OT:RR:CTF:FTM H322417 PJG
Ms. Suzanne Kane
Mr. Nicholai Diamond
Akin Gump Strauss Hauer & Feld LLP
2001 K Street, N.W.
Washington, DC 20006-1037
Re: Country of origin marking of a smartwatch; Section 301
Dear Ms. Kane and Mr. Diamond:
This is in response to your correspondence, dated December 10, 2021, requesting a binding ruling, on behalf of your client, [***,] concerning the country of origin for marking purposes and the applicability of the Section 301 measures set forth in U.S. Note 20 to Subchapter III, Chapter 99, Harmonized Tariff Schedule of the United States (“HTSUS”), to a certain wireless, wrist-wearable, electronic communications device (“smartwatch”), model number [***]. Your client initially requested a binding ruling concerning the country of origin for marking purposes of the smartwatch from the National Commodity Specialist Division (“NCSD”) in a request filed on October 8, 2021, and the NCSD recommended that you submit your request to Headquarters along with additional information.
You have requested that certain information submitted in connection with this request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R.
§ 177.2(b)(7), the request for confidentiality is approved. Specifically, we are granting your request for confidential treatment with respect to the bracketed information and gray-highlighted text in your submissions, the submitted product renderings, diagrams, Attachments 2-9, and any references to the aforementioned information when it appears in the Attachment associated with your submission dated January 26, 2022. These specified items will not be released to the public and will be withheld from the published version of this decision.
You describe the smartwatch as a “wrist-wearable ‘smart’ communication device with extensive wireless-communicative functionality.” At the time of importation, the smartwatch will be comprised of: 1) the case, which includes a touchscreen, the electronic components of the smartwatch, and the enclosure that is designed to protect the components in the case from damage; and 2) the silicon wristband, which is attached to a cradle [***]. You indicate that the [***]. You have indicated that the [***].
Production of the smartwatch will occur in three main stages: (a) the production of individual components in seven different countries—China, Germany, Japan, Malaysia, Malta, The Philippines, and Taiwan; (b) production of the two printed circuit board assembly (“PCBAs”) (a main logic board (“MLB”) and a sensor board) in Taiwan by means of surface-mount technology (“SMT”); and (c) final assembly, final software upload, testing, and packout (“FATP”) in China.
The smartwatch is comprised of approximately between 800 and 900 components that will be produced in China, Germany, the Philippines, Japan, Malaysia, Malta, and Taiwan. SMT is used to integrate components such as capacitors, diodes, transistors, and resistors onto a raw printed circuit board (“PCB”). The fully populated printed circuit board is known as a PCBA. You state that the smartwatch contains two PCBAs that will be produced by SMT in Taiwan, specifically: 1) a MLB, and 2) a sensor board.
The MLB components include “a central processing unit (‘CPU’) that runs an …operating system …flash memory chip, … a Wi-Fi and Bluetooth integrated circuit, an altimeter, an inertial measurement unit …, various resistors, thermistors, capacitors, inductors, and other integrated circuits – as well as a unique ‘shielding cover’ that protects the electrical elements from damage.” The MLB contains between 680 and 700 components, and the components used in the MLB are produced in Taiwan, Germany, the Philippines, Malta and China. You indicate that the SMT process for the MLB requires approximately 3 hours to complete.
The sensor board components include a heart rate monitor, resistors, capacitors, diodes. The sensor board contains between 50 and 60 components, and the components used in the sensor board are produced in Taiwan, Germany, the Philippines, and China. You indicate that the SMT process for the sensor board requires approximately 1-2 hours to complete. You further state that approximately 200 hours of training are necessary for workers who will be involved in the SMT process.
The SMT process for the MLB and the sensor board PCBAs involves component surface-mounting, laser-etching, post-etch cleaning, adhering of components using solder paste, inspection, and function testing, most of which will occur on both sides of the circuit board. For the MLB, the SMT process taking place in Taiwan will also include the placement of a protective shield on one side of the circuit board, loading of “a limited version of the OS that is developed in the United States and allows testing of the [s]martwatch,” and testing to confirm functionality of subcomponents such as the LTE, GPS, Wi-Fi and Bluetooth. The PCBAs will then undergo “function test[ing], singulation by laser de-paneling, labeling, and packing of the finished PCBA for shipment.”
