N315306

N315306 November 10, 2020 CLA-2-87:OT:RR:NC:N2:206 CATEGORY: Classification; Trade Agreement TARIFF NO.: 8708.80.6590; 8708.94.7550 Kyle J. Strang Supply Chain Specialist Somic America, Inc. 6 Baker Blvd Brewer, ME 04412 RE: The tariff classification and status under the Generalized System of Preference (GSP) on automotive components from Indonesia. Dear Mr. Strang: In your letter dated October 20, 2020, you requested a ruling, on behalf of Somic America, Inc., on the eligibility of duty-free treatment of automotive components from Indonesia under the GSP. Pictures and other descriptive literature were submitted with your request. The items under consideration are Socket Ball Joints (Part Numbers A-262-146-Z and A-261-245-Z), and Tie Rod Ends (Part Numbers AB29-20570 and AB29-20580) used in automotive suspension and steering systems. You state that ball joints are critical components of the front suspension that connect various links and allow them to move. Ball joints consist of a ball and socket similar to the hip joint of the human body. Ball joints of the front suspension provide pivoting movement between the steering knuckles and control arms to provide a safe, smooth ride, allowing to precisely control the vehicle. Tie rods are slender cylindrical structures with two sections. Consisting of an inner and outer end, the outer section is called the tie rod end. Serving as the pivot point between the steering rack, steering arm and steering wheel, tie rods not only help move the wheels when steering, but they also make turning possible. The applicable subheading for the Socket Ball Joints (Part Numbers A-262-146-Z and A-261-245-Z) will be 8708.80.6590, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Parts and accessories of the motor vehicles of headings 8701 to 8705: Suspension system and parts thereof: Parts: Other: Other.” The general rate of duty will be 2.5 percent ad valorem. The applicable subheading for the Tie Rod Ends (Part Numbers AB29-20570 and AB29-20580) will be 8708.94.7550, HTSUS, which provides for “Parts and accessories of the motor vehicles of heading 8701 to 8705: Other parts and accessories: Steering wheels, steering columns and steering boxes; parts thereof: Parts: For other vehicles: Other: Other.” The general rate of duty will be 2.5 percent ad valorem. Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at https://hts.usitc.gov/current. Under the GSP, eligible articles, which are the growth, product, or manufacture of a designated beneficiary developing country (“BDC”) and 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. Part 2463(a)(2)(A). Pursuant to General Note 4(a), HTSUS, Indonesia is a designated BDC for GSP purposes and may be afforded preferential treatment if the imported merchandise is classified in a GSP-eligible provision containing SPI Code A. As indicated above, the socket ball joints and the tie rod ends are classified under subheadings 8708.80.6590 and 8708.94.7550, HTSUS, which are GSP eligible provisions. The “product of” requirement means that to receive duty-free treatment, an article either must be made of materials “wholly the growth, product or manufacture of” the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.176(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.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982). You state that the raw steel material is imported from a Chinese steel mill. All of the manufacturing processing from raw steel to un-machined hot forging takes place in Indonesia. Some of the processing in Indonesia include cutting steel bar stock, material heating, forging into shape, punching, trimming, shot blasting, and heat treating. Based on the process flow diagrams you submitted, the raw steel from China will be substantially transformed into an identifiable article of heading 8708, HTSUS, in Indonesia. You also provided a cost of processing operations list of each component. Pursuant to 19 C.F.R. 10.178(a), direct costs of processing include labor costs and tooling, but do not include per 19 C.F.R. 10.178(b)(1) Profit; and (2) General expenses of doing business which are either not allocable to the specific merchandise or are not related to the growth, production, manufacture, or assembly of the merchandise, such as administrative salaries, casualty and liability insurance, advertising, and salesmen's salaries, commissions, or expenses. As you indicated, the Chinese metal does not undergo a double substantial transformation in Indonesia. Therefore, the forging material cost may not be included in the 35% value-content requirement. You have set forth this amount per unit, and have correctly not included it in your calculation. However, it appears that you have included profit and general expenses into your cost of processing operations in Indonesia. Nonetheless, even after subtracting profits and general expenses, the total value of the allowable direct processing costs occurring in Indonesia will still exceed 35% of the appraised value of the merchandise, according to the material and production cost information provided, ranging from 39% to 47%. According to the submitted documentation, these direct processing costs consist of labor costs performed in Indonesia for cutting, forging, machining, and etc., which may be included as direct costs of processing under the GSP. See 19 C.F.R. 10.178(a)(1). Based on the direct costs of processing occurring in Indonesia, we find that the 35% value-content requirement may be satisfied in this case. Finally, the merchandise at issue must be “imported directly” to the United States to qualify for preferential tariff treatment under the GSP. You state in your letter, that the suspension and steering components will be imported directly to the United States from Indonesia. As a result, we find that provided the requirements will be satisfied at the time of entry, the subject merchandise will qualify for duty-free treatment under the GSP. The GSP is subject to modification and periodic suspension, which may affect the status of your transaction at the time of entry for consumption or withdrawal from warehouse. To obtain current information on GSP, check our Web site at www.cbp.gov and search for the term “GSP”. This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177). A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, please contact National Import Specialist Liana Alvarez at liana.alvarez@cbp.dhs.gov. Sincerely, Steven A. Mack Director National Commodity Specialist Division