CLA-2 CO:R:C:V 555615 SER
Ms. Beth C. Ring
Sandler, Travis & Rosenberg
505 Park Avenue
New York, NY 10022-1106
RE: GSP and CBERA eligibility of quartz wall clocks
Dear Ms. Ring:
This is in response to your letter of March 16, 1990, on
behalf of your client, Costa Rica Clocks, S.A., requesting a
ruling on whether certain quartz wall clocks produced in Costa
Rica are entitled to duty-free treatment under the Generalized
System of Preferences (GSP) (19 U.S.C. 2461-2467), and the
Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-
2706).
FACTS:
According to your submission, the quartz wall clocks will be
manufactured in Costa Rica from component materials of U.S. or
Brazilian origin. You state that the direct cost of processing
in Costa Rica amounts to approximately 41% of the appraised
value of the merchandise.
Although no samples, illustrations or pictures were
submitted, you provided the following description of the
processing in Costa Rica. The manufacturing process consists of
fabricating certain components and subassemblies and assembling
those components and subassemblies to create the finished clocks.
Several of the parts, the core and left and right stators, are
fabricated in a similar manner. Magnetic soft iron nickel alloy
strip in coils, manufactured in the U.S., is automatically fed
through a feeder into a die cutting tool and assembled in a "C"
from an eccentric press with precision guides. The die cut parts
receive an annealing heat treatment to 2000 degrees Fahrenheit
for 12 hours in a decarburizing controlled atmosphere to obtain
the optional magnetic properties (reducing carbon, sulphur and
oxygen in the alloy) with a subsequent controlled cooling at a
rate of 150 degrees per hour for 12 hours. The die cut parts are
fed into a vibrating chip tumbling machine in order to smooth all
sharp corners and wedges, remove light scale formed during the
magnetic annealing, and impart a smooth finish.
-2-
The second shaft spring is fabricated from annealed phosphor
bronze alloy strip in coils, manufactured in the U.S. It is
automatically fed through a feeder in a tool, where it is first
die cut and then bent. The tool is then assembled in a "C" frame
eccentric press with precision guides.
The positive and negative terminal parts are made from
annealed stainless steel alloy strip in coils, manufactured in
the U.S. They are fed automatically through a feeder into a die
cutting tool and assembled in a "C" frame eccentric press with
precision guides. The die cut parts are then fed into a
vibrating chip tumbling machine to smooth all sharp corners and
impart a smooth surface finish.
The coil support, made of U.S. manufactured high quality
thermoplastic nylon, is molded in a thermoplastic molding machine
with controlled temperatures at various points of the feeding
screw and in the inlet nozzle of the mold. The formation of the
mold occurs under pressure control during feeding and cooling so
as to impart an exact material weight.
The winding is produced from the molded coil support which
is fitted into a precision coil winding machine with wire tensors
to wind the copper wire. The copper wire is protected with
enamel to avoid short circuits and resist the pressure of the
winding operation without breakage of the enamel. The winding
operation consists of fitting one end of the wire in one of the
slots on the side of the wall of the coil support, bringing it
down into the center of the coil support and then starting the
rotational movement of the winding machine. The winding is
precisely done with sufficient amount of tension for a "compact"
coil with the necessary magnetic properties but not excessive
tension to break the wire or its enamel surface. The machine
automatically counts the number of windings, and stops
automatically at a preset number of windings. The second wire
end is cut and fitted into a second slot on the side of the wall
of the coil support. Both ends of the wire are then flame burnt
to remove the enamel on top of the wire.
The circuit board used in the clock is made from U.S.
manufactured copper adhesive coated substrate which is masked
with enamel and dried in an oven. The mask material is "silk
screened" on the copper side of the plates to indicate the
"electrical tracks" of the circuit. The circuit board is then
sprayed with sulphuric acid which corrodes the non-masked areas
and rinsed with water. The enamel wash is then removed from the
board which is again rinsed and dried. As a final process, the
board is fed into a press, which die punches the part with its
final dimensions and holes.
-3-
There are several subassembly operations in this process.
One is the rotor subassembly, which consists of a magnet and a
pinion, both made in Brazil, that are mechanically joined in an
assembly jig and then fed into a controlled magnetic field to
impart a precise magnetic strength to the subassembly.
The second subassembly gear consists of a gear and a shaft,
both manufactured in Brazil, that are mechanically joined in an
assembly jig which maintains the shaft in a total perpendicular
place so as to ensure precise positioning of the gear without
warping during assembly.
The stator subassembly consists of a core, made in the
U.S., which is fitted into the central hole of the coil sub-
assembly, made in Brazil. These two "pre-assembled" parts are
carefully fitted to the right stator and left stator, both of
which are of U.S. origin.