The smartwatch also includes a [***], microphone, speakers, a haptics module, a rechargeable lithium-ion battery, and a “touchscreen display consist[ing] of an active matrix organic light-emitting diode (‘AMOLED’) cell panel, a touch controller to render the panel touch-sensitive, and additional components.” [***]. The country of origin of the microphone components, haptics module, and lithium-ion battery is China, and the country of origin for the AMOLED cell panel for the display and the touch controller is Taiwan. The touchscreen display also contains components produced in China and Malaysia. The [***]. The speakers are produced of components from Germany, Malta and China. The enclosure, cradle and silicon wristband are produced in China.
The “final assembly, final software/firmware upload, testing, and packout (‘FATP’)” also occur in China. You indicate that the FATP “will involve the assembly of certain modules …and the joining of these modules with other preassembled or prefabricated components” using techniques such as “screwing, gluing, heating, UV curing, rolling, pressing, fastening, buckling and limited laser soldering.” The final assembly of the silicon watchband, enclosure and cradle will also occur in China. During the FATP process in China, firmware containing the operating system will be uploaded to the smartwatch, but in some cases, a post-importation update by the user in the United States will also be necessary. You indicate that the FATP process requires approximately 2-3 hours to complete and approximately 70 hours of training for the workers involved in the process.
What is the country of origin for marking purposes of the smartwatch?
Is the smartwatch subject to Section 301 measures?
LAW AND ANALYSIS:
What is the country of origin for marking purposes of the smartwatch?
The marking statute, Section 304(a), Tariff Act of 1930, as amended (19 U.S.C.
§ 1304(a)), provides that unless excepted, “every article of foreign origin (or its container …) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States 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 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, 302 (1940). Part 134 of Title 19 of the Code of Federal Regulations (19 C.F.R. Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 134.1(b) (19 C.F.R. § 134.1(b)) provides as follows:
(b) Country of origin. “Country of origin” means the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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 this part; however, for a good of a NAFTA or USMCA country, the marking rules set forth in part 102 of this chapter (hereinafter referred to as the part 102 Rules) will determine the country of origin.
The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 681 F.2d 778 (CCPA 1982). This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 Ct. Int’l Trade 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). The U.S. Court of International Trade (“CIT”) has stated that “if the manufacturing or combining process is merely a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred.” See Uniroyal, Inc. v. United States, 542 F. Supp. 1026, 1029 (Ct. Int’l Trade 1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983) (per curiam).
To determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, or use are primary considerations in such cases. See e.g., Headquarters Ruling Letter (“HQ”) H311606 (June 16, 2021) and HQ H302801 (Oct. 3, 2019). Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process may be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
The CIT has indicated that “[f]or courts to find a change in character, there often needs to be a substantial alteration in the characteristics of the article or components.” See Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (2016) (citing Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121 (1996) and Nat’l Hand Tool Corp. v. United States, 16 Ct. Int’l Trade 308, 311 (1992)). Courts have also considered “the ‘essence’ of a completed article to determine whether an imported article has undergone a change in character as a result of post importation processing.” Id. (citing Uniden America Corp. v. United States, 120 F. Supp. 2d 1091, 1095-1098 (Ct. Int’l Trade 2000) and Uniroyal, Inc., 542 F. Supp. 1030). In Uniroyal, Inc., 542 F. Supp. at 1029-1030, the court determined that the shoe upper was “the very essence of the completed shoe” and that the attachment of the imported shoe uppers to an outer sole in the United States was a “minor manufacturing or combining process which leaves the identity of the upper intact,” therefore, the shoe upper was not substantially transformed in the United States. The court also noted that the minor assembly operation in the United States “require[d] only a small fraction of the time and cost involved in producing the uppers.” Id. at 1030.
