HQ 561245

June 24, 1999

CLA-02 RR:CR:SM 561245 MFC

CATEGORY: Classification

Elizabeth J. Vann, Esq.

Law Offices of Elizabeth Janie Vann, P.C.

600 Sunland Park Drive, Suite 2-100

El Paso, Texas 79912

RE: Generalized System of Preferences; double substantial
transformation; copper wire; wire harnesses

Dear Ms. Vann:

This is in response to your letter dated December 17, 1998, and
subsequent telephone conversations with Marjorie Cole, on behalf of
United Technologies Automotive, Inc. ("UTA"), which requests a binding
ruling regarding the eligibility of certain wire harnesses manufactured
in the Philippines for duty-free entry into the United States under the
Generalized System of Preferences ("GSP"). You have submitted samples of
the 8 mm. copper rod, the PVC and XLPE pellets, and the finished,
multi-stranded insulated wire used in manufacturing the wire harnesses.

FACTS:

Copper rod with an 8 mm. diameter and either Polyvinyl Chloride ("PVC")
or Cross-Link Polyethylene ("XLPE") compounds in pellet form are
purchased by IWG-Philippines, Inc. The copper rod is of Japanese origin
while the PVC/XLPE pellets are of U.S. origin. In the Philippines, the
copper rod and the PVC/XLPE pellets undergo the following processing:

1\) [Drawing of Rod through Rod Mill Drawing Machine]{.underline}. The
copper rod is welded together to provide one continuous copper rod. The
first drawing is through the Rod Mill Machine which compresses and
elongates the copper while pulling it through the machine. After
completion of the first drawing, a 6,500 pound coil of 8 mm. diameter
copper rod is drawn down to a 2.05 mm. diameter (12 AWG) copper strand.
The 2.05 mm. diameter copper strand is then packaged into 3,000 pound
stem packs that become the feed stock for the multi-wire drawing
process.

2\) [Drawing through the Multi-Draw Machine]{.underline}. Fourteen
baskets of the 2.05 mm. diameter copper strand are fed into the
multi-draw machine. The strands are fed through a series of dies which
draw the strands down to the final size (23 AWG - 31 AWG, .18 mm.- .58
.mm, depending on 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 the zone, the strands are electronically heated.
This process, called annealing, relieves the stresses caused by the
drawing process, and restores the copper's flexibility and "memory."

4\) [Bunching of Stranded Wire to Form Multi-Stranded Wire]{.underline}.
As the strands exit the multi-draw machine, they are spooled onto 2,000
pound reels that become feed stock for the bunching process. The strands
which are drawn simultaneously, are spooled onto the same reel. In the
bunching process, individual wires ranging in size from .18 mm to .58
mm. in diameter are twisted together in specific geometric patterns of
7, 19, and 37 wires to form multi-stranded copper wire.

5\) [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 will be
used, depending on which compound type is 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 is used in applications where the temperature range
required is up to 105 degrees Celsius while the XLPE insulated wire is
used in applications where the temperature range required is up to 125
degrees Celsius. The finished wire is then wound onto coils.

The coils are stored in a warehouse until shipped to its customers,
which include United Technologies Automotive-Philippines, Inc.
UTA-Philippines purchases the insulated multi-stranded copper wire from
IWG-Philippines for use in the manufacture of automotive wire harnesses
at UTA-Philippines' facility.

[Assembly of Wire Harness]{.underline}

The wire harnesses are composed primarily of wire in a variety of sizes,
colors, lengths and current-carrying capacities. They may also contain
grommets, clips, terminals, covers, rubber seals, connectors, relay
boxes, PVC-tube, convoluted tube and lamp sockets. Depending on the
particular model of wire harness, the number of components can vary
widely, as well as the number of electrical circuits, which may range
from a few circuits to several hundred circuits. During telephone
conversations with Marjorie Cole, you stated by way of example that the
simplest wire harness would consist of two circuits, four terminals,
three connectors, two plastic retainers, and one spacer. You stated that
the average-sized wire harness produced would consist of 53 circuits,
two tubes, 11 connectors, 13 types of terminals, five retainers, three
shields, six spacers and tape.

The assembly of the harnesses involves two stages: pre-assembly and
assembly. In the pre-assembly stage, after the wire is inspected for
defects, an automatic cutting machine cuts it to a specified length and
strips the insulating vinyl. The machine then crimps the terminal onto
the end of the bare copper for conduction, forming a circuit. Depending
on the particular model of wire harness, one or more additional steps
may be completed. These steps may include: manual termination;
soldering; molding; or splicing and covering.

The assembly process is done manually, using a rotating jig. As the
parts or materials are introduced to the assembly and pass each
workstation, the jig attaches various wires, protectors, grounders,
corrugated tubes, rubber tubes, stoppers or other components as required
by the specifications.

The harnesses are subjected to electrical testing and then are packed
and shipped to the U.S.

ISSUES:

1\) Do the materials imported into the Philippines to produce wire
harnesses undergo a substantial transformation as a result of processing
in the Philippines and therefore become a product of the Philippines?

2\) Do the Japanese-origin copper rod and U.S.-origin PVC/XLPE undergo a
double substantial transformation in the Philippines during the
production of the wire harnesses, thereby permitting the cost of these
materials to be counted towards the 35% beneficiary developing country
("BDC") value requirement for purposes of the GSP?

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product or manufacture of a
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% of the appraised value of the article at the time of entry into the
U.S. [See]{.underline} 19 U.S.C. §2463(a)(2)(A); Section 10.176(a),
Customs Regulations (19 CFR §10.176(a)).

