OT:RR:CTF:VS H326574 AMW
Mr. Josh Beker, Esq.
Roberts & Kehagiaras LLP
2339 Commerce St.
Suite 162
Houston, TX 77003
RE: Country of Origin; CATV Amplifiers; Section 301 trade remedy
Dear Mr. Beker:
This is in response to your request dated March 21, 2022, on behalf of your client, Applied Optoelectronics, Inc. (“AOI”), regarding the country of origin of several models of cable television broadband (“CATV”) amplifiers for purposes of Section 301 measures. Your request, originally submitted as an electronic ruling request to the National Commodity Specialist Division, was forwarded to this office for review. A meeting with counsel was held on April 6, 2023.
FACTS:
The following facts are based on the information provided in your March 21, 2022, submission and follow-up submissions transmitted on July 12, 2022, May 12, 2023, June 13, 2023, as well as the April 6, 2023, meeting. AOI is a manufacturer and provider of fiberoptic network products servicing a wide range of end markets. The current request relates to three different foreign-manufactured articles:
ATX GigaXtend™ GMC 1.2 GHz High Gain Balanced Triple System Amplifier (“HGBT”)
ATX GigaXtend™ GMC 1.2 GHz High Gain Dual System Amplifier (“HGD”)
ATX GigaXtend™ GMC 1.2 GHz Line Extender
The HGBT and HGD are system amplifiers used by cable operators to optimize hybrid fiber-coaxial networks. The line extender, meanwhile, is a broadband amplifier designed to assist cable operators in evolving their HFC networks to meet subscriber demand. The HGBT offers three radio frequency (“RF”) outputs while the HGD provides two high-level outputs with an option to create a third RF output by using the optional plug-in auxiliary path signal director. Both devices are factory configured with reverse amplifiers, diplex filters, thermal compensation circuits, forward interstate pads, and equalizers to promote optimal performance. The line extender only offers one high-level RF output.
Your request indicates that the subject system amplifiers (the HGBT and HGD) and the line extender have almost identical production processes with slightly different processing times and components used. The devices are each comprised of a printed circuit board assembly (“PCBA”) and other structural component parts. The subject system amplifiers and line extender are manufactured in a series of approximately nine steps occurring in both China and Taiwan. In addition to describing the manufacturing steps, AOI also provided information concerning the time it takes to conduct the various operations. The steps are as follows:
Step One – Preliminary PCB Priming (China): the PCBA is manufactured using a two-step surface mount technology (“SMT”) and dual-in-line package (“DIP”) process. First, solder paste is applied onto the topside of a raw printed circuit board (“PCB”) and various electrical and electronic components are mounted and soldered onto the PCB to create a surface mount device (“SMD”) assembly. The SMD assembly is then inspected for imperfections and passed down the assembly line. Additional components are added to the SMD assembly via the DIP process to create the “generic” PCBA (i.e., one capable of use in a variety of amplifiers).
The request indicates that the components added to the PCBA of each device type at this stage varies slightly. For the line extender, seven types of components are added: resistors, capacitors, an inductor, an RF connector, fuses, amplifier chips, wires, and power connector. For the HGD, eight component types are added: resistors, capacitors, an inductor, an RF connector, fuses, amplifier chips, wires, and power connectors. For the HGBT, seven component types are added: resistors, capacitors, an RF connector, fuses, amplifier chips, wires, and power connectors.
Step Two – PCBA Setup (China): An AOI employee solders the RF connectors, feed-through capacitors, and AC wires onto the PCBA. The PCBA is then mounted in the chassis using screws and is soldered onto the chassis. The employee then places the reverse amplifier PCBA into the bottom of the chassis using a screwdriver and attaches the PCBA with screws. At this stage and in the next, AOI employees will also add press-fit holes where components can be added during later assembly stages.
Step Three – PCBA Burn-In (China): AOI tests the product’s power consumption with a 60-volt AC power input at 50 degrees Celsius. The power test is intended to create a baseline reading for the assembled PCBA. The test is run at an elevated temperature to allow time for minor changes in electrical values to settle close to their final values. Following this step, the units are exported from China to Taiwan for further assembly.
