CLA-2 CO:R:C:V 555170 BJO
Paul E. Linet, Esq.
Aresty, Levin, Orenstein & Wernick
World Trade Center
Suite 104
Boston, Massachusetts 02210
RE: CBI Eligibility of Foil Strain Gages (BLH Electronics, Inc.)
Dear Mr. Linet:
This is in response to your letters of November 4, 1988, and
January 30, 1989, on behalf of BLH Electronics, Inc., in which
you request a ruling that foil strain gages manufactured by your
client are products of Costa Rica for purposes of the Caribbean
Basin Economic Recovery Act (CBERA)(19 U.S.C. 2701-2706), and
that the foil strain gages are properly classified for tariff
purposes under either subheading 8533.90.00 or 9031.90.60 of the
Harmonized Tariff Schedules of the United States (HTSUS). The
following is a ruling on the CBERA issue; your request for a
classification ruling will be separately answered. For purposes
of the following, we will assume the product is properly
classified under one of the aforementioned HTSUS subheadings,
both of which are CBERA-eligible.
FACTS:
Each strain gage is less than one-tenth the size of a
postage stamp, and is composed of thin metallic foil circuit
bonded to a flexible organic sheet. You state that foil strain
gages are devices used with a metal element or "transducer" to
test or measure physical stress. For example, the strain gages
can be used to measure stress on an aircraft wing, or used in a
scale. The strain gage will be attached to a transducer. It
appears from the technical information submitted that an
electrical charge is fed through the foil circuit. A force
applied to the transducer will be translated into a proportional
change in the electrical resistance of the gage, and,
consequently, the electrical output. Comparison of the
electrical input to the gage with the output will yield the
amount of strain.
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The foil strain gages will be produced as follows:
(1) In the United States, the metallic foil in circuit
patterns will be placed on the organic backing. These will
be produced "in bulk;" that is, over a hundred individual
foil patterns will be bonded to a single sheet measuring
approximately three by ten inches. These "bulk etched
sheets" will then be shipped to Costa Rica for additional
processing.
(2) Upon receipt in Costa Rica, the sheets will be visually
inspected.
(3) The sheets will then be subjected to a "post-etch"
operation. This involves manually applying a mild acid or
fine polishing abrasive to the sheets to thin the metallic
foil. This thinning operation is necessary to raise the
resistance value of the strain gages to their required
performance level. If this operation were not performed,
the strain gages would have only between 20 to 30 percent of
the requisite resistance value. You state that constant
attention to detail and repeated review of the actual amount
of thining being performed are monitored through use of
magnifying instruments. After the desired resistance value
is achieved, the acid is neutralized with a mild alkaline
solution.
(4) The sheets will then be subjected to slicing and
trimming operations in which the "bulk etched sheets" will
be mechanically punched or cut into individual strain gages.
(5) Because the importer intends to produce several
different models of the foil strain gages, some of the
sheets will be subjected to additional processing before and
after the slicing and trimming operations. These sheets
will be encapsulated, whereby tape or foil will be cut to
shape in Costa Rica, affixed to the sheets by clamps, and
fused thereon by a 2 to 4 hour oven baking. Pre-cut leads
will then be soldered or welded to the strain gage.
(6) All the strain gages will be tested to measure
electrical resistance, visually inspected, packed, and
shipped.
You also state that the direct processing costs in producing
the strain gages in Costa Rica will be equivalent to between 25
and 77 percent of the value of the finished gage, depending upon
the model, and that the remaining percentage of value of the
various models will be attributable to cost of U.S. materials.
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ISSUE:
Whether the foil strain gages are products of Costa Rica for
purposes of the CBERA.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product, or
manufacture of a beneficiary country ("BC") which are imported
directly to the U.S. from a BC qualify for duty-free treatment,
provided the sum of (1) the cost or value of materials produced
in a BC or two or more BC's, plus (2) the direct costs of
processing operations performed in a BC or countries is not less
than 35% of the appraised value of the article at the time it is
entered. See 19 U.S.C. 2703(a)(1).
