CLA-2 CO:R:CV:V BJO
Mr. Jack Alsup
Alsup and Associates
P.O. Box 1251
Del Rio, Texas 78841
RE: GSP Treatment of Paper Binding Covers Imported from Mexico
Dear Mr. Alsup:
This is in response to your letter of March 21, 1989, in
which you request a ruling on behalf of IBICO, Inc. ("importer")
that paper binding covers produced in Mexico are substantially
transformed constituent materials of paper binding covers with
title windows for purposes of the Generalized System of
Preferences (GSP)(19 U.S.C. 2461-2467). Your request for a
tariff classification ruling for the paper covers will be the
subject of a separate letter. For purposes of this ruling, we
assume that you are correct in your claim that the paper binding
covers are properly classified under subheading 4823.90.85,
Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
The paper binding covers will be made in Mexico from 23" by
35" imported sheets of paper. In Mexico, the paper sheets will
be cut with a manual cutter to form four pieces, each measuring 8
3/4" by 11 1/4". Two corners on one long side of each of the cut
pieces will be rounded. At this point, the binding cover of one
style is complete (hereinafter referred to as the "solid
cover"). A second style binding cover (hereinafter referred to
as the "title window cover") is formed by cutting a 1 3/4" by 4"
piece out of the top center of the solid cover. The completed
solid covers and title window covers are then packaged for
export to the U.S.
You state that approximately 65% of the importer's total
production of paper covers imported and sold are the solid
covers, and the remaining 35% are title window covers. The
importer's price list indicates that the price for title window
covers and solid covers is the same.
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ISSUE:
Whether solid covers produced in Mexico as described above
from imported paper sheets are substantially transformed
constituent materials of the title window covers for purposes of
the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles which are imported
directly into the customs territory of the U.S. from a designated
beneficiary developing country (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).
If an article is produced or assembled from materials which
are imported into the BDC, the cost or value of those materials
may be counted toward the 35% value-content minimum only if they
undergo a double substantial transformation in the BDC. See 19
CFR 10.177. That is, the cost or value of the imported 23" by
35" paper sheet may be included in the GSP 35% value-content
computation only if it is first substantially transformed into a
new and different article of commerce, which is itself
substantially transformed into the finished binding covers. It
is your claim that the solid covers are a substantially
transformed constituent material of the title window covers.
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." See The Torrington Co., v. United States, 764
F.2d 1563, 1568 (Fed. Cir. 1985), citing Texas Instruments
Incorporated v. United States, 681 F.2d 778, 782 (CCPA 1982).
We do not find that the imported paper sheet will undergo a
double substantial transformation. The imported sheet may be
substantially transformed when cut and finished into solid
covers, but those solid covers are not thereafter substantially
transformed into title window covers. The two items are merely
different styles of the same product. The importer's price list
indicates that both are marketed as "binding covers." Cutting a
window into the solid cover does not change the solid cover's use
or materially alter its character, for it retains the identity
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and use of a binding cover. Nor does it appear that cutting the
window into the solid cover affects its value in any way, as
evidenced by the identical price the importer charges for both.
Accordingly, because cutting a window into the solid cover does
not constitute a substantial transformation, the solid cover may
not be considered a substantially transformed constituent
material of the title window covers.
CONCLUSION:
Solid binding covers produced as described above are not
substantially transformed constituent materials of title window
binding covers. Accordingly, the cost or value of the paper
sheets imported into Mexico may not be counted toward the GSP
35% value-content requirement in determining the title window
covers' eligibility for duty-free treatment.
Sincerely,
John Durant, Director
Commercial Rulings Division