Step Four – Signal Path Setup (Taiwan): An employee attaches the metal cover to the housing with screws. Following this, an employee will open the chassis to access the PCBA and will add additional components via a pushpin assembly. For the HGBT and HGD, the additional components include the following: non-mirrored diplexer, mirrored diplexer, reverse input pads, FISC, RISC, forward I/S EQ, forward I/S pad, system trim jumper, and forward output pads. With respect to the line extender, the additional components include the following: non-mirrorred diplexer, mirrored diplexer, reverse input pads, HPFT, LPFT, forward IS/EQ, forward I/S pad, system trim jumper, and forward output pads.
Step Five – Automatic Gain Control (“AGC”) Test (Taiwan): AGC is installed on many, but not all, units based on customer specification and model number. It is used to maintain the output gain at a specified level and in an active manner.
Step Six – Launch Amplifier Final Assembly, Tuning, and Testing (Taiwan): The amplifier module (reverse amplifier combined with forward amplifier) is tuned to customer specifications. During this stage, a technician may alter the physical characteristics of the PCBA assembled in Step One above. For instance, circuit traces may be modified, etched capacitors connected, and component positioning adjusted. The full extent of the changes per unit will vary by individual customer specifications.
Step Seven – Full Station Assembly (Taiwan): The launch amplifier is installed in a housing along with a power supply and cables, and routed to their proper position.
Step Eight – Full Station Test (Taiwan): A visual inspection is performed to ensure the device configuration is correct. The housing of the full station assembly is sealed using an electric screwdriver.
Step Nine – Packaging (Taiwan): The devices are placed into cardboard boxes, labels attached, and are secured for shipment.
AOI also provided a bill of materials (“BOM”) for both the system amplifier units (the HGBT and HGD) and the line extender. These documents indicate that the vast majority of components, including those added during the Taiwanese assembly, originate in China. For the system amplifier units (the HGBT and HGD), approximately 546 different component types are used (in some instances, multiple units of each component are used). Of these component types, approximately 427 originate in China and approximately nine originate in Taiwan. The remaining components are sourced from a variety of other countries. For the line extender, approximately 402 component types are used to construct each unit (once again, multiples of certain components are used). Of these component types, approximately 349 originate in China and approximately five are sourced from Taiwan. The remaining components are sourced from a variety of other countries.
ISSUE:
What is the country of origin of the subject HGBT, HGD, and line extender?
LAW AND ANALYSIS:
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 Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(f), HTSUS.
When determining the country of origin for purposes of applying Section 301 measures, the substantial transformation analysis applies. See, e.g., Headquarters Ruling (“HQ”) H301619, dated November 6, 2018. The substantial transformation test 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). The issue of substantial transformation is a “mixed question of technology and customs law, mostly the latter.” 681 F.2d at 783.
To determine whether a substantial transformation occurs when components of various origins are assembled into completed products, U.S. Customs and Border Protection (“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., HQ H311606, dated June 16, 2021. 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 Court of International Trade interpreted the meaning of “substantial transformation” in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016). Energizer Battery involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All of the components of the flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States and assembled into the finished Generation II flashlight. The Energizer Battery court reviewed the “name, character and use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc., 3 C.I.T. at 226, that when “the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change.” Energizer Battery at 1318. In addition, the court noted that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.” Energizer Battery at 1319, citing as an example, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). Furthermore, courts have considered the nature of the assembly, i.e., whether it is a simple assembly or more complex, such that individual parts lose their separate identities and become integral parts of a new article.
In C.S.D. 85-25, 19 Cust. Bull. 844 (1985), CBP held that for purposes of the Generalized System of Preferences (“GSP”), the assembly of a large number of fabricated components onto a printed circuit board in a process involving a considerable amount of time and skill resulted in a substantial transformation. In that case, in excess of 50 discrete fabricated components (such as resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled onto a PCB. CBP determined that the assembly of the PCBA involved a very large number of components and a significant number of different operations, required a relatively significant period of time, skill attention to detail, and quality control.
