MAR-2-05 R:C:S 559255 AT

David M. Alexander, Esq.
Stanford Financial Square
2600 El Camino Real
Palo Alto, California 94306

RE: U.S. Government Procurement; Final Determination - concerning the country of origin of CardDock units; Substantial Transformation; Title III, Trade Agreements Act of 1979 (19 U.S.C. 2511); Subpart B, Part 177, Customs Regulations (19 CFR 177.21 et seg.)

Dear Mr. Alexander:

This is in response to your requests dated June 7 and 12, and July 21, 1995, for a final determination under Subpart B of Part 177, Customs Regulations (19 CFR 177.21 et seq.). Under these regulations, which implement Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. 2511 et seq.), the Customs Service issues country of origin advisory rulings and final determinations as to whether, for the purpose of granting waivers of certain "Buy American" restrictions in U.S. law or practice for products offered for sale to the U.S. Government, an article is or would be a product of a designated foreign country or instrumentality.

This final determination concerns the country of origin of CardDock units which are being offered to the United States Air Force ("U.S. Air Force") in a procurement designated under U.S. Air Force Solicitation No. F01620-94-R-A430, also referred to as "Desktop V". You are counsel to Greystone Peripherals, Inc. ("Greystone"), a U.S. company that will manufacture the CardDock units in question. Accordingly, Greystone is a party-at-interest within the meaning of 19 CFR 177.22(d)(1), and is entitled to request this final determination.

Contained in your submission is material which you claim as business proprietary information and request that Customs make no public disclosure of this information. We have agreed to your request. The confidential information is bracketed and will not be disclosed in copies of this final determination made available to the public. Should other persons request public disclosure of the information under the Freedom of Information Act or otherwise, this office will provide you with the opportunity to defend your interests in confidential treatment.

FACTS:

Your submission states that Greystone intends to manufacture CardDock units in the United States to sell to the U.S. Air Force ("Air Force"), under a procurement designated under Air Force Solicitation No. F01620-94-R-A430, also referred to as "Desktop V". In the United States the CardDock units will be manufactured from parts and components of U.S., and [] origin. The CardDock unit is a device which is designed to be installed in IBM PC compatible computers. The CardDock unit accepts electronic devices known as "PCMCIA cards" for the purpose of interfacing those PCMCIA cards with the computer in which the CardDock unit is installed. The PCMCIA cards which are inserted into a CardDock unit can therefore be accessed by the computer in which the CardDock unit is installed. These cards include hard disk cards, modem cards, sound cards, network cards, memory cards and other electronic components designed to work in conjunction with computers operating under the MS-DOS/PC-DOS operating systems.

A CardDock unit consisting of hardware and software is installed in a desktop computer by the purchaser of the CardDock unit. The combination of the CardDock hardware and software allows the computer to access the functionality and features of numerous PCMCIA type cards which may then be inserted into the PCMCIA slots on the CardDock unit as if the functionality of those cards had been built into the desktop machine itself, that is, as if a hard disk drive PCMCIA card that is inserted into the CardDock unit was a hard disk actually installed inside the desktop machine.

Components of CardDock

The CardDock consists of several components. One component is an interface card ("ISA card") which is inserted into an Industry Standard Architecture slot or bus inside the desktop computer. This card connects the CardDock Main unit with the desktop computer. The ISA card is connected to the CardDock Main Unit ("Main Unit") through four cables each of which is plugged into the ISA card on one end and into the Bay Board circuit board within the Main Unit on the other. The Main Unit consists of an injection molded ABS plastic frame and a printed circuit board (also known as the Bay Board), containing electronic components and connectors. The Bay Board is electrically and mechanically connected to the frame.

The Main Unit, which is electrically connected to the ISA card by the four cables attached to the Bay Board, is inserted into the desktop computer and secured in a half height "drive bay" with four supplied mounting screws.

The CardDock unit includes a 22 page printed Operation's Manual and a 72 page printed User's Manual and one 3 1/2 inch floppy disk which contains the software that is required for the CardDock unit to function.

The CardDock unit cannot function unless the user installs the software contained on the supplied floppy disk into the user's system in such a way that this software is accessible by the computer's central processing unit prior to any attempted use of the CardDock unit. Typically, this software is made accessible by requiring the desktop computer to load the software into the desktop computer's memory system each time the desktop is powered up.

Manufacturing Steps

Two integrated circuits, manufactured in the U.S., and one integrated circuit manufactured in [] are purchased by Greystone in the U.S. and exported to [] to be used in the manufacture of the ISA board. These three circuits represent the principal electronic component cost for the ISA board.

In [], the ISA board will be manufactured and these three integrated circuits will be installed on the [] manufactured circuit board, together with other electronic components in the nature of diodes, resistors, capacitors and integrated circuits. The completed ISA boards are then exported to the U.S. for further processing.

The injection molded plastic frame assembly is entirely manufactured in [] and then exported to the U.S. to be used by Greystone in the manufacture of CardDock units. The frame is created using tools/dies manufactured in [] and owned by Greystone.

