MAR-2-05 CO:R:C:V 734518 RSD

Donald L. Fisher, Esq.
Horton, Whitely & Cooper
1900 Embarcadero, Suite 201
Oakland, California 94606

RE: Country of origin marking of imported printed circuit boards that will have a central processing unit (CPU) mounted; motherboards; electronics; computers; testing; substantial transformation; 19 CFR 134.1; 19 CFR 134.35

Dear Mr. Fisher:

This is in response to your letter dated February 10, 1992, submitted on behalf of Micronics Computers, Inc. of Fremont, California, regarding a motherboard which will have a central processing unit (CPU) chip implanted on it to make a completed motherboard. We have received two additional submissions dated September 21, 1992, and February 26, 1993. Two meetings were held at our offices on August 13, 1992, and February 4, 1993, to discuss this matter. A sample motherboard with the CPU was also submitted.


Micronics Computers, Inc, imports, designs, manufactures and sells 386 and 486 MHz printed circuit boards (motherboards) for use in personal computers. Micronics subcontracts the initial subassembly of the boards to a company located in Taiwan. As imported, the motherboards do not contain the CPU. It is our understanding that the boards are otherwise complete and have all the other chips mounted on them. However, without the CPU the boards cannot function in a personal computer.

Micronics is the only company in the United States to receive the boards in their unassembled and imported condition. They claim that the boards are never resold in their imported condition. At its facilities, Micronics implants the CPUs onto the boards. The company subjects the fully assembled boards to testing procedures to ensure their operability.

The CPU is the brains of the personal computer. It is a complex collection of electronic circuitry which directs electrical signals to all parts of a computer system. The CPU decides what to do with the instructions that the programmer gives to the computer and assures that the assigned tasks are carried out properly. It extracts the instructions out of the memory and executes them. The CPU, clock, and main memory together make up a computer. A complete computer system requires the addition of control units, input, output and storage devices, and an operation system before any application programs can be run.

The materials and instruments used to mount the CPU on the board varies depending on the motherboard/CPU configuration being assembled and according to customer specification. The actual insertion of the CPU onto the motherboard involves the careful implanting of 168 fragile pins into their respective sockets on the boards. It is a delicate and specialized procedure designed to minimize micro-cracks which can easily result from a misplaced pin, that would destroy the utility of the entire board.

Micronics uses two different assembly processes known as "ceramic mount" and "surface mount". The ceramic mounted CPU requires precise positioning and pin setting. The surface mounted CPU is soldered onto the board in a separate assembly station from the ceramic mount. After the assemblers thoroughly clean the area, they apply a glue-like chemical solution to solder the chip. Microscopic debris is then cleared from the application area. Both types of assemblies require the assemblers to perform board-activation steps including memory chip configuration, "dip switch" setting and jumper setting. Based on the particular work-order which a technician receives, the technician must plug the correct memory chips into the board. These memory chips may be permanent or placed simply for the purpose of allowing the CPU to be implanted and tested under normal operation conditions, or a combination of both circumstances. In the latter case, once the CPU is incorporated and the board determined to be functional, any temporary memory chips are removed. Upon receiving a finished board, the customer would replace them with permanent chips.

Technicians must also set the dip and jumper switch systems to accommodate the motherboard to the user's memory and peripheral configuration. Because the dip and jumper switches have different electronic capacities or values, the assembler must integrate the correct switches with the memory and CPU chips he or she is using. If the work order calls for other add-on peripherals, the switch systems must also be set to interface with them.

In order to ensure that the boards can function properly, Micronics subjects them to an elaborate testing and repair procedure. Micronics writes and adapts software programs to test a CPU's operation in a motherboard in strict accordance with customer specifications. Micronics typically runs some 20 different sub-testing options, depending on the assembler's motherboard/CPU/memory configuration. Logistically, each of the nine test stations is equipped with its own monitor connected to a common printer. The monitor makes it easy for both tester and assembler to spot and locate a potential problem with the board. Because a problem can originate from the motherboard itself, or the CPU hardware, or the implanting process (such as microscopic dirt infiltrating the system) or some connection between the CPU and the memory chips specified, the test team is continually in dialogue with the assemblers concerning the work-orders and the assembly process.

Where a board fails a testing protocol, the test team routes it to a repair station where the problem is analyzed, and the CPU/memory configuration is re-implanted. This repair station is kept separate from the mainstream assembly process both for efficiency and quality control purposes.

