CLA-2 CO:R:CV:V 555206 BJO
Mr. Gordon W. Larson
Rudolph Miles & Sons, Inc.
4950 Gateway East
P.O. Box 144
El Paso, Texas 79942
RE: Entry of Rechargeable Flashlights under the Generalized
System of Preferences
Dear Mr. Larson:
This is in response to your letter of November 28,
1988,?onbehalf of BRK Electronics ("importer"), in which you
request?aruling that the cost or value of battery charger
boards?assembledin Mexico and incorporated into
rechargeable?flashlights, whichwill be imported into the U.S.,
may be counted?toward the 35percent value-content requirement of
the Generalized?System ofPreferences (GSP)(19 U.S.C. 2461-2466).
You state that the importer's subsidiary will
assemble?therechargeable flashlights in Mexico. One of the
components of?theflashlight is a printed circuit board assembly
("PCBA"), which?isused to recharge the flashlight's battery when
it is plugged?intoan electrical outlet. The importer's
subsidiary will?eitherpurchase a finished PCBA from an unrelated
firm in Mexico,?orwill purchase a bare printed circuit board from
the?unrelatedfirm, and stuff the board at its own facility in
Mexico. ?Most ofthe components, including diodes, resistors,
contacts,?andcopper-laminated phenolic plastic board, will be
imported?intoMexico. The PCBA will be produced from these
1. Phenolic plastic sheets laminated with copper,
measuringfour?feet by eight feet by 1/16 of an inch, will be cut
bythe circuit?board manufacturer to smaller size panels
2. In accordance with specifications provided by
theimporter's?subsidiary, the circuit board manufacturer will
print on the copper layer of each panel the
requisiteconductive?paths with an ink resistant to the chemicals
usedin the etching?operation.j?
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3. In the etching operation, the panel will be passedthrough
a?chain of chemical baths which removes all of thecopper
laminate?except that printed with the protective ink. The panel
will then?be passed through a final chemical bathwhich removes
the ink from?the panels, but leaves theunderlying copper surface.
The panel?will then be rinsedand dried in an oven.
4. Each panel, on the non copper-laminated side, will
beprinted?by silk-screen process with a circuit design
whichdesignates?where the components are to be placed. The
panelwill then be?placed in an oven to dry the ink.
5. A mask will then be printed on the copper side of theboard
to?cover those portions not designed to be soldered. The panels
will?then be passed through an ultraviolet lightto cover the
6. The panel will then be drilled for holes for theplacement
of?components and punched with the requisite boardbase shape.
7. Diodes, resistors, contacts, and a capacitor will
then?beinserted into the prepunched holes in the printed
circuitboard?bases. The diodes and resistors will be purchased
inrolls, which?will be fed through a sequence machine
whichreorders the?components in new rolls in the proper
sequencefor insertion into?the printed circuit board bases.
Panelswith multiple printed?circuit board bases will then be
fedinto an insertion machine,?along with the sequenced rolls
ofcomponents. The capacitor leads?will be manually formed
byoperators with hand tools, inserted?into the circuit
boardbases, which will then be cut and bent. ?The metal
contactswill be likewise inserted.
8. The panel with inserted components will then be
inspectedand?put on trays for the soldering operation. In a
wavesoldering?machine, lead-tin solder will be deposited on
thebare copper?circuit as well as on the leads of theelectronic
components and?contacts. The panels will then bepassed through a
bath of?de-ionized water to eliminate allthe flux residue of
the?soldering. After a final visual andelectric inspection,
the?PCBA's will be packed and sent tothe stockroom.
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The PCBA will then be joined with other components in a
12-step assembly process to produce the
imported?rechargeableflashlight. This process includes printing
the?product name onthe housing of the flashlight with a Tampo
Print?Machine,attaching a switch, battery, the PCBA, bulb,
shield,?lens, bezel,and reflector into the housing,
electronically?testing thecompleted flashlight, packing the
flashlights between?two blistersheets which are electrically
welded, and packing the?product incorrugated boxes.
