Application for Further Review (“AFR”) of Protest 4701-10-100432; Classification, Valuation, and Eligibility for Treatment under the Generalized System of Preferences (“GSP”); Optical Isolators

HQ H132656 April 28, 2011 OT:RR:CTF:VS H132656 YAG CATEGORY: Classification/Valuation Port Director Attn: Chief, Trade Operations Branch D U.S. Customs and Border Protection Building 77, JFK International Airport Jamaica, New York 11430 RE: Application for Further Review (“AFR”) of Protest 4701-10-100432; Classification, Valuation, and Eligibility for Treatment under the Generalized System of Preferences (“GSP”); Optical Isolators Dear Port Director: This is in response to your correspondence, dated November 2, 2010, forwarding the Application for Further Review (“AFR”) of Protest 4701-10-100432, timely filed by Neville Peterson LLP, on behalf of the Protestant. FACTS: Protestant, located in California, imports optical isolators into the United States from its affiliated company in Sri Lanka. Both companies are the affiliates of another corporation headquartered in Japan. Therefore, for the purposes of this ruling, the Japanese corporation, the Protestant, and the manufacturer in Sri Lanka, are related parties within the meaning of 19 U.S.C. §1401a(g). Protestant states that it purchases the merchandise from the Japanese corporation. The Japanese corporation, in turn, purchases the optical isolators from the manufacturer in Sri Lanka. Nevertheless, optical isolators are shipped directly to Protestant from the manufacturer in Sri Lanka, as evidenced by the air waybill, submitted to us with this protest. In its protest, Protestant states that CBP incorrectly classified optical isolators in subheading 9013.80 of the Harmonized Tariff Schedule of the United States (“HTSUS”) at a 4.5 percent (%) ad valorem duty rate. Protestant claims classification of the optical isolators as parts of telecommunications apparatus under subheading 8517.70, HTSUS. Optical Isolators According to Protestant, optical isolators are custom made by the manufacturer in Sri Lanka in accordance with Protestant’s U.S. customer’s specifications for an underwater optical, long-haul, digital telecommunication network. The optical isolators filter specific frequency of light in the 1550 nanometer range that is used in carrier-class, long-haul optical telecommunications networks for voice, data, images, and video. The purpose of the optical isolator is to increase the transmission performance of an optical fiber transmission line by eliminating the adverse effects of beams of light that are reflected back at the transmission source by the end faces of connectors and other optical components that are present in the transmission line. The return beams destabilize the oscillation of the laser transmission source and have a negative effect on optical fiber amplifiers. The optical isolators, subject to this protest, are “polarization independent” isolators. They operate on all polarized light, independent of the direction of polarization. The optical components of the optical isolators at issue are: Two Faraday rotators; Input pigtail fiber collimator; and, An output pigtail fiber collimator. In addition to these optical components, the optical isolators include the following physical components: Two isolator holders; Two rubber boots; Two caps; Two holders; Two sleeves; Two fiber termination points; One jacket; and, One body casing. The particular optical isolator does not include any electronic components. The components of an optical isolator, specifically, the Faraday rotators and pigtail fiber collimators, allow light traveling forward through the transmission line to pass through the isolator while return beams are isolated and eliminated. The optical isolators are generally used in optical fiber amplifiers. Faraday Rotators Each Faraday rotator is used to provide polarization rotation of the input light by 45 degrees. The Faraday rotators are made by the manufacturer in Sri Lanka from a liquid phase epitaxial (“LPE”) garnet crystal, two rutile crystal polarizers, and a ferrite magnet. The manufacturer in Sri Lanka produces the LPE crystal from LPE ingots, the rutile crystal polarizers from rutile ingot slices, and the ferrite magnet from an unmagnetized ferrite shape. LPE ingots, rutile ingot slices, and an unmagnetized ferrite are imported to Sri Lanka from Japan. Imported LPE ingots are inserted into wax molds and ground in three separate steps per side to specific thicknesses. Then the LPE ingots are polished on each side to a mirror surface, after which they are coated with an anti-reflective coating. The LPE ingots are subject to various quality inspections and analysis during this process. The coated LPE ingots are then cut to specific sizes, with 40 pieces of LPE ingots typically yielding 1000 LPE crystals. Each cut LPE crystal is inspected for quality. The rutile slices are processed in a similar manner to the LPE ingots with three polishing steps per side, and one mirror polishing step per side and then coated with an anti-reflective coating. The cutting of rutile slices consists of 2 steps: (1) the initial cuts are made to allow