CLA-2 OT:RR:CTF:VS H153523 BGK
Leonard L. Rosenberg
1000 NW 57th Court
Suite 600
Miami, Florida 33126-2022
RE: Eligibility of prescription eyeglasses for duty-free treatment under the GSP
Dear Mr. Rosenberg:
This is in reply to your requests for a binding ruling dated September 21, 2010, and February 18, 2011, on behalf of Essilor of America, Inc. concerning the eligibility of certain prescription eyeglasses from Thailand for duty-free treatment under the Generalized System of Preferences (GSP). You also requested a ruling that the materials used at the beginning of the process have undergone a double substantial transformation and their cost may be included in the computation of the 35 percent value-content requirement under the GSP. You submitted a DVD showing the processing of the lenses, as well as samples of the lenses at different stages of the processing.
This ruling is being offered prospectively only and is contingent on the renewal of the GSP program. Currently the GSP program has expired, and has not yet been renewed. See 19 U.S.C. § 2465 (“No duty free treatment provided under this subchapter shall remain in effect after December 31, 2010.”).
FACTS:
You state that certain lens blanks, also known as substrates, are produced in Thailand, and some are imported into Thailand. You also state that the frames may originate in any number of countries. In Thailand, the lens blanks undergo taping, “blocking”, grinding to the proper prescription, fining and polishing, prescription verification, various coatings, edging, and mounting into the proper frame.
When an order for a pair of eyeglasses is received, the order gets a tray and work ticket which contains the prescription information for each lens.
Lens Blank (Substrate): The lens blank is either imported into Thailand or produced in Thailand. This is a plastic disk made from monomer that resembles a hockey puck sized lens in shape and size. After an order is given a tray and work ticket, a substrate that will be appropriate for the final prescription is pulled from inventory. The lens blank is selected from a variety of lens blanks, each with a pre-molded different base curve. An automatic taping machine tapes the lens front to prevent scratching. After the lens is taped, it is “blocked.” This involves adhering the block to the center of the lens to ensure correct positioning for grinding.
Semi-Finished Lens: The blocked lens is ground to the prescription required by the end user using a generator. The underside of the lens is ground to a particular shape based on the user’s prescription and final lens shape. At this stage, the lens is known as a semi-finished lens. The semi-finished lens is then fined and polished to smooth any rough surfaces left by the generator. The block and protective tape are then removed and the prescription is verified.
Uncut Lens: Once the lenses have been ground to the proper prescription, they are known as “un-cuts”. The lens goes through a scratch resistant coating process in which the lens is also cleaned and prepared for the Hard Coating process. After the application of the coating, the lens is reviewed for defects and cured. Following the hard coating, the uncut lens may then either be coated with an anti-reflective coating, anti-static coating, hydroponic coating, and/or mirror coating. The lens is inspected again and destroyed if it is defective. At this stage, the lens can be edged and mounted into a frame or sold to an eye care professional for edging and mounting.
Edging and Mounting: The edging process begins by blocking the lens with a double-sided adhesive pad and plastic block. The lens is then placed in an edging machine that uses the digital shape and size of the lens to edge the lens to the correct size. After edging, the lens may be beveled and inserted into the frame. The completed eyeglasses are cleaned and inspected before being wrapped and packed for shipment.
You have submitted an alternative scenario where the frames are produced in Thailand or the Philippines, both GSP-eligible countries.
ISSUES:
I. Whether the eyeglasses are eligible for preferential tariff treatment under the GSP.
II. Whether the lens blank undergoes a double substantial transformation such that its cost may be included in the computation of the 35 percent value-content requirement under the GSP.
LAW AND ANALYSIS:
Title V of the Trade Act of 1974, as amended (19 U.S.C. §§ 2461-65), authorizes the President to establish a Generalized System of Preferences to provide duty-free treatment for eligible articles from beneficiary developing countries (BDC). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the goods are imported directly into the customs territory of the U.S. from the BDC and the sum or value of materials produced in the BDC plus 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(a)(2) and (3). Thailand has been designated as a BDC for purposes of the GSP and may be afforded preferential treatment under the Harmonized Tariff Schedule of the United States (HTSUS). We assume for purposes of this ruling that the imported eyeglasses are classified in a GSP-eligible provision, and that the goods will satisfy the “imported directly” requirement.
