HQ 557465

December 10, 1993

CLA-2 CO:R:C:S 557465 MLR

CATEGORY: Classification

TARIFF NO.: 3926.90.60; 7314.49.30; 9802.00.80

District Director

U.S. Customs Service

Lincoln Juarez Bridge, Bldg. #2

P.O. Box 3130

Laredo, Texas 78044-3130

RE: Internal Advice Request No. 49/93 concerning eligibility of

metal conveyor belt for duty-free treatment under the

Generalized System of Preferences (GSP); applicability of

partial duty exemption under HTSUS subheading 9802.00.80 to

modular plastic conveyor belting

Dear Sir/Madam:

This is in response to your memorandum of June 1, 1993,

forwarding a request for internal advice filed by Corrigan

Dispatch Co. on behalf of Cambridge Wire Cloth Co., concerning

the eligibility of metal conveyor belts for duty-free treatment

under the Generalized System of Preferences (GSP), and the

applicability of subheading 9802.00.80, Harmonized Tariff

Schedule of the United States (HTSUS), to modular plastic

conveyor belting. The classification of these articles is also

requested. Samples were submitted with your request.

FACTS:

The metal conveyor belts and modular plastic conveyor

belting at issue are both used as part of a conveying system that

moves products through an assembly line. The production of the

metal conveyor belts starts with the importation into Mexico of

various alloys of U.S.-origin wire on spools and/or coils that

are made into crimped or straight connecting rods and spirals.

The majority of the belts require crimped connecting rods as

opposed to straight connecting rods. The purpose of the crimps

is to serve as a seat for the turns of the spiral and lock them

in against lateral movement when the belt is under tension.

Various product specifications are made that differ in wire

diameter, lateral pitch, longitudinal pitch, and type of mesh

construction. It is stated that the belt is unacceptable if the

crimped connecting rods and spirals do not match precisely. In

some instances, the product specifications call for as many as

twelve crimps per inch, and belt widths as high as 14-16 feet or

more.

The crimped and straight connecting rods, and belt spirals

are produced on machines that are stated to cost from about

\$25,000 to \$140,000. Special machines are designed and built to

produce the custom made spirals because the spiralling used is

not available on the commercial market. For the crimped

connecting rods, the proper crimp profile and pitch is set, and

the rods are cut to size. For the straight connecting rods the

correct straightening die is installed for the size of wire being

straightened and the correct cutoff length is set. For the belt

spirals, each product specification requires four sets of tooling

(precision made blades and mandrels) - two sets for the right

hand spiral and two sets for the left hand spiral. It is stated

that the spirals must precisely match the master sample and the

crimped connecting rod, and in order for the machine operator to

obtain and maintain the required dimensional specifications of

the spirals and crimped connecting rods, frequent adjustments are

required. Some product specifications require the spiral wire to

be flattened on both sides, while some specifications only

require one flat side. Where flattening is required, a special

roll mill is attached to the spiral machine that converts the

round wire tin to the required shape prior to entering the spiral

machine. The crimped and straight connecting rods, and spirals

are stated to be articles of commerce because they are sold

separately to repair belts or make new sections of belting. It

is indicated that Cambridge has invoices to verify sales of these

articles.

After the machine runs one right hand and one left hand

spiral, they are assembled and a crimped connecting rod is

inserted. Each five-spiral section must be flipped end-for-end

to ensure a straight-edged product. After the spirals are

produced to specification and are joined by means of the crimped

connecting rods, the lengths of belting are installed on a

tracking/finishing conveyor. The tracking/finishing conveyor

ranges in cost from \$40,000 to \$140,000, and is used to put

tension on the belt to ensure that the spirals are properly

seated on the crimped connecting rods, the belt edge is straight,

and the belt \"tracks\" within required specifications. While the

belt is on the tracking/finishing conveyor, the operators trim

the connecting rods and weld each end of spiral to a connecting

rod. After the belt is tracked and welded, it is removed from

the tracking/finishing conveyor, rolled, and boxed.

In regard to the modular plastic conveyor belting, it is

produced in Mexico from plastic belt modules, plastic connecting

rods, and plastic rod retainer clips, all of which are of U.S.-

origin. In Mexico, the link ends of the modules are linked

(i.e., slid in) to the link ends of the preceding row; the

connecting rods are cut to length and inserted through the

aligned holes in the link ends of each row of the modules; and to

complete the belts, the rod retainer clips are inserted into the

end modules to contain the rods. The sections of the belts are

then rolled in approximately 25 foot lengths and boxed for ease

of shipment to the U.S.

ISSUES:

I. Whether the wire imported into Mexico and used in the

production of the finished metal conveyor belts undergoes a

double substantial transformation, thereby permitting the

cost or value of the wire to be included in the 35 percent

value-content calculation required for eligibility under the

GSP.

