## Facts

- Importers entered “kiln furniture” from Mexico in 1978–1979; Customs classified it as shaped refractory articles under TSUS Item 531.39 and assessed 7.5% ad valorem duty.
- The importer protested, claiming duty-free entry under the Generalized System of Preferences (GSP) for TSUS Item A531.39 because Mexico was a beneficiary developing country.
- The kiln furniture was manufactured in Mexico from dry components sourced from the United States (including kaolin, clay, talc, and calcined kaolin or mullite).
- In Mexico, the manufacturer ground certain inputs, mixed all dry ingredients with water and additives to create “casting slip,” poured the slip into molds, dried the molded “greenware,” and fired it at high temperature to produce kiln furniture; firing caused chemical changes (including formation of cordierite) affecting thermal properties.
- The parties agreed Mexico’s direct processing costs alone were less than 35% of the appraised value and that GSP eligibility depended on whether the value of the U.S.-origin inputs could be counted as “materials produced in” Mexico.
- The trial court sustained Customs’ denial of GSP duty-free treatment, and the importers appealed.

## Issues

1. Whether processing U.S.-origin dry components in Mexico into casting slip (and then into kiln furniture) “substantially transformed” those components into a “new and different article of commerce,” allowing their value to be treated as “materials produced in” the beneficiary developing country for GSP purposes.
2. Whether, given the GSP origin/value-content requirements, Customs correctly denied duty-free treatment and assessed duty under TSUS Item 531.39.

## Decision

- The Federal Circuit affirmed the judgment sustaining Customs’ denial of GSP duty-free treatment.
- The court held the U.S.-origin components were not substantially transformed in Mexico into a new and different “article of commerce” at the casting-slip stage.
- Because the U.S.-origin input values could not be counted as “materials produced in” Mexico, the 35% GSP value-content threshold was not met on the stipulated facts.
- The kiln furniture remained dutiable at 7.5% under TSUS Item 531.39.

## Legal Principles

- For GSP value-content purposes, non-beneficiary-country materials may be counted as “materials produced in” the beneficiary country only if they are substantially transformed there into a “new and different article of commerce.”
- Substantial transformation requires more than technical processing or chemical/physical change; the intermediate product must have a distinct commercial identity (name, character, or use) and be commercially recognized and traded as a discrete product.
- An in-process intermediate used only for further internal manufacture, with no meaningful independent market, may fail the “article of commerce” requirement even if it requires skill to produce or involves confidential formulations.
- Where direct processing costs in the beneficiary country are below 35% and the imported-material value cannot be counted, the GSP value-content requirement is not satisfied and duty-free treatment is properly denied.

## Conclusion

The court upheld the assessment of duty because the manufacturing steps in Mexico did not create a commercially distinct intermediate “article of commerce” from the U.S.-origin inputs; without counting those input values, the goods failed the GSP 35% value-content test and were not eligible for duty-free entry.


Zuniga v. United States, 996 F.2d 1203 (Fed. Cir. 1993)