The subject smartwatch is similar in some ways to the wearable electronic smart device in HQ H302801. In that ruling, CBP considered the country of origin of a Fitbit device. CBP determined that, similar to HQ H287548, dated March 23, 2018, NY N303008, dated March 8, 2019, and HQ H301910, dated August 5, 2019, the Fitbit’s PCBA represents the essence of the Fitbit device because it incorporates the electronic components that together give the smart device its functionality and enables the device to operate as intended. In HQ H302801, CBP stated that “[t]he unique and full functionality of Fitbit’s devices is only accessed once the components and subassemblies are integrated and populated into the PCBA,” which is accomplished by using the SMT process in Taiwan or in another country such as Malaysia or Indonesia. The individual components, such as the Bluetooth transceivers, once incorporated into the PCBA through the SMT process, lose their identity because they cannot “individually carry out the functions of … a smart watch or … track the user’s fitness and activity,” and become “an integral part of the new article.” CBP further stated that the final assembly process in China, which involves “[a]ttaching the PCBAs into the housing with the vibration motor, battery, display, and wristband does not alter their functional or physical attributes,” does not render the PCBAs into a product with a new name, character, or use. Moreover, CBP determined that the final assembly process requires less training for the workers than the SMT process and is not time intensive. Accordingly, CBP concluded that the final assembly process in China does not substantially transform the PCBAs. CBP concluded that the SMT operations in Taiwan or in another country, such as Malaysia or Indonesia, “results in a substantial transformation of the electronic components from Taiwan and the Philippines into a new and different article of commerce with a new name, character, and use distinct from the components.” Accordingly, CBP determined that the country of origin for the Fitbit device is where the SMT operations occur.
Similar to HQ H302801, the PCBAs in this case are the essence of the smartwatch with a new name, character and use than the components and the blank circuit board that undergo the SMT process. In the instant case, the smartwatch is composed of approximately between 800 and 900 components, more than 700 of which are incorporated into two PCBA using the SMT process in Taiwan. These components include a CPU, an altimeter, an inertial measurement unit, a Bluetooth-enabled radio transceiver, and a heart rate monitor. When incorporated onto the printed circuit board, the individual components and the blank printed circuit board develop a new name, a PCBA.
The individual components and the blank circuit board undergo a change in character when the components are assembled onto the blank circuit board and become a printed circuit board assembly via the SMT process. Once they are incorporated together onto the PCBA, they “become an integral part of the new article” and develop the functionality of the smartwatch capable of capturing and exchanging data and tracking the user’s fitness and activity, among other functions. See id. The PCBAs in the instant case, like the PCBAs in HQ H302801, form the “brain” of the device and enable the device to function as intended by design. Through the SMT process the components thereby change in character from individual components capable of limited functions and a blank circuit board incapable of any functions to PCBAs that represent the essence of the smartwatch because they enable the smartwatch to function.
The individual components and the blank circuit board undergo a change in use when the components are assembled onto the blank circuit board and become the printed circuit board assembly via the SMT process. Like some of the components in HQ H302801, the individual components and blank circuit board are “stand-alone, general use items” that are usable in other devices and do not alone accomplish the full functionality of the smartwatch. See HQ H302801. In this case, the PCBAs allow the device to process information, communicate wirelessly, utilize Global Positioning System (“GPS”) functionality, play music and other audio, send, and receive text and email messages, and gather information on a user’s fitness. Before the components are assembled onto the blank circuit board, each of the individual components is only capable of limited functions and the blank circuit board is not capable of any functions. The functionality of the smartwatch is dependent on the collective capabilities of the PCBA.
In light of the aforementioned, the SMT operations result in a substantial transformation in Taiwan of the components from Taiwan, Germany, the Philippines, Malta and China into a new and different article of commerce with a new name, character, and use distinct from the individual components and the blank circuit board. See HQ H311447 (Sept. 10, 2020) (stating that “CBP has consistently held that the assembly of components onto a printed circuit board is a substantial transformation”) and HQ H302801 (Oct. 3, 2019).
