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HQ 560103




February 20, 1997

CLA-2 RR:TC:SM 560103 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Mr. Paul A. Escalante
La Tica, Inc.
P.O. Box 56953
Hayward, CA 94545-6953

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.80 to "Eclipser" auto visor extension; sewing; cutting; Caribbean Basin Economic Recovery Act (CBERA); double substantial transformation

Dear Mr. Escalante:

This is in response to your letter of August 22, 1996, to U.S. Customs in New York, requesting a ruling regarding the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), and the eligibility for duty-free treatment under the Caribbean Basin Initiative (CBI) to the "eclipser", an auto visor extension from Costa Rica. A sample was submitted with your request.

FACTS:

The brochure describing the "eclipser" indicates that it is wrapped around an automobile visor and acts as an extension to block sun glare. It is stated that the eclipser consists of three different materials: (1) sarlon shade cloth manufactured in Australia, which is purchased in 6 x 150 feet rolls in the U.S.; (2) black foldover braid manufactured in the U.S., which is purchased by the yard; and (3) black velcro manufactured in Mexico, which is purchased by the foot in the U.S. All of these materials are shipped to Costa Rica where they are made into the eclipser. It appears that the sarlon shade cloth is cut into rectangles measuring 11 x 16 inches after which one yard of foldover braid is sewn around the edge of the shade cloth, along with velcro pieces, to form the eclipser.

ISSUES:

I. Whether the "eclipser" will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S.

II. Whether the "eclipser" will be eligible for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA).

LAW AND ANALYSIS:

I. Subheading 9802.00.80, HTSUS

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

[a]rticles ... assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Section 10.14(a), Customs Regulations {19 CFR 10.14(a)}, states in part that:

[t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.

Section 10.16(a), Customs Regulations {19 CFR 10.16(a)}, provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, lamination, sewing, or the use of fasteners.

Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. See 19 CFR 10.16(a). However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to that component. See 19 CFR 10.16(c).

In the instant case, sewing the sarlon shade cloth, foldover braid, and velcro together to form the eclipser is considered an acceptable assembly operation pursuant to 19 CFR 10.16(a), because solid components are being joined (i.e., sewn) together. Furthermore, it appears that the U.S.-origin foldover braid is only cut to length. While you have not stated whether this cutting is performed in the U.S. or in Costa Rica, it will be considered an acceptable operation incidental to the assembly process under 19 CFR 10.16(b)(6) even if the foldover braid is cut to length in Costa Rica. Consequently, the "eclipser" may enter the U.S. under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the U.S. components therein (i.e., the foldover braid), provided the documentary requirements of 19 CFR 10.24 are satisfied.

II. CBERA

Under the CBERA, eligible articles the growth, product, or manufacture of a designated beneficiary country (BC), which are imported directly to the U.S. from a BC, qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or two or more BCs, plus (2) the direct costs of processing operations performed in a BC or BCs is not less than 35 percent of the appraised value of the article at the time it is entered into the U.S. 19 U.S.C. 2703(a)(1). In addition, the cost or value of materials produced in the U.S. may be applied toward the 35 percent value-content minimum in an amount not to exceed 15 percent of the imported article's appraised value. See 19 CFR 10.195(c). As stated in General Note 7(a), Harmonized Tariff Schedule of the United States (HTSUS), Costa Rica is a designated BC under the CBERA.

To determine whether an article will be eligible to receive duty-free treatment under the CBERA, 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 symbol "E" or "E*." The "eclipser" appears to be classifiable under subheading 8708.99.80, HTSUS, which is a CBERA-eligible provision. Therefore, the eclipser will receive duty-free treatment if it is considered to be a "product of" Costa Rica, the 35 percent value-content requirement is met, and it is "imported directly" into the U.S. from Costa Rica.

Where an article is produced from materials that are imported into the BC, the article is considered "the growth, product or manufacture" of the BC only if the imported materials are substantially transformed there into a new and different article of commerce. See 19 CFR 10.195(a). Moreover, the cost or value of those imported materials may be included in calculating the 35 percent value-content requirement only if they undergo a "double substantial transformation" in the BC. That is, the Australian sarlon shade cloth and the Mexican velcro will be considered "materials produced" in Costa Rica only if they are substantially transformed in Costa Rica into a new and different intermediate article of commerce, which is then used in Costa Rica in the production of the final imported article, the eclipser. See 19 CFR 10.196(a). 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 eclipser emerges as a new and different article in comparison to the imported sarlon shade cloth, foldover braid, and velcro from which it is made; therefore, the eclipser will be considered a "product of" Costa Rica. However, the issue to be resolved is whether, during the manufacture of the eclipser, the imported components are substantially transformed into separate and distinct intermediate articles of commerce which are then used in the production of the finished eclipsers.

Generally, Customs has held that cutting or bending materials to defined shapes or patterns suitable for use in making finished articles, as opposed to mere cutting to length and/or width which does not dedicate the resulting material to a particular use, constitutes a substantial transformation. In this case, assuming these operations are performed in Costa Rica, the shade cloth is only cut to length and width, and the velcro and foldover braid are only cut to length. Accordingly, we do not find that these cutting operations result in a substantial transformation of the materials. Therefore, since the shade cloth and velcro do not undergo a double substantial transformation, the full cost or value of these materials may not be counted towards the 35 percent value content requirement for purposes of qualifying for duty-free treatment under the CBERA. However, the cost of the U.S. foldover braid may be applied toward the 35 percent value content minimum in an amount not to exceed 15 percent of the eclipser's appraised value. Accordingly, the eclipser will only be entitled to duty-free treatment under the CBERA, if it is classified in a CBERA-eligible tariff provision at the time of entry, the eclipser is imported directly into the U.S., and the 35 percent value-content requirement is satisfied.

HOLDING:

On the basis of the information and samples submitted, it is our opinion that the operations performed abroad to create the "eclipser" are considered proper assembly operations or operations incidental thereto. Therefore, the "eclipser" may enter the U.S. under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the U.S. components therein (i.e., the foldover braid), provided the documentary requirements of 19 CFR 10.24 are satisfied.

Additionally, assuming the operations are performed in Costa Rica, the cutting and sewing of the materials to create the eclipser results in a substantial transformation. Therefore, the eclipser is a "product of" Costa Rica. However, since the shade cloth and velcro do not undergo a second substantial transformation, only the U.S. foldover braid may be applied toward the 35 percent value content minimum in an amount not to exceed 15 percent of the eclipser's appraised value. Accordingly, the eclipser will only be entitled to duty-free treatment under the CBERA, if it is classified in a CBERA-eligible tariff provision at the time of entry, the eclipser is imported directly into the U.S., and the 35 percent value-content requirement is satisfied.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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