AOI asserts that the country of origin of the subject merchandise for purposes of Section 301 trade remedies is Taiwan, and not the People’s Republic of China. For the reasons provided below, we disagree.
To begin with, AOI argues that Taiwan assembly process results in a change of name, character, and use of the underlying Chinese-origin PCBA. In support of this claim, AOI cites Cyber Power Systems (USA) v. United States, No. 20-00124 (Ct. Int’l Trade 2022) as well as HQ H250154, dated February 23, 2018, and HQ H258960, dated May 19, 2016.
For name, AOI asserts that the names of the components change in Taiwan because of the assembly occurring in that country. Specifically, AOI argues that after assembly the individual components “lose their separate identifies [sic] and become part of a new and different article, namely a CATV Amplifier. After manufacture in Taiwan, the parts are no longer referred to as ‘PCB’ or ‘housing’ but rather as the completed product….” We note, however, that the court in Energizer Battery analyzed a similar argument, noting: “[t]he issue is not whether Plaintiff imported approximately fifty ‘flashlights,’ but rather whether the Plaintiff’s imported components retained their names after they were assembled into the Generation II flashlight. Thus, the proper query would be whether the . . . components would still be called by their pre-importation name after assembly into the finished flashlight, or whether they would be indistinguishable in name from the finished product.” Energizer Battery at 1322. The Court found that “[t]he constitutive components of the Generation II flashlight do not lose their individual names as a result of post-importation assembly [accordingly] no such name change has occurred.” Id.; see also, HQ H322417, dated February 23, 2022 (“when incorporated into the printed circuit board, the individual components and the blank printed circuit board develop a new name, a PCBA.”)
Similar to Energizer Battery, we find that the individual components such as the PCB and PCBA components undergo a change in name when they are incorporated into the PCBA via SMT in China. In contrast, and again similar to Energizer Battery and HQ H327417, the Chinese-constructed PCBA itself does not undergo a change in name when it is assembled into the final unit in Taiwan. The name of the PCBA, as imported, remains the same in the completed units: it is still called a PCBA throughout the request, and AOI has not called it anything else. See e.g., National Hand Tool, 16 C.I.T. at 311. As a result, when incorporated into the printed circuit board in China, the individual components and the blank printed circuit board develop a new name, a PCBA. In contrast, although the individual components added to the PCB lose their individual names to become the PCBA, the PCBA does not lose its individual name because of the assembly in Taiwan.
With respect to character, as outlined above, for courts to find a change in character, there often needs to be a substantial alteration in the characteristics of the articles or components. See e.g., Energizer Battery, 190 F. Supp. 3d at 1318 (citing National Hand Tool, 16 C.I.T. at 311). Courts have not found a change in character when changes are cosmetic or when the “form of the components remained the same.” Energizer Battery at 1318. In other cases, courts have looked to 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. Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (2016) (citing Uniden America Corp. v. United States, 120 F. Supp. 2d 1091, 1095-1098 (2000) and Uniroyal, Inc. v. United States, 3 C.I.T. 220, aff’d, 702 F.2d 1022 (Fed. Cir. 1983) (imported shoe uppers were the ‘essence of the finished shoe’ and were not substantially transformed by the addition of an outer sole in the United States”)). With respect to the incorporation of an imported PCBA in a third country, CBP has frequently determined that the PCBA imparts the character of a device when it possesses the components necessary to impart a device’s functionality. In HQ H322417, dated February 23, 2022, furthermore, CBP considered the country of origin of an imported smartwatch. CBP determined that the smartwatch’s PCBA represents the essence of the device because it incorporates the electronic components that together give the device its functionality and allow the device to operate as intended. In rendering its determination, CBP observed that once the various components are incorporated into the smartwatch, 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 HQ H322417, citing HQ H287548, dated March 23, 2018, NY N303008, dated March 8, 2019, and HQ H301910, dated August 5, 2019.
