### HQ 562743

######## July 2, 2003

######## 

######## 

######## CLA-02 RR:CR:SM 562743 DCC

# CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Elizabeth J. Vann, Esq.

Law Offices of Elizabeth Janie Vann, P.C.

600 Sunland Park Drive, Suite 2-100

# El Paso, Texas 79912

RE: Eligibility of wire harness products imported from the Philippines
for duty-free treatment under the Generalized System of Preferences

Dear Ms. Vann:

This is in response to your letter dated April 17, 2003, requesting a
ruling on behalf of the Lear Corporation ("Lear"). Specifically, you ask
whether certain wire harness products from the Philippines qualify for
duty-free treatment under the Generalized System of Preferences ("GSP").

In a letter dated December 17, 1998, you requested a ruling regarding
the GSP eligibility of wire harnesses on behalf of United Technologies
Automotive, Inc. ("UTA"). In response to your request, Customs issued
HRL 561245, dated June 24, 1999. That ruling determined that two of the
constituent materials---copper rod and either Polyvinyl Chloride ("PVC")
or Cross-Link Polyethylene ("XLPE")---underwent a double substantial
transformation as a result of manufacturing processing performed in the
Philippines. Subsequent to issuing that ruling to UTA, Lear acquired UTA
where it continues to produce wire harnesses at the former UTA
facilities. Although you state the manufacturing processes in the
present case are identical to those described in HRL 561245, your
current request provides new information regarding the manufacturing of
certain wire harness components. We therefore consider anew whether the
wire harnesses in the present case qualify for GSP.

**FACTS:**

According to your submission, Lear's Philippine affiliate ("Lear
Philippines") operates a manufacturing facility located in Lapu-Lapu,
Philippines, where it produces various types of wire harness products
for sale to its parent corporation. You State that Lear imports these
harnesses into the United States directly from the Philippines. The wire
harnesses are for use in automotive electrical systems.

## Multi-Stranded Copper Wire Production

Lear Philippines purchases insulated multi-stranded copper wire from
IWG-Philippines, Inc. ("IWG") of Cebu, Philippines. IWG manufactures
this wire from copper rod (8 mm. in diameter), packaged in 6,500 pound
continuous coils, and either PVC or XLPE compounds in pellet form. The
copper rod is of Japanese origin and the XLPE or PVC pellets are of U.S.
origin. The copper rod, and the PVC or XLPE pellets undergo the
following processing:

1.  [Drawing of Rod through Rod Mill Drawing Machine.]{.underline} Coils
    of copper rod are welded together to form a continuous copper rod.
    The rod is then subjected to two drawings. The first drawing is
    through the rod mill machine which compresses and elongates the rod.
    After the first drawing, the 8 mm. diameter rod is reduced to a
    2.05 mm. diameter (12 American Wire Gauge, or "AWG") strand. The AWG
    level identifies the diameter, electrical current capacity and
    maximum temperature levels within which the wire can function. This
    strand is packaged into a 3,000 pound stem pack that becomes the
    feedstock for the multi-wire drawing process.

2.  [Drawing through Multi-Draw Machine.]{.underline} The second drawing
    is accomplished by means of a 14-wire multi-draw machine. The
    strands are fed through a series of dies that draw the strands down
    to the final size (0.18 mm. to 0.58 mm., depending on product
    specifications) in incremental steps.

3.  [Annealing of Stranded Wire.]{.underline} In the final phase of the
    multi-draw machine, the strands are passed through an oxygen-free
    zone. While passing through this zone, the strands are
    electronically heated. This process, called annealing, relieves
    stress caused by the drawing process, and restores the copper's
    flexibility and "memory."

4.  [Insulation.]{.underline} The multi-stranded copper wire is coated
    with a plastic insulating material of either PVC or XLPE compounds
    by means of an extrusion process. Two different extrusion processes
    are used, depending on the type of compound needed in the finished
    product.

In the first step of the extrusion process, the PVC or XLPE pellets are
melted and pumped through a tip and die combination that forms the
melted compound around the moving multi-stranded copper wire. The XLPE
compound is a thermoset product and must be cured in a high pressure
steam environment. The wire is cooled by use of a closed loop system of
chilled water that is sprayed on the wire in the cooling trough. The PVC
insulated wire may be used in applications where the temperature does
not exceed 105 Celsius, while XLPE insulated wire may be used in
applications where the temperature does not exceed 125 Celsius.