the manufacturer in Sri Lanka to preserve the axis of polarization during additional processing; and (2) the final cuts are made to the exact measurement for their use in Faraday rotators. The manufacturer in Sri Lanka magnetizes the imported unmagnetized ferrite shapes in batches using special equipment that generates magnetic field. The ferrite is shaped like a tube with a four-sided opening through the center. Following magnetization, the manufacturer in Sri Lanka aligns and epoxy-bonds an LPE crystal into the four-sided opening of the magnetized ferrite shape. After epoxy bonding the LPE crystal to the ferrite shape, the manufacturer in Sri Lanka subjects the article to heat to cure the epoxy bond and performs an epoxy survival test after bonding. At the end of the process, a rutile crystal polarizer is affixed over the opening in each side of the ferrite and LPE crystal. When properly aligned, the rutile crystal polarizers are epoxy bonded to the ferrite article and heat treated to cure the bond. Pigtail Fiber Collimators The pigtail fiber collimators included in the optical isolators are produced in Sri Lanka from pigtail optical fiber and mounted collimator lens, all imported to Sri Lanka from Japan. During the pertinent period, the collimators were made from imported pigtail fiber having an FT-type ferrule end and rubber boot. During collimator production, the manufacturer in Sri Lanka adds a protective sleeve over the optical fiber and a second, ST-type ferrule, to the open optical fiber end. To add the ST ferrule, the fiber coating is removed along a certain length of the optical fiber from the end and the optical fiber is polished at a specific angle other than 90 degrees to avoid reflection. The second, the ST ferrule, is temporary for the use during the manufacturing and testing operation of the optical isolators. After the final testing of the finished undersea telecommunications products, the ST ferrule is removed along the protective sleeve over the optical fiber. The lens for the collimator is housed in a metal ring. Before the lens is attached, a laser welder places, holds, and aligns a stainless steel sleeve with the FT ferrule end of the pigtail optical fiber, and they are laser welded together. The metal ring holding the lens is then aligned using signal generators and analytical equipment measuring the quality of light. The ring of the lens is laser welded at specific locations to the sleeve. The input and output collimators differ in that the input collimator has an additional sleeve that is aligned and laser welded in place. During the final assembly, the two Faraday rotators and the two collimators are assembled in a specific sequence with the imported internal holder or body, the external jacket and other minor components. Protestant states that the final assembly process is highly complex, requiring a clean room, special equipment, tooling and jigs, and skilled operators to hold, align, and continually analyze the alignment and performance during the assembly process. In addition to the quality controls during the final assembly of optical isolators, the manufacturer in Sri Lanka subjects each finished undersea optical telecommunications devise to further testing (to be in compliance with the U.S. customer’s specifications). Furthermore, if we do not agree with the Protestant’s proposed classification, Protestant claims that the optical isolators should be appraised and valued based upon the sale between the manufacturer in Sri Lanka and the company in Japan. To substantiate its claim, Protestant provided copies of two invoices from the manufacturer in Sri Lanka to the intermediary in Japan and from the intermediary in Japan to Protestant, which include the merchandise contained in the entry subject to this protest and reference specific invoice numbers. Additionally, Protestant argues that optical isolators were clearly destined for export to the United States because the Sri Lankan manufacturer made the merchandise in accordance with the specifications of Protestant’s customer in the United States. A copy of the U.S. customer specifications, explaining the environmental and mechanical requirements for all components used by the U.S. customer were also provided to this office. No further information was submitted. Finally, Protestant claims that the optical isolators are eligible for GSP treatment because they are produced from a double substantial transformation of non-Sri Lankan materials through complex processing operations, including grinding, mirror polishing, anti-reflective coating, cutting to size and shape of garnet crystal ingots and rutile crystal slices, magnetizing ferrite cores, aligning and bonding the materials to assemble a Faraday rotator, cutting to length and processing optic fiber, assembling, using bonding and laser welding optic fiber with other materials to make a collimator, and performing precision alignment of Faraday rotator and the collimators which are laser welded into the optical isolator. Protestant claims that the Faraday rotators and collimators are Sri Lankan-origin materials whose entire cost (as well as the direct costs of