A total of 53.66 hours per thousand units
(or?approximatelythree minutes per unit) will be spent in
stuffing?the fabricatedcircuit board bases and joining these
completed?PCBA's with theother components to form the
flashlights. No time?estimate isgiven for the manufacture of the
printed circuit board?bases, butthe importer states that from the
description of?themanufacturing process provided by the circuit
board?manufacturer,it appears that substantial time will be spent
in?the actualfabrication of the boards, as well as in preparing
the?screensfor the silk-screen operation, designing the punching
die?ordrilling machine used to punch holes in the panel with
the?properhole allocation, and handling and temporary storage
of?thematerials between operations. The value of
the?materialsproduced in Mexico, if the value of the printed
circuit?board isincluded, will be approximately equivalent to 35
percent?of theentered value of the rechargeable flashlight. The
cost?ofassembling the PCBA and the flashlight in
Mexico,?includingoverhead, labor, and depreciation, will
be?approximatelyequivalent to 6 percent of the flashlight's
Whether the PCBA's are substantially
transformed?constituentmaterials for purposes of the 35% value-
content?requirement ofthe GSP.
LAW AND ANALYSIS:
Under the GSP, eligible products of a
designated?beneficiarydeveloping country (BDC) which are imported
directly?into theU.S. qualify for duty-free treatment if the sum
of the?cost orvalue of the constituent materials produced in the
BDC?plus thedirect costs involved in processing the eligible
article?in theBDC is at least 35 percent of the article's
appraised value?atthe time of its entry into the U.S. See 19
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The cost or value of materials which are imported into?theBDC to be usedintheproductionofthearticle,ashere,may?beincludedinthe35percentvalue-contentcomputationonlyif?theimportedmaterialsundergoadoublesubstantialtransformation?intheBDC.Thatis,thecopperlaminatedplasticboard,?diodes,resistors,capacitor,andothermaterialsimportedinto?MexicomustbesubstantiallytransformedinMexicointoanew?anddifferentintermediatearticleofcommerce,whichisthenused?inMexicointheproductionofthefinalimportedarticle,?therechargeableflashlight.See19CFR10.177(a).
A substantial transformation occurs when an article?emergesfrom a processwithanewname,character,oruse?differentfromthatpossessedbythearticlepriortoprocessing.?SeeTexasInstruments,Inc.v.UnitedStates,69CCPA152,?681F.2d778(1982).
Customs application of the double substantial?transformationrequirementinthecontextoftheGSPreceived?judicialapprovalinTheTorringtonCompanyv.UnitedStates,8?CIT150,596F.Supp.1083(1984),aff'd764F.2d1563(1985).The?court,afteraffirmingCustomsapplicationofthedouble?substantialtransformationconcept,said:
Regulations promulgated by Customs define the term"materials?produced" to includematerialsfromthirdcountriesthatare?substantiallytransformedintheBDCintoanewanddifferent?articleofcommerce.19CFR10.177(a)(2).Itisnotenoughto?transformsubstantiallythenon-BDCconstituentmaterialsintothe?finalarticle,asthematerialutilizedtoproducethefinal?articlewouldremainnon-BDCmaterial.Theremustfirstbea?substantialtransformationofthenon-BDCmaterialintoanew?anddifferentarticleofcommercewhichbecomes?"materialproduced,"andthesematerialsproducedintheBDCmust?thenbesubstantiallytransformedintothenewand?differentarticleofcommerce.Itisnotedthat19CFR?10.177(a)distinguishesbetween"merchandiseproducedinaBDC"?andthecostorvalueofthe"materialsproducedintheBDC"which?demonstratesthecontemplationofadual?substantialtransformationrequirement.
In Headquarters Ruling 047150, dated January 18, 1977,?weheld that PCBA'sproducedinSingapore,thenaBDC,?andincorporatedintorechargeablesecuritylights,wereZ
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substantially transformed constituent materials of the?securitylights for GSPpurposes.InSingapore,therequired?circuitdesignwasprintedonlargerawfiberglassorplastic?sheet,whichwasthenetched,cleaned,andlacqueredwithan?anti-soldermaterial,punchedtoformindividualcircuitboard?basesoftherequiredsize,drilledwithholes,andstuffedwith?componentswhichweresolderedintoposition.Westatedthatthis?processresultedinanewanddifferentarticleofcommercehaving?aspecificandnewusedifferentfromitsdiscretecomponents,?andthattheprocessinginvolvedconstitutedmorethana?mereassembly.Accordingly,weheldthatthevalueofthePCBA?couldbecountedtowardthe35%value-contentrequirement.
