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).

FACTS:

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 imported?componentsas follows:

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 andcleaned.

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 mask.

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. R

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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 final?value.

ISSUE:

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 U.S.C. 2463. d

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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.

CONCLUSION:

The cost or value of the PCBA's assembled in Mexico fromU.S.?origin componentsandaprintedcircuitboardfabricatedinMexico?maybeincludedtowardsthe35percentvalue-contentrequirement?oftheGSPasconstituentmaterialcosts.

Sincerely,

John Durant, Director
Commercial Rulings Division
L

cc: CLA-2 CO:R:C:V:BJO:MM:FNL 3-3-89