processing operations, including assists from the intermediary in Japan) should be counted towards the 35 percent (%) value added requirement under the GSP. To substantiate its GSP claim, Protestant provided a one-page cost sheet, which lists cost of materials, direct labor, production expenses, and total cost. In addition to the cost sheet, Protestant furnished a GSP declaration, signed by the Managing Director of the manufacturer in Sri Lanka and production flow charts. No further information, specifically describing the nature of the production expenses and assists from the intermediary company in Japan, was submitted. The Port, on the other hand, believes that in accordance with New York (“NY”) ruling H87581, the optical isolators were properly classified in subheading 9013.80, HTSUS. Additionally, the Port states that no documents have been submitted by Protestant to support the fact that the sale between the manufacturer in Sri Lanka and the intermediary in Japan was a bona fide sale at arm’s length. Also, the Port claims that Protestant failed to substantiate its assertion that the merchandise was clearly destined for the United States. Finally, the Port contends that the documents submitted by Protestant do not support that a double substantial transformation has taken place, and, therefore, the cost of the materials imported into Sri Lanka cannot be counted towards the 35 percent (%) value content requirements under the GSP. ISSUE: Whether the optical isolator is classified under subheading 9013.80 or subheading 8517.70, HTSUS; Whether the imported merchandise may be appraised on the basis of the transaction between the manufacturer in Sri Lanka and the intermediary company in Japan; and, Whether the imported optical isolators are eligible for preferential tariff treatment under the GSP. LAW AND ANALYSIS: Whether the optical isolator is classifiable under subheading 9013.80 or subheading 8517.70, HTSUS Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the heading and legal notes do not otherwise require, the remaining GRIs may then be applied. Subheading 9013.80, HTSUS, provides for “liquid crystal devices not constituting articles provided for more specifically in other headings; lasers, other than laser diodes; other optical appliances and instruments, not specified or included elsewhere in this chapter; parts and accessories thereof; other devices, appliances, and instruments.” Subheading 8517.70, HTSUS, provides for “telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527, or 8528; parts thereof; parts.” Protestant claims that optical isolators are properly classified as “parts” of telecommunications apparatus in heading 8517.70, HTSUS. We disagree with this claim. Additional U.S. Note 3 of Chapter 90, HTSUS, defines the terms “optical appliances” and “optical instruments” for the purposes of the chapter. Optical appliances and instruments are defined as referring only to those appliances and optical instruments which incorporate one or more optical elements, but do not include any appliances or instruments in which the incorporated optical element or elements are solely for viewing a scale or for some other subsidiary purpose. The purpose of the optical isolators is to increase the transmission performance of the optical fiber cables by eliminating the adverse effect of beams of light that are reflected back at the transmission source by the end faces of the connectors and other optical components that are present in the transmission line. The optical isolators operate on all polarized light, independent of the direction of the polarization. The optical isolators perform an optical function, increasing the transmission of infrared light, and contain optical elements such as the two Faraday rotators, the input pigtail fiber collimator, and the output pigtail fiber collimator. There are no electronic components contained in the optical isolators, but they contain the following components: two rubber boots, two caps, two holders, two sleeves, two fiber termination points, one jacket, and one body casing. The submission prepared by Neville Peterson, dated August 12, 2010, states that the Faraday rotators are used to provide polarization rotation of the input light by 45 degrees. The Faraday rotators are made from LPE garnet crystal, two rutile polarized crystals, and a ferrite magnet. The pigtail fiber collimators contain collimating lenses. Both the Faraday rotators and the pigtail fiber collimators are optical appliances, thus meeting the requirements of “optical appliances and optical instruments,” set forth by Chapter 90 Additional U.S. Note 3. Inasmuch as the optical isolators meet the definition of an “optical instrument” under Chapter 90 Additional U.S. Note 3, it is our position that optical isolators are classifiable in heading 9013, HTSUS. Furthermore, optical isolators are more specifically described as an optical appliance or optical instrument of Chapter 90 than in the parts provision of heading 8517, HTSUS. The optical isolator is not telecommunications apparatus, but, is a part of telecommunications apparatus. As a part, it is prima facie described in heading 