II\. Whether the modular plastic conveyor belting will qualify

for the partial duty exemption available under subheading

9802.00.80, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

I. GSP

Under the GSP, eligible articles the growth, product or

manufacture of a designated beneficiary developing country (BDC)

which are imported directly into the customs territory of the

U.S. from a 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 operations performed in the

BDC, is equivalent to at least 35 percent of the appraised value

of the article at the time of entry into the U.S. See 19 U.S.C.

2463(b).

As stated in General Note 3(c)(ii)(A), HTSUS, Mexico is a

designated BDC for purposes of the GSP. To determine whether an

article will be eligible to receive duty-free treatment under the

GSP, it must first be classified under a tariff provision for

which a rate of duty of \"Free\" appears in the \"Special\" subcolumn

followed by the symbol \"A\" or \"A\*.\"

Classification of merchandise under the HTSUS is in

accordance with the General Rules of Interpretation (GRI\'s),

taken in order. GRI 1, HTSUS, states in part that for legal

purposes, classification shall be determined according to the

terms of the headings and any relative section or chapter notes.

Chapter 73, HTSUS, provides for articles of iron or steel.

Heading 7314, HTSUS, provides for \[c\]loth (including endless

bands), grill, netting and fencing, of iron or steel wire;

expanded metal of iron or steel. In understanding the language

of the HTSUS, the Harmonized Commodity Description and Coding

System Explanatory Notes may be consulted. The Explanatory Notes

(EN), although not dispositive, are to be used to determine the

proper interpretation of the HTSUS. 54 Fed. Reg. 35127, 35128,

(August 23, 1989).

EN 74.14, p. 1024, states in pertinent part that:

\[t\]he products of this group are, in the main, produced by

interlacing, interweaving, netting etc., iron or steel wire

by hand or machine. The methods of manufacture broadly

resemble those used in the textile industry\...

The material of the heading may be used for many purposes

e.g., for the washing, drying or filtering of many

materials; to make fencing, food protecting covers and

insect screening, safety guards for machinery, conveyor

belting, shelving, mattresses, upholstery, sieves and

riddles, etc.; and for reinforcing concrete, etc\...

Examination of the article indicates that it is iron or

steel wire netted together to create a material which can be used

as conveyor belting. Therefore, it is classifiable in subheading

7314.49.30, HTSUS, which provides for \"\[c\]loth (including endless

bands), grill, nettings and fencing, of iron or steel wire;

expanded metal of iron or steel: \[o\]ther grill, netting, and

fencing: \[o\]ther: \[n\]ot cut to shape.\" Articles classifiable

under this provision are subject to a column one rate of duty of

5.7% ad valorem. Subheading 7314.49.30, HTSUS, is a GSP-eligible

provision.

Where an article is produced from materials imported into

the BDC, as in this case, the article is considered to be a

\"product of\" the BDC for purposes of the GSP only if those

materials are substantially transformed into a new and different

article of commerce. See 19 CFR 10.177(a)(2). The cost or value

of materials which are imported into the BDC may be included in

the 35 percent value-content computation only if the imported

materials undergo a double substantial transformation in the BDC.

That is, the non-Mexican components must be substantially

transformed in Mexico into a new and different intermediate

article of commerce, which is then used in Mexico in the

production of the final imported article, the metal conveyor

belt. See section 10.177(a), Customs Regulations {19 CFR

10.177(a)}; and Azteca Milling Co. v. United States, 703 F. Supp.

949 (CIT 1988), aff\'d, 890 F.2d 1150 (Fed. Cir. 1989).

The test for determining whether a substantial

transformation has occurred is whether an article emerges from a

process with a new name, character or use, different from that

possessed by the article prior to processing. See Texas

Instruments Inc. v. United States, 69 CCPA 152, 156, 681 F.2d

778, 782 (1982).

The metal conveyor belts are claimed to be eligible for GSP

treatment because the wire is crimped, straightened, or spiralled

thereby substantially transforming it into a new and different

article of commerce - crimped (or straight) connecting rods and

spirals. It is stated that the connecting rods and spirals are

intermediate articles of commerce because they are sold in these

forms. It is also alleged that a second substantial

transformation occurs when the connecting rods and spirals are

joined into metal conveyor belts.

The finished metal conveyor belts clearly emerge as new and

different articles in comparison to the wire from which they are

made; therefore, the metal conveyor belts would be considered a

\"product of\" Mexico. However, the issue to be resolved is

whether, during the manufacture of the metal conveyor belts, the

wire is substantially transformed into a separate and distinct

intermediate article of commerce which is then used in the

production of the finished metal conveyor belts.

