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HQ 555353

October 11, 1989

CLA-2 CO:R:CV:V BJO

CATEGORY: CLASSIFICATION

Mr. Jack Alsup
Alsup and Associates
P.O. Box 1251
Del Rio, Texas 78841

RE: GSP Treatment of Paper Binding Covers Imported from Mexico

Dear Mr. Alsup:

This is in response to your letter of March 21, 1989, in which you request a ruling on behalf of IBICO, Inc. ("importer") that paper binding covers produced in Mexico are substantially transformed constituent materials of paper binding covers with title windows for purposes of the Generalized System of Preferences (GSP)(19 U.S.C. 2461-2467). Your request for a tariff classification ruling for the paper covers will be the subject of a separate letter. For purposes of this ruling, we assume that you are correct in your claim that the paper binding covers are properly classified under subheading 4823.90.85, Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The paper binding covers will be made in Mexico from 23" by 35" imported sheets of paper. In Mexico, the paper sheets will be cut with a manual cutter to form four pieces, each measuring 8 3/4" by 11 1/4". Two corners on one long side of each of the cut pieces will be rounded. At this point, the binding cover of one style is complete (hereinafter referred to as the "solid cover"). A second style binding cover (hereinafter referred to as the "title window cover") is formed by cutting a 1 3/4" by 4" piece out of the top center of the solid cover. The completed solid covers and title window covers are then packaged for export to the U.S.

You state that approximately 65% of the importer's total production of paper covers imported and sold are the solid covers, and the remaining 35% are title window covers. The importer's price list indicates that the price for title window covers and solid covers is the same.

ISSUE:

Whether solid covers produced in Mexico as described above from imported paper sheets are substantially transformed constituent materials of the title window covers for purposes of the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles which are imported directly into the customs territory of the U.S. from a designated beneficiary developing country (BDC) may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BDC, plus 2) the direct costs of the processing operation in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See 19 U.S.C. 2463(b).

If an article is produced or assembled from materials which are imported into the BDC, the cost or value of those materials may be counted toward the 35% value-content minimum only if they undergo a double substantial transformation in the BDC. See 19 CFR 10.177. That is, the cost or value of the imported 23" by 35" paper sheet may be included in the GSP 35% value-content computation only if it is first substantially transformed into a new and different article of commerce, which is itself substantially transformed into the finished binding covers. It is your claim that the solid covers are a substantially transformed constituent material of the title window covers.

A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." See The Torrington Co., v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985), citing Texas Instruments Incorporated v. United States, 681 F.2d 778, 782 (CCPA 1982).

We do not find that the imported paper sheet will undergo a double substantial transformation. The imported sheet may be substantially transformed when cut and finished into solid covers, but those solid covers are not thereafter substantially transformed into title window covers. The two items are merely different styles of the same product. The importer's price list indicates that both are marketed as "binding covers." Cutting a window into the solid cover does not change the solid cover's use or materially alter its character, for it retains the identity
and use of a binding cover. Nor does it appear that cutting the window into the solid cover affects its value in any way, as evidenced by the identical price the importer charges for both. Accordingly, because cutting a window into the solid cover does not constitute a substantial transformation, the solid cover may not be considered a substantially transformed constituent material of the title window covers.

CONCLUSION:

Solid binding covers produced as described above are not substantially transformed constituent materials of title window binding covers. Accordingly, the cost or value of the paper sheets imported into Mexico may not be counted toward the GSP 35% value-content requirement in determining the title window covers' eligibility for duty-free treatment.

Sincerely,

John Durant, Director

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