8517, HTSUS, as a part. It is also described in heading 9013, HTSUS, as an optical appliance and instrument. Thus, as directed by Additional U.S. Rule 1(c) and Section XVI Note 1(m), the goods cannot be classified in heading 8517, HTSUS. In Sharp Microelectronics Technology, Inc. v. United States, 122 F.3rd, 1446 (Fed.Cir. 1997), the Court of Appeals determined that Note 1(m) of Section XVI can be complementary to a relative specificity analysis between competing headings. The Court of Appeals held that if the good belongs in heading 9013 because it is not more specifically captured elsewhere in the schedule, then Note 1(m) complements the rule of relative specificity by excluding the device from classification in Chapter 84, or in our case Chapter 85. Accordingly, we are of the opinion that optical isolators are properly classified, as entered and liquidated, under subheading 9013.80, HTSUS, as optical appliances and instruments, dutiable at 4.5 percent ad valorem. This conclusion is further supported by NY rulings H87581, dated February 13, 2002; A80542, dated March 14, 1996; 899186, dated June 30, 1994; and, Headquarters Ruling Letter (“HRL”) 954255, dated June 8, 1993; HRL 960082, dated December 15, 1997. Whether the imported merchandise may be appraised on the basis of the transaction between the manufacturer in Sri Lanka and the intermediary company in Japan The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. §1401a. Section 402(b)(l) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for the enumerated statutory additions. In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. The courts have had the opportunity to address the issue of the use of the transaction value method in multi-tiered transactions (involving foreign middlemen and foreign manufactures). In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit addressed the method for determining the use of transaction value in a three-tiered distribution system involving a foreign middleman. The Court indicated that a manufacturer’s price for establishing transaction value is valid so long as the transaction between the foreign manufacturer and the foreign middleman falls within the statutory provision for valuation. In this regard, the Court stated that in a three-tiered distribution system the manufacturer’s price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm’s length, in the absence of any non-market influences that affect the legitimacy of the sale price. Id. at 509. See also Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993). In response to the decision in Nissho Iwai American Corp. v. United States, CBP issued its official position on the application of that decision in the form of a Treasury Decision (“T.D.”). In T.D. 96-87, Determining Transaction Value in Multi-Tiered Transactions, Vol. 30/31, Customs Bulletin No. 52/1, (January 2, 1997), CBP clarified some of the issues that arise in multi-tiered transactions in determining which sale is the sale for exportation to the United States for the purposes of determining transaction value. T.D. 96-87 states, in part, that: [I]n fixing the appraisement of imported merchandise, Customs presumes that the price paid by the importer is the basis of transaction value and the burden is on the importer to rebut this presumption. In order to rebut this presumption, in accordance with the Nissho Iwai standard, the importer must prove that at the time the middleman purchased, or contracted to purchase, the goods were “clearly destined for export to the United States” and the manufacturer (or other seller) and middleman dealt with each other at “arm's length.” In reaching a decision, Customs must ascertain whether the transaction in question falls within the statutory provision for valuation, i.e., that it is a sale, that it is a sale for exportation to the United States in accordance with the standard set forth above, and that the parties dealt with each other at “arm's length.” As stated in Nissho Iwai, these questions are determined case-by-case on the evidence presented. T.D. 96-87 also identifies the documentation and information required to support a determination that transaction value should be based on a sale involving a middleman and the manufacturer or other seller rather than on the sale to which the importer is a party. First, a complete paper trail of the imported merchandise showing the structure of the entire transaction must be provided. Second, if the parties to the requested transaction are related, the importer must provide CBP with information that demonstrates that transaction value may be based on the related party sale as provided in 19 U.S.C. §1401a(b)(2)(B) (i.e., that the circumstances of sale indicate that the relationship did not influence the price or that the transaction value closely approximates certain test values). Finally, sufficient information must be provided with regard to the statutory additions set forth in 19 U.S.C. §1401a(b)(1) (i.e., packing costs, selling commissions, assists, royalty or license fees, and proceeds of any subsequent sale), for the alleged sale between the manufacturer and the middleman. With respect to the documentation