Eligibility of the Series 5000 Aluminum Diffusers, RH Return Grille, Opposed Roll-Formed Blade Damper, "LS4" Supply Grille, and 8" x 4" L.M.H. Supply Grille for duty-free treatment under the GSP

HQ 555811 March 20, 1992 CLA-2 CO:R:C:S 555811 WAW CATEGORY: Classification Allen E. Smith, Esq. Allen E. Smith and Associates 470 McAllen National Bank McAllen, TX 78503 RE: Eligibility of the Series 5000 Aluminum Diffusers, RH Return Grille, Opposed Roll-Formed Blade Damper, "LS4" Supply Grille, and 8" x 4" L.M.H. Supply Grille for duty-free treatment under the GSP Dear Mr. Smith: This is in response to your letter of December 5, 1990, on behalf of Metal Industries, Inc., requesting a ruling that certain diffusers, dampers and grilles assembled in Mexico and used in the U.S. in the production of HVAC air distribution systems are entitled to duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2466-2466). Additional information was submitted by letters dated May 23, 1991, September 26, 1991, and February 7, 1992. Samples of the merchandise at issue were also received by this office. FACTS: You state that your client wishes to obtain duty-free treatment under the GSP for certain diffusers, dampers and return grilles which are currently being assembled in Mexico from components imported into that country. The following is a list of the products which are the subject of this ruling request: "Series 5000 Aluminum Diffuser," "RH Return Grille," "Opposed Roll-Formed Damper (OBDR)," "LS4 Supply Grille," "8" x 6" LMH Supply Grille." Product 1: Series 5000 Aluminum Diffuser The Series 5000 Aluminum Diffuser unit is specifically designed to be a three part assembly consisting of one outer frame assembly, one blade core assembly and one extruded aluminum opposed blade damper assembly. The diffuser is comprised of foreign-origin aluminum shapes and strips of different lengths and sizes, corner angles, frame keys, springs, latches, center cones, aluminum stampings, bushings, and rivets which are imported into Mexico. The specific details of the assembly process of the three component parts of the Series 5000 Aluminum Diffuser are set forth below. Component 1: Frame Assembly (1) Extruded aluminum shapes of different lengths are miter cut to length to produce the frame shapes; (2) Square holes to accept the blade core assembly latches are slotted at each corner of the frame shapes; (3) The frame assembly is formed with four corner frame keys that are hydraulically staked and crimped to the corners of the four shapes; (4) Four corner angles are drive-riveted to the bottom of the frame to secure and complete the frame assembly. One worker is responsible for cutting and slotting the shapes for the frames, and placing the frames in baskets for delivery to a second worker. The second worker is responsible for hydraulically crimping, staking and inspecting the frame. You claim that this concludes the first substantial transformation of the frame components. Component 2: Blade Core Assembly (1) Extruded aluminum shapes of different lengths are miter cut to length to form blades; (2) Each row of blade assemblies (the larger the diffuser unit, the more blade assemblies required) is secured by means of pre-stamped and pre-holed, corner brackets which are placed on the corners of the four blades and secured by pressure staking and crimping the brackets to the blades; (3) The bottom (smallest) blade assembly is also slotted to accept an X braced pre-stamped and pre- assembled center cone. The center cone braces are inserted in the bottom blade assembly and crimped to secure and form the base assembly for the blade core; (4) Additional blade assemblies are riveted to the previous blade assemblies in progressively larger sizes. The larger blade assemblies are riveted to the next smallest blade assemblies' corner brackets; (5) An exterior core rail is cut to length from aluminum shapes of different lengths, and punched; (6) The core rail is assembled to the larger blade assembly, riveted to the inserts, and the four core rail ends are engaged and crimped to secure the blade core assembly; (7) Four pre-stamped curved latches, four springs, and four plastic latch boxes are assembled and attached to the inside of the core rail, with the end of the latch protruding from the rail to complete the blade core assembly. One worker is responsible for cutting and slotting the blades and shapes, and cutting, punching and forming the core rails which are subsequently delivered to an assembly area. Two workers are responsible for hydraulically crimping the blade shapes to form the blades, crimping the center cones and riveting the brackets to form the blade core. You claim that this