The circuit board subassembly is comprised of several
components-- the circuit board discussed previously, manufactured
in Costa Rica, an integrated circuit from West Germany, and
quartz crystal from Japan. The circuit board is placed in a
wedge bonding machine. A pneumatic device picks up the
integrated circuit from a cartridge and positions it on top of
the circuit board, with a drop of glue. These two parts are
later dried in an oven to cure the glue, after which they are
placed in a die bonding machine, which bonds eleven tracks of the
circuit board through the aluminum wire to eleven points in the
integrated circuit. This bonding operation promotes the
electrical contact of the functional points in the integrated
circuit to the board. After this "electrical wire bonding"
operation, an epoxy drop is placed on top of the bonded
integrated circuit to give mechanical protection to the very low
gauge wires.
The final assembly operation consists of a 16 step process
of assembling the various components and subassemblies together
to create the finished clock.
ISSUE:
Whether the quartz wall clocks are eligible for duty-free
treatment under the GSP and CBERA when imported into the U.S.
-4-
LAW AND ANALYSIS:
Applicability of GSP
Under the GSP, eligible articles the growth, product or
manufacture of a designated beneficiary developing country (BDC)
which are imported directly into the U.S. qualify for duty-free
treatment if the sum of the cost or value of the materials
produced in the BDC plus the direct costs involved in processing
the eligible article in the BDC is at least 35% of the article's
appraised value at the time of its entry into the U.S. See 19
U.S.C. 2463.
Costa Rica is a BDC. See General Note 3(c)(ii)(A),
Harmonized Tariff Schedule of the United States Annotated
(HTSUSA). Articles provided for in a provision in the HTSUSA for
which a rate of duty of "Free" appears in the "Special" subcolumn
followed by the symbols "A" or "A*" in parentheses are those
designated by the President to be eligible articles for purposes
of the GSP. See General Note 3(c)(ii)(C) HTSUSA. Based on your
description, the quartz wall clocks will be classified under
subheading 9103.10.8000, HTSUSA, which provides for clocks with
watch movements, excluding clocks of Heading 9104, battery
powered, other, other. This subheading is not a GSP eligible
provision, and, therefore, the clocks are not entitled to duty-
free treatment under the GSP.
Applicability of CBERA
Under the CBERA, eligible articles the growth, product or
manufacture of a designated beneficiary country (BC) may receive
duty-free treatment if such articles are imported directly to the
U.S. from a BC, and if the sum of 1) the cost or value of the
materials produced in a BC or BC's, plus 2) the direct cost 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 into the U.S. See 19 U.S.C. 2703(a). Moreover, the
cost or value of materials produced in the U.S. may be applied
toward the 35% value-content minimum in an amount not to exceed
15% of the imported articles' appraised value.
Costa Rica is a BC for purposes of the CBERA. See General
Note 3(c)(v)(A), HTSUSA. The subheading of the clocks in the
HTSUSA is a CBERA eligible provision, and according to your
submission, the quartz wall clocks will be imported directly to
the U.S. Accordingly, the wall clocks will be eligible for
duty-free treatment if they are considered a "product of" Costa
Rica and the 35% value-content requirement is met.
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Since you advise that the cost of processing operations
performed in Costa Rica will exceed 35% of the appraised value of
the wall clocks, the only remaining question is whether the wall
clocks are considered to be "products of" Costa Rica.
Where, as in this case, an article is made in a BC from
materials imported from non-BC's, the article will be considered
a "product of" the BC only if those materials are substantially
transformed into a new and different article of commerce. See
section 10.195(a), Customs Regulations (19 CFR 10.195(a)). 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." The Torrington Co. v. United States, 764 F.2d 1563,
1568 (Fed. Cir. 1985).
According to 19 CFR 10.195(a), no article shall be
considered to have been produced in a BC by virtue of having
merely undergone simple, as opposed to complex or meaningful,
combining or packaging operations. However, 19 CFR
195(a)(2)(ii)(A) provides that a simple combining operation
shall not be taken to include:
A simple combining . . . operation . . . 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.)
The operations performed in the instant case to produce the
clocks constitute more than a simple combining operation. Not
only does the production of the clocks involve a significant
number of different components and assembly operations, but
certain of the clock parts are fabricated in Costa Rica. For
example, one of the substantial operations in this process
involves the manufacture of a circuit board. Customs has
previously held that the detailed manufacture of circuit boards,
such as cutting, shaping, winding, tinning, soldering and quality
control testing, results in a substantial transformation of the
parts from which the board is made. Moreover, when compared to
the imported materials from which they are made, the finished
clocks are clearly new and different articles of commerce with a
new name, character, and use.
Finally, this fabrication and assembly process is not the
type of "pass-through" operation which Congress intended to
prohibit from receiving CBERA benefits. "The provision would not
preclude meaningful assembly operations utilizing foreign
components, provided the assembly is of significance to the local
economy, meets the 35% local content rule, and results in a new
and different article." H.R. Rep. No. 98-266, 98th Cong., 1st
Sess. 13 (1983).
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HOLDING:
On the basis of the information submitted, the quartz wall
clocks are ineligible to receive duty-free treatment under the
GSP as they are not classified in a GSP eligible provision.
However, this provision is CBERA eligible. Therefore, since the
clocks are considered to be "products of" Costa Rica, they will
be entitled to free entry under this program, provided they
satisfy the 35% value-content requirement and are imported
directly to the U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division