required for the importer to rebut the presumption that the price paid by the importer is the basis of transaction value, T.D. 96-87 states as follows: In order for an importer to rebut the presumption “[that the price paid by the importer is the basis of transaction value]”, certain information and documentation must be provided. Specifically, the requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided. Relevant documents include, purchase orders, invoices, proof of payment, contracts and any additional documents (e.g. correspondence), which demonstrate how the parties dealt with one another and which support the claim that the merchandise was clearly destined to the United States. If any of these documents do not exist, or exist but are not available, the ruling request should so provide. What we are looking for is a complete paper trail of the imported merchandise showing the structure of the entire transaction. In summary, the public should be aware that CBP presumes that transaction value is based on the price paid by the importer and in order to rebut this presumption and prove that transaction value should be based on some other price, complete details of all the relevant transactions and documentation (including purchase orders, invoices, evidence of payment, contracts and other relevant documents) must be provided, including the relationship of the parties and sufficient information regarding the statutory additions. In this case, Protestant claims that the optical isolators should be appraised and valued based upon the sale between the manufacturer in Sri Lanka and the intermediary company in Japan. Bona Fide Sale First, we must determine if indeed a “sale” has occurred. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. §1401a(b)(1) means a transfer of title from one party to another for consideration, (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). No single factor is decisive in determining whether a bona fide sale has occurred. See HRL 548239, dated June 5, 2003. CBP will consider such factors as to whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. Evidence to establish that consideration has passed includes payment by check, bank transfer, or payment by any other commercially acceptable means. Payment must be made for the imported merchandise at issue; a general transfer of money from one corporate entity to another, which cannot be linked to a specific import transaction, does not demonstrate passage of consideration. See HRL 545705, dated January 27, 1995. In addition, CBP may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HRL H005222, dated June 13, 2007. Finally, pursuant to the CBP’s Informed Compliance Publication, entitled “Bona Fide Sales and Sales for Exportation,” CBP will consider whether the buyer provided or could provide instructions to the seller, was free to sell the transferred item at any price he or she desired, selected or could select its own downstream customers without consulting with the seller, and could order the imported merchandise and have it delivered for its own inventory. In its protest, Protestant simply claims that the sale was a bona fide sale between the company in Sri Lanka and the company in Japan because the title passed at arm’s length for consideration. Protestant provided a copy of an invoice from the manufacturer in Sri Lanka to the intermediary in Japan; however, apart from the term of sale FOB Colombo (which together with the manufacturer’s air waybill raises an interesting question as to when and under what circumstances a company in Japan actually takes title to the merchandise), there is no other information contained in the invoice that would show the existence of a bona fide sale (for example, there is no evidence to establish that consideration had passed from the intermediary in Japan to the manufacturer in Sri Lanka, no purchase orders, no explanation of the role of the parties, etc.). Therefore, since we do not have the necessary information to substantiate Protestant’s claim, we are unable to determine whether there was indeed a bona fide sale between Sri Lanka’s manufacturer and the company in Japan. Clearly Destined for Export to the United States The next issue that must be considered in this case is whether the evidence presented demonstrates that the merchandise is clearly destined for export to the United States. In order to establish that transaction value should be based on the first sale in a multi-tier transaction, it is Protestant’s responsibility to explain the transactions in a clear manner and to present the documentation in an understandable and concise format, so that CBP can easily follow how the transactions worked. See HRL H002823, dated July 22, 2009. Protestant submitted copies of two invoices from Sri Lanka’s manufacturer to the Japanese intermediary and from the Japanese intermediary to Protestant, which include the merchandise contained in the entry subject to this protest and reference specific invoice numbers. Additionally, Protestant argues that the optical isolators were clearly destined for export to the United States because the Sri Lankan manufacturer made the