concludes the first substantial transformation of the blade core components. Component 3: Opposed Blade Damper-Extruded (OBDE) Assembly (1) Blades are cut to length from multiple length extruded aluminum strips; (2) The ends are punched and cut to length from multiple length extruded aluminum strips; (3) Side Rails are cut to length from multiple length, pre-punched aluminum strips. The bottom of one side rail is then punched (slotted) to accept the operator lever (top side rail); (4) A pre-cut and pre-punched action rod is inserted into grooves in the top side rail. The operator lever is inserted into a slot of the top side rail and riveted to the action rod; (5) Active and passive injection molded nylon bushings are attached to the blades. The blades are then attached to the side rails; (6) Tension clips are attached to the ends; (7) Two ends are screwed to the two side rails to complete the damper assembly. Two workers are responsible for cutting, punching, and slotting the blades, ends and side rails. Other workers are responsible for assembling the blades and bushings, riveting the action rod, assembling the frame and inserting the blades. The importer claims that this constitutes a single substantial transformation of the damper components. Finally, once the frame assembly, blade core assembly and damper assembly are completed, they are joined together to form part of an engineered HVAC air distribution system that balances and distributes air flow within a given area in a building. The damper assembly is inserted into the base of the frame assembly, the blade core assembly is mounted onto the frame assembly and secured to the frame assembly by inserting the spring loaded latches in the square holes punched in the corner of the frame assembly to complete the diffuser. The finished article is then wrapped and packaged for shipment to the U.S. Product 2: RH Return Grille The RH Return Grille is designed for all normal return or exhaust applications which are located in the sidewall or ceiling. The Return Grille is made of foreign-origin extruded aluminum shapes of different lengths and sizes, frame keys, roll formed aluminum strips, shapes, and rivets. The grille consists of an inner core assembly and an outer frame assembly. The inner core assembly and outer frame assembly are assembled together to create the grille. The specific details of the assembly process of the RH Return Grille are set forth below. Component 1: Frame Assembly (1) Extruded aluminum shapes of different lengths are miter cut to length to produce the frame assembly; (2) The frame assembly is framed with four corner frame keys that are hydraulically staked and crimped to the corners of the four shapes to complete the frame assembly. Two workers are responsible for cutting, staking and inspecting the frame assembly. Component 2: Blade Core Assembly (1) Side rails are cut to length from multiple length extruded and pre-punched aluminum shapes; (2) Blades are cut to length from multiple length roll formed aluminum strips; (3) The right side rail is placed in an assembly fixture. The blades are assembled to the right side rail at the corresponding slots and aligned; (4) The left side rails are fitted to blades at the corresponding slots, and blade tabs on both sides are bent to secure side rails; (5) The center, top and bottom rails are cut to length from multiple length pre-slotted roll formed aluminum shapes; (6) The center rails are fitted to the back of the blade assembly to secure alignment of the blades; (7) Top and bottom rails are assembled to the side and center rails and their tabs are bent to complete the blade core assembly. One worker cuts and punches blades and rails for the core. Meanwhile, two other workers assemble the blade assembly. Next, the blade assembly is transported to two workers for fitting of the rails to complete the blade core assembly. You claim that this manufacturing process results in a substantial transformation of the blade core components into a new and different article of commerce. Finally, the finished unit is assembled by means of mounting the blade core assembly to the frame assembly. The blade core assembly is secured to the frame assembly by drilling a hole in each side of the frame and riveting them together. Next, the grille is inserted into the frame and the core is attached to produce the RH Return Grille unit. Product 3: Opposed Roll-Formed Blade Damper (OBDR) The Opposed Roll-Formed Blade Damper is used primarily in conjunction with grilles, diffusers and other products produced by Metal Industries, Inc., which do not require integral multi- shutter dampers or extruded opposed blade volume control dampers. The OBDR consists