CLA-2 CO:R:C:S 557153 WAW

Dennis T. Snyder, Esq.
Dennis T. Snyder, P.A.
7600 Red Road
Suite 200
South Miami, FL 33143

RE: Eligibility of silica glass stemware for duty-free treatment under the Caribbean Basin Economic Recovery Act; packaging; 19 CFR 10.195(a)(2)(ii)(D); 556902; 556646

Dear Mr. Snyder:

This is in reference to your letter dated February 15, 1993, on behalf of Grand Bahama Crystal Inc., concerning the eligibility of silica glass stemware from the Bahamas for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-2706).

FACTS:

You state that Grand Bahama Crystal Company, Ltd. plans to produce sets of silica glass stemware in the Bahamas. The finished sets will be imported into the U.S. by a-related company, Grand Bahama Crystal, Inc., a Florida corporation. Individual stemware pieces will be acquired from an unrelated company in Czechoslovakia. In Czechoslovakia, the pieces are machine molded, placed in bulk containers without further processing, and shipped to the Bahamas. In the Bahamas, the individual pieces are inspected, culled, cleaned, polished and packaged into sets of four or six. The individual stemware sets are boxed in professionally designed "self-sell" boxes which are the product of the Bahamas. You state that this form of packaging is essential to the retail marketing in the U.S., since cheap glass stemware is sold only in packaged sets and not as individual pieces. You also claim that the direct costs of the materials and labor in the Bahamas is approximately equivalent to the landed costs of the individual pieces.

It is your position that a set of silica glass stemware which has been packaged in a "self-sell" box is a new and different article of commerce from the individual mold-run pieces of inexpensive stemware imported into the Bahamas and should, therefore, be considered a "product of" the Bahamas. Furthermore, you believe that, since the stemware is a "product of" the Bahamas, it should be entitled to duty-free treatment under the CBERA. In support of your claim for CBERA treatment, you state that the cost of the packaging materials and labor are extraordinarily high in relation to the cost of the individual pieces, and there is a legitimate commercial justification for the relatively expensive packaging, i.e., the packaged sets are saleable on the retail market and the individual pieces are not.

ISSUE:

Whether the operations performed in the Bahamas to the imported silica glass stemware result in a substantial transformation of the stemware into "products of" the Bahamas for purposes of the CBERA.

LAW AND ANALYSIS:

Under the CBERA, eligible articles the growth, product, or manufacture of a beneficiary oountry, ("BC"), which are imported directly to the U.S. from a BC, qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or two or more BC's, plus (2) the direct costs 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. 19 U.S.C. 2703(a)(1).

The Bahamas is a designated BC. See General Note 3(c)(V)(A), Harmonized Tariff Schedule of the United States Annotated (HTSUSA). The articles will receive duty-free treatment if they are considered to be the "product of" the Bahamas, the 35% value-content minimum is met, and the goods are "imported directly" into the U.S.

Under the Customs Regulations implementing the CBERA, an eligible article may be considered a "product of" a BC if it is either wholly the growth, product, or manufacture of a beneficiary country, or a new or different article of commerce which has been grown, produced, or manufactured in the BC. See 19 CFR 10.195. Accordingly, where materials are imported into a BC from a non-BC, those materials must be substantially transformed into a new and different article of commerce, a "product of" the BC.

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 the processing. See Texas Instruments; Inc, v. United States, 69 CCPA 152, 681 F.2d 778 (1982). See also The Torrington Company v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985) ("[W]hen an article emerges from a manufacturing process with a new name, character, or use which differs from that of the original material subjected to the process" a substantial transformation occurs).

The issue that we are asked to address is whether the operations performed in the Bahamas (i.e., inspection, culling, cleaning, polishing and packaging), to produce-individual sets of silica glass stemware which are packaged in "self-sell" boxes result in a substantial transformation of the imported glass stemware into "products of" the Bahamas.