merchandise in accordance with the specifications of Protestant’s customer in the United States. In other words, the merchandise required special construction to withstand the harsh environment under sea and special testing to confirm its performance ability. A copy of the U.S. customer specifications, explaining the environmental and mechanical requirements for all components used by the U.S. customer were also provided to this office. Protestant also argues that since Protestant appeared as the shipper on the air waybill, the merchandise was sold for export to the United States. Moreover, the air waybill, issued by the manufacturer in Sri Lanka, referenced the comcode for the U.S. Customer specifications, tying the specifications to this particular shipment. Additionally, despite the fact that the merchandise stopped in Singapore on its way to New York, the invoices, the entry summary, and the air way bill all indicate the same quantity of merchandise that was shipped to and eventually arrived in New York. We acknowledge the fact that the invoices indicate that the merchandise was shipped to the United States from Sri Lanka and that the merchandise shipped was the same merchandise that was produced according to the U.S. customer’s specifications. Accordingly, we find that sufficient information has been provided to show that the subject merchandise was clearly destined for export to the United States and that despite the fact that the merchandise stopped in Singapore, the paper trail shows that the same quantity of the merchandise that was ordered according to the U.S. customer specifications made it to New York. Arm’s Length Nevertheless, under Nissho, the sale between the manufacturer in Sri Lanka and the intermediary in Japan must have been conducted at arm’s length in order to serve as the basis for transaction value. In this case, we note that the manufacturer in Sri Lanka and the intermediary in Japan are related parties. Therefore, Protestant must show that the relationship between the parties did not influence the price. No supporting documentation has been provided to us to indicate that there was a bona fide sale, which was conducted at arm’s length and that the value of the merchandise was not influenced by the relationship of the parties. Therefore, due to the lack of evidence to show that the price between the manufacturer in Sri Lanka and the company in Japan was not influenced by the relationship of the parties (and due to the lack of evidence to show bona fide sale), we find that Protestant cannot use the transaction between the manufacturer in Sri Lanka and the company in Japan as the sale for export. Whether the imported optical isolators are eligible for special tariff treatment under the GSP Title V of the Trade Act of 1974, as amended (19 U.S.C.A. §2461-65), authorizes the President to establish a Generalized System of Preferences to provide duty-free treatment for eligible articles from beneficiary developing countries (“BDCs”). Articles produced in a BDC may qualify for duty-free treatment under the GSP if the good are imported directly into the customs territory of the United States 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 United States. See 19 U.S.C. §2463(a)(2) and (3). Sri Lanka has been designated as a BDC for purposes of the GSP. See GN 4(a), HTSUS. Based upon the information provided, optical isolators are classified under subheading 9013.80, HTSUS, as optical appliances and instruments. Subheading 9013.80, HTSUSA, is a GSP-eligible provision. Furthermore, according to the bill of lading provided by Protestant, the optical isolators are imported directly into the United States (despite a short stop in Singapore). Accordingly, the subject optical isolators may be eligible for duty-free treatment under the GSP, if they are considered to be “products of” Sri Lanka, and the 35% value-content minimum is met. The “product of” requirement means that to receive duty-free treatment, an article either must be made of materials “wholly the growth, product or manufacture of” the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce. See 19 CFR §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.” Torrington, Co. v. United States, 764 F.2d 1563, 1568 (Fed.Cir. 1985), citing Texas Instruments Inc. v. United States, 681 F.2d 778 (1982). The importance of each characteristic is determined in each case, with a change in name generally being the weakest indicator of a substantial transformation. Sassy, Inc. v. United States, 24 C.I.T 700, 704 (CIT 2000), citing SDI Technologies, Inc. v. United States, 21C.I.T. 895, 977 F.Supp. 1235, 1239 (CIT 1997). The first question presented in determining whether the optical isolators are “products of” Sri Lanka, is whether the assembly of the two Faraday rotators and the two collimators, in a specific sequence with the metal holder, metal body, metal caps, rubber boots, and metal jacket (all imported from Japan), constitutes a substantial transformation. We find that a substantial transformation of these parts occurs in Sri Lanka. Protestant produced product flow charts, describing in detail the production process. Specifically, the