MAR-2-05 CO:R:C:S 735346 AT

Kevin P. Connelly, Esq.
Seyfarth, Shaw, Fairweather & Geraldson
815 Connecticut Avenue, N.W.
Washington, D.C. 200006-4004

RE: U.S. Government Procurement; Final Determination - concerning the country of origin of Auto/Marine Adapters for Computers; 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. Connelly:

This is in response to your request dated August 31, 1993, as supplemented on April 28, 1994, 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 certain auto/marine adapters for computers which are being offered to the U.S. Federal Bureau of Investigation ("FBI") in a procurement designated under FBI Solicitation No. 6178, also referred to as "the solicitation". You are counsel to Laptops, Etc. ("Laptops"), a U.S. company that will either manufacture or import the auto/marine adapters in question. Accordingly, Laptops is a party-at-interest within the meaning of 19 CFR 177.22(d)(1), and is entitled to request this final determination. A conference was held at Customs Headquarters on June 7, 1994, with representatives from Customs, Laptops and yourself to further discuss the assembly operations of the auto/marine adapter. On June 9, 1994, supplemental information detailing the assembly operation of the auto/marine adapter was submitted in furtherance of that meeting.

Contained in your submissions 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 Laptops intends to either manufacture auto/marine adapters in the U.S. or import auto/marine adapters from a vendor that manufactures the merchandise in the Netherlands to sell to the FBI under the solicitation. The FBI plans to use the auto/marine adapter in conjunction with a laptop computer. The auto/marine adapter is plugged into a cigarette lighter (or equivalent) on a boat or automobile and is also connected to a laptop. The laptop user may then use the auto/marine adapter to recharge the laptop's batteries or as a power source in which case the user may work on the laptop while it is connected to the auto/marine adapter.

The parts and components used in the United States (the Netherlands in Scenario II) in the production of auto/marine adapters consist of the following:

1. The Voltage Regulator Subassembly - consists of the DC to DC converter, Power Interface Board Assembly and Power Distribution Board Assembly.

a. The DC to DC converter, converts 9 to 24 volt input to 12 volt output. The voltage may vary according to the voltage requirement of the laptop.

b. The Power Interface Board Assembly (PIBA), which is attached to the DC to DC converter provides for power input from the Cigarette Adapter Cable.

c. The Power Distribution Board Assembly (PDBA), which is attached over the PIBA provides the interface with power management and distribution functions of the auto/marine adapter. The PDBA interfaces with the Computer Adapter Cable's power output function. 2. Cigarette Adapter Cable - a subassembly which plugs into the cigarette lighter to receive power. The LED light is activated when the connection is made. The other end of the adapter cable is one inch of exposed wire which is soldered to the DC to DC converter. The parts which make up this subassembly consist of (1) 5 foot, 18 AWG, 2 conductor, 105C, insulated electrical wire; (2) cigarette adapter connector; and (3) strain relief plug.

3. Computer Adapter Cable - a subassembly in which one end is plugged into the laptop and the other is soldered to the DC to DC converter. The parts which make up this subassembly consist of: (1) 5 foot, 18 AWG, 2 conductor, 105C, insulated electrical wire; (2) Barrel connector, center positive, 1/4" OD 1/8" ID; (3) ferrite component (used to reduce radio and electrical frequency interference).

4. LED Board Subassembly (LEDBSA) - indicates the power- up condition of the auto/marine adapter. The LEDBSA is attached to the PDBA and fits into a recessed socket in the adapter case.

5. Adapter case - Case that encases the electronic components of the auto/marine adapter, and protects the components from the environment.

6. 10 K Trimpot - Adjusts the voltage for precise voltage conversion. This part is critical in preventing damage to the laptop computer when used with the auto/marine adapter. The 10 K Trimpot is an integral part of the PBDA.

You state that the DC to DC converter is manufactured in Taiwan, while the remainder of the components and component parts are manufactured in the U.S. (Scenario I) or the Netherlands and/or U.S. (Scenario II).

