GSP treatment of eyeglasses and sunglasses; double substantial transformation; assembly; injection molding of frame parts; C.S.D. 80-43; 055611; 19 CFR 10.195(a)(2)(ii)(D)

HQ W556646 August 6, 1992 CLA-2 CO:R:C:S W556646 LS CATEGORY: Classification Mr. Earl A. Roberts Richard L. Jones, Customhouse Broker Railroad Blvd. P.O. Box 472 Calexico, California 92231 RE: GSP treatment of eyeglasses and sunglasses; double substantial transformation; assembly; injection molding of frame parts; C.S.D. 80-43; 055611; 19 CFR 10.195(a)(2)(ii)(D) Dear Mr. Roberts: This is in response to your letter dated April 7, 1992, requesting a ruling, on behalf of Greattech Vision Corp ., concerning the eligibility of sunglasses and reading glasses for duty-free treatment under the Generalized System of Preferences (GSP). Your letter was forwarded to us through Customs New York Seaport office. Photographs of the processing operations were submitted. FACTS: The following facts are based upon your letter and a telephone conversation between yourself and a member of my staff. The sunglasses and reading glasses will be produced in Mexico from materials imported from the U.S. and Taiwan. The frames for both glasses will be made in the following manner: Plastic injection molds are produced from foreign materials. Plastic pellets of U.S. origin will be placed in a drying machine. Plastic pellets are transferred to an injection molding machine where they are melted and injected into the mold to form the front piece and the two temple pieces. You state that the frame parts can be bought and sold commercially. The fronts and temples are trimmed and cut to remove the excess plastic. The groove which is created in the fronts for the lenses is cleaned and excess plastic is removed. The fronts and temples are placed in tumbling machines for purposes of smoothing and polishing. The fronts and temples are cleaned through an ultrasonic dip and turn-dried. Hinges are pressed onto the fronts and temples by heating. The temples are cut at a 90 degree angle so that a straight joinder will be made when they are assembled with the fronts. The fronts are assembled to the temp les with screws to create the frame. The temples are heated and bent to form the ear piece portion. The frames are dipped in chemicals with hot air to impart a shine and smoothness. Decorative colors are added to the frames through hot stamping. The frames are painted in booths. The frames are air dried and then put into an oven for further drying. Clear lacquer is applied to the frames. Final frame inspection is performed. The lenses are imported into Mexico from Taiwan as acrylic tinted round pieces, known as "blanks." These blanks are imported already cut to the proper roundness and thickness. They undergo the following processing in Mexico: The blanks are measured and marked for correct specifications. A template making machine is used to cut out a sample lense or template or each type of frame. The template, which is cut to the precise shape of the particular frame, serves a function similar to a mold. All the lenses used for a particular frame are cut using a template. The outside diameter of the blanks are cut and trimmed by machine to the dimensions and specifications of the intended frame. The acrylic pieces must be cut at a measured spot that makes the contour and tint of all the lenses the same. The remaining operations performed in Mexico consist of the following: The reading glasses and sunglasses are assembled by "pressure inserting" the lenses into the frames. The glasses are inspected to make sure that the fit is exact and to ensure that the left and right lenses are placed in the exact same position to avoid any distortion and to prevent one side from being brighter or darker than the other. The juncture between the frame and temple is smoothed. The country of origin marking is stamped on the glasses. The glasses are further inspected for joint and screw tolerances. The glasses are cleaned. A final inspection takes place. The glasses are tagged with a label, packaged and shipped to the U.S. During a telephone conversation with a member of my staff, you stated that you will provide the actual direct costs of processing figures for the operations performed in Mexico at the time of importation into the U.S. You claim that these figures will equal at least 35% of the appraised value of the eyeglasses at the time of entry. However, in the event that it becomes necessary, in some instances, to include the cost or value of materials imported into Mexico in the 35% value content minimum, you also request that we address the issue of whether the U.S. origin plastic pellets undergo a double substantial transformation in Mexico. ISSUES: Whether the reading glasses and sunglasses imported from Mexico will be considered "products of" Mexico for purposes of the GSP. Whether the cost or value of the plastic pellets imported into Mexico and processed into finished frames, which are assembled with lenses to make finished glasses, may be counted toward the 35% value-content requirement under the GSP. LAW AND ANALYSIS: Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the customs territory of the U.S. from a 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). Mexico is a BDC. See General Note 3(c)(ii)(A), HTSUS. It appears that the reading glasses and sunglasses are classified under subheading 9004.10.00, Harmonized Tariff Schedule of the United States (HTSUS), which is a GSP eligible provision. Where an article is produced from materials imported into the BDC, as in this case, the article is considered to be a "product of" the BDC for purposes of the GSP only if those materials are substantially transformed into a new or different