two Faraday rotators are aligned and assembled to the metal holder with epoxy bonding, which is further tested for hardness. The metal holder is then attached to the metal body using laser welding. Moreover, the two (2) collimators are laser welded to the metal body of the optical isolator at multiple points, and the body of the optical isolator is attached to the metal jacket using the torr-seal. The torr-seal is aged in a curing oven, and the silicon adhesive is applied to each end of the jacket to further attach the metal body to the jacket. The rubber boot is attached to the cap in the same way that the cap is attached to the metal jacket, using the torr-seal. Protestant provided the documents illustrating in detail the body assembly procedures of optical isolators. Based on the information provided, the finished optical isolator is a different article from the component parts. Further, once laser welding, application of torr-seal, and epoxy bonding takes place, the component parts cannot be disassembled without destroying the finished good. See, e.g., Sassy, Inc. v. United States, 24 C.I.T 700 at 704. Finally, Faraday rotators provide polarization rotation of the input light by 45 degrees. Pigtail fiber collimators narrow a beam of particles or waves. None of the materials can be used separately; however, when combined with other materials in Sri Lanka, the finished optical isolators increase the transmission performance of the optical fiber cables by eliminating the adverse effect of beams of light that are reflected back at the transmission source by the end faces of the connectors and other optical components that are present in the transmission line. The optical isolators can be used in optical fiber amplifiers; thus, there is also a change in the use of the materials. Accordingly, we are of the view that the assembly process of the two Faraday rotators, two collimators, metal holder, metal body, metal caps, rubber boots, and metal jacket into an optical isolator results in an article with a name, character, or use which differs from the materials subjected to the process. Therefore, we find that the optical isolators are a “product of” Sri Lanka. Nevertheless, to be eligible for duty-free treatment under the GSP, merchandise must also satisfy the 35% value-content requirement. If an article consists of materials that are imported into a BDC, as in the instant case, the cost or value of these materials may be counted toward the 35% value-content requirement only if they undergo a double substantial transformation in the BDC. See 19 CFR §10.177(a)(2). Materials imported into the BDC must first be substantially transformed into a new and different article of commerce which becomes “material produced” and these materials produced in the BDC must then be substantially transformed into a new and different article of commerce (the final article). This intermediate product must be a distinct article of commerce. An article of commerce is commercially recognizable as an article which is readily susceptible of trade and one that persons might well wish to buy and acquire for their own purposes of consumption or production. See Azteca Mill Co. v. U.S., 703 F. Supp. 949 (CIT 1988), and F.F. Zuniga a/c Refractarios Monterrey, S.A. v. United States, 996 F.2d 1203 (Fed. Cir. 1993). Protestant argues that the optical isolators are eligible for GSP treatment because optical isolators result from a double substantial transformation of non-Sri Lanka materials, imported from Japan. Protestant claims that the Faraday rotators and collimators are Sri Lanka origin materials whose entire cost (as well as the direct costs of processing operations, including assists from the intermediary company in Japan) should be counted toward the 35 percent (%) value added requirement under GSP. Therefore, the remaining issue to be addressed concerns whether a substantial transformation results when the parts imported from Japan are joined together to form Faraday rotators and pigtail fiber collimators (which are subsequently used to produce optical isolators). In this case, the Faraday rotators are made in Sri Lanka from a LPE garnet crystal, two rutile crystal polarizers, and ferrite magnet. The manufacturer in Sri Lanka produces the LPE crystal from LPE ingots, the rutile crystal polarizers from rutile ingot slices, and the ferrite magnet from an unmagnetized ferrite shape, the materials which are imported to Sri Lanka from Japan. As noted in the FACTS, among the processes, the LPE ingots are polished and coated. The coated LPE ingots are then cut to specific sizes. The rutile slices are also polished, coated, and cut to exact measurements. The manufacturer in Sri Lanka magnetizes and shapes the imported unmagnetized ferrite. The LPE crystal is aligned and epoxied into the four-sided opening of the magnetized ferrite shape. A rutile crystal polarizer is affixed over the opening in each side of the ferrite and LPE crystal. Thus, the LPE ingots, rutile ingot slices, and ferrite magnets imported to Sri Lanka from Japan are transformed in Sri Lanka into LPE garnet crystals, rutile crystal polarizers and ferrite