An article composed of materials produced in a non-BC, as
here, is the "growth, product, or manufacture" of the BC if the
non-BC materials are substantially transformed in the BC into a
"new and different article of commerce." See 19 CFR
10.195(a)(1).
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." See The Torrington Co. v. United States, 764 F.2d
1563, 1568 (Fed. Cir. 1985).
You state that the processing of the "bulk etched sheets" in
Costa Rica results in a new and different article of commerce,
namely, the finished strain gages. Specifically, you state that
the product undergoes a change in name, from "bulk etched sheets"
to "foil strain gages;" that the thinning of the metal circuit by
chemical or mechanical means, and cutting or punching the bulk
etched sheets into individual units (as well as encapsulating and
attaching leads to some models) represents a character change;
and that as a result of the thinning operations, the resistance
value of the product is increased to the level to permit the
article to be used as a strain gage. In sum, you state that
until processed in Costa Rica, the bulk-etched sheets are not
known as strain gages, cannot function as strain gages, and
cannot be sold as strain gages.
We find that the strain gages are not new and different
articles of commerce which are substantially transformed from the
bulk-etched sheets. Rather, the bulk-etched sheets and strain
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gages are "merely different stages of the same product." See
Superior Wire v. United States, Appeal No. 88-1020, 23 Cust.
Bull. 50 (No.10) (Fed. Cir. February 15, 1989). In Superior
Wire, the Court of Appeals for the Federal Circuit affirmed the
determination of the Court of International Trade that drawing
wire from wire rod was a minor rather than substantial
transformation, even though the physical properties of the wire
rod, and therefore its use, were affected as a result of the
processing. The record in that case showed that the wire that
emerged from the drawing process was stronger and rounder than
the wire rod. However, because these properties of the wire,
which affected the use to which it could be put, were
predetermined by the chemical content of the rod and the cooling
process used in its manufacture, the court found that wire drawn
from the rod was not a new and different product, but the last
stage in the processing of the same product.
The primary difference in physical properties between the
"bulk etched sheets" and the finished foil strain gages appears
to be the higher resistance level of the latter. This
characteristic of the finished strain gage, however, appears to
have been predetermined in the creation of the "bulk etched
sheets" in the same way that the strength characteristic of the
wire in Superior Wire was metallurgically predetermined in the
fabrication of the rod. It appears from the technical data, as
well as your description of the strain gage's operation, that the
strain gage is a conductor through which an electrical charge is
sent. The resistance of a conductor depends upon its material
composition, temperature, and its cross-sectional area and
length. See E. Lister, Electric Circuits and Machines, 5 (5th ed.
1975). The materials used in producing the strain gages, and the
length and design of the foil circuit, is determined in the U.S.
production of the bulk-etched sheets. The thinning operations in
Costa Rica affect only the cross-sectional area of the strain
gage circuit. However, the amount of thinning that can be done
in Costa Rica is predetermined by the width of the circuit
produced during the U.S. operations. In Superior Wire, the lower
court found that because the "parameters" of the strength
characteristic of the final product were metallurgically
predetermined in the fabrication of the rod, no significant
change in character or use was found to have occurred as a result
of the cold-drawing process. Superior Wire v. United States, 669
F. Supp. 472, 480 (CIT 1987). Here, too, the parameters of the
strain gages' resistance are predetermined in the U.S., where the
choice of materials, and the length and width of the circuit are
fixed.
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In support of its finding that the final product was
predetermined by the metallurgy of the rod, the Federal Circuit
in Superior Wire noted that if the rod is produced improperly for
its intended application, the wire drawing process is incapable
of making the product suitable for such use. 23 Cust. Bull. 50
(No.10). The same appears to be true here. If, for example, the
bulk-etched sheets contained circuits too narrow in cross-
sectional area, or of improper materials or length, the Costa
Rican thinning operations would not appear capable of producing
strain gages of the required resistance.