You indicate that the entire processing/assembly operation and testing of each auto/marine adapter takes approximately [ ]. You also indicate that the DC to DC converter is the single most expensive component of the auto/marine adapter, representing approximately 72 percent of the total manufacturing costs of the auto/marine adapter. Furthermore, it is your understanding that the DC to DC converter is classified under subheading 8536.69.0060 HTSUS while the auto/marine adapter is classified under subheading 8504.40.0004.

The two scenarios for which you have requested a final determination are described below: Scenario I

In Scenario I, [ ] ships DC to DC converters of Taiwanese origin to its California location. [ ] subsequently will ship the converters to Laptops from the California location as Laptops orders these items. Laptops places the DC to DC converters into inventory after the items pass receiving inspection.

Laptops acquires U.S. origin LED lights, adapter cases, ferrite components, 10 K trimpots, fuses, cigarette adapter connectors, strain relief plugs, 18 AWG wire, barrel connectors, lens covers, and other U.S. origin parts from multiple U.S. suppliers. After passing through receiving inspection, Laptops places these items into inventory. After receiving an order for an auto/marine adapter, Laptops pulls the parts from inventory and again visually inspects all parts for defects.

Laptops next manufactures the Computer Adapter Cable and Cigarette Adapter Cable subassemblies from parts pulled from inventory. This process consists of [ ]. Then wires 1 and 2 are tested for conductivity. Wires that fail the conductivity test are scrapped. In the event that wire 1 passes, it becomes a computer adapter cable. In the event wire 2 passes, it becomes a cigarette adapter cable.

Laptops next works on the voltage regulator subassembly. After visually inspecting the DC to DC converter and testing the converter with the multimeter for continuity, the manufacture of the Power Interface Board Assembly occurs. This consists of [ ]. At the conclusion of these operations, the DC to DC converter, Power Interface Board Assembly and Power Distribution Board Assembly are in a fully integrated finished form and stocked as a single unit subassembly, known as the Voltage Regulator Subassembly.

Next, the cigarette adapter is soldered to the Power Interface Board Assembly (PIBA) portion of the Voltage Regulator Subassembly. This consists of [ ]. Following this operation, the Computer Adapter Cable is soldered to the Power Distribution Board Assembly (PDBA). This consists of [ ]. Then the LED Board Subassembly is soldered to the Voltage Regulator Subassembly. This involves [ ]. This light will light up when the auto/marine adapter is plugged into a power source.

After these operations are completed, the various subassemblies are assembled together creating the auto/marine adapter. First [ ]. Six screws are installed into sockets which are checked for proper torque, fit and seal of the case. Subsequently, the completed auto/marine adapter is visually inspected and tested for correct voltage. Scenario II

The process in Scenario II is identical to Scenario I, with the exception that the steps performed in the United States in Scenario I, are to be performed in the Netherlands by a company from which Laptops will import the auto/marine adapters. The DC to DC converter is still of Taiwanese origin, with all other parts and components of the auto/marine adapter manufactured in the Netherlands (or potentially in the United States). The manufacture of the Cigarette Adapter Cable, as well as the Computer Adapter Cable is to be performed in the Netherlands.

In conclusion, you assert that the assembly processes described above result in a substantial transformation of the DC to DC when used in the production of auto/marine adapters in the United States (Scenario I) and the Netherlands (Scenario II).

ISSUE:

Do the assembly operations performed in the two scenarios stated above effect a substantial transformation of the Taiwanese DC to DC converter such that the auto/marine adapter may be considered as a product of the U.S. (Scenario I) or the Netherlands (Scenario II).

LAW AND ANALYSIS:

As prescribed under Title III of the Trade Agreements Act, 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.

Substantial Transformation Applied to Scenario I and II

The inquiry must resolve whether, under the two scenarios, the processing performed in the U.S.(Scenario I) or the Netherlands (Scenario II) 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.

