## Facts

- SDI Technologies, Inc. imported two models of rack stereo systems from Mexico into the United States.
- The systems were assembled at SDI’s facility in Juárez, Mexico, and consisted of a center console housing electronic equipment plus two speakers (hinge-attached in one model; free-standing in the other).
- SDI’s Mexican operations included laminating, cutting, and grooving particle board; molding plastic components; cutting and painting foam; and assembling these items into finished cabinets and systems.
- Key electronic components—unhoused printed circuit board assemblies with faceplates (radio receiver and dual cassette deck units) and raw speaker cones—were imported into Mexico from China.
- The electronic units imported from China were complete and fully functional when they entered Mexico.
- Customs denied SDI’s claim for duty-free treatment under the Generalized System of Preferences (GSP), concluding the finished goods were not “products of” Mexico because the Chinese components were not substantially transformed in Mexico.
- SDI challenged Customs’ denial in the U.S. Court of International Trade.

## Issues

1. Whether SDI’s processing and assembly operations in Mexico substantially transformed Chinese-origin electronic and speaker components into a new and different article of commerce, making the imported rack stereo systems “products of” Mexico eligible for GSP duty-free treatment.

## Decision

- The Court of International Trade entered judgment for the United States.
- The court held the rack stereo systems were not substantially transformed in Mexico.
- Because no substantial transformation occurred, Customs correctly denied GSP treatment upon importation into the United States.

## Legal Principles

- For GSP “product of” status, foreign materials must be substantially transformed in the beneficiary country into a new and different article of commerce.
- Substantial transformation generally requires a change in name, character, or use of the imported components.
- Assembly and housing of fully functional, essential electronic units into cabinets and final consumer packaging, without altering the units’ essential character or intended use, does not constitute substantial transformation.

## Conclusion

Because the Chinese audio electronics were fully functional when imported into Mexico and SDI’s Mexican operations primarily fabricated cabinets and assembled components without changing the electronics’ name, character, or use, the finished rack stereo systems were not “products of” Mexico and were not entitled to GSP duty-free entry.


SDI Techs., Inc. v. United States, 977 F. Supp. 1235 (Ct. Int'l Trade 1997)