CLA-2 CO:R:C:S 556301 LS

Leslie A. Glick, Esq.
Porter, Wright, Morris & Arthur
1233 20th Street, N.W.
Washington, D.C. 20036-2395

RE: Eligibility under GSP of cordage (insulated copper wire); double substantial transformation; drawing; bunching with slight twisting; annealing; encapsulating. Reconsideration of 555705

Dear Mr. Glick:

This is in response to your letter of October 3, 1991, on behalf of ACS Industries, Inc., requesting reconsideration of Headquarters Ruling Letter (HRL) 555705 dated August 26, 1991. That ruling found that certain copper wire imported into Mexico and subjected to several processing operations did not undergo a double substantial transformation. Therefore, we held that the cost or value of the wire could not be counted toward satisfying the 35% value-content requirement under the Generalized System of Preferences (GSP). Further information provided at a meeting at Customs Headquarters on February 28, 1992, and summarized in a letter dated March 24, 1992, was also reviewed as part of this reconsideration. A sample of the wire at each of four processing stages was submitted.


The facts of HRL 555705 are incorporated herein by reference. In summary, you claimed in your original ruling request that soft bare copper wire, referred to as "14 AWG," is imported into Mexico where four substantial transformations occur to produce the final product, known as "cordage," which is used to manufacture telephone cords. The first claimed substantial transformation, a drawing process, results in a finer wire known as "36 AWG." During the drawing process, the 14 AWG, which is .064 inches in diameter, is reduced to a diameter ranging from .020 inches to .005 inches. Next, seven of these wires are bunched and slightly twisted together with a specified lay or twist per inch to form "28 AWG stranded copper wire." The third phase, encapsulation of the 28 AWG stranded copper wire with a colored polypropylene insulation, results in "insulated wire." The final cordage results when several of these insulated wire strands are bundled together and further encapsulated with polyvinylchloride (PVC). The additional facts submitted with this request for reconsideration are summarized below.

You state that the character of the wire changes during the first two claimed substantial transformations. You have provided an affidavit of an employee of ACS Industries, Inc., who states that the ampacity rating of 14 AWG wire is 20 amps whereas the rating of the 28 AWG stranded wire is less than 1 amp. In addition, the flexibility of the 28 AWG stranded wire is far greater than that of the 14 AWG wire.

You also state that the uses of the products vary at each claimed transformation primarily due to their changes in flexibility and ampacity. In your letter of October 3, 1991, you state that the 14 AWG wire is used primarily as building wire in residential and commercial buildings because of its current carrying capacity. During the conference held at Headquarters, you provided information that this same wire is purchased by other manufacturers to make a variety of products such as rivets, springs, foil, electrical contacts, grounding straps, jewelry, and staples. ACS Industries, Inc. uses this wire to manufacture fine wire, stranded wire, or telephone tinsel. In your letter of October 3, 1991, you state that the 36 AWG fine wire is used for non-current carrying uses such as spiral or braid shielding on coaxial or electronic cables; starting strand for tinsel; and to make 28 AWG stranded wire. Some of the additional uses of the 36 AWG wire mentioned at the conference are: resistance heating products, copper rope, motor windings, and copper sponges. The 28 AWG stranded wire is used in single conductors because of its low amperage characteristics. These conductors are used to make insulated wires. The 28 AWG stranded wire is also sold to manufacturers of jewelry, copper rope, and antennas. In support of your argument that the fine copper wire (36 AWG) and stranded copper wire (28 AWG) are distinct articles of commerce, you mention the names of other companies which market both articles.

