CLA-2 CO:R:C:S 557141 MLR
Rainey Smith, Esq.
United Technologies Automotive, Inc.
5200 Auto Club Drive
Dearborn, Michigan 48126-9982
RE: GSP eligibility for steering wheels from Mexico; subheading
8708.94.50004, HTSUS; product of; cutting; sewing; leather;
Uniroyal
Dear Ms. Smith:
This is in response to your letter dated January 27, 1993,
requesting a ruling on behalf of United Technologies Automotive,
Inc. ("UTA"), and Sheller-Globe de Mexico, S.A. de C.V.
("Sheller-Globe"), concerning the eligibility of steering wheels
from Mexico for duty-free treatment under the Generalized System
of Preferences (GSP). Photographs of the operations were
submitted with your request.
FACTS:
Sheller-Globe, a division of UTA, imports leather hides from
Canada into Mexico, where it cuts the leather to shape using
dies. Two or three of these leather pieces are used to make
steering wheel covers. It is alleged that cutting the leather
into specific shapes results in a substantial transformation.
Next, Sheller-Globe glues cut pieces of foam to the back of
the leather pieces. The foam-backed leather components are
buttseam-sewn together with a sewing machine. Sheller-Globe then
affixes the sewn steering wheel cover to a metal steering wheel
by hand-sewing it in place. In a telephone conversation with a
member of my staff, you indicated that the metal steering wheels
are supplied from the U.S.
The amount of time to make each steering wheel is
approximately 30 minutes. Twenty-two minutes of this time are
required to sew the foam-backed leather components together and
sew them by hand to the steering wheel. Therefore, it is claimed
that the leather may be included in the GSP value-content
calculation.
It is stated that Sheller-Globe requires two months or more
to train an operator, and to date, Sheller-Globe has trained over
150 workers.
ISSUE:
Whether the steering wheels are regarded as "products of"
Mexico for GSP purposes.
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 operations performed in
the BDC, is equivalent to at least 35 percent of the appraised
value of the article at the time of entry into the U.S. See 19
U.S.C. 2463(b).
As stated in General Note 3(c)(ii)(A), Harmonized Tariff
Schedule of the United States (HTSUS), Mexico is a designated BDC
for purposes of the GSP. To determine whether an article will be
eligible to receive duty-free treatment under the GSP, it must
first be classified under a tariff provision for which a rate of
duty of "Free" appears in the "Special" subcolumn followed by the
symbol "A" or "A*." The steering wheels are classifiable in
subheading 8708.94.50, HTSUS, which provides for steering wheels,
steering columns and steering boxes: for other vehicles. This
is a GSP-eligible provision.
Section 226 of the Customs and Trade Act of 1990 (Public Law
101-382) amended 19 U.S.C. 1263(b) to require that GSP eligible
articles be the "growth, product or manufacture" of a BDC. This
"product of" requirement means that, to receive GSP treatment, an
eligible article must be made entirely of materials originating
in the BDC or, if made of materials imported into the BDC, those
materials must be substantially transformed in the BDC into a new
or different article of commerce. See also 19 CFR 10.177(a)(2).
This amendment was effective for articles entered on or after
August 20, 1990. We must, therefore, first determine whether the
metal steering wheel imported into Mexico which is covered with
Canadian leather is substantially transformed into a product or
manufacture of Mexico.
The test for determining whether a substantial
transformation has occurred is whether 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, 156, 681 F.2d
778, 782 (1982). If the manufacturing or combining process is
merely a minor one which leaves the identity of the article
intact, a substantial transformation has not occurred. See
Uniroyal Inc. v. United States, 542 F. Supp. 1026 (CIT 1982),
aff'd, 702 F.2d 1022 (Fed. Cir. 1983).
In Uniroyal, footwear uppers were manufactured in Indonesia
and then imported into the U.S. where the outsoles were attached.
The court found that imported uppers were the very essence of the
imported shoe, and that the minor operation of attaching only the
outsoles did not result in a substantial transformation.
In the instant case, the U.S.-origin metal steering wheels,
in their condition as imported into Mexico, are readily
recognizable as distinct and complete components, and do not lose
their identity by being covered with the leather. The steering
wheels, rather than the leather covers, impart the essential
character and essence of the finished articles. Sewing the
leather onto the steering wheels is an embellishment and
finishing operation which does not create new articles or alter
the intended use of the steering wheels. Accordingly, we find
that notwithstanding that the Canadian-origin leather is
substantially transformed into steering wheel covers, the U.S.-
origin steering wheels are not substantially transformed into
"products of" Mexico for purposes of the GSP. Therefore, the
steering wheels may not receive duty-free treatment when imported
into the U.S.
You cite Headquarters Ruling Letter (HRL) 555189 dated June
12, 1989, where Customs considered the eligibility of umbrellas
from the Philippines for duty-free treatment under the GSP. It
was held that cutting nylon fabric to make umbrella tops
constituted a substantial transformation. The assembly of the
umbrella top with a Taiwanese-origin collapsible metal umbrella
frame into a finished umbrella by tacking, tipping, and tethering
operations was found to constitute a second substantial
transformation of the nylon fabric because the completed umbrella
had a name, character, and use different from its constituent
materials, and the umbrella was a consumer good while the
umbrella top was a producer good. However, this case was decided
prior to the amendment of 19 U.S.C. 1263(b) which required that
GSP eligible articles be the "growth, product or manufacture" of
a BDC.
You also cite HRL 055591 dated August 22, 1978, where
leather fabric was cut to form the leather component parts of
shoe uppers. The cut leather was then sewn into completed
leather uppers. It was held that cutting the leather resulted in
substantially transformed constituent materials of the leather
uppers; consequently, the cost or value of the leather was
counted toward the 35 percent GSP requirement. However, in HRL
055592, as held by the court in Uniroyal, the leather uppers were
the essence of the shoe.
We, therefore, find that because the U.S.-origin steering
wheels are the essence of the finished steering wheels, the
imported steering wheels are not "products of" Mexico for
purposes of the GSP. Consequently, the imported steering wheels
may not receive duty-free treatment under the GSP.
HOLDING:
The finished steering wheels are not regarded as "products
of" Mexico because the essence of these articles are the U.S.-
origin metal steering wheels which are not changed into new or
different articles of commerce as a result of being covered with
leather in Mexico. Accordingly, the steering wheels are
ineligible for duty-free treatment under the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division