of roll-formed aluminum shapes and strips of different lengths, pre-cut aluminum shapes, operators, aluminum flat stock, rivets and bushings of foreign-origin. The specific details of the assembly process of the OBDR is set forth below. The first step in the production of the damper is the manufacture of the two ends and two side rails as follows: Component 1: (1) The two ends are die cut, stamped and shaped from aluminum flat stock. Component 2: (1) Pre-cut and pre-punched aluminum shapes are machine bent at their ends to form C-shaped side rails. Component 3: (1) The bottom side rail is punched to form a housing for the nylon operator. You state that these operations result in a substantial transformation of the imported materials into new and different articles of commerce: ends and side rails. One worker is responsible for stamping and forming the damper ends. Another worker is responsible for bending and punching the side rails. You claim that the assembly of the damper constitutes the second substantial transformation. The assembly process is as follows: (1) The bottom (follower) bracket is riveted to the pre-cut and pre-punched action rod; (2) The action rod is placed in the pre-bent bottom side rail (component 3). Bushings (butterflies) are placed on the action rod, and all are then secured by eyelets; (3) Bushings (butterflies) are attached to the top side rail (component 2) with eyelets; (4) the nylon operator is inserted into the top bracket and then the bracket (with operator) is riveted to the bottom side rail (component 3); (5) Imported blades that were cut to length in Mexico are fitted to the bottom side rail (component 3); (6) The pre-bent top side rail (component 2) is fitted to the blades; (7) Shaped and punched ends (component 1) are inserted into the side rails and secured with eyelets to complete the assembly. One worker is responsible for cutting the blades. Four workers place the action rod in the operators and side rails, eyelet them, assemble the operator to brackets and rivet them. Six workers assemble the blades and ends to the rails. Two workers complete the damper by eyeletting the ends to the side rails. Two workers back up any part of the line that slows down. The finished damper is inspected, and either wrapped and packaged for shipment to the U.S., or sent to another assembly line for use in another product. Product 4: "LS4" Supply Grille The "LS4" Supply Grille is designed for use in ceiling applications which require the distribution of air in four different directions. Aluminum flat coil stock is imported into Mexico, together with multiple length roll-framed aluminum strips, pre-cut aluminum strips, shapes, stampings, molded nylon tension blocks, gaskets and rivets. The grille consists of blades which are assembled into an auxiliary core channel frame which is then assembled with the outer frame. The specific details of the assembly process of the component parts of the Supply Grille are set forth below. The long and short blades of the supply grille are manufactured as follows: (1) Aluminum flat coil stock is fed through a rotating cold forming die which shapes the flat stock into a curved (elliptical) shape with a horizontal lip on the bottom of the shape; (2) Long blades and short blades are cut to length from the roll formed strip leaving an axis (formed by the lip) on each end for assembly purposes. One worker in the blade area is responsible for roll forming the blades for this product and other products built in the plant. One worker in the blade area is responsible for cutting the blades to size and placing them in baskets for delivery to the assembly area. The supply grille is assembled by the following processes: (1) Short blades are assembled to imported center rails that were cut and punched in Mexico, and secured with injection molded tension blocks; (2) A pre-cut roll-formed aluminum cover strip is attached to the center rail by crimping to form the inside blade assembly; (3) The inside blade assembly and the long blades are assembled to the imported outside rails that were cut and punched in Mexico, and secured with tension blocks to complete the blade core assembly; (4) Pre-slotted and pre-punched corners are riveted to a pre-stamped frame; (5) The blade core assembly is inserted into the frame and secured mechanically to complete the assembly of the grille; (6) The grille is degreased, cleaned and the outer surface is spray painted; (7) An adhesive backed foam gasket is attached to the bottom of the grille frame to complete the unit. (8) The grille, together with a set of mounting screws, are wrapped and packaged in a container for shipment to the U.S. You contend that this assembly