: CLASSIFICATION

District Director
United States Customs Service
477 Michigan Avenue
Detroit, Michigan 48226

RE: Internal Advice 48/94; Eligibility of certain pacifiers for duty-free treatment under the GSP; Substantial transformation; 19 CFR 10.176; 19 CFR 10.177; Torrington Co. v. United States; Texas Instruments Inc. v. United States; Belcrest Linen v. United States; C.S.D.'s 80-111, 89-110, 89-129, 90-51, 85-25

Dear Sir:

This is in response to your memorandum of August 26, 1994, forwarding an Internal Advice request initiated by counsel for Sassy, Incorporated (Sassy) with respect to the eligibility of certain infant pacifiers imported by Sassy from Hungary under the Generalized System of Preferences (GSP).

FACTS:

On May 25, 1994, Neville, Peterson & Williams, attorneys for Sassy submitted a request for Internal Advice concerning the eligibility under GSP of infant pacifiers that are imported from Hungary. The pacifiers at issue are processed in Hungary by MAM Hungaria KFT (MAM), a subsidiary of MAM Baby Artikel Gesellschaft.m.b.h. (MAM Austria), and feature the following components:

1. latex rubber nipple, without air holes or openings;

2. a molded, ventilated plastic shield, to which the nipple will be mounted;

3. A plastic retainer plug, which is inserted through the rear of the shield, and into the open end of the nipple; and

4. A circular plastic handle.

The importer has stated that the pacifiers are classifiable under subheading 3926.90.15, Harmonized Tariff Schedule of the United States (HTSUS) or under subheading 4014.90.50, HTSUS. Goods classified under either heading are eligible for duty-free entry under the GSP if the pacifiers meet the program's requirements.

MAM Austria ships the above-listed components to the MAM Hungary factory, where they are assembled together into a finished pacifier. The components are inspected for flaws and welded together using an Ulti ultrasonic system. This welding system partially melts the materials that comprise the pacifier nipple and shield which forms a strong seal. The pacifiers are then assembled and laser coded with the pacifier's production date. The pacifiers are tested and packaged for retail sale.

ISSUE:

Whether the infant pacifiers described above qualify for duty-free treatment under the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible products the growth, product or manufacture of a designated 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 material produced in a BDC, plus (2) the direct costs involved in processing the eligible article in the BDC, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See section 10.176(a), Customs Regulations (19 CFR 10.176(a)).

As stated in General Note 4, Harmonized Tariff Schedule of the United States (HTSUS), Hungary is a designated BDC for purposes of the GSP. In addition, it appears that the product at issue is classified under subheading 3926.90.15, HTSUS, or 4014.90.50, HTSUS, both which provide for nursing nipples or pacifiers, or nursing nipples, respectively. Articles classified under either provision are eligible for GSP treatment provided that the "product of," 35% value-content requirement and "imported directly" requirements are satisfied.

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% value-content computation only if
the imported materials undergo a double substantial transformation in the BDC. That is, the non-Hungarian components must be substantially transformed in Hungary into a new and different intermediate article of commerce, which is then used in Hungary in the production of the final imported article, the pacifiers. The intermediate article of commerce must be "readily susceptible of trade, and be an item that persons might well wish to buy and acquire for their own purposes of consumption or production." Torrington Co. v. United States, 8 CIT 150, 596 F. Supp. 1083 (1984), aff'd, 764 F.2d 1563 (Fed. Cir. 1985).

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, 681 F.2d 778, 782 (1982). In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linen v. United States, 6 CIT 204, 573 F. Supp. 1149 (1983), aff'd, 2 Fed. Cir. 105, 741 F.2d 1368 (1984).

Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D.'s 80-111, 89-110, 89-129, 90-51; see also C.S.D. 85-25, which held that the process of incorporating a significant number of component parts onto a printed circuit board subassembly constituted a processing sufficiently complex to result in the subassembly being considered a substantially transformed constituent material of the final article for purposes of the Generalized System of Preferences (GSP). The focus of C.S.D. 85-25 was a PCBA which was produced by assembling in excess of 50 discrete fabricated components (e.g., resistors, capacitors, diodes, transistors, integrated circuits, sockets, and connectors) onto a printed circuit board. Customs determined that the assembly of the PCBA involved a large number of components and a significant number of different operations, required a relatively significant period of time as well as skill, attention to detail, and quality control, and resulted in significant economic benefit to the GSP country from the standpoint of both value added to the PCBA and the overall employment generated thereby. In addition, Customs found in this case that the PCBA represented a distinct article, different from both the components from which it was made and the matrix printer into which it was incorporated and, therefore, the assembled PCBA constituted a substantially transformed intermediate article within the meaning of 19 CFR 10.177(a).

In this case, we find that the processing of the component parts of the pacifiers in Hungary does not result in a substantial transformation. Consistent with the authorities cited above, Customs finds that the processing described herein is a
minimal and simple assembly operation which does not result in a new and different article. When imported into Hungary, the components of the pacifiers are essentially finished and dedicated to a particular use. Regardless of how unique the assembly process is or the expense of the equipment needed to perform the processing, the fact remains that the pacifiers are imported into Hungary in condition ready for an assembly using a novel welding procedure which does not alter the essential character of the individual components. This operation will not confer Hungarian origin to the pacifiers. Consequently, the pacifiers will not satisfy the product of a beneficiary country requirement for eligibility under the GSP.

HOLDING:

The components imported into Hungary are not substantially transformed there when assembled into finished pacifiers. Therefore, as the pacifiers are not considered "products of" Hungary, they are not eligible for duty-free entry under the GSP.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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