magnets, which are then assembled together to form Faraday rotators, a new and different articles of commerce that later become substantially transformed into optical isolators (the final article). We find that the Faraday rotator is a distinct article of commerce with the new name, character, and use. Based on the information submitted, we also find that the LPE ingots, rutile ingots, and unmagnetized ferrite shapes, imported from Japan, are transformed into the Faraday rotators. Therefore, the cost of these materials may be counted toward the 35 percent (%) value added requirement under GSP. During the pertinent period, the pigtail fiber collimators were also produced in Sri Lanka from pigtail optical fiber and a mounted collimator lens, all imported from Japan. During collimator production, the manufacturer adds a protective sleeve over the optical fiber and a second, ST-type ferrule, to the open optical fiber end. To add the ST ferrule, the fiber coating is removed from the end of the optical fiber, and the optical fiber is polished at a specific angle other than 90 degrees to avoid reflection. The ST ferrule is removed along the protective sleeve over the optical fiber. The lens for the collimator is housed in a metal ring. Before the lens is attached, a laser welder places, holds, and aligns a stainless steel sleeve with the FT ferrule end of the pigtail optical fiber, and they are laser welded together. The metal ring holding the lens is then aligned using signal generators and analytical equipment measuring the quality of light. The ring of the lens is laser welded at specific locations to the sleeve. The input and output collimators differ in that the input collimator has an additional sleeve that is aligned and laser welded in place. Even though the imported pigtail optical fiber and mounted collimators lens from Japan are assembled together to form the pigtail fiber collimators, we find that the imported pigtail optical fiber and collimator lens are not substantially transformed in Sri Lanka. It appears from Protestant’s description that a lens is welded to the pigtail optical fiber from Japan, and then the final article is referred to as a collimator. We are not persuaded that such an assembly results in a product of Sri Lanka with a different name, character, and use. In this case, the collimator lens from Japan is simply transformed into a collimator; therefore, there is no significant change in the product’s name. The collimator lenses have one use prior to the processing, and this use does not change after processing is done in Sri Lanka. Additionally, the essential character of the collimator lenses has not changed either. The collimators lens is used to focus light from a source near one of its focal points into a parallel beam. The collimator simply reforms the outgoing beam into a signal strength beam. We find that the process of assembling the collimators (or using bonding and laser welding optic fiber with the collimator lens and ferrules to make a collimator) is akin to joining the components by screwing and bonding, which we previously considered to be simple assembly operations. See HRL 556272, dated February 27, 1992; HRL 555856, dated May 13, 1991; and, HRL 557346, dated September 3, 1993. Additionally, 19 CFR 10.176(a)(2)(B) identifies fitting together a small number of components by bolting glueing, or soldering as simple combining operations. Therefore, since the pigtail optical fiber and mounted collimators lens imported from Japan do not undergo a double substantial Sri Lanka, we find that these materials imported to Sri Lanka may not be counted toward the 35 percent (%) value added requirement under GSP. Accordingly, based on the cost sheet provided, the optical isolators do not meet the 35 percent (%) value-content requirement. Furthermore, at the time of the protest, Protestant stated its intention to submit supplementary detailed cost information under a separate cover. Approximately two months after the filing of this protest, Protestant finally submitted a one-page cost sheet which only referenced material cost for rejects, cost of materials imported from Japan, direct labor, and production expenses. The cost sheet did not provide any information as to what costs are actually included in the production expenses. Since the bill of materials and relevant production records were not submitted, and there was no breakdown of qualifying and non-qualifying costs, we are unable to determine whether the cost information provided is consistent with the definition of “direct costs of processing operations,” set forth in 19 CFR §10.197(a); see also HRL 562462, dated October 22, 2002 and HRL H019713, dated July 14, 2008. Therefore, since Protestant has submitted insufficient documentation to demonstrate that the 35% value-content requirement was met, we further find that Protestant has not demonstrated that optical isolators were eligible for GSP. See also Sassy, Inc. v. United States, 24 C.I.T 700, 704 (CIT 2000). HOLDING: Based on the facts presented above, the Protest is denied in full. In accordance with the Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division