An additional processing operation which was mentioned for the first time during the conference of February 28, 1992, is the annealing of the 28 AWG stranded wire. ACS Industries, Inc. claims that this wire must undergo annealing before it can be made into insulated wire. The annealing process is performed so that the final product conforms with industry standards for bare soft copper. The annealing also changes the 28 AWG stranded wire from a brittle product to a soft, pliable product. The resulting flexibility is important for the wire's ultimate application in telephone cords. As a result of the annealing operation, the tensile strength of the wire is decreased by 50 percent. Following the annealing and first encapsulation processes, you state that the resulting insulated wire becomes suitable for a new and different use as communication cords which carry low voltage and high speed signals to transmit voice and data. The encapsulation also isolates the wires and keeps them from short- circuiting. This insulated wire, also known as "hookup wire," is used to make telephone cords, as in the instant case, and is also used in the manufacture of such items as stereos, refrigerators, thermostats, alarms, and radios. You have provided the names of some companies which market the color-coded insulated wire. After the second encapsulation, the resulting cordage is used by ACS Industries, Inc. to make telephone cords. The cordage is also sold to companies that manufacture fax machines, modems, printer cables, scales, and equipment with remote thermostats.

You contend that these facts demonstrate significant changes in the use and character of the wire as it is transformed from 14 AWG copper wire into cordage. In addition, you assert that the 36 AWG, 28 AWG stranded copper wire, and insulated wire are distinct intermediate articles of commerce. You reiterate your contention that each encapsulation process by itself constitutes a substantial transformation because of changes in name and use. In addition, you rely upon Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535 (CIT 1987), for your contention that the annealing process is an important factor in determining whether a double substantial transformation has occurred in this case. You have also provided figures showing the percentage of value added to the initial 14 AWG wire as a result of each claimed substantial transformation.


Whether the 14 AWG copper wire imported into Mexico undergoes a double substantial transformation so that its cost or value may be counted toward satisfying the 35% value-content requirement under the GSP.


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).

As provided in General Note 3(c)(ii)(A), HTSUS, Mexico is a BDC. In addition, it appears that the copper wire is classified in subheading 8544.11.00, HTSUS, which is a GSP eligible provision.

The cost or value of materials which are imported into the BDC to be used in the production of the article, as here, may be included in the 35% value-content computation only if the imported materials undergo a double substantial transformation in the BDC. That is, the non-Mexican components must be substantially transformed in Mexico into a new and different intermediate article of commerce, which is then used in Mexico in the production of the final imported article. See section 10.177(a), Customs Regulations (19 CFR 10.177(a)), and 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 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." Torrington Co. v. United States, 764 F.2d 1563, 1568, 3 CAFC 158, 163 (Fed. Cir. 1985).

Despite the additional facts you have submitted as to changes in character and a narrowing of uses of the wire through the various processing operations, we remain of the opinion that the 14 AWG wire imported into Mexico does not undergo a double substantial transformation in that country. We confirm our finding in HRL 555705 that no substantial transformation results from the process of drawing the 14 AWG wire to 36 AWG wire because the character of the wire is not sufficiently changed and the uses not sufficiently narrowed. See Superior Wire v. United States, 669 F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989) (the drawing of wire rod into wire through a multi- stage process did not constitute a substantial transformation of the wire rod). Similarly, the subsequent bunching and slight twisting of several 36 AWG wires to form 28 AWG stranded wire does not result in a new and different intermediate article of commerce. We believe that a combination of the drawing, bunching and twisting, and subsequent steps of annealing and encapsulating with a colored polypropylene to form an insulated wire strand does constitute a substantial transformation. An insulated wire strand does not undergo a second substantial transformation when it is bundled with others and further encapsulated with PVC to form cordage. See 555170 dated May 30, 1989 (encapsulating bulk etched sheets in tape or foil, as one of the steps involved in the production of foil strain gages, does not constitute a substantial transformation). Thus, it appears that the initial product imported into Mexico, 14 AWG wire, undergoes only one substantial transformation in the manufacture of the final article, cordage.


Because the 14 AWG wire does not undergo a double substantial transformation in Mexico, its cost or value may not be included in the GSP 35% value-content calculation.

Accordingly, HRL 555705 is affirmed.


John Durant, Director
Commercial Rulings Division