HQ 557201

November 17, 1993

CLA-2 CO:R:C:S 557201 BLS

CATEGORY: Classification

Mark K. Neville, Esq.

51 Marion Road

Westport, Ct. 06880

RE: Eligibility of automotive wiring harness sets for duty-free

treatment under the GSP; substantial transformation

Dear Mr. Neville:

This is in reference to your letters dated March 19 and

September 28, 1993, on behalf of the Essex Group, Inc., requesting

a ruling that certain automotive wiring harness sets produced in

Mexico are eligible for duty-free treatment under the Generalized

System of Preferences (GSP).

FACTS:

1\. Insulation of Wire

Bunched copper wire and PVC insulation compounds of U.S.

origin are imported into Mexico. Depending on the customer order,

the particular wire will be fed through a head, tip and die

assembly. The applicable PVC compound, with vacuum hose inserted

into the compound container, is fed into an extrusion device,

heated to the applicable temperature, and extruded onto the wire

to size as it passes through the head. The diameter of the wire

is controlled by an in-line controlling laser head. Certain

additional steps are required in connection with the extrusion

process depending on whether stripes and/or print is required.

The finished product is then packaged into fiber drums for

shipment to the customer, also in Mexico, for additional

processing.

2\. Wire Circuits

At this second stage of processing, the insulated wires are

cut to length followed by precision application of electrical

terminals. These processes are carried out in one machine at very

high speeds, and will employ wires of different diameters cut to

different lengths, which require different types of terminals.

3\. Sub-Assemblies

In order to facilitate harness manufacture, in many cases

several groups of wires are joined into sub-assemblies which are

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later used for harnesses. These sub-assemblies are made by joining

a non-terminated end of a circuit wire. Sometimes 20 wires are

joined together to form a sub-assembly. The typical joining method

is ultrasonic or resistance welding, although mechanical

termination and soldering are also used.

After joining, the electrical joint must be insulated and

protected from physical and chemical damage and mechanical abuse.

This is done by either injection molding a PVC sheath over the

joint or by covering the joint with \"dual wall\" heat shrink tubing.

\"Dual wall\" tubing is a special product which has a radiation

cured polyolefin outside jacket and a \"hot-melt\" adhesive inner

coating. The hot melt adhesive bonds to the metal joint to provide

a moisture seal. The jacket provides electrical, mechanical, and

chemical resistance.

4\. Harness Assembly

The production of the final harness assembly involves the

complex merger of 500-1500 wires into a coordinated structure which

provides the electrical distribution for the car.

The prepared individual circuits or sub-assemblies which are

contained in special carriers are moved from different locations

in the production facility to the finished harness assembly

operation. These components then are sequentially added to

carline-dedicated harness tooling. This tooling may occupy up to

100 stations on a rotating multi-station transfer line known as a

\"rotary.\"

Each station of the rotary is roughly 4 feet by 6 feet. The

rotary stations move on an oval track. As the stations move from

one location to the next, individual wires or sub-assemblies are

added in carefully engineered series of steps. The wires or sub-

assemblies are inserted into pre-positioned connectors which were

added at an earlier location on the track. Also, protective tapes,

tubing, clips, and other items may be added at any of the positions

on the track.

Several rotary positions have built-in test capability which

functionally tests the wires and the harness as it is being built

up. At the final rotary location, the harness is 100% in-line

tested for all electrical requirements.

Upon completion of manufacture, the finished harness is packed

in a shipping carton for delivery to the customer.

In addition to the 100% in-line testing, statistically

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selected finished harness assemblies are removed from their

respective shipping cartons to be thoroughly inspected and tested

prior to shipment to ensure quality and reliability.

ISSUE:

Whether the bunched wire and PVC material from which the

automotive wiring harness assembly is made are subject to a double

substantial transformation, thereby permitting the cost or value

of these components to 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 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 at least 35% of the

appraised value of the article at the time of its entry into the

U.S. See section 10.176(a), Customs Regulations (19 CFR

10.176(a)).

Mexico is a designated BDC. See General Note 3(c)(ii)(A),

Harmonized Tariff Schedule of the United States (HTSUS). Based on

your description of the merchandise, it appears that the automotive

wiring harness assembly is classified under heading 8544.30.00,

\"Ignition wiring sets and other wiring sets of a kind used in

vehicles, aircraft, or ships\", a GSP eligible provision.

Therefore, the automotive wiring harness sets will receive duty-

free treatment if it is considered to be a \"product of\" Mexico, is

\"imported directly\" into the U.S., and the 35% value-content

requirement is satisfied. Merchandise is considered the \"product

of\" a BDC if it is wholly the growth, product or manufacture of a

BDC or has been substantially transformed there into a new or

different article of commerce. 19 U.S.C. 2463(b)(2).

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 Texas Instruments v. United States, 2 CIT 36, 520

F. Supp. 1216 (CIT 1981), rev\'d, 681 F.2d 778, 69 CCPA 151 (CCPA

1982).

If an article is comprised of materials that 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 section 10.177, Customs

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Regulations (19 CFR 10.177), and Azteca Milling Co. v. United

States, 703 F. Supp. 949 (CIT 1988), aff\'d, 890 F.2d 1150 (Fed.

Cir. 1989). That is, the cost or value of the imported materials

used to produce the automotive wiring harness assembly may be

included in the GSP 35% value-content computation only if they are

first substantially transformed into a new and different article

of commerce, which is itself substantially transformed into the

final article - the automotive wiring harness set.