I. Whether the eyeglasses are eligible for preferential tariff treatment under the GSP.
The first issue in this case is whether the imported eyeglasses are a “product of” Thailand. To receive duty-free treatment under the GSP, an article must be a “product of” the BDC. A good is considered to be a “product of” a BDC if it is wholly the growth, product or manufacture of the BDC, or if made of materials imported into the BDC, those materials are substantially transformed in the BDC into a new and different article of commerce. See 19 C.F.R. § 10.176(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.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982).
In the facts presented, the imported eyeglasses are not wholly the growth, product or manufacture of Thailand, except in scenario two (which will be discussed later). Both Thai and non-Thai originating lens blanks are used, and the frames are from a variety of countries. Therefore, the question presented is whether the processing of the lenses and their insertion into the eyeglass frames in Thailand is a substantial transformation.
CBP has held that in a processing operation almost identical to the one described here and occurring in a GSP country, no substantial transformation occurred by the processing of the lenses and their insertion into eyeglass frames. See Headquarters Ruling Letter (HRL) H088695, dated March 15, 2010. In H088695, lens blanks were produced in Thailand, as well as in China, Vietnam, Japan and the U.S. and imported into Thailand. Eyeglass frames produced in Japan, China, and other countries were also imported into Thailand. In Thailand the lens blanks underwent grinding and possibly coating and were inserted into the eyeglass frames. As the lenses were from a variety of origins and the frames were all non Thai-origin, the issue, like in the case at hand, was whether the processing of the lenses in Thailand and their insertion into the frames resulted in a substantial transformation. This decision was based on previous rulings by CBP that have held that inserting prescription lenses into frames is not a substantial transformation as eyeglass frames and lenses retain their separate country of origin when assembled together, and that grinding and coating lenses are finishing operations. See HRL H088695 (citing HRL 730963, dated April 21, 1988; and HRL 555923, dated June 17, 1991). HRL H088695 stated “[t]he eyeglass frames and lenses have only one use prior to processing and that use does not change as a result of the processing in Thailand.”
In HRL 730963, dated April 21, 1988, CBP held that completed eyewear frames and lenses are substantially transformed when combined. It was stated that “[p]ersonal prescription eyewear consists of frames and lenses, neither of which lose their separate identity when the latter is mounted in the former.” Although the argument was made that frames with lenses inserted are referred to as eyewear, CBP responded that this was used for ease of expression and not a reflection of the creation of a new article of commerce. Although this was a marking ruling, and not a GSP decision, the test was still whether or not a substantial transformation occurred.
In HRL 555923, another GSP decision, the lens blanks were created from raw materials in Mexico and then processed into uncut lenses, like the ones here, except they were then exported to the U.S. for coating and mounting. While the raw materials underwent a substantial transformation in becoming the polished lens, the lens blank did not undergo a substantial transformation in becoming the polished lens. Customs stated that “[o]nce the raw materials are cut into the lens shape, they have a predetermined character and use as optical elements.” HRL 555923. It was determined that the materials were “undergoing a continuous manufacturing process.” Id.
Accordingly, we find that the operations performed on the lens blanks and the insertion of the prescription lenses into the frames in Thailand do not create a new article with a new name, character or use. The lens blank is not substantially transformed by grinding and coating, it is merely further processed. In the lens blank stage, the lens already looks like a lens, just thicker than after processing. The lens blanks are also already semi-finished as each one must be individually selected for a particular pair of lenses, and may not be used to create any prescription.
It is also longstanding precedent that the combination of lenses and frames does not create a substantial transformation. See HRL H088695 (citing HRL 730963; and HRL 555923). Both components are still readily identifiable and potentially separable. The characteristics of the lenses do not change by their insertion into the frame, and the characteristics of the frame do not change by the insertion of the lenses. Lenses and frames maintain their separate character when combined, and do not create a new character. As discussed in HRL 730963, an individual purchasing the eyewear faces few choices with regard to what lenses are supplied, but has many choices, based on personal preference more than needs with regard to the frames. Indeed the frames may be reused as prescription strength changes. The name also does not change. Although “eyeglasses” is used to describe the commodity as a whole, it is not uncommon to reference only the frames or lenses individually. It would also not be unnatural to use the word “glasses” to refer to either piece, but not the whole.