In a step called final configuration, a group of assemblers different from those who incorporated the CPU into the motherboard receive the board after it has been tested and verify that the proper tests were done in accordance with the work order performance requirements. They remove any temporary auxiliary components which were incorporated into the board simply for the purpose of testing the board with the CPU. These components might include certain memory chips or adapter cards which the customer plans to incorporate on its own, but which must be included with the CPU for purposes of properly incorporating and testing it. There is then a final item-by-item inspection process which must be undertaken before the boards are sent to the packaging department.

The value of the CPU, assembly cost of implanting it and the multiple testing procedures account for 52% to 68% of the value of the finished boards depending on the particular board. It is estimated that the CPU costs between 3 or 4 times more than the raw board. Micronics also represents that it employs skilled technicians to do the assembly and testing work involved in implanting the CPU. They earn between $14 to $22.56 per hour to perform this work.


Does the implanting of a CPU chip onto an otherwise fully populated motherboard and the accompanying testing and other processing substantially transform the board?


Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co. 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as the country of manufacture, production or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of the marking laws and regulations. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in manufacture which results in an article having a name, character or use differing from that of the constituent article will be considered substantially transformed and that the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked (see section 134.35, Customs Regulations).

Essentially what is happening in this case is the assembly of two finished components, the motherboard and the CPU. In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 6 CIT 204, 573 F.Supp. 1149 (1983), aff'd, 2 Fed Cir. 105, 741 F.2d 1368 (1984). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. In several rulings Customs has determined that the complete assembly of electronic components into a completed printed circuit board was a substantial transformation. In some cases, the printed circuit board was incorporated into larger units. For example, in C.S.D. 85-25, 19 Cust Bull 844 (1985) (HRL 071827, September 24, 1984), Customs held that for purposes of the Generalized System of Preferences, the assembly of a large number of fabricated components onto a printed circuit board in a process involving considerable amount of time and skill results in a substantial transformation. In that case in excess of 50 discrete fabricated components (e.g., resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled. In HQ 733159, July 23, 1990, Customs held that the assembly of a large number of components, including a transformer, on a printed circuit board and incorporating the board into a telephone system resulted in a substantial transformation. In HQ 733690, February 22, 1991, it was determined that blank boards were substantially transformed by assembling various electronic components onto the blank boards and placing the completed circuit boards into larger systems such as computer power units. We noted that the blank circuit boards have no function except to serve as a part for a completed circuit board with various electronic components mounted onto it, which in turn will go into a larger system. Insertion of the electronic components onto the blank board, plus the assembly of the populated boards into a larger unit, changed the nature of the board and caused it to lose its separate identity. Customs ruled that the complete assembly of the electronic components into a completed printed circuit board was a substantial transformation because the assembly process was complex and involved a considerable amount of skill and time. See HQ 734021, May 21, 1991.

In HRL 553945, dated March 5, 1986, Customs ruled that the partial assembly in the U.S. of electronic components in a printed circuit board constituted a substantial transformation. In that case, 400 components of mixed origin (including microelectronic circuits, filters, resistors, transistors, diodes, and capacitors) were inserted on the blank boards in the United States. Customs found that the identity of each component was lost and was subordinated and merged into a new article. After the U.S. operations, approximately 100 additional components were added in Mexico.

In HQ 734093, August 8, 1991, we concluded that the incorporation of the CPU and the assembling of the other components in Israel, creates a new article of commerce, with a distinctive name, character, and use. In finding a substantial transformation in Israel, we noted that 83% of the number of components were mounted onto the boards in Israel and that the most important component of the motherboards, the CPU, was made in Israel and was assembled onto the printed circuit boards in Israel. We pointed out that although the assembly in Israel was a partial one, after the CPU was put on the board, it was capable of processing information. We noted that Customs has previously ruled that the stuffing of motherboards by incorporating a central processing unit results in a change of tariff classification. See HQ 554581, July 2, 1987.

In the same ruling, we found that the further assembly and the processing in the U.S. did not substantially transform the boards. We explained that the components added to the boards in the U.S., while necessary for having the boards function in a computer system, were of less significance. These components were largely connectors so that the boards can be attached to other boards. We viewed the processing performed in the U.S. as a finishing operation which does not result in a change in name, character or use. Moreover, it was our opinion that the essential character was given to the boards in Israel. The finishing of these boards in the U.S. did not change their essential character.