After coating, the finished stranded wire is wound onto coils and stored
until shipment to IWG's customers, including Lear Philippines. Lear
Philippines purchases the insulated multi-stranded copper wire from IWG
for use in the manufacture of wire harnesses at Lear Philippines'
facility.

## Convoluted and Smooth Tubing Production

Lear Philippines purchases convoluted and smooth tubing from Sofanou
Philippines ("Sofanou"), located in Lapu-Lapu City, the Philippines.
Sofanou manufactures this tubing from Polyamide 6 (plastic) pellets,
Medium Density Polyethylene (MD-PE) pellets, Polypropylene (PP) Compound
pellets, Soft PVC pellets, and Rigid PVC compound pellets. All of these
materials are of U.S. origin. According to counsel's submission, the
pellets undergo the following processing at Sofanou's Philippine
facility.

1\. [Material Preparation and Drying.]{.underline} The Plastic Pellets
are loaded into a material bin. The Polyamide 6 material passes through
a dryer to remove any moisture.

2.  [Pellets Loading.]{.underline} Plastic pellets from the material bin
    are transferred to the extrusion lines through the vacuum-powered
    pipe lines. Depending on the type of tubing, one or more types of
    plastic pellet material will be used. The material is transferred
    from the supply line to the hopper of the extrusion machine.

3.  [Mount Tooling/Start-up.]{.underline} The appropriate die head is
    installed into the extrusion machine and pairs of mold blocks are
    attached to the corrugation machine.

4.  [Melting of Plastic Pellets.]{.underline} From the hopper, the
    pellets are fed into the heating system composed of an auger type
    screw and heating bands. The screw moves the melted plastic to the
    die head.

5.  [Extrusion and Forming.]{.underline} For convoluted tubing, melted
    plastic materials come out from the inner pin in the die head. The
    melted plastic is then fed to the corrugator through the die head.
    Air from an air rod inserted into the corrugation machine keeps the
    tube from collapsing and, along with the mold blocks, causes the
    corrugation. The tubing cools as it exits the extrusion machine.

> In the case of smooth tubing, the melted plastic exits the die head
> and is cooled in a water tank. Air from the inner pin blows the melted
> material and keeps it from collapsing. The tubing is then passed
> through a sizer or, in the case of soft tubing, through a water tank.

6.  [Striping.]{.underline} For convoluted tubing, as the tubing exits
    the corrugation machine it passes through a striping machine that
    transfers a pigment to form a continuous line along the length of
    the tubing.

7.  [Slitting.]{.underline} The tubing is removed from the corrugation
    machine by a puller.

## Injection Molded Parts Production

Lear purchases various injection molded components from Cebu Dai-Ichi
for use in the assembly of the wire harnesses. These parts are made from
NSO resin pellets (U.S. origin), GE plastic resin pellets (Japanese
origin), and Dupont resin pellets (Singapore origin). In the
Philippines, Cebu Dai-Ichi uses the NSO resin pellets to manufacture
injection molded retainer clips; GE plastic resin pellets to manufacture
injection molded spacer wire connectors; and Dupont resin pellets to
manufacture injection molded lamp socket covers.

In each case, raw material pellets are loaded into a hopper of an
injection molding machine. As the pellets enter the barrel cylinder of
the injection molding machine, they are heated until melted. The melted
resin is then injected into a mold form to produce the required parts.

## Rubber Grommets Production

Lear purchases rubber grommets from Molten Asia Polymer Products Co.,
Ltd. ("Polymer Products"). Polymer Products uses polymers ("EPDM") of
Japanese origin; carbon of Thai origin; oil of Japanese origin; and
certain chemicals of Japanese and Philippine origin. In Thailand, these
materials are mixed together by Polymer Products' supplier to produce a
ribbon material. After purchasing the ribbon material, Polymer Products
loads it into an injection molding machine where it is heated and then
injected into a mold to produce the rubber grommets. In some cases, a
plastic insert is inserted into the rubber grommet.