The process you describe in your letter is nearly?identicalto that involvedintheabove-describedruling.Inboth?cases,theprocessingintheBDCinvolvesetchingthePCB?withconductivepaths,printingtheboardwithacircuit?design,drillingholesintheboard,mountingthecomponents,?cuttingtheboardtospecificdimensions,andwavesolderingthe?componentsintoplace.Thefinishedbatterychargerboardinboth?casesisanewanddifferentarticle,withanewnameanda?functiondifferentfromitscomponentparts.Furthermore,the?PCBAisanarticleofcommerce,andnotmerely"materialin?process,"asevidencedbythePCBA'savailabilityforpurchase?fromtheunrelatedMexicanfirm.SeeAztecaMillingCo.v.?UnitedStates,SlipOp.88-168(CITDecember20,1988).?Finally,becausethebatterychargerboardwillitselfbe?substantiallytransformedinMexicobyitsincorporationintothe?rechargeableflashlight,whichhasadistinctname,use,and?character,thematerialsimportedintoMexicowillhaveundergone?therequireddoublesubstantialtransformation.
The operations described are not the simple or minimal?typemeant to beprecludedbyT.D.76-100.SeeC.S.D.85-25,?datedSeptember25,1984(HQ071827)(Assembly-typeoperations?whichareminimalandsimple,asopposedtocomplexormeaningful,?willnotresultinsubstantiallytransformedconstituent?materials;explainsandoverrules,inpart,T.D.76-100).The?creationoftheprintedcircuitboardsfromtheimportedsheetsof?copper-laminatedphenolicplasticisnotanassemblyoperationat?all,intheusualsenseofamerejoiningoftwoormoreparts,?seeTexasInstrumentsIncorporatedv.United?States,681F.2d778,784(CCPA1982),butasubstantial?manufacturingoperation.Wehavepreviouslyheldthatanassembly?ofaPCBAfromafabricatedprintedcircuitboardandother?componentsinanoperation^
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similar to that you describe was a "complex and?meaningful"operation withinthemeaningofC.S.D.85-25.SeeHQ?553217,datedJune22,1986.Theassemblyoftheflashlight?itselfmaynotconstituteacomplexormeaningfulassembly?process.However,undersection10.195(a)(2)(ii)(D),Customs?Regulations,implementingtheCaribbeanBasinEconomicRecovery?Act(CBERA)(19U.S.C.2701-2706),asimpleassemblyofasmall?numberofcomponentsshallnotbetakentobea"simplecombining?orpackagingoperation"(asopposedtoacomplexor?meaningfuloperation),ifoneofthecomponentsisfabricatedin?thebeneficiarycountrywheretheassemblytookplace.Because?thestatutoryaimoftheGSPissimilartothatoftheCBERA,and?thecountryoforigincriteriaofthetwostatutesare?nearlyidentical,wefindthattheprincipleof19?CFR10.195(a)(2)(ii)(D)shouldapplyinthiscase,wherea?componentoftherechargeableflashlightassembledinMexicoisa?printedcircuitboardfabricatedinMexico.Forthesereasons,we?findthattheassemblyofthePCBA'sandothercomponentsto?producetherechargeableflashlightsisacomplexandmeaningful?assemblyoperationwithinthemeaningofC.S.D.85-25.
The cost or value of the PCBA's assembled in Mexico fromU.S.?origin componentsandaprintedcircuitboardfabricatedinMexico?maybeincludedtowardsthe35percentvalue-contentrequirement?oftheGSPasconstituentmaterialcosts.
John Durant, Director
Commercial Rulings Division
cc: CLA-2 CO:R:C:V:BJO:MM:FNL 3-3-89