In determining whether the processing performed in the Bahamas constitutes a substantial transformation, section 10.195(a), Customs Regulations (19 CFR 10.195(a)), is relevant. According to 19 CFR 10.195(a), no article shall be considered to have been produced in a CBERA BC by virtue of having merely undergone simple, as opposed to complex or meaningful, combining or packaging operations. 19 CFR 10.195(a)(2)(i)(E) provides that a simple combining or packaging operation includes "repacking or packaging components together." However, 19 CFR 10.195(a)(2)(ii)(D) provides that a simple combining or packaging operation under this section shall not be taken to include:

A simple combining or packaging operation or mere dilution coupled with any other type of processing such as testing or fabrication (e.g., a simple assembly of a small number of components, one of which was fabricated in the beneficiary country where the assembly took place.) (Emphasis added)

We have held in certain instances that an assembly operation will not be considered "simple," pursuant to 19 CFR 10,195(a)(2)(ii)(D), where the components are actually fabricated in the BC where the assembly takes place. In HRL 556646 dated August 6, 1992, we held that the cost or value of plastic pellets imported into Mexico and processed into finished frames, which are assembled with lenses to make finished glasses, may be counted toward the 35% value-content requirement under the GSP. We found that a second substantial transformation occurred as a result of the combined operations of trimming, cutting, smoothing, polishing, cleaning, heat pressing, assembling the front to the temples, bending the temples, dipping the frames in chemicals, hot stamping, painting, inspection, and final insertion of the lenses into the frames by force fitting. In HRL 556646, we stated that even though the assembly of the frames and lenses itself by pressure insertion may be considered a simple operation, it would still fall within the ambit of 19 CFR 10.195(a)(2)(ii)(D), because of the complete fabrication of the frame components from the plastic pellets and the further processing performed upon the lenses in the BDC.

Likewise, in HRL 556902 dated February 3, 1993, we found that plastic pellets imported into Mexico and used in the production of disposable razors and cartridges could be counted toward the 35% value-content requirement under the GSP. We stated that in view of the fact that the cartridge components and the razor handle were completely fabricated in Mexico by means of injection molding the imported plastic pellets, the assembly operations required to produce the razors and cartridges constituted more than a simple combining operation as set forth in 19 CFR 10.195(a). Therefore, we held that the assembly of the razor and cartridge components with other materials in Mexico to create the finished articles resulted in a new and different article and constituted a second substantial transformation of the materials imported into Mexico.

In the instant case, we are of the opinion that the operations which take place in the Bahamas are considered simple packaging or combining operations pursuant to 19 CFR 10.195(a). The only operations which occur in the Bahamas are the inspection, culling, cleaning, polishing and packaging into boxes of the individual stemware. None of these operations qualify as the type of processing which would fall within the exclusion under 19 CFR 10.195(a)(2)(ii)(D). Unlike the production of the disposable razors and cartridges in HRL 556902 and the glasses in HRL 556646, none of the components which comprise the glass stemware in this case are actually fabricated in the Bahamas.

The operation of repackaging finished components into containers suitable for resale does not constitute a substantial transformation of the imported components into a new and different article of commerce. The very essence of the final product in this case is imparted by the silica glass stemware which is produced in Czechoslovakia, prior to any of the operations performed in the Bahamas. See Uniroyal. Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982). Before the glasses are cleaned, polished and packaged, they are dedicated to a singular use as drinking containers and already possess the essential character of a drinking container. The fact that the stemware may not be saleable on the retail market until it is packaged is not determinative in this case of whether the packaging constitutes a substantial transformation of the individual components. Moreover, we view the cleaning, polishing, and packaging operations merely as finishing processes which do not alter the essential character of the glass stemware. See HRL 556060 dated August 27, 1991 (stating that jewelry pieces are not subjected to a second substantial transformation when enameled, engraved, decoratively cut, polished, and cleaned as these operations are embellishments and finishing operations which do not create a new article or alter the intended use of the articles). Therefore, we are of the opinion that the cleaning, polishing and packaging operations performed in Mexico are the simple. type of "pass-through" operations that Congress meant to prohibit from receiving duty-free treatment under the CBERA. Accordingly, the silica glass stemware imported from Czechoslovakia into the Bahamas for inspection, culling, cleaning, polishing and packaging do not undergo a substantial transformation into "products of" the Bahamas.

HOLDING:

The silica glass stemware imported from Czechoslovakia into the Bahamas for inspection, culling, cleaning, polishing and packaging do not undergo a substantial transformation into "products of" the Bahamas. Therefore, as the "product of" requirement is not satisfied, the packaged silica glass stemware will not be eligible for duty-free treatment under the CBERA upon entry into the U.S.

Sincerely,

John Durant, Director
Commercial Rulings Division