process constitutes the second substantial transformation of the imported materials into a new and different article of commerce. One worker is responsible for cutting and punching the side rails. Three workers are responsible for assembling the blade core. Two workers are responsible for completing the frame and assembling the core assembly to it. One worker inspects and operates the completed units and delivers them to the paint area. Four workers degrease, prime, paint, inspect and gasket the units. Lastly, two workers wrap, label and pack the units in shipping containers destined for the U.S. Product 5: 8" x 4" L.M.H. Supply Grille - Painted The 8" x 4" L.M.H. Supply Grille is designed for ceiling and side wall applications which require one-way air pattern distribution. It consists of materials of foreign-origin such as aluminum flat coil stock, multiple length roll-formed aluminum strips, pre-cut aluminum strips, shapes, stampings, aluminum flat stock, molded nylon tension blocks, operator levers, action rods, eyelets, gaskets and rivets. The specific details of the manufacture and assembly of the components which make up the L.M.H. Supply Grille are set forth below. (1) Aluminum flat coil stock is fed through a rotating cold forming die which shapes the flat stock into a curved (elliptical) shape with a horizontal lip on the bottom of the shape; (2) Main blades are cut to size from the roll formed strip leaving an axis (formed by the lip) on each end for assembly purposes; (blade component) (3) A pan-shaped frame is die cut, stamped, and shaped from flat stock; (frame component) (4) The frame is slotted to receive operator lever and punched to receive back blades and riveted. One worker in the blade area is responsible for roll forming the blades for the supply grille as well as other products manufactured in this plant. Another worker in the blade area is responsible for cutting the blades to size and placing them in baskets for delivery to the assembly area. One worker in the frame area is responsible for stamping and shaping the frame for the supply grille. Another worker in the frame area is responsible for punching and slotting the frames and riveting the corners and placing them in baskets for delivery to the assembly area. The assembly of the supply grille is as follows: (1) Blades are assembled to imported side rails that were cut and pre-punched in Mexico to accept blades, and secured with injection-molded nylon tension blocks, to form a blade core assembly; (2) The blade core assembly is inserted into the pre- punched and riveted frame and secured to it mechanically; (3) Pre-shaped back blades are assembled to the pre- punched frame and secured with eyelets; (4) The action rod is assembled to the back blades with eyelets; (5) The operator lever is attached with eyelets to the frame and action rod to complete the assembly of the grille; (6) The grille is degreased, cleaned and the outer surface is spray painted; (7) An adhesive backed foam gasket is attached to the bottom of the grille frame to complete the unit. In the assembly of the frame and blades, one worker is responsible for cutting and punching the side rails. Three workers assemble the blades to the side rails and insert the core into the frame. Three workers assemble the back blades and operator by eyeletting to the frame. One worker inspects and operates the completed units and delivers them to the paint area. Four workers degrease, prime, paint, inspect and gasket the units. Two workers wrap, label and package the units for shipment to the U.S. You claim that the final assembly of the blades and frame, along with the other constituent materials results in a double substantial transformation of the imported materials. You state that the LMH 8" x 4" painted supply grille is comprised of 19 components, that it takes approximately 0.13 man hours to produce, and that the manufacturing procedures in Mexico add approximately 36.1 percent in value to that of the imported materials. In addition, you state that the components which result from the first substantial transformation in some cases may be put into the company's inventory as "discrete" items, and may be shipped for use in other types of units not manufactured in Mexico. ISSUE: Whether the materials and components imported into Mexico and used in the production of HVAC air systems undergo a double substantial transformation, thereby permitting the cost or value of these materials to be included in the 35% value-content calculation required for eligibility under the GSP. LAW AND ANALYSIS: Under the GSP, eligible products which are the growth, product or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the U.S. q