In Uniroyal, Inc. v. United States, the Court of International Trade held that no substantial transformation occurred because the attachment of a footwear upper from Indonesia to its outsole in the United States was a minor manufacturing or combining process which left the identity of the upper intact. Uniroyal, Inc. v. United States, 3 CIT 220, 224, 542 F. Supp. 1026, 1029 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983). The court found that the upper was readily recognizable as a distinct item apart from the outsole to which it was attached, it did not lose its identity in the manufacture of the finished shoe in the United States, and the upper did not undergo a physical change or a change in use. Also, under Uniroyal, the change in name from “upper” to “shoe” was not significant. The court concluded that the upper was the essence of the completed shoe and was not substantially transformed. The lenses and frames can be viewed like the footwear upper. As is consistently held, the lenses and frames each maintain their individual identity and are not substantially transformed by their combination. Neither the lenses nor the frames undergo a physical change or a change in use by virtue of their combination. The change from “lens” to “glasses” and “frame” to “glasses” are like the change from “upper” to “shoe” that was not deemed significant for the substantial transformation analysis.
In Uniden America Corporation, et al v. United States, 120 F.Supp. 2d 1091, 21 C.I.T. 1191 (CIT 2000), cordless telephones with 3 main detachable components, of 275 separate parts, were assembled together in the Philippines. One of the three components, the A/C adapter, was imported into the Philippines from China. It was held by the Court, that a substantial transformation occurred because each component had a different name from the phone that emerged, and the A/C adapter had a different purpose than the cordless phone. It was also held that a new character emerged because “the A/C adapter neither characterize[d] nor define[d] the phone in question.” The Court also believed the A/C adapter had a different character because of the “essence test” which the Court used to determine if there was a change in character. The Court stated “[i]n applying the “essence” test to this case, the question is whether the A/C adapter imparts the essential character of the cordless telephone.” The Court answered this in the negative, as the base and handset provided the essence of the phone.
Unlike Uniden, in this case there are only two components being assembled, not 275. Additionally there is no change in name. Glasses, frames, and lenses may all be used to refer to glasses or the respective component. Also, the A/C adapter performed the specific function of providing power, while the phone performed the specific function of enabling communication. There is no such obvious distinction in this case. Neither component takes on any new function by virtue of its combination with the other. Most distinctive, however, is the character. Unlike in Uniden, where the power adapter was a small component of the phone that performed an insular function; both the lenses and the frames provide the essence of glasses. Frames are a separate piece of fashion from lenses that serve an essential vision function. Neither loses their essence by virtue of the combination, and neither provides the essence of the glasses any more than the other. This is similar to why glasses have consistently been marked separately; neither piece loses its individual identity. Also in Uniden, while the A/C adapter was an already completed component upon importation into the beneficiary country, the other two more significant components were assembled from over 270 parts. In this case, the only work performed in the beneficiary country besides the combining of the frames and the lenses is the processing of the lens blank into a finished lens, which is considered to be a finishing operation.
The Court in Uniden also discussed the need to consider the fundamental purpose of the GSP in applying the substantial transformation test. Uniden, 120 F.Supp. 2d at 1100 (citing Torrington, 764 F.2d at 1565.). In this case, the purpose of the GSP would be circumvented as a way to obtain duty-free treatment for already completed eyeglass frames from another country. Giving GSP treatment to an already completed article uses the GSP to avoid the payment of duties and not to increase the number of higher skilled jobs in the beneficiary county. The combination of lenses and frames is merely a simple assembly pass through operation that is not in the spirit of the program.
You cite Sassy, Inc. v. United States in support of your argument that a substantial transformation occurs in this situation. In Sassy, four components were assembled in Hungry to create a pacifier. A worker assembled the components, the pacifier was then welded together with an ultrasonic welder, subjected to a mechanical pull test, printed with a decorative design, packaged with pamphlets, and sealed. The Court held that this resulted in a substantial transformation. In support of this, the Court stated that “[w]hile the component parts are readily identified in the pacifier, the function of the finished good is different from the component parts.” Additionally the court stated that “once welding occurs, the component parts cannot be disassembled without destroying the finished good.” The Court also supported their holding that the pacifier may only be used by infants for its intended purpose after assembly. In the case of the pacifier, the nipple could not be used without the shield, and the shield would serve no purpose without the nipple. Unlike the pacifier in Sassy, the lenses and glasses each maintain their own function after the lenses are inserted into the frames, and the frames can be reused with new lenses as the prescription strength changes. While, arguably lenses become more functional by placement into a frame, the frame itself does not undergo a substantial transformation by inclusion of the lenses. The eyeglasses cannot be substantially transformed without any processing occurring on the foreign frames.