Philippines is a designated BDC for purposes of the GSP.
[See]{.underline} General Note 4(a), HTSUS. You assert that the wire
harnesses at issue are classified in subheading 8544.30, Harmonized
Tariff Schedule of the United States ("HTSUS"), which provides for
ignition wiring sets and other wiring sets of a kind used in vehicles,
aircraft or ships, which are eligible for GSP treatment. For purposes of
this ruling, we assume that 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 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(a)(3); 19 CFR §10.177(a).

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]{.underline} [Texas Instruments v. United States]{.underline}, 681
F.2d 778, 782 (CCPA 1982).

With respect to the circumstances under which non-BDC materials may be
counted towards satisfying the 35% value content requirement, it is not
enough to substantially transform the non-BDC constituent materials into
the final article, as the material utilized to produce the final article
would remain non-BDC material. There must first be a substantial
transformation of the non-BDC material into a new and different article
of commerce which must then be substantially transformed into a new and
different article of commerce. Materials which do not originate in the
BDC must undergo a double substantial transformation in the BDC in order
for the cost or value of those materials to be counted toward the 35%
value‑content minimum. [See]{.underline} 19 CFR §10.177; [see
also]{.underline} [Azteca Milling Co. v. United States]{.underline}, 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.

[Pre-Assembly Processes]{.underline}

In [Superior Wire v. United States]{.underline}, 867 F.2d 1409 (Fed.
Cir. 1989), the Court of Appeals for the Federal Circuit affirmed the
finding of the Court of International Trade that wire rod which was
drawn into wire was not substantially transformed as there was no
significant change in use or character. The change in name was found to
be the "least persuasive factor and is insufficient by itself to support
a holding that there is a substantial transformation." [Id]{.underline}.
at 1414. Customs followed this line of reasoning in Headquarters Ruling
Letter ("HRL") 555705 (August 26, 1991), where the process of drawing 14
AWG copper wire into 36 AWG wire did not constitute a substantial
transformation of the copper wire.

In general, Customs has determined that laminating, coating, and
encapsulating operations do not result in a substantial transformation
of wire. In HRL 557201 (November 17, 1993), Customs held that, while the
encapsulation process added certain qualities to the wire which did not
exist prior to such operation, the essential character of the bunched
wire, as a conductor of electricity, was not changed because of the
enhancements attributable to the insulating material.

In HRL 556301 (May 4, 1992), Customs reconsidered its decision in HRL
555705 (August 26, 1991) based on additional facts provided about the
processing of insulated copper wire. Customs confirmed its finding in
HRL 555705, that drawing wire does not cause a substantial
transformation, but found that the combination of drawing, bunching and
twisting, and the subsequent steps of annealing and encapsulating to
insulate the wire strand does constitute a substantial transformation of
the wire. However, the ruling held that the cost of the wire may not be
counted towards the GSP 35% value-content requirement since the
subsequent operations of bundling and further encapsulation did not
result in a second substantial transformation.

You assert that HRL 555705 applies to the processing in this case, which
involves the drawing, annealing and bunching of the copper rod to form
multi-stranded copper wire, followed by a process of extruding PVC or
XLPE around the wire. We agree and find that the copper wire rods are
substantially transformed into products of the Philippines.

Customs has held that the process of PVC insulation substantially
transforms the PVC compound. In HRL 557201, *supra*, Customs found that
the heating and extruding of PVC compounds onto bunched wire resulted in
a substantial transformation of the PVC compounds, as its essential
character has been changed by this process. [See]{.underline}
[also]{.underline} HRL 557403 (November 22, 1993) (Customs has
consistently held that molding of plastic into a specific shape for use
in the production of an eligible article is considered a substantial
transformation). Therefore, we agree that the extruded PVC/XLPE pellets
are substantially transformed into products of the Philippines.

[Assembly of Wire Harnesses]{.underline}

The insulated multi-stranded copper wire is sold by IWG-Philippines to
UTA-Philippines for use in the manufacture of automotive wire harnesses.
As noted above, the number of circuits and additional components will
vary.

Customs has found a substantial transformation in the assembly of wire
harnesses in several cases. In HRL 557087 (July 22, 1993), the
preassembly stage involved measuring, cutting and stripping the
insulating wires. The terminals were then crimped manually. The assembly
involved placing the wires on automated jig tables that pass through
several work stations where various components were attached. A typical
wire harness involved approximately 300 circuits, 300 types of insulated
wires and 850 connectors, terminals, and other parts. In HRL 557201,
*supra*, Customs found that the assembly of a wire harness was a
substantial transformation. In that case, the insulated wires were cut
to length followed by a "precision application of electrical terminals."
The harness assembly involved the complex merger of 500-1500 wires which
was accomplished at workstations using a rotary.

In this case, although the assembly of the simplest wire harnesses,
involving the joinder of two circuits, four terminals, three connectors,
two plastic retainers and one spacer, does not appear to be exceedingly
complex, we find that a second substantial transformation results from
the assembly of the wire harnesses. In previous GSP cases, we have
stated that in situations where all of the processing is accomplished in
one GSP 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]{.underline},
for example, HRL 557465 (December 10, 1993) and HRL 555532 (September
18, 1990).

In view of the overall processing operations performed in this case in
the Philippines to create the wire harnesses, we do not believe that
these constitute the minimal, "pass-through" operations that should be
disqualified from receiving the benefits of the GSP. Accordingly, the
cost or value of the copper rod and the PVC/XLPE pellets may be included
as "materials" produced" in the BDC for purposes of satisfying the 35%
value-content requirement of the GSP.

HOLDING:

Based on the information and samples provided, we are of the opinion
that the copper rod and PVC/XLPE undergo a double substantial
transformation in the Philippines and, therefore, their cost or value
may be counted in satisfying the 35% value-content requirement of the
GSP. Accordingly, 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 this 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,

John Durant

Director

Commercial Rulings Division