CLA-2 CO:R:C:V 55702 SER
Steven S. Weiser, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, NY 10004
RE: Eligibility of industrial high density hydraulic balers from
Mexico for duty-free treatment under the GSP
Dear Mr. Weiser:
This is in reference to your letter of July 25, 1990, on
behalf of Piqua Engineering, Inc., in which you request a ruling
on the applicability of the Generalized System of Preferences
(GSP)(19 U.S.C. 2461-2465) to high density hydraulic balers from
According to your submission, Piqua is contemplating
importing industrial high density hydraulic balers ("balers"),
which will be manufactured in Mexico. You state that most of the
materials used in manufacturing the balers will be of non-Mexican
The major components used in the production of the balers
will be made in Mexico from large steel plates to be imported
into Mexico. The dimensions of virtually all the steel plates
imported into Mexico are as follows: 1/2" x 42" x 60"; 1/4" x
100" x 52"; 1/4" x 45" x 65"; 1/4" x 30" x 60"; 3/8" x 36" x 60";
or 1/4" x 48" x 96". Approximately ten sheets of the steel plate
of the above sizes are used in the production of the baler
components. In Mexico, the steel will be marked, cut, and then
shaped into various components needed to manufacture the final
article-- the baler. The cutting of the steel involves shearing
and flame torch cutting. The shaping is done by means of
folding, bending, scraping, drilling, grinding, etc.
The components manufactured in Mexico from the steel plate
will include the base, crown, left and right sides, main door,
safety gate, front cover plate, back, door flap, platen, and
The manifold is manufactured from raw aluminum blocks, 3" x
4" x 5" in size. All six sides of the blocks are bored and
fitted with valves to service the hydraulics of the baler. The
base of the hydraulic cylinder is also manufactured from imported
After the manufacture of the above-described baler
components in Mexico from steel plate and other materials, these
components will be combined with various components from other
countries, mainly the U.S., to create the finished baler. These
additional components include the junction box, manifold, gate
up-limit switch, crown, motor/pump, hydraulic cylinder, control
box, control box components and other miscellaneous parts.
The final assembly process to create the finished article is
a very detailed, complex operation which involves significant
welding, soldering, torching and bolting of numerous discrete
Whether the steel plate imported into Mexico and used in the
manufacture of the balers undergoes a dual substantial
transformation so that the cost or value of these materials may
be counted toward satisfying the 35% value-content requirement
under 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 from a BDC 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
cost involved in processing the eligible article in the BDC is at
least 35% of the article's appraised value at the time it is
entered into the U.S. See 19 U.S.C. 2463.
Mexico is a BDC, see General Note 3(c)(ii)(A), Harmonized
Tariff Schedule of the United States Annotated (HTSUSA). In
addition, Customs has previously ruled that the balers are
classified as other packing or wrapping machinery in subheading
8422.40.9080, HTSUSA, which is a GSP eligible provision. See New
York Ruling Letter (NYRL) 850321 dated March 22, 1990.
If an article is comprised of materials that are imported
into the BDC, the cost or value of those materials may be
included in calculating the 35% value-content requirement only if
they undergo a "double substantial transformation" in the BDC.
See section 10.177(a), Customs Regulations (19 CFR 10.177(a)).
Azteca Milling Co. v. United States, 703 F.Supp. 949 (CIT 1988),
aff'd, 890 F.2d 1150 (Fed. Cir. 1989).
A substantial transformation occurs when a new and different
article of commerce emerges from a process with a new name,
character or use different from that possessed by the article
prior to processing. Texas Instruments, Inc. v. United States,
69 CCPA 152, 681 F.2d 778 (1982).
In general, 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
Headquarters Ruling Letter (HRL) 055684 of August 14, 1979,
Customs held that those components of a water cooler gas
absorption refrigeration unit which were formed by cutting to
length, and bending imported steel tubes into the component
shapes and configurations, or by cutting to length, flattening,
and drilling holes into imported tubing, were substantially
transformed constituent materials for GSP purposes, while those
imported tubes which were simply cut to length and assembled into
the final articles were not.
In addition, in HRL 555532 dated September 18, 1990,
Customs held that the creation of top and bottom pans, used in
the production of water heaters, by blanking the steel materials,
die forming (or drawing), and die piercing constituted a
substantial transformation. The case that you cite, HRL 055684
dated August 14, 1979, held that "the cutting and stamping of the
undefined sheet of metal and the lengths of square shafts into an
absorber box results in a substantially transformed product."
In addition, in that ruling Customs found that the result of the
above described process was the creation of new and different
articles, each of which has a distinct character and use that is
not inherent from the materials from which they were derived.
Based on the above cited rulings, the processes to which
steel plates are subjected in Mexico-- cutting by means of
shearing and flame torch cutting; shaping by means of folding,
bending, scraping, drilling, and grinding-- results in various
components that are dedicated to use in the assembly of the
final article and are considered substantially transformed
The final assembly of the balers is a complex and detailed
process. It involves not only the substantially transformed
intermediate articles but also numerous other components, and
requires a significant number of different operations to complete
the product. Many of these operations involve significant
welding procedures in addition to the soldering, torching and
bolting operations. As a result of the final complex assembly
operation, a new and different finished article of commerce
emerges with a name, character and use different from the
numerous components of which it is made. See C.S.D. 85-25 dated
September 25, 1984 (HRL 071827). As the steel plate imported
into Mexico is subjected to the requisite double substantial
transformation, its cost or value may be counted toward the 35%
The components manufactured in Mexico from steel plate
imported into that country are considered substantially
transformed constituent materials of the hydraulic baler.
Therefore, the cost or value of these materials may be counted
toward satisfying the 35% value-content requirement under the
John Durant, Director
Commercial Rulings Division