CLA-2 CO:R:C:S 556020 KCC

Mr. Bruce H. Leeds
A.Z. Engineering Co. Inc.
c/o Hughes Aircraft Company
Export/Import Operations M/S B112
P.O. Box 45066
Los Angeles, California 90045

RE: Electrical connectors in cables.GSP; substantial transformation; constituent material; C.S.D. 85-25; assembly; 555660

Dear Mr. Leeds:

This is in response to your letters dated April 30, and May 22, 1991, regarding whether the cost or value of electrical connectors, which are later assembled into cables, may be counted toward the 35% value-content requirement of the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). Samples and pictures were submitted for examination.

FACTS:

A.Z. Engineering manufactures various electrical products in Mexico. In this case, the electrical product under consideration is an electrical cable (cable) which consists of a group of wires, covered in a sheath or encapsulated in plastic, with two or more electrical connectors at the ends. Although there may be some variation, the cable is usually produced in the following manner:

1) in Mexico, brass rod is machined into contact pins; 2) the brass pins are then shipped to the U.S. and plated; 3) upon return to Mexico, the plated pins are inserted into plastic connector housings; 4) the plated pins are sealed in place with adhesive and, where necessary, bent to the necessary alignment which creates the completed electrical connectors; 5) wire is cut to length; 6) the wire is connected to the terminals on the back of the electrical connectors; 7) two or more connectors are assembled into a cable assembly; 8) the interconnecting wires are covered in head shrink sheathing or encapsulated in plastic to create the completed cable; and 9) the cable is tested.

Upon completion of the foreign operations, the completed cable is imported into the U.S.

ISSUE:

Whether the electrical connectors produced in Mexico qualify as substantially transformed constituent material of the cable, thereby enabling the cost or value of these materials to be counted toward the 35% value-content requirement for purposes of 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 into the customs territory of the U.S. from a BDC may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BDC, plus 2) the direct costs of the processing operation in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See, 19 U.S.C. 2463(b).

If an article is produced or assembled from materials which are imported into the BDC, the cost or value of those materials may be counted toward the 35% value-content minimum only if they undergo a double substantial transformation in the BDC. See, section 10.177, Customs Regulations (19 CFR 10.177), and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989). That is, the cost or value of the imported materials used to produce the electrical connectors may be included in the GSP 35% value-content computation only if they are first substantially transformed into a new and different article of commerce, which is itself substantially transformed into a cable.

A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." See, Texas Instruments Incorporated v. United States, 2 CIT 36, 520 F. Supp. 1216 (CIT 1981), reversed, 681 F.2d 778, 69 CCPA 151 (CCPA 1982).

Mexico is a BDC. See, General Note 3(c)(ii)(A), HTSUS. You state that the completed cables are classified under subheading 8544.41.00, HTSUS, which provides for insulated (including enameled or anodized) wire, cable (including coaxial cable) and other insulated electric conductors, whether or not fitted with connectors; optical fiber cables, made up of individually sheathed fibers, whether or not assembled with electric conductors or fitted with connectors: other electric conductors, for a voltage not exceeding 80 V: fitted with connectors. This tariff provision is a GSP eligible provision.

In C.S.D. 85-25, 19 Cust. Bull. 844 (1985) (HRL 071827 dated September 25, 1984), Customs held that an assembly process will not constitute a substantial transformation unless the operation is "complex and meaningful." Whether an operation is "complex and meaningful" depends on the nature of the operation. It is necessary to consider 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 as a result of the employment opportunities generated by the manufacturing process. Additionally, C.S.D. 85-25 stated that the factors which determine if a substantial transformation occurs should be applied on a case-by-case.

Although it appears that the initial fabrication of the contact pins from brass rod results in a substantial transformation, we are of the opinion that the assembly of the electrical connectors and the later assembly of the electrical connectors with the cable does not result in a second substantial transformation. The assembly operations in both situations involve a small number of components which are merely attached, inserted and affixed to one another to form the components. These types of operations are considered simple assembly operations which will not result in a substantial transformation, as they do not appear to involve a considerable amount of time, skill, attention to detail or quality control. See, HRL 555660 dated September 15, 1991 (production of an LED assembly by inserting an LED into a plastic housing, attaching LED leads to conducting wires, inserting the wires into an insulating tube, and affixing pins and terminals to the lead wires does not result in a substantial transformation). Therefore, neither the cost or value of the contact pins nor the electrical connectors to which the pins are attached may be counted toward the GSP 35% value- content requirement.

HOLDING:

On the basis of the information and samples submitted, we are of the opinion that the materials imported into Mexico are not subjected to a double substantial transformation in the creation of the electrical cable. Therefore, the cost or value of these materials may not be counted toward the GSP 35% value- content calculation.

Sincerely,

John Durant, Director
Commercial Rulings Division