article of commerce." [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, 3 CAFC 158, 163 (Fed. Cir. 1985). The cost or value of materials which are imported into the BDC to be used in the production of the article, as here, may be included in the 35% value-content computation only if the imported materials undergo a double substantial transformation in the BDC. That is, the non-Mexican raw materials must be substantially transformed in Mexico into a new and different intermediate article of commerce, which is then used in Mexico in the production of the final imported article, eyeglasses or sunglasses. See section 10.177(a), Customs Regulations (19 CFR 10.177(a)), and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989). We find that the sunglasses and reading glasses are considered "products of" Mexico because the production of these articles through the numerous steps outlined above constitutes a substantial transformation. The two types of glasses are new and different articles, which vary in character and use from the component parts of which they are composed. In determining whether the processing performed in Mexico constitutes a substantial transformation, section 10.195(a), Customs Regulations (19 CFR 10.195(a)), also is relevant. According to 19 CFR 10.195(a), which implements the Caribbean Basin Economic Recovery Act (CBERA), no article shall be considered to have been produced in a CBERA beneficiary country by virtue of having merely undergone simple, as opposed to complex or meaningful, combining or packaging operations. However, 19 CFR 10.195(a)(2)(ii)(D) provides that this exclusion shall not be taken to include: A simple combining or packaging operation or mere dilution coupled with any other type of processing such as testing or fabrication (e.g., a simple assembly of a small number of components, one of which was fabricated in the beneficiary country where the assembly took place.) (Emphasis added) This regulation is instructive here inasmuch as the CBERA and GSP programs have similar statutory aims, and the country of origin criteria of the statutes are nearly identical. Thus, even if the assembly of the frames and lenses itself by pressure insertion is considered a simple operation, it would still fall within the ambit of 19 CFR 10.195(a)(2)(ii)(D), because of the complete fabrication of the frame components from the plastic pellets and the further processing performed upon the lenses. We next consider whether the plastic pellets imported into Mexico undergo a double substantial transformation there so that their cost or value may be included in the 35% value-content computation for GSP purposes. The process of melting the plastic pellets and injecting them into a mold to form the front piece and two temple pieces of eyeglass frames constitutes a substantial transformation. The front pieces and temples are clearly new and different articles from the plastic pellets from which they are made. We have previously held that molding of plastic into a specific shape which is then used in the manufacture of an eligible article is considered a substantial transformation. See, e.g., HRL 055611 dated October 13, 1978 (injection molding of plastic pellets to form parts of toy pistols constitutes a substantial transformation). The front pieces and temples of the frames at this stage of production are also intermediate articles of commerce since you state that they can be bought and sold commercially. We find that a second substantial transformation occurs as a result of the combined operations of trimming, cutting, smoothing, polishing, cleaning, heat pressing, assembling the front to the temples, bending the temples, dipping the frames in chemicals, hot stamping, painting, inspection, and final insertion of the lenses into the frames. See C.S.D. 80-43 dated July 17, 1979 (where frame fronts and temples were imported into the U .S. from various countries and subjected to further processing before assembly and color-dying, they were found to be substantially transformed for country of origin marking purposes; the further processes, which were necessary to prepare the frame parts for ultimate use in eyeglasses, included many of the same or similar steps involved in the instant case). Further support for this position is found in 19 CFR 10.195(a)(2)(ii)(D), which is discussed above. Applying this regulation, we find that the assembly of the frame fronts, temples, hinges, and screws, as well as the assembly of the finished frames with the lenses, constitute more than simple combining operations when coupled with the complete fabrication of the frame fronts and temples from plastic pellets. Consequently, we find that the cost or value of the plastic pellets imported into Mexico and substantially transformed there into constituent materials of reading glasses and sunglasses may be counted toward the 35% value-content requirement under the GSP. HOLDING: On the basis of the information submitted, we conclude that the materials imported into Mexico from the U.S. and Taiwan undergo a substantial transformation into reading glasses and sunglasses, which are "products of" Mexico. In addition, we find that because the plastic pellets undergo a double substantial transformation in Mexico, their cost or value may be included in the GSP 35% value-content calculation. Therefore, provided that the sum of the cost of materials produced in Mexico plus the direct costs of processing operations performed there equals at least 35% of the appraised value of the finished glasses, and the glasses are imported directly into the U.S. from Mexico, they will be entitled to duty-free treatment under the GSP. Sincerely, John Durant, Director Commercial Rulings Division