Clearly, the PVC compounds which are heated and extruded onto

the bunched wire, and the subsequent processes of cutting to

length, attachment of insulated wire terminals creating wire

circuits, joining of the individual wire circuits into sub-

assemblies by ultrasonic or resistance welding, or mechanical

termination and soldering, injection molding or heat shrinking, and

the assembly of the 500-1500 wire circuits into the final harness

assembly, results in a substantial transformation of the bunched

wire and the PVC material into a new and different article of

commerce. In this regard, we note that these operations involve

some fabrication, the assembly of a large number of components, and

a considerable amount of time, skill and attention to detail and

quality control. Accordingly, the resulting automotive wiring

harness set is considered a product of Mexico. The issue which we

must now address is whether, during the manufacture of the imported

article, the bunched wire and PVC compounds are substantially

transformed into separate and distinct intermediate articles of

commerce, which are then substantially transformed into the final

article.

With regard to the bunched wire, you contend that there is a

double substantial transformation, the first transformation arising

from the processing of the bunched wire and the PVC compounds into

insulated wire, and the second substantial transformation resulting

from the processing of the insulated wire into the automotive

wiring harness assembly. You point out that the insulating

material will impart varying physical properties to the bunched

wire, i.e., tensile strength, heat, abrasion, and chemical

resistance, which makes the insulated wire fit for different end

uses than the bare bunched wire. You also state that the insulated

wire is commercially recognized as a distinct product and is not

dedicated to be used as automotive wiring harness assemblies. In

this regard, you state that it may be used as fittings for motor

leads and for wiring in lighting fixtures, and is often sold for

commercial use in 1,000 foot spools. You also note that the

insulating material is a major cost element of the insulated wire,

comprising for example, materials and labor representing 37.6% of

the total cost for one type of 18 gauge insulated wire, and 58% of

the total cost of the product for one type of 12 gauge insulated

wire.

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In further support of the claimed first substantial

transformation, you point out that the bunched copper wire is

classifiable under heading 7408, HTSUS, while the insulated wire

is classifiable under heading 8544, HTSUS. This change of tariff

treatment is, in your opinion, significant in establishing that the

bunched wire has undergone a substantial transformation in the

process of becoming insulated wire.

In Superior Wire v. United States, 669 F. Supp. 472 (1987),

aff\'d, 867 F.2d 1409 (1989), wire rod in coils was shipped to

Canada where it was drawn into wire. The resulting product had

various applications, but was primarily used for concrete sewer

pipe reinforcement. The Court of International Trade found that

the wire rod dictated the final form of the finished wire, and that

wire rod and wire could be viewed as different stages of the same

product. The court noted that while the wire emerged stronger and

rounder after the drawing process, its strength characteristic was

metallurgically predetermined through fabrication of the wire rod.

Thus, the court found no significant change in the use or character

of the wire rod. (See also Headquarters Ruling Letter (HRL)

555705, dated August 26, 1993, where we found that the process of

drawing 14 AWG copper wire into 36 AWG wire (a finer wire) did not

constitute a first substantial transformation; see also HRL 556301,

dated May 4, 1992, which affirmed HRL 555705.)

In the instant case, while the encapsulation process adds

certain qualities to the wire which did not exist prior to such

operation, the essential character of the bunched wire, which is

to conduct electricity, is not changed because of these

enhancements, which are attributable to the insulating material.

Just as the court viewed the wire rod in Superior Wire, we view the

process of producing the insulated wire as a step in the production

of the final product. The fact that the insulated wire and bare

wire may be classified in different headings of the HTSUS is

evidence of a substantial transformation, but is not dispositive

of the issue. Nor, in our opinion, does the additional step of

cutting the wire to length and attaching terminals to create a

single circuit, change the bunched wire\'s essential character or

create an intermediate article of commerce. (See HRL 555474, dated

January 14, 1993, in which we held that a substantial

transformation occurred in the U.S. where insulated wire of foreign

origin was cut to length and U.S. electrical connectors attached.)

Accordingly, we find that the bunched wire is not a substantially

transformed constituent material of the automobile wiring harness

assembly. Therefore, the cost or value of the bunched wire may not

be used in computing the 35% value-content requirement under the

GSP.

On the other hand, we find that the PVC material which is

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heated and extruded onto the bunched wire is substantially

transformed into a new and distinct intermediate article of

commerce at this stage of the operation since its essential

character has been changed by this process. The PVC compounds

acquire new attributes, and the resulting product (wire insulation)

differs in character and use from the material from which it was

made. (See, e.g., HRL 556462, dated April 24, 1992, U.S. origin

polyethylene resin transformed by injection molding process to

create drainage pipes.) The subsequent steps, as discussed, supra,

result in a second substantial transformation which transforms this

intermediate product into the automotive wiring harness assembly,

a product with a character and use distinct from the extruded PVC

material. Accordingly, the cost or value of the PVC compounds may

be used in computing the 35% value-content requirement under the

GSP.

HOLDING:

Bunched wire exported to Mexico does not undergo a double

substantial transformation in the creation of an automotive wiring

harness assembly. Therefore, the cost or value of the bunched wire

cannot be used in computing the 35% value-content requirement under

the GSP. However, PVC material exported to Mexico does undergo a

double substantial transformation in the production of the

automotive wiring harness assembly, and accordingly, the cost or

value of this material may be used in computing the 35% value-

content requirement of the GSP.

Sincerely,

John Durant, Director

Commercial Rulings Division