You indicate that, unlike the Fitbit in HQ H302801, the subject smartwatch also includes [***]. To achieve these functionalities, the smartwatch contains [***], a microphone and speakers. [***]. The microphone components are produced in China and the speaker are produced from components from Germany, Malta and China. The assembly of the [***], microphone and speaker components into the final smartwatch case will occur in China. The [***], microphone and speaker are not directly assembled onto the PCBA, rather, they are “connected to the MLB electrically with connectors,” and the MLB thereby controls their functionality. [***]. We note that the [***], microphone, and speakers retain their individual names even after incorporation into the smartwatch case. See Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1322 (2016) (stating that in analyzing whether a component has undergone a change in name, “the proper query would be whether …any … components would still be called by their pre-importation name after assembly into the finished [product], or whether they would be indistinguishable in name from the finished product”). The [***], microphone, and speakers also do not undergo a change in use as a result of the assembly process in China because they each have a pre-determined use (e.g., [***], and amplifying, transmitting or recording sound) when they are imported into China. See id. (stating that “[w]hen articles are imported in prefabricated form with a pre-determined use, the assembly of those articles into the final product, without more, may not rise to the level of substantial transformation”) (citing Uniroyal, Inc., 542 F. Supp. at 1031). Finally, the assembly of the [***], microphone, and speakers into the smartwatch case in China does not alter the characteristics of any of these components. The final assembly process that takes place in China, also involves assembling other preassembled or prefabricated components, such as the battery and silicon wristband. CBP has previously held that the assembly of subassemblies does not result in a substantial transformation of the subassemblies. See New York Ruling Letter (“NY”) N305378 (Aug. 1, 2019). We conclude that no substantial transformation occurs in China to make China the country of origin of the final product. See id. at 1318.
After final assembly, the smartwatch will also undergo a final software/firmware upload, testing and packaging for shipment. The software/firmware upload, testing and packaging does not change the functional or physical attributes of the smartwatch. You indicate that the firmware uploaded to the smartwatch in China “will contain an operating system … that manages applications installed to the [s]martwatch and the hardware these applications utilize, and provides the final user interface that displays information and registers touch commands input by the user.” You further state that in some cases, the firmware uploaded in China will be an intermediate operating system and the user in the United States will need to download the final operating system. CBP generally does not find that downloading software results in substantial transformation, unless the programming of the device occurs “in the same country where the software was developed.” See HQ H308234 (June 3, 2020), HQ H303139 (Jan. 14, 2020), HQ 558868 (Feb. 23, 1995), and HQ 735027 (Sept. 7, 1993). You indicate that the software/firmware that is uploaded in China is developed in third countries outside of China, including in the United States, therefore, the software/firmware upload does not substantially transform the smartwatch.
We also note that the FATP is not a complex or time intensive process. The final assembly process in China involves “screwing, gluing, heating, UV curing, rolling, pressing, fastening, buckling and limited laser soldering with the use of relatively simple tools.” The FATP process requires approximately 2-3 hours to complete and approximately 70 hours of training for the workers involved in the process. Comparatively, the SMT process for the MLB requires approximately 3 hours to complete and the SMT process for the sensor board requires approximately 1-2 hours to complete and approximately 200 hours of training for the workers involved in the process. The total amount of time it takes to complete the SMT process for the two PCBAs, the MLB and the sensor board together, is approximately double the time it takes to complete the FATP process. Moreover, more than double the training time is required for the SMT process as opposed to the FATP process. Accordingly, the FATP process is also not a complex or time intensive process compared to the SMT operations and the FATP process does not substantially transform the PCBAs. See NY N303008 (March 8, 2019) (determining that the country of origin of the cellular telephone would be where the PCBA was manufactured using SMT because the PCBA imparted the essential character to the cellular telephone, which also included other components such as a front and rear camera, and an operating system, and calling and texting capabilities).
Based on the facts presented, we conclude that the PCBAs are the essence of the smartwatch, and the smartwatch is a product of Taiwan, where the SMT operations take place to manufacture the PCBAs. The smartwatch should be marked accordingly at the time of importation into the United States.
Is the smartwatch subject to Section 301 measures?
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). See Section XXII, Chapter 99, Subchapter III, U.S. Note 20, HTSUS. The substantial transformation analysis is applicable when determining the country of origin for purposes of applying Section 301 measures. See HQ H301494 (Oct. 29, 2019), HQ H301619 (Nov. 6, 2018).
In this case, the smartwatch is not subject to the additional Section 301 measures because the country of origin of the smartwatch is Taiwan, where the PCBAs are manufactured via the SMT operations.
The country of origin of the smartwatch with model number [***] for purposes of marking and for purposes of additional Section 301 measures is Taiwan. Therefore, the smartwatch is not subject to Section 301 measures.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Yuliya A. Gulis, Chief
Food, Textiles and Marking Branch