CLA-2 CO:R:CV:V 555338 BJO

Kevin J. Mullin, Esq.
6845 Elm Street
Suite 305
McLean, Virginia 22101

RE: CBI Duty-Free Entry of Wooden Doors and Door Frames

Dear Mr. Mullin:

This is in response to your letter of March 13 and June 28, 1989, in which you request a ruling that solid wooden doors and door frames produced in Costa Rica are entitled to duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA)(19 U.S.C. 2701-2706).

FACTS:

The wooden doors and door frames will be made in Costa Rica from lumber imported from either the U.S., Guyana, or Honduras, or will be made from wood logs imported from Nicaragua. The lumber imported from Guyana or Honduras will be produced from logs grown in those countries. You describe the lumber imported from those countries and the U.S. as "shop-grade boards" in rough, unfinished condition, measuring two by six, two by eight, and two by ten feet, and in random lengths ranging from eight to 24 feet. If the doors are made from logs imported from Nicaragua, then the logs will first be cut into lumber in Costa Rica. The lumber, whether produced from the Nicaraguan logs, or imported from the U.S., Guyana, or Honduras, will be dried in a wood kiln before processing into doors.

The lumber will be cut and shaped into doors and door frames in the style of "entrance doors," "louvered doors," and "French doors." Some doors will be carved with decorative designs, and some doors and door frames will be grooved using special wood working machines. The doors and frames will then be sanded, glued, stained, and processed in condition (the French doors, however, will be fitted for glass panels in the U.S.). The doors will be loosely fitted into their frames, and shipped directly to the U.S.

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You state that the importer will pay the Costa Rican manufacturer $50 per door if the lumber is produced in the U.S., $47 per door if the lumber is produced in Guyana or Honduras, and $44 per door is the lumber is produced in Costa Rica from Nicaraguan grown logs. You further state that the direct costs of processing the doors and door frames in Costa Rica are estimated as follows (Nicaragua lumber cost includes cost of cutting the Nicaraguan-grown logs into lumber in Costa Rica):

U.S. Guyana/Honduras Nicaragua

Lumber $16.00 $14.00 $14.00

Transportation to Costa Rica $4.00 $3.00 $0 Transportation w/in Costa Rica $2.00 $2.00 $2.00 Drying Lumber $5.00 $5.00 $5.00 Cutting/Shaping/ Sanding/Finishing $7.00 $7.00 $7.00 $34.00 $31.00 $28.00

ISSUE:

Whether solid wooden doors and door frames made in Costa Rica from lumber imported from the U.S., Guyana, or Honduras, or from logs imported from Nicaragua, may receive duty-free treatment under the CBERA when imported into the U.S.

LAW AND ANALYSIS:

Under the CBERA, eligible articles the growth, product or manufacture of designated beneficiary countries (BC's) may receive duty-free treatment if such articles are imported directly to the U.S. from a BC, and if the sum of 1) the cost or value of the materials produced in a BC or BC's, plus 2) the direct cost of processing operations performed in a BC or BC's, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See 19 U.S.C. 2703(a). The CBERA further provides that the cost or value of materials produced in the customs territory of the U.S. may be applied toward the 35% value-content minimum, in an amount not to exceed 15% of the imported article's appraised value.

Costa Rica, Honduras, and Guyana are BC's. Wooden doors and frames, which are classifiable for tariff purposes under subheading 4418.20.00, Harmonized Tariff Schedule of the United - 3 -

States (HTSUS) ("Builders' joinery and carpentry of wood, including cellular wood panels and assembled parquet panels; shingles and shakes: Doors and their frames and thresholds."), are CBERA eligible. You state that the articles will be imported directly from Costa Rica to the U.S. Accordingly, if the doors and frames are a product of Costa Rica (or other BC or BC's) and the 35% value-content minimum is met, the doors and frames will be entitled to duty-free under CBERA.

You state that the costs directly incurred in the drying, cutting, shaping, sanding, and finishing the lumber for each door and door frame will be $13, which, in all cases, is equivalent to approximately 25% of the estimated appraised value of the finished articles. Because these costs are direct costs of the processing operation, as that phrase is defined at 19 CFR 10.197, they may be included toward the 35% value-content minimum.

The material costs, which includes cost of transporting materials to the Costa Rican manufacturer, see 19 CFR 10. 196(c), of those doors and frames made from lumber imported from Guyana or Honduras, where the lumber was produced from logs grown in those countries, will be wholly attributable to a BC or BC's, and will exceed 35% of the doors and frames estimated appraised value. Because such doors and frames are processed entirely in a BC or BC's, they are necessarily a product of a BC or BC's. Accordingly, the doors and frames made from lumber from Guyana or Honduras will receive duty-free treatment under the CBERA upon entry to the U.S.

The doors and frames produced from Nicaraguan logs will also receive duty-free treatment upon entry to the U.S. Materials grown or produced in a non-BC, such as Nicaragua, which are substantially transformed in any BC into a new and different article of commerce which is then used in any BC in the production of a new or different article, are considered materials produced in a BC, and the cost or value of the substantially transformed materials may be counted toward the 35% value-content minimum. 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 processing. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

The logs imported into Costa Rica from Nicaragua undergo this double substantial transformation. The logs are first substantially transformed into lumber of specific dimensions, which has a different name, character, and use than that possessed by the logs. See HQ 554649, dated July 15, 1987 - 4 -

(Spruce and hemlock in log form which are cut into two by fours or two by sixes, trimmed, edged, planed, and chemically treated or kiln dried are substantially transformed for CBERA purposes). 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. See Internal Advice 21-76, dated March 31, 1976 (Processing boards of lumber in random widths and lengths into wood doors is a substantial transformation for purposes of the Generalized System of Preferences). Accordingly, the cost or value of the lumber, produced in Costa Rica from Nicaraguan logs, may be counted toward the 35% value-content requirement. Because the value of the lumber, in addition to the direct processing costs incurred in producing the doors from the lumber, exceeds 35% of the appraised value of the finished articles, the doors and frames produced from Nicaraguan logs may be entered duty-free under CBERA.

Finally, as stated above, the cost or value of U.S. origin materials used in the production of the eligible article may be applied toward the 35% value-content requirement in an amount not to exceed 15% of the article's appraised value. The cost or value of the U.S. produced lumber, which you state is equivalent to 32% of the appraised value of the doors and frames, may therefore be counted toward the 35% value-content minimum, subject to the 15% cap on U.S. origin materials. Because that material cost in addition to the direct processing cost exceeds 35% of the estimated appraised value, and, as in the case of the processing of the Nicaraguan logs, the U.S. lumber is substantially transformed into a product of Costa Rica when converted to doors and frames, the doors and frames produced in Costa Rica from U.S. origin lumber will also receive duty-free treatment under the CBERA.

CONCLUSION:

Solid wooden doors and frames produced in Costa Rica as described above from lumber imported from the U.S., Guyana, or Honduras, or from logs imported from Nicaragua, may be entered duty-free under the CBERA.

Sincerely,

John Durant, Director
Commercial Rulings Division