HQ 555371
June 19, 1990
CLA-2 CO:R:CV:V 555371 BJO
CATEGORY: Classification
John N. Politis, Esq.
Sandler, Travis & Rosenberg, P.A.
Equitable Plaza
3435 Wilshire Boulevard
Los Angeles, California 90010-2204
RE: Entry of Partition Folders and Pressboard Binders under the
Caribbean Basin Initiative or the Generalized System of
Preferences
Dear Mr. Politis:
This is in response to your letter of April 17, 1989, in
which you request a ruling on behalf of Master Binder Corporation
that partition folders and pressboard binders made or assembled
in Puerto Rico and the Dominican Republic from U.S. materials
are eligible for duty-free treatment under the Caribbean Basin
Economic Recovery Act (CBERA)(19 U.S.C. 2701-2706) or the
Generalized System of Preferences (GSP)(19 U.S.C. 2461-2465).
Specifically, you ask whether the U.S. materials undergo a double
substantial transformation for purposes of either of those
programs. Our response is based on your written description of
the processing and examination of the submitted samples.
FACTS:
A. Pressboard Binders
The pressboard binders will be made in the Dominican
Republic ("D.R.") with U.S. pressboard and U.S. prong paper
fasteners. The U.S. pressboard, which will be imported into the
D.R. in bulk, will be cut into rectangular leaves. The corners
of each leaf will be rounded, holes will be punched along a top
edge to permit insertion of the fastener, and that edge will be
scored to allow it to be easily folded to permit joinder with
another leaf. Two leaves are then placed together, the prong
paper fastener is inserted through the punched holes, and the two
leaves are folded together along the score lines, and packaged
for shipment to the U.S.
B. Partition Folders
The partition folders will be made of U.S. pressboard, U.S.
manila paper, which will be used in the finished folders as an
inner partition, U.S. Tyvek, U.S. prong paper fasteners, and
Puerto Rican glue. The U.S. pressboard and manila will first be
shipped to Puerto Rico in bulk rolls. In Puerto Rico, the
pressboard will be cut into square sheets measuring
approximately the size of the four individual leaves necessary to
form the finished folder. The manilla rolls will also be cut in
Puerto Rico into sheets of similar dimensions, and then die cut
into the required shape (the sample submitted, for example, has
been cut to give each manilla insert a tab). The pressboard and
manilla sheets will then be shipped to the D.R.
In the D.R. the pressboard and manilla sheets will be cut
apart to form individual leaves, and the Tyvek, exported from the
U.S. in rolls, will be cut to the required sizes and shapes. The
pressboard leaves are each rounded at the corners and punched
with holes in order to receive the paper fasteners. The
fasteners are inserted into the punched holes, tabs are cut in
some pressboard leaves, and the two leaves are joined together
with Tyvek and glue to form the exterior portion of the binders.
Paper fasteners are crimped to the manilla leaves, and two leaves
are joined to each other and to the pressboard folder to form the
finished binders. The binders will be shipped to Puerto Rico to
be folded, inspected, and packaged.
ISSUE:
Whether U.S. produced pressboard, manilla paper, and Tyvek
exported in bulk which is cut and joined with each other to form
pressboard binders and partition folders are substantially
transformed constituent materials for purposes of the GSP or
CBERA.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product or
manufacture of designated beneficiary countries (BC's) may
receive duty-free treatment if such articles are imported
directly to the U.S. from a BC, and if the sum of 1) the cost or
value of the materials produced in a BC or BC's, plus 2) the
direct cost of processing operations performed in a BC or BC's is
not less than 35% of the appraised value of the article at the
time it is entered into the U.S. See 19 U.S.C. 2703(a).
The CBERA provides that the cost or value of materials
incorporated into the final article which are produced in Puerto
Rico may be counted toward the 35% value content requirement. See
19 U.S.C. 2703(a). The cost or value of materials incorporated
in the final article which are produced in the customs territory
of the U.S., excluding Puerto Rico, may also be included in the
35% value-content calculation, but in an amount not to exceed 15%
of the appraised value of the article at the time it is entered.
Id. However, the cost or value of those U.S. materials which
undergo a double substantial transformation in a BC or BC's may
be applied to the 35% value-content requirement without
limitation. See 19 CFR 10.196.
The GSP contains a 35% value-content requirement similar to
that of the CBERA. See 19 U.S.C. 2463(b)(2). However, under the
GSP, the cost of U.S. or Puerto Rican produced materials may not
be included toward the 35% value-content requirement to any
extent unless those materials undergo a double substantial
transformation in the GSP beneficiary developing country. The
D.R. is a GSP beneficiary developing country. The test for a
double substantial transformation under the GSP is the same as
that under the CBERA.
