CLA-2 CO:R:C:S 556564 RAH

Mr. John J. Scanlon, Jr.
Kemp, Smith, Duncan & Hammond, P.C.
2000 MBank Plaza
P.O. Drawer 2800
El Paso, Texas 79999-2800

RE: GSP; Substantial Transformation; Wire; Extrusion

Dear Mr. Scanlon:

This is in response to your letter of October 20, 1992, which modified your letters of March 6, 1992, and July 15, 1992, requesting a binding ruling on behalf of El Paso Wire, Inc. ("EPW"), regarding the eligibility of certain wire from Mexico for duty-free treatment under the Generalized System of Preferences (GSP). A meeting between you and members of my staff was held on May 26, 1992.


Your client will export to Mexico reels of bare, stranded wire varying in size from 10 to 22 American wire gauge ("AWG") and from 5,000 to 75,000 feet in length. EPW will extrude both general purpose thermoplastic thin wall wire and general purpose thermoplastic regular wall wire. In Mexico, the reels of wire will be subjected to a process of extrusion (a process which will deposit a uniform thickness of plastic insulation upon the entire length of the reels of bare, stranded wire). The extrusion process provides corrosion protection and heat protection and the wire is also color-coded and given an abrasion protection by means of the extrusion process.

You state that by means of a vacuum device, PVC pellets will be transferred to a pre-heated extruder. As a screw slowly moves the PVC along, it is melted by means of heating, shearing, and compressing. This process results in a homogenous and uniform viscosity for the melted plastic. Thereafter, utilizing reel lifters, payoffs and a tension stand, bare, stranded wire of a selected gauge is fed into a cross head. The bare wire is run through the centering tips of the cross head to ensure uniform concentricity. Concurrent with the movement of the bare wire through the centering tips, melted PVC is applied in a uniform thickness, thereby placing a uniform coating of plastic insulation around the wire. As the now insulated wire proceeds through the centering tips, it is run through an outside diameter die, in order to ensure the proper and uniform application of the insulating material around the bare wire.

The die determines the thickness of the insulation and the overall dimensions of the outside diameter of the cable after the application of the insulation. The diameter guide used in the process, and described more fully in the ruling request, is no more than .002 inch wider than the wire being extruded. This permits the wire to move through the diameter guide freely and without wavering.

The PVC is extruded onto the wire by being forced through the diameter guide. When the extrusion size is increased, the revolutions per minute of the screw that forces the PVC out of the extruder and through the diameter guide increases and forces out more PVC. The extruder and the associated equipment are complex and precise pieces of machinery.

When the extruded wire passes through the diameter guide, it is examined by a laser micrometer. By inspecting the outside diameter of the extruded wire with a laser beam, this device ensures that the wire passing out of the diameter guide is within plus or minus .002 inch of specification. The laser micrometer controls the outside diameter of the wire being examined. If that outside diameter becomes too thick or too thin, the laser micrometer directs the capstan at the end of the cooling trough to speed up or to slow down instantaneously. In the EPW extrusion method used in Mexico, the capstan pulls the wire an average of five passes through the water-cooling bath before bringing the wire past the drying station, where water is removed by means of high pressure wipes.

Following the air wiping, the insulated wire enters a sine wave charges box that ensures that no part of the wire remains uninsulated or underinsulated. If any part of a reel of wire did remain uninsulated or underinsulated after the extrusion process, the sine wave charged box would produce a spark, and an alarm would sound to notify the operator of a process failure.

You contend that this is a very precise and technically complex process to achieve the uniformity and concentricity of outside diameters demanded by EPW's customers. After the insulated wire has been examined to assure correct and uniform insulation, the insulated wire is packed in drumpacks, using a tension compensator. The drumpacks contain from 5,000 to 75,000 feet of insulated wire, depending upon the gauge size of the wire, and the requirement of the particular customer.

Following the packing of the insulated wire into the drumpacks, a bar code labeler is connected to the manufacturing computers, and, as each size wire is run through the extrusion process, a label reflecting the quantity of the wire, the country of origin, the product number, the customer designation, and the destination of the wire is printed and attached to the drumpack. ISSUE:

Whether the bare stranded wire is substantially transformed in Mexico into a "product of" Mexico for purposes of the GSP as a result the extrusion process in that country.


Under the GSP, eligible products which are the growth, product, or manufacture of a designated beneficiary developing country (BDC), may enter the U.S. duty-free if such products are imported directly into the U.S. and the sum of 1) the cost or value of the materials produced in the BDC, plus 2) the direct costs involved in processing the eligible article in the BDC, is equivalent to at least 35 percent of the appraised value of the article upon its entry into the United States. 19 U.S.C. 2463(b).

Mexico is a designated BDC. See, General Note 3(c)(ii)(A), HTSUS. Therefore, the extruded wire will receive duty-free treatment if it is classified under a tariff provision which provides for a GSP free rate of duty, it is considered to be a "products of" Mexico, the 35 percent GSP value-content minimum is met, and it is "imported directly" into the United States.

If, as in this case, the article is not wholly the growth, product or manufacture of the BDC, but is comprised of materials that are imported into the BDC, it must be substantially transformed into a new and different article of commerce in that country to qualify as a "product of" the BDC for purposes of the GSP. A substantial transformation occurs "when 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." The Torrington Company v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985). An "article of commerce" is one that is readily susceptible of trade, and is an item that persons might well wish to acquire for their own purposes of consumption or production. Id. at 1570.

In the instant case, you contend that the extrusion process gives the wire a new name, new characteristics and many more commercial uses (i.e., it is a new commercial product, insulated, shock-proof, irreversibly corrosion protected, color coded, and ready for its final use by the customer).

In Superior Wire v. United States, 669 F. Supp. 472 (CIT 1987), aff'd 867 F.2d 1409 (Fed. Cir. 1989), the court held that the drawing of wire rod into wire through a multi-stage process did not constitute a substantial transformation of the wire rod. The court found that there was no significant change in the use or character of the wire, and only a relatively insignificant change in name. In examining whether there was a change in character or use, and, therefore, a substantial transformation, the court looked to whether the articles underwent a transition from producer goods to consumer goods.

Applying the test in Superior Wire to the facts of the instant case, we are not persuaded that the extrusion process results in a change from producers' to consumers' goods. In the meeting on May 26, 1992, you stated that the bare stranded wire is by nature intended as a conductor and that it is not commercially usable before the encapsulation, or has a very limited market. However, after that process the insulated wire has a variety of markets and uses, i.e., automotive, household appliances, etc. In that regard, we find that the encapsulated wire is not a consumer good but rather is a product which is sold for further manufacture into a finished product.

Furthermore, we have found that encapsulation of 28 AWG stranded copper wire with a colored polypropylene insulation to make it useful as telephone cordage (to carry low voltage and high speed signals, insulate the wire and keep it from short- circuiting) did not, in and of itself, result in a substantial transformation of the wire, but the combination of drawing, bunching, twisting, annealing and encapsulation with a colored polypropylene to form an insulated wire strand does constitute a single substantial transformation. HRL 556301 dated May 4, 1992, citing, HRL 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, we conclude that although new features are added to the wire (insulation, color-coding, corrosion resistance) the essence of the wire has not changed. It is, therefore, not eligible for duty-free treatment under the GSP.


The encapsulation of bare stranded wire with a plastic coating does not substantially transform the wire into a new or different article of commerce for purposes of the GSP. Therefore, the insulated wire will not be entitled to receive duty-free treatment under the GSP, upon entry into the United States.


John Durant, Director
Commercial Rulings Division