In the cases cited above, a large number of individual components were mounted onto the board. They involved a series of multiple operations of precision and skill. In this case, the only component implanted onto the board is the CPU chip. The rest of the processing consists of switch setting, testing, and other minor adjustments. This is a difficult question because we recognize the importance of the CPU. It is by far the most important chip on the board, which allows the board to process information. Its value is equal to all the other components on the board and Customs has ruled that the implantation of the CPU changes the tariff classification.

Nevertheless, we believe that the most significant aspect of the CPU comes from its complex development and manufacture, not from its implanting on the motherboard. When the boards are imported into the United States, they are fully populated except they lack the CPU. They are motherboards which lack a CPU, but they are otherwise complete. The motherboards are highly complex articles consisting of numerous components and computer chips which are in their own right complex pieces. Although the implanting of the CPU requires some skill and precision, we do not believe that it would qualify as a complex and meaningful assembly.

As stated above, Customs has previously ruled that the assembly of a large number of components onto a printed circuit board was a substantial transformation (See also HQ 734021). Notwithstanding that the CPU is the most important component, it is still only one component. We believe that assembling only one component, which is already fully manufactured, will not substantially transform the board even if it is the most important component. The identity of the motherboard is not altered when the CPU is implanted, it remains a motherboard. It is recognizable as a motherboard both before and after the CPU is implanted. Even without the CPU installed, it is not a different article, it is still a motherboard without the CPU. As imported it is dedicated to use as a motherboard and clearly cannot be put to any other use. We note that a substantial amount of work has already been done on the board. The fact that the board cannot function until the CPU is installed does not that mean that there has been a change of use. Under the rationale put forth by Micronics, any assembly of essential components would be a substantial transformation.

The complex nature of the work that Micronics is doing is in the testing of the boards. The precision testing and the quality assurance that the boards function properly is the reason why Micronics charges a premium for the finished boards. Despite its complexity, testing without other complex operations will not result in a substantial transformation. (See HQ 712193, February 12, 1980, (80-227). When part of a series of other operations, Customs has ruled that testing will contribute to establishing a substantial transformation. We do not believe that the assembly of one component onto the motherboards is such a complex operation. We do not agree that because the boards could be sold without the extensive testing means that the boards were substantially transformed as result of the testing. The other operations such as jumper setting and dip switch setting that Micronics is performing may require some knowledge and training but they are not especially complex.

Micronics argues that under the principle set forth in Data General Corp. v. U.S., 4 CIT 182 (1982), the implanting of the CPU on the motherboard would substantially transform the board. In Data General, the Court of International Trade held that a PROM (programmable read-only memory) fabricated in a foreign country but programmed in the United States for use in a computer circuit board assembly was substantially transformed. However, the PROMs in the Data General, are distinguishable from the motherboards that Micronics is importing in that the PROM can be programed for many uses while the motherboards by virtue of the integrated circuits on the board can be used only as CPU motherboards and cannot perform any other function. By programing the PROM, Data General was assigning a use to it, while the use of the motherboard has already been determined when Micronics imports it. Again, simply because the boards cannot function until the CPU chip is installed does not mean that the use has changed.

Micronics also pointed out that the implanting of the CPU results in a change in tariff classification. A change in a tariff classification, while supportive of a substantial transformation does not itself demonstrate that the processing has resulted in a substantial transformation. See Belcrest Linens v. United States 6 CIT 204 ---F.Supp. (1983), aff'd 2 Fed.Cir. 105, 741 F.2d 1368 (1984), concerning the change in tariff classification consideration. See also HQ 734091, June 2, 1991. In view of the fact that this is merely an assembly operation of just two components, we find that the shift in tariff classification is not conclusive of a substantial transformation.

Similarly, an increase in value does not automatically indicate that there is a substantial transformation. See National Hand Tool Corp. v. United States, Slip Op. 92-61 (April 27, 1992), aff'd, 989 F.2d 1201 (1993). Moreover, a great deal of the value comes from the development and manufacture of the CPU and not its mounting on the board.

Accordingly, we find that the motherboards are not substantially transformed by the implanting of the CPU on the board. Therefore, the board must be marked to indicate its country of origin. It is acceptable to indicate the origin of the CPU chip and that the final assembly and testing of the board is done in the United States as long as it is in compliance with the requirements of 19 CFR 134.46 that the country of origin marking is in close proximity, of a comparable size, preceded by made in, product of, or other words of similar meaning to the U.S. reference. Moreover, if a CPU of foreign origin is used, then the country of origin of the CPU must be also disclosed.


The imported motherboards are not substantially transformed by the implanting of the CPU, testing and other processing that is performed on the boards in the United States.


John Durant, Director
Commercial Rulings Division