You claim that the U.S. exported paperboard undergoes a
double substantial transformation in the D.R. in the production
of the pressboard binders. You claim that the U.S. pressboard
is substantially transformed when cut into rectangular leaves,
and that those leaves are themselves substantially transformed
when punched with holes, scored, their corners rounded, and
joined by a paper fastener to form the binders.
You further claim that the cost or value of the U.S.
materials used in the production of the partition folders may be
counted toward the 35% value content minimum. Specifically, you
claim that because the pressboard is cut into sheets in Puerto
Rico, and the sheets cut into four smaller leaves in the D.R.,
the U.S. pressboard is substantially transformed once in a BC.
Because those leaves are thereafter formed into partition folders
by having their corners rounded, punched with holes, and joined
with Tyvek and glue, those leaves undergo a second substantial
transformation in the D.R. Similarly, you claim that the U.S.
exported manilla paper is first substantially transformed in
Puerto Rico when cut into sheets and die cut into patterns, and
substantially transformed in the D.R. when those sheets are cut
into four separate leaves, installed with paper fasteners, joined
with Tyvek and glue, and assembled with the pressboard folders.
Finally, you claim that the Tyvek exported from the U.S. in
bundles of 500 sheets undergoes a double substantial
transformation in the D.R. when it is cut into the sizes required
for assembly of the pressboard and manilla leaves, and then
joined with those leaves and pressboard.
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)). Minor
manufacturing or combining operations, as opposed to
substantial, complex or meaningful processes, will generally not
result in a substantial transformation. See Uniroyal Inc. v.
United States, 702 F.2d 1022, 1029 (Fed. Cir. 1983); C.S.D. 85-
25, dated September 25, 1984 (HQ 071827). In making this
determination, "regard must be had to the nature of the
manufacturing operation, including the time, cost, and skill
involved." C.S.D. 85-25.
Based on the description of the processing done abroad and
the samples submitted, we do not find that the U.S. materials
used in the production of the pressboard binders or the partition
folders undergo a double substantial transformation. It is
unclear from your description whether the U.S. paperboard used in
the production of the pressboard binders is simply cut to length
from bulk rolls, or whether it is cut to length and width to form
rectangular shapes. In any event, we have ruled that cutting
materials exported in random lengths by length and width to form
rectangular shapes, as opposed to cutting the material to pattern
shapes, does not constitute a substantial transformation. See HQ
055933, dated January 29, 1981 (cutting glass panels to
rectangular shape to fit muntin type windows "not sufficient
processing" to constitute a substantial transformation; cutting
glass to different pattern shapes as part of "rakes" is a
substantial transformation). Accordingly, cutting the pressboard
here into rectangles does not by itself constitute a substantial
transformation, as claimed. While cutting and rounding the
corners of the pressboard (i.e., shaping) may constitute a
substantial transformation, the remaining processing -hole
punching, scoring, and joining the two leaves together by the
paper fastener- are minor operations which do not significantly
alter the character, or vary the intended use of the processed
pressboard. As such, they are not sufficient to constitute a
second substantial transformation. See TD 86-7.
Nor do we find that the materials used in the production of
the partition folders undergo a double substantial
transformation. For the reasons stated above in connection with
the pressboard binders, the cutting of the pressboard in
rectangular shapes, which are further cut into four rectangular
leaves, does not constitute a substantial transformation, while
the cutting operations performed on the manilla paper may.
However, the overall processing of the partition folders does not
appear to be of sufficient significance to constitute a double
substantial transformation. For example, the assembly of the
pressboard does not appear to involve a large number of
components (two leaves of manilla paper and two leaves of
pressboard, strips of tape, and glue) or significant number of
different operations, nor does it appear to require a significant
period of time or skill, or critical attention to detail or
quality control, and formation of the components themselves
appears to involve only a few simple cutting operations. Cf.
C.S.D. 85-25.
CONCLUSION:
U.S. produced pressboard, manilla paper, and Tyvek exported
in bulk and cut to form components of pressboard binders and
partition folders are not substantially transformed constituent
materials of the binders or folders for purposes of the GSP or
CBERA. Therefore, their cost or value may not be counted toward
the 35 percent value content of the GSP as material costs. The
cost of the U.S. materials may be counted toward the CBERA 35
percent value-content requirement, subject to that program's 15
percent cap on U.S. materials.
Sincerely,
John Durant, Director
Commercial Rulings Division