As the lenses and eyeglass frames are not substantially transformed in Thailand, the imported eyeglasses are not considered a product of Thailand for purposes of the GSP. Therefore, the imported eyeglasses will not be eligible for preference under the GSP.
You argue that the marking issue (in that lenses and frames must be marked separately) is separate from the GSP determination, even though both follow the substantial transformation test. However, in HRL H004649 dated March 20, 2007, CBP held that the country of origin marking was controlling for GSP purposes. A ceramic mug blank was created in China and sent to Thailand or Taiwan for sublimation coating. The coating process was more costly than the mug, but, in analyzing the marking requirements, it was determined that a substantial transformation did not occur. Thus, the mug was considered a product of China. As such, it was determined that because China was not a GSP country, the mug was not eligible for GSP treatment. A separate substantial transformation analysis was not reviewed for purposes of the GSP. See also HRL 959462, dated August 28, 1996 (applying the marking regulations for textiles to determine the country of origin, and then determining that as the countries of origin were not GSP eligible countries, the goods were not eligible for GSP treatment).
Although you believe the marking issue is separate from the GSP determination, you ask that CBP reconsider its position on the marking of frames in cases where the frames are attached to the lenses in the country where the lenses are made. You analogize this to the watch band issue, where in HRL 560471 dated January 5, 1997, CBP reconsidered its position that if the watch and watch band have two countries of origin, each must be separately marked. In HRL 560471, CBP held that the watch band would be substantially transformed if it was attached to the watch movement in the country in which the watch movement was produced. CBP stated that “[i]f this assembly takes place in the country in which the watch was produced, the production of the finished wristwatch cannot be stated to have resulted from a “simple assembly.” It also stated, however, that “it cannot be disputed that the essential character of the wristwatch is imparted by the watch.” This fact is significant in distinguishing watches from eyeglasses. As stated above, one of the reasons for separate markings is that both pieces maintain their separate identity. Additionally, such reconsideration would not be helpful for most of this case as the lenses are not produced in Thailand, but are merely further processed.
You also argue that it is unnecessary to require marking of the frames after the lens has been inserted because by the time this occurs, the consumer has already “purchased” the finished eyewear by paying in full or placing a deposit at the time they selected the frames. This same argument was rejected in HRL 730963 because the consumer has a right to verify that the information presented at the time of selection. The sale of the eyeglasses is not complete until they are received by the customer, so your emphasis on the phrase “at the time of purchase” is misplaced in reference to solely the act of selection and partial or full payment.
In the second scenario, where eyeglasses are made from GSP-originating frames, and GSP-originating lenses, the eyeglasses are GSP-eligible as both pieces are the product of the beneficiary country. If GSP-originating frames are combined with non-originating lenses (as would be the case for any lens blank not produced in a GSP-eligible country), the eyeglasses would not be eligible for GSP treatment in the same way originating lenses combined with non-originating frames would not be eligible for GSP treatment.
II. Whether the lens blank undergoes a double substantial transformation such that its cost may be included in the computation of the 35 percent value-content requirement under the GSP.
As it has been determined that a substantial transformation has not occurred and the eyeglasses are not eligible for preference under the GSP, it is unnecessary to consider whether there has been a double substantial transformation for the purpose of being able to include the cost of the lens blanks in the 35 percent value-content requirement.
HOLDING:
As a substantial transformation does not occur in Thailand, the imported prescription eyeglasses will not be a product of Thailand for purposes of the GSP. As such, the eyeglasses are not eligible for GSP treatment. As the “product of” requirement cannot be met, we are not addressing the 35 percent value content requirement.
Where GSP-originating frames are combined with GSP originating lenses, the eyeglasses are eligible for GSP treatment.
As noted above, this ruling is contingent on the renewal of the GSP program. Currently the GSP program has expired, and has not yet been renewed. See 19 U.S.C. § 2465 (“No duty free treatment provided under this subchapter shall remain in effect after December 31, 2010.”).
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.
Sincerely,
Monika R. Brenner
Chief, Valuation & Special Programs Branch