A circuit board to be mated to the frame, namely the "Bay Board" is designed and manufactured in the U.S. After the U.S. manufacture of the circuit board, electronic components and electrical connectors are installed on the board in the U.S. The nature of the components installed on the board is as follows. Numerous small resistors, of [] origin, two wire connectors of U.S. origin, four header connectors of [] or [] origin, two PCMCIA connectors of U.S. origin are installed onto the circuit board to make the Bay Board. After the Bay Board has been manufactured, it is physically examined for visually-apparent defects. Once the Bay Board has been physically inspected for defects, two electrical connections are made between the Bay Board and the frame by inserting connectors from the frame into each of two connectors on the Bay Board. Next, the Bay Board is precisely physically positioned in reference to the frame by the insertion, one at a time, of four screws. This positioning must be done carefully by a trained worker. If the Bay Board is not positioned properly the connectors will be damaged and the unit will not be functional.

Thereafter, the Main Unit, consisting of the frame and the Bay Board are tested. Each and every Main Unit and each and every PCMCIA card connector on each Bay Board will be individually tested in the U.S. Only one Main Unit can be tested at a time and each Main Unit must be tested on an MS-DOS type computer. The testing is accomplished as follows:

The Bay Board is connected to an ISA board through a U.S. designed Test Fixture unit. The testing suite is then implemented through a U.S. designed test software program which provides a full functional testing of the Main Unit. Next, a PCMCIA card is inserted into the left hand CardDock PCMCIA connector.

Subsequent to the insertion of the PCMCIA card into the lefthand connector, the test operator loads the custom test software (which software was designed and programmed in the U.S.) into the desktop computer. Under the tester's direction, the test software commences a series of test operations. These operations test for

a) the voltage required for the inserted PCMCIA card, three or five volts;

b) the electrical integrity of each of the 68 connector pins beginning on the ISA card and into the Bay Board and continuing through the connections to the PCMCIA card inserted into the CardDock unit;

c) the software present on the PCMCIA card to determine its revision, compatibility and functionality; d) whether the PCMCIA card is responding as anticipated. PCMCIA card response means a determination, for example, if the inserted card is a hard drive, if it is properly reading and writing information; if it is a memory card, if it is properly storing and retrieving information and so forth.

A variety of types of PCMCIA cards are used in testing the CardDock units. If the left CardDock slot passes the test, then the same or different PCMCIA card is inserted into the right CardDock slot and the test suite is repeated. If the CardDock unit passes the test suite, it is physically disconnected from the Test Fixture Card. After the Main Unit passes these tests, a serial number tag is affixed to the frame.

Next, the mounting hardware of U.S. origin is sealed in a plastic bag and added to the components of the completed CardDock unit.

Finally, one end of each of the four cables of [] origin is physically and electrically attached to the ISA card and the other end of each of the four cables is electrically and physically connected to the Main Unit such that the IAS card, the cables and the Main Unit form a finished product, a CardDock unit. The CardDock unit is then packaged into a cardboard box with the two manuals, the installation software and the warranty registration card.

In conclusion, you assert that the foreign parts (ISA circuit cards, plastic frame assemblies and cable connectors) which are used to manufacture CardDock units in the United States are substantially transformed as a result of the assembly operations described above, and thus the CardDock units may be considered as products of the United States.

ISSUE:

Do the assembly operations performed in the United States in the manner described above effect a substantial transformation of the foreign components such that the CardDock units may be considered as products of the United States?

LAW AND ANALYSIS:

As prescribed under Title III of the Trade Agreements Act of 1979, the origin of an article not wholly the growth, product, or manufacture of a single country is to be determined by the rule of substantial transformation. 19 U.S.C. 2518(4). Such an article is not a product of a country unless it has been substantially transformed there into a new and different article of commerce with a name, character, or use different from that of the article or articles from which it was transformed.

The inquiry must resolve whether, under the facts presented in this case, the processing performed in the U.S. results in an article having a new name, character or use. A secondary, supporting inquiry is whether the operations are complex, require skill, entail expense, or add value; these findings are ordinarily corroborative of the new name, character or use finding. In our experience, these inquiries are highly fact-and-product specific; generalizations are troublesome and potentially misleading. The determination is in this instance "a mixed question of technology and customs law, mostly the latter." Texas Instruments, Inc. v. United States, 681 F.2d. 778, 783 (C.C.P.A. 1982).

In making this final determination, we must rely upon the judicial and administrative precedents that have considered the issue of substantial transformation.

According to your submission, the manufacturing of the Bay Board in the U.S. involves installing electronic components and electrical connectors of both domestic and foreign origin onto a U.S. manufactured circuit board. Thus, the first issue that must be determined is what is the country of origin of the Bay Boards.