In general, Customs has held that cutting or bending

materials to defined shapes or patterns suitable for use in

making finished articles, as opposed to mere cutting to length or

width which does not dedicate the resulting material to a

particular use, constitutes a substantial transformation. See

Headquarters Ruling Letter (HRL) 055726 dated September 18, 1979,

which held that a substantial transformation resulted from

cutting, bending, and crimping wire into identifiable trigger

pins for spring rings; HRL 071788 dated April 17, 1984, where 18

karat gold wire which was processed into circles, ovals, and

other specially designed links for bracelets was held to be a

substantially transformed constituent material for GSP purposes;

HRL 556060 dated August 27, 1991, where it was held that gold and

silver strip or sheet and blanks that were bent, cut, and

soldered to create rings or bracelets were found to be

substantially transformed; and HRL 555929 dated April 22, 1991,

where we held that the conversion of gold wire into necklaces and

bracelets in the Dominican Republic by spinning the wire into a

coil, inserting a brass rod through the coil, cutting the coil to

create horseshoe-shaped gold pieces that were inserted through a

flattening machine to create links, and weaving the links by hand

into a chain, constituted a double substantial transformation.

HRL 555774 dated December 10, 1990, and HRL 555892 dated

October 10, 1991, are cited as support that the crimping and

spiralling operations do not constitute a substantial

transformation. In HRL 555774, it was held that cutting

Japanese-origin wire to length in the U.S., and crimping

electrical connectors onto the ends of the wire was not a

substantial transformation. We find that HRL 555774 is not

applicable in this instance because only the ends of the wire

were affected, whereas here the shape of the wire is changed by

crimping or spiralling.

Furthermore, in HRL 555892, Korean wire rope was imported

into Canada whereby it was fitted with Canadian-origin hardware,

such as eyelets and dies, to produce wire rope slings or

swifters. The operations generally entailed forming the ends of

the wire rope into a loop and crimping the Canadian hardware onto

the neck of the loop, or threading the wire rope into the

hardware to create an intertwined loop. For Voluntary Restraint

Arrangement (VRA) purposes, it was held that the wire rope

maintained its essential character throughout the process and did

not lose its identity and become an integral part of a new

article when attached with the hardware. This holding was based

upon HRL 723135 dated September 23, 1983, and HRL 731953 dated

April 27, 1990. In HRL 723135, it was held that producing wire

rope slings from wire rope did not constitute a substantial

transformation because the types of wire strands and the

configuration of the strands that created the rope specified the

performance characteristics and function of the wire rope, and,

therefore, the applications of the sling; the looping of the wire

rope and attachment of sleeves and fittings did not change the

function of the wire rope. In HRL 731953, no substantial

transformation was found when connector heads were attached to

the ends of wire rope cable because the cable was already made to

specifications, and once the cable was cut and fittings were

attached, its use was determined.

Based on the rulings above, we are inclined to find that the

crimping and spiralling operations result in a substantial

transformation of the wire into crimped connecting rods and

spirals. In both instances, the shape of the wire is changed,

its use is different, unlike the wire rope rulings citing above,

and the wire is referred to as crimped connecting rods or belt

spirals. Furthermore, we find that skilled labor is required in

order for the crimped connecting rods and spirals to precisely

match each other. However, we find that the straightening

operation does not result in a substantial transformation because

the wire is mainly just cut to length and its basic shape remains

the same.

In regard to the processing of the crimped connector and

spirals into metal conveyor belts, we find that although the

operation does not appear to be exceedingly complex, based upon

Texas Instruments, we find that the crimped connectors and

spirals are substantially transformed. In Texas Instruments, the

court found that the assembly of three integrated circuits,

photodiodes, one capacitor, one resistor, and a jumper wire onto

a flexible circuit board (PCBA) constituted a second substantial

transformation. It was suggested that in situations where all of

the processing is accomplished in one GSP beneficiary country,

the likelihood that the processing constitutes little more than a

pass-through operation is greatly diminished. Consequently, if

the entire processing operation performed in the single BDC is

significant, and the intermediate and final articles are distinct

articles of commerce, then the double substantial transformation

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 HRL

071620 dated December 24, 1984, which held that in view of the

overall processing done in the BDC, materials are determined to

have undergone a double substantial transformation, although the

second transformation is a relatively simple assembly process

which, if considered alone, would not confer origin. See also

HRL 555532 September 18, 1990.

Although the final assembly of the belts does not appear to

be exceedingly complex, in view of the overall processing

operations in Mexico, we do not believe that this is the minimal,

\"pass-through\" operation that should be disqualified from

receiving the benefit of the GSP. Accordingly, we find that,

when the crimped connectors and spirals are assembled to create

metal conveyor belts, a second substantial transformation of the

wire results. However, in those instances where the belts use

straight connecting rods, although the belts are \"products of

Mexico\", the wire is not substantially transformed by the

straightening operations; therefore, the cost or value of the

wire used to make straight connecting rods may not be included

toward satisfying the 35 percent value-content requirement under

the GSP. Consequently, the belts that are made with straight

connecting rods may only receive duty-free treatment under the

GSP if the direct costs of processing in Mexico are 35 percent of

the appraised value of the metal conveyor belts.