You claim that a change in name from "bulk etched sheets" to
strain gages evidences a substantial transformation. However, as
the court in Superior Wire noted, this is the least persuasive
factor and is insufficient by itself to support a finding of a
substantial transformation. 23 Cust. Bull. 50 (No.10).
You have also suggested that the operations performed in
Costa Rica are analogous to those the Court of International
Trade determined resulted in a substantial transformation in Data
General Corporation v. United States, 4 CIT 182, ___ F. Supp.
___(1982). The court there ruled that programming a Progammable
Read Only Memory (PROM) integrated circuit chip substantially
transformed the PROM into a new and different article for
purposes of item 807.00, TSUS. In response to the Government's
claim that this programming was a mere finishing operation, the
court stated that:
"The [government] underestimates the time, expense and
expertise required to program a PROM...unlike packaging
operations which can be conducted by unskilled or semi-
skilled labor, programs are designed by a project engineer
with many years of experience in designing and building
hardware. While replicating the program pattern from a
master PROM may be the quick one-step process to which the
[government] refers, the development of the pattern and the
production of the master PROM require much time and
expertise. Because of its capability to be programmed in a
manner individually desired by any end user, the PROM is a
recognized article of commerce in the electronic
industry...To fulfill its intended character as an article
of commerce capable of being programmed, the PROM requires
neither finishing nor further modification."
4 CIT at 185.
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Unlike the PROM's in Data General, the bulk-etched sheets do
require finishing or further modification in Costa Rica to be a
recognized article of commerce, for you state that until the
"post-etch" processing is completed, the product is not
marketable or usable. In addition, it does not appear that the
strain gages here were engineered in Costa Rica, and the Costa
Rican processing operations do not appear to require highly
skilled labor. Finally, programming an integrated circuit does
not appear at all analogous to thinning a metallic foil with an
abrasive. Programming involves rupturing or fusing electrical
interconnections within the integrated circuit to bestow each
circuit with its electrical function or "memory," Data General at
183, while the "post-etch" operation you describe involves
thinning the metallic foil printed on the bulk-etched sheets to
raise their resistance. The two operations involve different
processes and products, are undertaken for different purposes,
and have different physical and functional effects on the
articles processed. For these reasons, we do not feel that Data
General is applicable here.
The remaining operations performed in Costa Rica do not
substantially transform the "bulk etched sheets" into new and
different articles. The cutting of the bulk-etched sheets into
individual units, attaching pre-cut leads, or encapsulating the
strain gages does not change the essential character or use of
the product. Both before and after these operations, the
articles are clearly recognizable and dedicated for use solely as
strain gages.
You state that if the product were a textile article rather
than a strain gage, the "slicing and trimming" operations would
by themselves result in a substantial transformation under
section 12.130(e)(1)(iv), Customs Regulations (19 CFR
12.130(e)(1)(iv)). That regulation provides that the country
where fabric is cut into parts and assembled into a completed
article will usually be the country of origin of the completed
article for purposes of textile restraint agreements. It is our
view, however, that the better analogy is 19 CFR
12.130(e)(2)(ii), which provides that an article will usually not
be considered a product of a country where it has merely
undergone cutting to length or width and hemming or overlocking
fabrics which are readily identifiable as being intended for a
particular commercial use. The sample "bulk etched sheet"
submitted with your ruling request is marked between each
individual gage, apparently to guide the cutting or punching of
the sheet into individual strain gages. The "bulk etched sheets"
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are readily identifiable as intended for use as strain gages, and
a simple punching or cutting operation along the lines of
demarcation appears to be all that is necessary to convert them
into such.
CONCLUSION:
Based upon the information presented, the foil strain gages
are not products of Costa Rica for purposes of the CBERA, and,
therefore, they shall not receive duty-free treatment under that
program when imported into the United States.
Sincerely,
John Durant, Director
Commercial Rulings Division