CLA-2 CO:R:C:S 555797 WAW
Mr. Emanuel D. Kepas
The Chamberlain Group, Inc.
P.O. Box 1809
Nogales, AZ 85628-1809
RE: GSP treatment of a random orbital waxer/polisher; Double
Substantial Transformation; Texas Instruments; Torrington; C.S.D.
88-37; C.S.D. 85-25; 061620
Dear Mr. Kepas:
This is in reference to your letter of November 29, 1990, in
which you request a ruling regarding whether the cost or value of
a motor, which is later assembled into a random orbital
waxer/polisher, may be counted toward the 35% value-content
requirement of the Generalized System of Preferences (GSP) (19
U.S.C. 2461-2466).
FACTS:
The imported merchandise is described as a random orbital
waxer/polisher. The article is assembled in Mexico from parts
and components produced in various countries. The principal
component of the waxer, the electric motor, is produced in Mexico
by assembling various parts and components. A summary of the
operations performed in Mexico to produce the random orbital
waxer/polisher is as follows:
Motor Assembly
1. Shaft E ring is placed on the shaft. The shaft
insulators, end fibers, laminations and commutator are
machine pressed together to make the shaft, armature
and commutator assembly.
2. The above assembly is positioned into a winding
machine to complete the armature motor winding process.
A visual inspection is performed to insure that the
wire is tight and all tangs of the commutator are
attached to the wire.
3. Before and after winding, insulation wedge paper is
inserted in the motor armatures. The commutator is
staked down to secure the wiring. A complete
continuity and resistance inspection is then performed.
The armature assembly is then placed into a machine
which electronically checks the assembly.
4. The commutator is machined smooth to provide clean
contact. Another continuity test, similar to the
previous inspection, is then performed.
5. The end bell cap assembly is assembled by installing
the brushes, brush spring and brush clips. Wire
terminals are secured with screws, the rectifier is
installed and the spherical bearing is secured by the
bearing retainers.
6. The yoke assembly is placed over a rotating fixture.
Adhesive is applied to two magnets which are then
placed inside the yoke assembly within the fixture, to
assure correct location.
7. The motor plate assembly is placed in a fixture.
The armature assembly is positioned to the motor plate.
The motor yoke assembly is positioned over the armature
assembly.
8. The end bell assembly is positioned and secured with
screws.
9. The finished motor is "run" tested and checked to
insure that the motor runs at the correct speed.
Cord Set Assembly
1. The electrical cord is cut to 18 inches.
2. The jackets on both ends of the cord are stripped
1/2 inch.
3. The paper fillings are removed from the cord ends.
4. The insulating plastic from one end of the cord
wires is stripped 1/4 inch.
5. The stripped end wires are dipped into hot tin. The
tinned wires are then sowered to the plug black. The
plug casing is molded onto the wires. The excess
plastic is removed from the plug.
6. The blade terminals are crimped to the untinned
wires. The ground pin terminals are crimped. The ring
terminals are crimped. The straugh terminals are
crimped. The flag terminals are crimped.
Final Assembly
1. The cord set assembly is assembled to the housing
bottom by using a cord retainer and then secured.
2. The switch and cap assemblies are installed and
wires and the power button are attached to the switch.
3. The assembled motor is installed to the housing
bottom. The housing top is placed together with the
housing bottom and secured.
4. The guard is secured over the motor plate of the
assembled motor.
5. The counterweight is positioned to the motor shaft
and hand tightened.
6. The pad assembly and screw are positioned into the
counterweight.
7. The unit is connected to electrical current and
"run" tested to insure complete safety and quality.
8. The unit is visually inspected for damage and then
repackaged.
The importer states that the value added in Mexico is
approximately 9% of the total value of the article. Further, the
importer claims that the processing time for each article is
approximately 30 minutes.
ISSUE:
Whether the cost or value of fabricated components, imported
into Mexico and assembled there into an electric motor which is
then used to produce a random orbital waxer/polisher, may be
counted toward the 35% value-content requirement under the
Generalized System of Preferences (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 into the United States 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 costs involved
in processing the eligible article in the BDC, is at least 35% of
the appraised value of the article at the time of its entry into
the United States. See section 10.176(a), Customs Regulations (19
CFR 10.176(a)).
Mexico is a BDC, See General Note 3(c)(ii)(A), Harmonized
Tariff Schedule of the United States Annotated (HTSUSA), and,
based on your description, it appears that the random orbital
waxer/polisher will be classified under subheading 8508.80.0035,
HTSUSA (Electromechanical tools for working in the hand with
self-contained electric motor; parts thereof: Other tools:
Grinders, polishers and sanders: Other), which is GSP eligible.
Accordingly, the articles may be entered without payment of duty
if it is considered to be a "product of" Mexico, the GSP 35%
value-content minimum is met, and it is "imported directly" into
the U.S.
Section 10.177(a), Customs Regulations (CFR 10.177(a)),
provides that the words "produced in the beneficiary developing
country" refer to the constituent materials of which the eligible
article is composed which are either (1) wholly the growth,
product, or manufacture of the BDC, or (2) substantially
transformed in the BDC into a new and different article of
commerce. Therefore, to be included as part of the 35% criterion
a constituent element of the eligible article which is not wholly
the growth, product, or manufacture of the BDC must have
undergone a substantial transformation in the BDC. That
substantial transformation must result in a new and different
intermediate article of commerce which is then used in the BDC in
the production of the final imported article.
