Embassy of the United States

U.S. GSP Program

Examples of the Changes Required to Transform Foreign Raw Materials and Components into Articles that Qualify for Duty-Free Treatment Under GSP

1.  Double-Substantial Transformation:  Hand-Held Mini Vacuum Cleaner

Situation:  Korean resin is imported into Mongolia to be made into a vacuum cleaner under U.S. Harmonized Tariff Schedule (HTS) provision 8509.10.  The resin is injection-molded into a vacuum cleaner housing (1st transformation) and then assembled with other components into a complete vacuum cleaner (second transformation). The cost of the Korean resin is counted along with other value-added components in Mongolia to meet the GSP requirement that 35% of the value of the article is of Mongolian origin. That is because the Korean resin was changed into a completely different product in Mongolia twice: as a vacuum cleaner housing, then as a complete vacuum cleaner. This double transformation allows the resin to be counted and the products it was transformed into towards the value that is added in Mongolia.

Conclusion:  The assembled article (the vacuum cleaner) meets the 35% direct-cost-of- processing requirement because the value of the Mongolian inputs (including the Korean resin that is transformed twice) accounts for 38% of the total cost of production:

$5.45/$14.45 = 38%

2.  Double-Substantial Transformation:  Umbrellas

Based on U.S. Customs and Border Protection (CBP) Ruling number HQ 555189, dated June 12, 1989:

Situation:  Hand-held, collapsible umbrellas with telescopic shafts are manufactured in Mongolia from Mongolian and Chinese components.  They have been determined to be eligible to benefit from GSP duty-free treatment.

The CBP Ruling found that the manufacturing process involves two steps and that, based on the producer’s cost data, the Mongolian content of the finished umbrella is equivalent to 36.2% of the umbrella’s value. This meets the requirement that at least 35% of the cost of production of the article is of Mongolian origin in order to qualify for duty-free entry into the United States under GSP.

3.  Product-of Requirement

Based on CBP Ruling number HQ 555999, dated November 20, 1991:

Situation:  An imported product consisting of a collection of distinct articles is classified under a single HTS tariff line.  The imported product can receive GSP duty-free treatment only if all of the items in the collection are considered "products of" Mongolia.

To illustrate the application of the "product of" requirement to sets of articles under GSP, we will use the example of a toy farm sets.  The sets consist of snap-together plastic farm building parts produced in Mongolia and accessories which contain, among other things, a bag containing small plastic farm animals that were produced in China.

The total cost of producing the toy farm set is $8.85 and the addition of profit brings the appraised value upon importation to $9.85.  $1.75 of the $9.85 is accounted for by third-country (Chinese) content.

The value added by direct processing in Mongolia (labor and parts) amounted to $7.10, and accounted for 72% of the appraised value of the farm set. Although this far exceeded that GSP requirement that 35% of the value be of Mongolian origin, the farm set was determined not to be eligible for entry under GSP because an identifiable component, the farm animals, was not the “product of” Mongolia.

The farm animals (made in China) were packaged in Mongolia, but were not substantially transformed into a different product. Customs regulations (19 CFR 10.176(a)(2)) preclude the toy farm set from benefiting from GSP.

The regulations also allow for sets of articles to qualify under GSP if the third-country article is of “de minimis” value.  Because the farm animals made in China accounted for 18% of the total value ($1.75 of $9.95), the de minimis exception could not apply.
Note: The outcome would be the same if the farm animals were of U.S. origin or from any country other than Mongolia.