## Wire Harness Production

The wire harnesses are composed primarily of multi-stranded copper wire
of varying sizes, colors, lengths, and current-carrying capacities. The
harnesses may also include grommets, retainer clips, terminals, covers,
rubber seals, spacer wire connectors, relay boxes, PVC-tub, convoluted
or smooth tubes, and lamp sockets. Depending on the model, the number of
components may vary widely. The number of electrical circuits may vary
from a few to several hundred. The assembly of the harnesses involves
two stages: pre-assembly and assembly.

At the pre-assembly stage, the insulated multi-stranded wire is first
inspected for defects and then cut to a specified length. The insulating
vinyl is removed from the ends of the wire and terminals are attached to
form a circuit. Depending on the type of harness, further processing may
be required, including: manual termination, soldering, molding, splicing
and covering.

For circuits that cannot be handled by an automatic cutting machine or
where an assembly of one or more components is required prior to
termination, a terminal is manually crimped onto the end of the bare
copper wire. Connections between the wire and terminal are subsequently
soldered together using either a reflow or dip soldering process. For
models that require a molding operation, a molten compound is poured
into a metallic mold die to form a socket or connector. A mold is used
in place of a hard shell connector when water or moisture sealing is
required.

The splicing operation involves joining a group of circuits by welding.
Welding is accomplished by either resistance or ultrasonic welding.
After welding a splice, the bare weld is covered with a tape cover, heat
shrink cover, mastic pad, or a thermoplastic mold.

After the above processing, the wires and components are ready to be
assembled into wire harnesses. This process involves a rotating jig
which carries the wires past work stations where operators add wires,
protectors, grounders, corrugated tubes, rubber tubes, stoppers and
other components to the assembly, and tape various sections of the
harness.

**ISSUES:**

I. Whether the materials imported into the Philippines undergo a
substantial transformation as a result of processing and therefore
become products of the Philippines.

II\. Whether the copper rod, polyvinyl pellets, polyethylene pellets,
polyamide pellets, polypropylene pellets, plastic resins, EPDM, carbon,
oil, and certain chemicals undergo a double substantial transformation
in Thailand and the Philippines during the production of the wire
harnesses, allowing the cost of these materials to be counted towards
the 35% beneficiary developing country value requirement for purposes of
the GSP.

**LAW AND ANALYSIS:**

Title V of the Trade Act of 1974, as amended (19 U.S.C. §§ 2461-65),
authorizes the President to establish a Generalized System of
Preferences to provide duty-free treatment for eligible articles
imported directly from beneficiary developing countries ("BDCs").
Articles produced in a BDC may qualify for duty-free treatment if the
goods are imported directly into the customs territory of the United
States from the BDC and the sum of the cost or value of materials
produced in the BDC, or any two or more countries of that are members of
the same association of countries and are treated as one country under
19 U.S.C. § 2467(2), plus the direct costs of the processing operations
performed in the BDC or member countries, is equivalent to at least 35
percent of the appraised value of the article at the time of entry into
the United States. *See* 19 U.S.C. § 2463(a)(2) and (3), codified at 19
C.F.R. §§ 10.171-78.

Under General Note 4(a), Harmonized Tariff Schedule of the United States
("HTSUS"), the Philippines is a designated BDC for purposes of the GSP.
You state that the wire harnesses to be imported are classifiable under
subheading 8544.30.0000, HTSUS, which provides for:

> Insulated (including enameled or anodized) wire, cable (including
> coaxial cable) and other insulated electric conductors, whether or not
> fitted with connectors; optical fiber cables, made up of individually
> sheathed fibers, whether or not assembled with electric conductors or
> fitted with connectors:
>
> Ignition wiring sets and other wiring sets of a kind used in vehicles,
> aircraft or ships.

Articles from the Philippines classified under this subheading are
eligible for GSP treatment. For purposes of this ruling we assume your
classification is correct. Therefore, the wire harnesses will receive
duty-free treatment if they are considered to be a "product of" the
Philippines, are "imported directly" into the United States, and satisfy
the 35% value-content requirement.

A good is considered to be a "product of" a BDC if it is wholly the
growth, product, or manufacture of a BDC, or has been substantially
transformed in the BDC into a new or different article of commerce.
*See* 19 U.S.C. § 2463(a)(3); 19 C.F.R. § 10.177(a).

