## Facts

- A U.S. importer brought industrial sewing-machine needles into the United States from Portugal, a beneficiary developing country under the Generalized System of Preferences (GSP).
- The needles were manufactured in Portugal from wire produced in a non-beneficiary country.
- In Portugal, the wire was processed through multiple steps, including swaging (straightening, cutting, beveling, elongating) to create a “swaged needle blank,” followed by eye formation and finishing/sharpening to produce completed needles.
- Customs denied GSP duty-free treatment, concluding the goods failed the GSP 35% value-content requirement because the non-beneficiary wire did not satisfy Treasury’s “double substantial transformation” requirement and thus could not be counted as “materials produced” in Portugal.
- The Court of International Trade ruled for the importer, holding the needles qualified for GSP treatment.
- The United States appealed to the Federal Circuit.

## Issues

1. Whether processing non-beneficiary wire in Portugal into needle blanks and then into finished industrial sewing needles satisfied Treasury’s “double substantial transformation” regulation implementing the GSP 35% value-content requirement.
2. Whether, if the double substantial transformation requirement was satisfied, the cost or value of the non-beneficiary wire could be included as “materials produced” in the beneficiary country for purposes of 19 U.S.C. § 2463(b).

## Decision

- The Federal Circuit affirmed the judgment for the importer.
- The court held the Portuguese operations produced two substantial transformations: wire into needle blanks, and needle blanks into finished needles.
- Because two substantial transformations occurred in the beneficiary country, the wire’s cost or value could be counted toward the statutory 35% value-content threshold.
- The imported needles therefore qualified for duty-free entry under the GSP.

## Legal Principles

- Under the GSP, duty-free treatment applies only if the sum of (A) the cost or value of materials produced in the beneficiary country plus (B) direct processing costs in that country is at least 35% of the appraised value at entry.
- Treasury may require that non-beneficiary inputs undergo a “double substantial transformation” in the beneficiary country before their cost or value can be treated as “materials produced” there.
- A “substantial transformation” occurs when processing results in a new and different article of commerce with a new name, character, or use.
- Whether an intermediate product constitutes a distinct article of commerce is a fact-intensive determination; appellate review generally accepts supported trial-court findings regarding the manufacturing process and product identity.

## Conclusion

The Federal Circuit held that extensive processing of non-beneficiary wire in Portugal created a distinct intermediate needle blank and then a finished needle, satisfying the double substantial transformation requirement and permitting inclusion of the wire’s value in the GSP 35% calculation, resulting in duty-free treatment.


Torrington Co. v. United States, 764 F.2d 1563 (Fed. Cir. 1985)