Since the merchandise at issue is to be produced using
component parts which are not the product of Mexico, it is clear
that they are not wholly the growth, product, or manufacture of
that beneficiary country. It is the importer's position that the
production of and the subsequent assembly of the motors into the
final product, the orbital waxer/polisher, each constitutes a
substantial transformation. Thus, the importer maintains that
the cost or value of the electric motor may be counted toward the
35% requirement for purposes of determining whether the imported
orbital waxer/polisher is eligible for duty-free treatment under
the GSP.
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).
Customs application of the double substantial transformation
requirement in the context of the GSP received judicial approval
in The Torrington Company v. United States, 8 CIT 150, 596 F.
Supp. 1083 (1984), aff'd 764 F.2d 1563 (1985). The court, after
affirming Customs application of the double substantial
transformation concept, said:
Regulations promulgated by Customs define the term
"materials produced" to include materials from third
countries that are substantially transformed in the BDC
into a new and different article of commerce. 19 CFR
10.177(a)(2). It is not enough to transform
substantially the non-BDC constituent materials into
the final article, as the material utilized to produce
the final article would remain non-BDC material.
In C.S.D. 85-25, 19 Cust. Bull. 544 (1985), we stated that
while "complex or meaningful" assembly operations may result in a
substantial transformation for purposes of the GSP, "minimal,
simple, assembly-type operations" will not. Whether an operation
is complex or meaningful depends on the nature of the operation.
Some of the factors which Customs considers in determining
whether a substantial transformation has taken place are the
time, cost, and skill involved, the number of components
assembled, the number of different operations, the attention to
detail, and quality control, as well as the benefit accruing to
the BDC in terms of the value added and the employment
opportunities generated by the manufacturing process.
In the present case, it is our position that the assembly of
the components which make up the motor results in a substantial
transformation. The separate components imported into Mexico
acquire new attributes, and the motor differs in name, character
and use from the materials and components of which it is
composed. Furthermore, we find that the production of the motor
involves substantial operations (e.g., machining, mounting,
soldering, quality control testing), which increase the value of
the components and endow them with new characteristics,
transforming them into a new article with its own distinct
commercial identity. See C.S.D. 88-37, 22 Cust. Bull. 27 (1988).
We must next determine whether a second substantial
transformation occurs. The importer maintains that the assembly
of the motor into the final product is the type of operation
which is complex and meaningful. Specifically, the importer
states that a second transformation occurs as a result of the
assembly of the motor with other materials to create a random
orbital waxer/polisher. According to the importer, the
waxer/polisher is used primarily to wax and polish automobiles,
with a buffing motion (random orbital) versus a circular motion.
The importer claims that the motor cannot perform this function
alone, but must be assembled with a guard, counterweight, pad
holder assembler, switch and button assembly, cord assembly and
enclosed in an external housing. Further, the importer states
that as a result of the assembly, a new and different article of
commerce with a new name, character and distinct function is
created.
A second substantial transformation occurs as a result of
the assembly of the electric motor with other materials to create
a random orbital waxer/polisher. Upon incorporation of the
electric motor into the housing of the random orbital
waxer/polisher, the electric motor loses its identity as a
separate physical and commercial article and becomes a new and
different article of commerce with a distinct name, character and
use.
It our determination that the operations performed in the
production of the random orbital waxer/polisher constitute more
than simple assembly operations. Final assembly of the
waxer/polisher involves the assembly of several parts and
components such as the cord assembly, switch and button assembly
and pad holder assembly. Moreover, the assembly of the
waxer/polisher into the completed finished product involves
approximately 40 individual part numbers. In addition, these
parts together with the motor housing and other components are
subject to a final assembly and testing to insure complete safety
and quality. The total operation requires a significant capital
investment in Mexico and results in the employment of more than
50 production personnel. Furthermore, the assembly operation
requires a significant attention to detail and quality control
and involves numerous tests in the course of assembly to ensure
that each step is properly performed. We therefore are of the
opinion that the assembly of the electric motor into the random
orbital waxer/polisher is a sufficiently complex and meaningful
operation so as to result in a substantial transformation.
Finally, this assembly process is not the type of "pass-
through" operation which Congress intended to prohibit from
receiving GSP benefits. We believe that the operations performed
in this instance are the type of substantial operations
contemplated by the GSP statute. See HRL 071620 dated December
24, 1984, which held that in view of the overall processing done
in the BDC, materials are determined to have undergone a double
substantial transformation, although the second transformation is
a relatively simple assembly process which, if considered alone,
would not confer origin. Accordingly, we find that, when the
electric motor is assembled to create a random orbital
waxer/polisher, a second substantial transformation of the
described components results.
HOLDING:
Based on the foregoing analysis, the fabricated components
which are assembled in Mexico into an electric motor which is
then used to produce a random orbital waxer/polisher, undergoes a
double substantial transformation for purposes of the GSP. Accordingly, the cost or value of the substantially transformed
intermediate article (the electric motor) may be counted toward
the GSP 35% value-content requirement in determining whether the
random orbital waxer/polisher is entitled to duty-free treatment
under the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division