Under limited circumstances, the value of non-BDC materials may be
included in the 35% minimum value content. In order for the value of
non-BDC materials to be included, there must be a substantial
transformation of the non-BDC material into a new and different article
of commerce in a BDC (or other member of an association of countries
treated as one BDC), which must then be substantially transformed in the
BDC into a new and different article of commerce. That is, materials
that do not originate in the BDC must undergo a double substantial
transformation in the BDC (or member countries) in order for the value
of those materials to be counted toward the 35% minimum value content.
*See* 19 C.F.R § 10.177; *see also* *Aztec Milling Co. v. United
States*, 703 F. Supp. 949 (Ct. Int'l Trade 1988), *aff'd* 890 F.2d 1150
(Fed. Cir. 1989).

#  A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from \[that\] of the original material subjected to the process." *Torrington Co. v. United States*, 764 F.2d 1563, 1568 (Fed. Cir. 1985) (citing *Anheuser-Busch Brewing Ass'n v. United States*, 207 U.S. 556, 562 (1908), and *Texas Instruments v. United States*, 681 F.2d 778, 782 (CCPA 1982)). 

The Court of Appeals for the Federal Circuit considered the issue of
substantial transformation of wire rod in *Superior Wire v. United
States*, 867 F.2d 1409 (Fed. Cir. 1989). In *Superior Wire*, the
appellate court affirmed the Court of International Trade's conclusion
that wire rod that was drawn into wire was not substantially transformed
as there was no significant change in use or character. The court noted
that the change in name was the "least persuasive factor and is
insufficient by itself to support a holding that there is a substantial
transformation." *Superior Wire*, 867 F.2d at 1414. Following this
reasoning, Customs determined in HRL 555705, dated August 26, 1991, that
drawing 14 AWG copper wire into 36 AWG wire did not constitute a
substantial transformation.

In general, Customs has held that wire laminating, coating, and
encapsulating operations do not result in a substantial transformation.
In HRL 557201, dated November 17, 1993, Customs determined that,
although encapsulation may enhance the wire, such operations do not
change the essential character of bunched wire as a conductor of
electricity.

[First Substantial Transformation]{.underline}

Counsel claims that based on HRL 561245, which was issued to Lear's
predecessor, production of the insulated copper wire changes the
essential character of the Japanese-origin copper rod and the
U.S.-origin PVC and XLPE into a new and different product. We agree. The
production of the wire involves drawing, annealing, bunching, twisting
the copper and then encapsulating it by extrusion with a polyvinyl or
polyethylene material to produce insulated copper wire. The resulting
insulated copper wire has a name, character and use distinct from the
copper rod and PVC or XLPE pellets from which it was produced.
Consequently, the copper rod, polyvinyl pellets, and polyethylene
pellets are substantially transformed by the production process. The
insulated copper wire is therefore a product of the Philippines.

We further determine that the production of the tubing, retainer clips,
spacer wire connectors, lamp socket covers, and rubber grommets results
in a substantial transformation of the materials used to produce these
items. As counsel notes, Customs has previously held that forming
synthetic materials into a new shape, either by thermal injection
molding or extrusion, constitutes a substantial transformation. In HRL
557201, Customs found that the heating and extruding of PVC compounds
onto bunched wire resulted in a substantial transformation of the PVC
compounds, as the essential character of the compound was changed by the
manufacturing process. Customs also determined in HRL 557403, dated
November 22, 1993, that the extrusion of rubber silicone material into
the shape of a balloon or shaft is a substantial transformation of the
silicone compound.

Furthermore, forming the constituent materials (*i.e.*, polyamide
pellets, MD-PE pellets, PP compound pellets, soft PVC pellets, and rigid
PVC compound pellets) by thermal extrusion or injection molding into
tubing, retainer clips, spacer wire connectors, and lamp socket covers
changes the name, character and use of the constituent materials.
Consequently, the tubing, retainer clips, spacer wire connectors, and
lamp socket covers are products of the Philippines.

We further determine that name, character and use of the materials used
to produce the ribbon material (*i.e.*, EPDM, carbon, oil, and certain
chemicals) are changed as a result of the injection molding of the
rubber grommets. Consequently, these materials are substantially
transformed and the rubber grommets are a product of Thailand where they
are produced.

## Second Substantial Transformation

The second issue is whether the manufacture of wire harnesses from the
insulated copper wire and other components results in a second
substantial transformation. The manufacture of the wire harnesses
involves cutting the insulated copper wire to specified lengths,
stripping a portion of the insulation from the wires, attaching
terminals to the end of the wire, forming sockets and connectors by
injection molding, splicing groups of circuits, and covering the splice
with a protective covering.