In C.S.D. 85-25, 19 Cust Bull 844 (1985), Customs held that for purposes of the General System of Preferences, the assembly of a large number of fabricated components, including resistors, capacitors, diodes, integrated circuits, sockets and connectors, onto a printed circuit board was a substantial transformation. Similarly, in this case, we find that the foreign electronic components and electrical connectors are substantially transformed as a result of being installed onto the U.S. origin circuit boards during the manufacturing of the Bay Boards. The name, character and use of the foreign components changes as a result of the operations performed in the U.S. to make the Bay Boards. Accordingly, the country of origin of the Bay Boards that are to be used in the manufacture of CardDock units in the U.S. by Greystone, is the U.S. Also, consistent with Customs holding in C.S.D. 85-25, we find that the two integrated circuits of U.S. origin and the integrated circuit of [] origin which are installed onto a [] manufactured circuit board with other electronic components (diodes, resistors, capacitors and integrated circuits), to be used in the manufacture of the ISA Boards in [] are substantially transformed by the [] operations. Accordingly, the country of origin of the ISA Boards exported from [] to be used in the manufacture of the CardDock units in the U.S. by Greystone, is []. Next, as stated in your submission, foreign components consisting of ISA boards, plastic frame assemblies and connector cables, will be further processed, and assembled with U.S. origin Bay Boards to manufacture the CardDock units in the U.S. Thus, the critical issue that must be addressed in determining the country of origin of the CardDock units is whether the foreign components are substantially transformed as a result of the operations performed in the U.S. That is, does the name, character or use of the foreign components change as a result of the processing and assembly operations performed to manufacture the CardDock units in the U.S.

Customs has previously considered the issue of whether the processing and assembly of electronic components into a finished article results in a substantial transformation of the individual components.

In HQ 711967 (March 17, 1980), Customs held that television sets which were assembled in Mexico with printed circuit boards, power transformers, yokes and tuners from Korea and picture tubes, cabinets, and additional wiring from the U.S. were products of Mexico for country of origin marking purposes. The U.S. and Korean parts were substantially transformed by the processing performed in Mexico and all the components lost their individual identities to become integral parts of the new article--a television. In HQ 730952 (May 18, 1988), Customs held that electrical components consisting of coils, capacitors and cases were substantially transformed as a result of being assembled into plug-in adapters (e.g., rectifiers). Customs stated that the individual parts lost their separate identities as a result of the assembly operation in that they became integral parts of a new article--a plug-in adapter. In HQ 732350 (June 23, 1989), Customs held that foreign transducers which were assembled with U.S. components to make hearing aids in the U.S. were substantially transformed as a result of the U.S. operations. Customs stated that the transducers lose their separate identity as a result of the assembly operation in that they become an integral part of a new article of commerce--a hearing aid--with a new, name, character and use. In HQ 734045 (October 8, 1991), Customs held that foreign subassemblies and other components imported into Hong Kong which were processed and assembled with other domestic components to make laptop and notebook personal computers were substantially transformed as a result of the Hong Kong operations. Customs stated that the subassemblies and other components when combined together to make the computer lose their separate identity, acquire new attributes, and become part of a new article of commerce--the personal computer. Customs also stated that the Hong Kong processing results in an article that has a new name, that of a personal computer, a new character that is visibly different than any of the individual components, and a new use in that it can process and display information.

Based on the totality of the circumstances of this case and consistent with the Customs rulings cited above, we find that the foreign components that are processed and assembled with U.S. origin Bay Boards (an essential component of the finished article) in the manufacture of CardDock units in the U.S., in the manner described above, are substantially transformed as a result of the operations performed in the U.S. The name, character, and use of the ISA boards, frame assemblies and connector cables change as a result of the assembly operations performed in the U.S. Like the electrical components in HQ 730952 and the transducers in HQ 732350, the ISA boards, frame assemblies and connector cables after being assembled with U.S. origins Bay Board lose their separate identity and become an integral part of a CardDock unit as a result of the assembly operations. The character and use of the foreign components are changed as a result of the assembly operations performed in that the finished article, a CardDock unit, is visibly different from any of the individual foreign components and acquires a new use, which is the processing of information.

Based on the reasons stated above, we find that the foreign components (ISA boards, frame assemblies and connector cables) which are assembled with U.S. origin Bay Boards into CardDock units in the United States, in the manner described above, are substantially transformed as a result of the U.S. operations. Accordingly, the country of origin of the CardDock units is the United States. HOLDING:

Based on the facts presented, foreign ISA boards, frame assemblies and connector cables which are assembled with U.S. origin Bay Boards into CardDock units in the United States, in the manner described above, are substantially transformed as a result of the U.S. operations. Accordingly, the country of origin of the CardDock units is the United States.

Notice of this final determination will be given in the Federal Register as required by 19 CFR 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 CFR 177.31, that Customs reexamine the matter anew and issue a new final determination.

Any party-at-interest may, within 30 days after publication of the Federal Register notice referenced above, seek judicial review of this final determination before the Court of International Trade.

Sincerely,

Harvey B. Fox, Director
Office of Regulations and Rulings