II\. Subheading 9802.00.80, HTSUS

Subheading 9802.00.80, HTSUS, provides a partial duty

exemption for:

\[a\]rticles assembled abroad in whole or in part of

fabricated components, the product of the United

States, which (a) were exported in condition ready for

assembly without further fabrication, (b) have not lost

their physical identity in such articles by change in

form, shape, or otherwise, and (c) have not been

advanced in value or improved in condition abroad

except by being assembled and except by operations

incidental to the assembly process, such as cleaning,

lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be

satisfied before a component may receive a duty allowance. An

article entered under this tariff provision is subject to duty

upon the full cost or value of the imported assembled article,

less the cost or value of the U.S. components assembled therein,

upon compliance with the documentary requirements of section

10.24, Customs Regulations (19 CFR 10.24).

Section 10.14(a), Customs Regulations {19 CFR 10.14(a)},

states in part that:

\[t\]he components must be in condition ready for

assembly without further fabrication at the time of

their exportation from the United States to qualify for

the exemption. Components will not lose their

entitlement to the exemption by being subjected to

operations incidental to the assembly either before,

during, or after their assembly with other components.

Section 10.16(a), Customs Regulations {19 CFR 10.16(a)},

provides that the assembly operation performed abroad may consist

of any method used to join or fit together solid components, such

as welding, soldering, riveting, force fitting, gluing,

lamination, sewing, or the use of fasteners.

Operations incidental to the assembly process are not

considered further fabrication operations, as they are of a minor

nature and cannot always be provided for in advance of the

assembly operations. See 19 CFR 10.16(a). However, any

significant process, operation or treatment whose primary purpose

is the fabrication, completion, physical or chemical improvement

of a component precludes the application of the exemption under

subheading 9802.00.80, HTSUS, to that component. See 19 CFR

10.16(c).

The operations of linking the modules together and inserting

the connecting rods and the retainer clips into the modules are

considered acceptable assembly operations pursuant to 19 CFR

10.16(a). Cutting the connecting rods to length is considered an

acceptable operation incidental to assembly pursuant to 19 CFR

10.16(b)(6). Therefore, the modular plastic conveyor belting

will qualify for the partial duty exemption available under

subheading 9802.00.80, HTSUS.

As for the classification of the modular plastic conveyor

belting, we agree that \"\[B\]elts such as these, i.e., in closed

loop, cut to size or fitted with linking devices, etc., and

composed entirely of plastic, are properly classifiable in

subheading 3926.90.6090, HTSUS.\"

HOLDING:

I. The metal conveyor belting is classified in subheading

7314.49.30, HTSUS, which provides for \"\[c\]loth (including endless

bands), grill, nettings and fencing, of iron or steel wire;

expanded metal of iron or steel: \[o\]ther grill, netting, and

fencing: \[o\]ther: \[n\]ot cut to shape\", with duty at the Column 1

rate of 5.7% ad valorem. Subheading 7314.49.30, HTSUS, is also a

GSP-eligible provision.

We also find that the crimping and spiralling operations

substantially transform the wire into crimped connecting rods and

spirals. Additionally, the assembly operation to create the

finished metal conveyor belts results in a second substantial

transformation, thereby permitting the cost or value of the wire

to be included in the GSP 35 percent value-content calculation.

Therefore, the metal conveyor belts are \"products of\" Mexico, and

will be entitled to duty-free treatment under the GSP, provided

the metal conveyor belts are imported directly into the U.S., and

the 35 percent value-content requirement is satisfied. In regard

to the metal conveyor belts made with straight connecting rods,

they too are considered \"products of\" Mexico; however, because

the wire used to make the straight connecting rods is not

substantially transformed it may not be counted towards

satisfying the 35 percent value-content requirement.

II\. The modular plastic conveyor belting is classifiable under

subheading 3926.90.6090, HTSUS, which provides for \"\[o\]ther

articles of plastics and articles of other materials of heading

3901 to 3914: \[o\]ther: \[b\]elting and belts, for machinery:

\[o\]ther\" with duty at the Column 1 rate of percent ad valorem.

The process of linking the modules together and inserting

the connecting rods and retainer clips into the modules

constitute acceptable assembly operations. Cutting the

connecting rods to length is an acceptable incidental operation.

Therefore, allowances in duty may be made under subheading

9802.00.80, HTSUS, for the cost or value of the U.S.-origin

components contained in the modular plastic conveyor belting,

provided the documentary requirements of 19 CFR 10.24 are

satisfied.

Sincerely,

John Durant, Director