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HQ 555313

June 19, 1990

CLA-2 CO:R:C:V 555313 SFW


Mr. Enrique Resendez
General Manager
Industrias Nuevo Laredo, S.A. de C.V.
1904 Aduanales
Laredo, Texas 78041

RE: Double substantial transformation of remanufactured automotive air-conditioning compressors. Generalized System of Preferences.

Dear Mr. Resendez:

This is in response to your inquiry of February 7, 1989, in which you request a ruling on the eligibility of U.S. automotive air-conditioning compressors remanufactured in Mexico for duty-free status under the Generalized System of Preferences (GSP). We regret the delay in responding to your request.


Non-functional automotive air-conditioning compressors from the U.S. are sent to Mexico where they are disassembled, machined, and reassembled into working products. First, all units are completely disassembled. All component parts are separated without regard to maintaining the integrity of the original unit. Then the component parts are inspected, sorted, de-greased, polished, sandblasted, machined on lathes, drill and punch presses, and milling machines. The reconditioned parts are used to construct subassemblies. The subassemblies are tested and then stored in a central stockroom. From the stockroom they are issued to assembly lines where, with new bearings, seals, o-rings, and gaskets, the subassemblies are pieced together to form the compressors. The compressors are charged with new refrigerant oil, tested, charged with nitrogen, painted, and packaged. The functional compressors are sent to the U.S. to be sold in the automotive after-market.


Whether the operations performed on the automotive air-conditioning compressors result in a double substantial transformation, thereby enabling the cost or value of the compressors to be counted toward the 35 percent value-content requirement for purposes of the GSP.


Under the GSP, eligible products of a beneficiary developing country (BDC), which are imported directly into the U.S., qualify for duty-free treatment if the sum of 1) the cost or value of the materials produced in the BDC, plus 2) the direct costs involved in processing the eligible article in the BDC, is equivalent to at least 35 percent of the appraised value of the article upon its entry into the U.S. 19 U.S.C. 2463(b).

Mexico is a BDC. See General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States (HTSUS). Based on your description, it appears as though the remanufactured compressors will be classified under subheading 8414.30.8030, HTSUS. This provision is eligible for GSP treatment. Assuming that the items will be imported directly into the U.S., they will receive duty-free treatment if the GSP 35% value-content minimum is met.

If the article is comprised of materials that are imported into the BDC, the cost or value of those materials may be included in the calculation of the 35 percent value-content requirement only if the imported materials undergo a double substantial transformation in the BDC. See Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (1989).
A substantial transformation occurs "when an article emerges from a manufacturing process with a new name, character, or use which differs from that of the original material subjected to the process." The Torrington Company v. United States, 764 F.2d 1563, 1568 (1985).

In the present case, in order to satisfy the double substantial transformation requirement, each non-functional automotive air-conditioning compressor imported into Mexico from the U.S. must first be substantially transformed, in Mexico, into a new and different intermediate article of commerce. That intermediate article must then be substantially transformed in the manufacture of the final article, the reconditioned, functioning air-conditioning compressor. See Section 10.177(a), Customs Regulations (19 CFR 10.177(a)).

In our opinion, the operation you describe does not even result in a single substantial transformation. The initial product is an automotive air-conditioning compressor. The final product is an automotive air-conditioning compressor. The article does not

"emerge from [the] manufacturing process with a new name, character, or use which differs from that of the original material subjected to the process." Therefore, the cost or value of the non-functional compressors may not be included in the 35 percent value-content calculation.

We note that, in support of your position, you cite Headquarters Ruling Letter 554568 dated August 25, 1987. That ruling was issued under item 806.20, Tariff Schedules of the United States (now subheading 9802.00.50, HTSUS), the provision that grants a partial duty exemption to items that are exported for repairs or alterations and then returned to the U.S. In that case, non-functional automotive starters and alternators were exported from the U.S. to Mexico. In Mexico, they were completely disassembled into multiple parts for inspection and repair. The parts were stored and later reassembled into functioning units.

In that ruling, we held that the operations described "not only destroy[ed] the identity of the exported units but result[ed] in new and different remanufactured articles." While this language may appear to support your position, it is important recognize that the ruling interprets a program different from the GSP in both its requirements and purposes. The fact that processing performed on a U.S. article in Mexico may exceed the meaning of "repairs" or "alterations" under HTSUS subheading 9802.0050 does not necessarily mean that the article is considered to be substantially transformed in Mexico for purposes of the GSP. Results reached under one statute are not determinative when interpreting an unrelated statute.

As noted in your letter, the remanufacturing process performed in Mexico in this case also will preclude classification of the compressors under HTSUS subheading 9802.00.50, for the reasons set forth in ruling 554568.


On the basis of the information submitted, we conclude that the disassembly and subsequent reassembly of automotive air-conditioning compressors does not constitute a double substantial transformation. Therefore, the cost or value of the compressors imported into Mexico may not be included in the GSP 35 percent value-content calculation.


John Durant, Director
Commercial Rulings Division

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