As stated in your submission, U.S. components and a Taiwanese D.C. to D.C. converter (Scenario I) or Netherlands (or possibly U.S.) components and a Taiwanese D.C. to D.C. converter (Scenario II) will be further processed and assembled into auto/marine adapters in the respective countries. Thus, the critical issue that must be addressed in determining the country of origin of the auto/marine adapters is whether the Taiwanese DC to DC converter is substantially transformed as a result of the operations performed in one of the two countries. That is, does the name, character or use of the converter change as a result of the processing and assembly operations performed to manufacture the auto/marine adapter in the U.S. or the Netherlands.

The DC to DC converter is the single most expensive component of the auto/marine adapter, representing approximately 72 percent of the total manufacturing costs of the auto/marine adapter. The converter is also a significant component of the auto/marine adapter.

In National Hand Tool Corp., v. United States, Slip Op. 92- 61 (April 27, 1992), aff'd, 989 F.2d 1201 (1993), the Court of International Trade held that imported hand tool components which were used to produce flex sockets, speeder handles and flex handles were not substantially transformed when further processed and assembled in the U.S. One of the factors considered by the court in reaching its conclusion was that the name of the imported components did not change as a result of the U.S. processing and assembling operations. The court found that the name of each article imported had the same name in the completed tool. In support of this conclusion, the court cited the following example:

For example, when the lug or "G-head", component of a flex handle imported from Taiwan (Ex. E) was shown, plaintiff's witness called it a "G-head." When the

government counsel asked the name of the part where the lug component is attached to a completed flex handle (Ex. J.), the witness also called it a "G-head.

The court also considered whether the use of the imported components changed as a result of the processing and assembling operations performed in the U.S. In finding that the use of the imported components did not change, the court stated that the use of the imported articles was predetermined at the time of importation due to the fact that each component was intended to be incorporated in a particular finished mechanics' hand tool. Although the court recognized the fact that only one predetermined use of imported articles does not preclude the finding of substantial transformation (See, Torrington Co., v. United States, 764 F.2d. 1563 (1985)), it went on to say that the determination of substantial transformation must be based on the totality of the evidence. Based upon the totality of the evidence in this case, we find that the DC to DC converter is substantially transformed in the U.S. (Scenario I) or the Netherlands (Scenario II) as a result of the processing and assembly operations performed there.

Unlike the imported hand tool components in National Hand Tool, the name of the DC to DC converter changes as a result of the processing and assembly operations in that it is a DC to DC converter before, and a part of an auto/marine adapter after, processing and assembly. We note however, that the courts have held that a change in the name of the article is the weakest evidence of a substantial transformation. See, Uniroyal, Inc., v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff'd., 702 F.2d. 1022 (Fed. Cir. 1983).

The use of the DC to DC converter also changes as a result of the processing and assembly operations performed. The purpose of the auto/marine adapter is to supply regulated DC power from a variety of DC power sources (i.e., motorcycle, boat, airplane, or auto batteries), ranging from 9 to 24 volts, to a portable laptop computer requiring a specific voltage and current. The adapter functions as a voltage and current regulator for the portable computer by limiting the amount of voltage/current that is passed through the adapter to the computer. The purpose of this function is to deliver constant and steady power required by the computer for proper operation.

As imported, the output of the DC to DC converter cannot be used as a main power source to the computer source because the voltages vary with each converter model. If the DC to DC converter is used in its imported condition it will either cause improper operation or irreversible damage to the portable computer. However, only after the processing and assembling of the voltage regulator subassembly is completed, which includes the adapter's power distribution subassembly, can the converter be used for its intended purpose as a main power source.