In HRL 556301, dated May 4, 1992, Customs reconsidered its decision in
HRL 555705, dated August 26, 1991, based on additional facts provided
about the processing of insulated copper wire. While affirming its
finding that drawing does not substantially transform wire products,
Customs found that the combination of drawing, bunching and twisting,
annealing and encapsulating the wire strand does constitute a
substantial transformation of the wire. Customs also held that the cost
of the wire may not be included to satisfy the 35% value-content
requirement because the subsequent operations of bundling and further
encapsulation did not result in a second substantial transformation.

In 562581, dated February 13, 2003, Customs determined that bunching and
encapsulating copper strands was sufficient processing to result in a
change in character and use of the wire and therefore a substantial
transformation. Similarly, in HRL 557087, dated July 22, 1993, Customs
determined there was a substantial transformation when the wire harness
assembly operations involved placing wires on automated jig tables that
passed through several work stations where components were attached to
the harnesses. In 557201, Customs found that the assembly of a wire
harness was a substantial transformation where the insulated wires were
cut to length followed by a "precision application of electrical
terminals."

In other rulings, however, Customs has determined that less involved
wire manufacturing operations do not constitute a substantial
transformation. In HRL 556564, dated October 30, 1992, Customs found
that encapsulation of stranded wire did not substantially transform the
wire into a new or different product for purposes of GSP. In HRL 556301,
Customs held that a rod drawing operation did not represent a
substantial transformation, either alone or in combination with bunching
and twisting operations.

In this case, we find that a second substantial transformation results
from the assembly of wire harnesses. In previous GSP cases, we have
noted that in cases where all of the processing is performed in one GSP
country, the likelihood that the processing constitutes little more than
a "pass-through" operation is diminished. If the entire processing
operation is performed in the BDC is significant, and the intermediate
and final articles are distinct articles of commerce, then the double
substantial requirement will be satisfied. Such is the case even though
the processing required to convert the intermediate article into the
final article is relatively simple and, standing alone, probably would
not be considered a substantial transformation. *See*, *e.g.*, HRL
557465 (Dec. 10, 1993), and HRL 555532 (Sept. 18, 1990). Although the
rubber grommets are produced in Thailand, because Thailand and the
Philippines are members of the Association of South East Asian Nations
they are treated as one country for purposes of the GSP pursuant to
General Note 4(a), HTSUS.

In view of the overall processing operations performed in Thailand and
the Philippines to produce the wire harnesses, we do not believe that
these constitute a minimal, "pass-through" operation that should be
disqualified from receiving the benefit of GSP. Accordingly, the cost or
value of the copper rod, polyvinyl pellets, polyethylene pellets,
polyamide pellets, polypropylene pellets, plastic resins, EPDM, carbon,
oil, and certain chemicals may be included as "materials produced" in
the BDC for purposes of calculating the 35% value-content requirement of
the GSP.

With respect to the cardboard packaging and wooden pallets, Customs
previously held in C.S.D. 79-199, dated October 19, 1978 (HRL 055147),
that the cost of packaging operations and the cost or value of materials
necessary to place the articles in condition for export may be counted
toward the 35% requirement if the operations were performed, and the
materials were produced, in the BDC. Because the cardboard boxes and
wooden pallets in this case are a product of the Philippines, the costs
of these materials may be included in the 35% requirement.

HOLDING:

Based on the information provided, we determine that the copper rod,
polyvinyl pellets, polyethylene pellets, polyamide pellets,
polypropylene pellets, plastic resins, EPDM, carbon, oil, and certain
chemicals undergo a double substantial transformation in Thailand and
the Philippines and, therefore, the cost or value of these materials may
be included in the calculating the value of the BDC content.
Furthermore, the wire harnesses, which are "products of" the
Philippines, will be entitled to duty-free treatment under the GSP,
assuming the 35% value-content and "imported directly" requirements are
satisfied.

A copy of this ruling letter should be attached to the entry documents
filed at the time the merchandise is entered. If the documents have been
filed without a copy, this ruling should be brought to the attention of
the Customs officer handling the transaction.

> Sincerely,

Myles B. Harmon, Director

Commercial Rulings Division