Furthermore, the DC to DC converter when imported can be used as an electrical converter in numerous applications for a variety of electrical equipment, but after being further processed and assembled into a auto/marine adapter the converter's use changes to a power source for automatic data processing machines. This is evidenced by the fact that in its imported condition, the DC to DC converter is classified under subheading 8504.40.80, HTSUS, which provides for: "[s]tatic converters: [o]ther". However, the auto/marine adapter into which the DC to DC converter is incorporated during the assembly operations is classified under 8471.99.34. HTSUS, which provides for "[a]utomatic data processing machines and units thereof; . . . : [o]ther: [o]ther: [p]ower supplies: [o]ther." Although a change in classification is not determinative of a substantial transformation, it is a factor to be considered in the totality of the circumstances involved in this case. See, Koru North America v. U.S. 701 F. Supp. 229 (CIT 1988).

Based on the reasons above, we find that the Taiwanese DC to DC converter is substantially transformed in the U.S. (Scenario I) and the Netherlands (Scenario II) as a result of being further processed and assembled with other domestic components in the manner described above into an auto/marine adapter. Accordingly, the country of origin of the auto/marine adapter in Scenario I, is the U.S. Likewise, where all the components except for the Taiwanese DC to DC converter are of Netherland origin (Scenario II), the country of origin is the Netherlands.

You have also requested a country of origin determination for auto/marine adapters which are to be potentially assembled in the Netherlands from U.S. Components and Taiwanese DC to DC converters.

Since, we have determined that the DC to DC converter is substantially transformed as a result of being further processed and assembled into an auto/marine adapter, the remaining issue that must be addressed in determining the country of origin of the auto/marine adapters under these circumstances is whether the U.S. components are substantially transformed as a result of the operations performed in the Netherlands. That is, does the name, character or use of the U.S. components change as a result of the processing and assembly operations performed to manufacture the auto/marine adapter in the Netherlands.

In HQ 734097 (November 25, 1991), Customs considered computer video terminal housings, containing video electronics but no logic boards, manufactured in Korea. After importation into the U.S., four components--the terminal logic board, key switches, T-connector cables, and customs key boards--were installed into the empty shells, and the video unit was aligned to receive new communication protocol transmissions. The addition of the logic boards was determined to create a new article. See, HQ 734213 (February 20, 1992) (finding a substantial transformation when a computer monitor was changed into a touchscreen monitor because the touchscreen monitor had a different use than the plain computer monitor). In this case, we find that the U.S. origin components which are to be assembled into the auto/marine adapter would be substantially transformed as a result of the assembly operations performed in the Netherlands. Taking approximately 27 components, such as wire, fuses, ferrite adapters, trimpots, resistors, integrated circuits, capacitors, connectors, flux, solder, silicone sealant etc., and assembling these components into the respective subassemblies that are then assembled into an auto/marine adapter clearly changes the name, character or use of the individual components. Prior to the assembly operations, each of these components could be used in the manufacture of electrical devices. However, after assembly, the individual components lose their separate identity and become integral parts of an auto/marine adapter. See, HQ 730952 (May 18, 1988) (held substantial transformation occurred when coils, capacitors,and cases were assembled into plug-in adapters (e.g., rectifiers), causing individual parts to lose their separate identities when merged into a new article (the plug-in adapter)). See also, HQ 711967 (March 17, 1980) (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 substantially transformed in Mexico in that as a result of the Mexican processing all the components lost their individual identities to become integral parts of the new article. Accordingly, the country of origin of the auto/marine adapters which are to be manufactured in the Netherlands with U.S. components and Taiwanese DC to DC converters under the circumstances described above would be the Netherlands.

HOLDING:

Based upon the facts presented: (1) Taiwanese DC to DC converters are substantially transformed in the U.S. (Scenario I) and the Netherlands (Scenario II) as a result of being further processed and assembled with other components in the manner described above into auto/marine adapters; (2) Taiwanese DC to DC converters and the other components which are of U.S. origin also are substantially transformed in the Netherlands as a result of being further processed and assembled into auto/marine adapters.

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