In the instant matter, we determine that the various components undergo a change in character via the PCBA creation in China, and that no change of character occurs in Taiwan. Similar to HQ H322417, AOI indicates that a variety of electronic components are added to the raw PCB via SMT in China to create the subject PCBAs. This includes amplifier chips that enable the subject devices to function as an amplifier or line extender when complete. Furthermore, AOI concedes that the “generic” PCBAs imported into Taiwan from China can be used for a “variety of amplifiers,” although they will undergo customization to purchaser specifications in Taiwan. As a result, we determine that the PCBA that is created in China via the PCBA priming and setup processes, which incorporates the amplifier chips and various other components that enable the devices to function as an amplifier, imparts the character of the subject devices. Furthermore, we note that the processing in Taiwan does not appear to impart a physical change in the items imported from China. See Energizer Battery at 1318, citing Uniroyal, Inc., 3 C.I.T. at 226 (when “the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change.”) Instead, as outlined above, the components added in Taiwan are typically added via “pushpin assembly” into holes pre-drilled in China or via soldering while the housing, power supply, and chassis are attached with screws. As outlined in Energizer Battery, this level of assembly is not sufficient to create a change in character because various components are assembled together but no physical change is imparted on the imported articles.
With respect to use, courts have found that a change in use has occurred when the end use of the imported product was no longer interchangeable with the end use of the product after post importation processing; in contrast, when the end use was predetermined at the time of importation, courts have generally not found a change in use. See Energizer Battery, 190 F. Supp. 3d at 1319 (citing Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535, 540-41 (1987); National Hand Tool, 16 C.I.T. at 311-12; Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121-22 (1996); Uniroyal, 3 C.I.T. at 226). “When 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.” Id. (citing Uniroyal, 3 C.I.T. at 226).
AOI argues that the devices undergo a change in use in Taiwan by analogy to HQ H250154, dated February 23, 2018, and HQ H258960, dated May 19, 2016. In HQ H250154, CBP considered the country of origin of internet connectivity gateways that are designed in the United States, assembled in China, and are downloaded with software in the United States. In finding that the devices were substantially transformed in the United States, CBP noted the substantial development costs incurred in the United States and that the devices “derive their core functionality…from the installation of the U.S.-developed software.” In HQ H258960, meanwhile, CBP again held that network transceivers imported completely assembled in China were substantially transformed in the U.S. when software was installed onto the devices. Both rulings are distinguishable from the present matter, however. AOI has confirmed that the subject devices are not downloaded with firmware or software at any point during the Taiwan assembly process. In our opinion, the tuning process differs significantly from software installation, as tuning is adjusting an existed circuit while software installation, which does not always lead to substantial transformation, involves creating or making a program ready for execution.
Here, the use of the Chinese-origin PCBA remains the same after assembly and tuning in Taiwan. As noted in the request, the PCBAs are imported into Taiwan capable of being used in a “variety of amplifiers.” The tuning process described in the request, meanwhile, enables the PCBAs to be used for a narrower subset of amplification applications, namely as a CATV amplifier. The process does not, however, change the fact that the basic use of the PCBA is in an amplifier. As such, the device does not undergo a change in use via the assembly and tuning in Taiwan.
In addition to the foregoing, AOI argues that the CIT’s decision in Cyber Power System (USA) v. United States, 471 F. Supp. 3d 1371 (Ct. Int’l Trade 2022) (“Cyber Power 2022”) is significant in that “[t]he Court in Cyber Power [2022] held that The Government’s suggestion to focus solely on the PCBA components of the subject merchandise may well undermine the objective of the substantial transformation test, namely to focus on a change in name, character, or use.” AOI also asserts that, in Cyber Power 2022, the court cautions against focusing on whether a component undergoes substantial transformation if it provides the ‘essence’ or ‘critical component’ of a finished article. See Cyber Power 2022 at 1354 (“The Court agrees with Plaintiff that Defendant’s proposed focus on the PCBA and the application of an ‘essence’ or ‘critical component’ test here is without merit.”). Indeed, although Cyber Power 2022 mentions the “essence” test and perhaps that it may need further examination, the decision does not completely reject the doctrine, nor does it overrule prior CIT decisions applying the test. (We also note that the Cyber Power 2022 ruling does not determine that substantial transformation occurred/did not occur, but rather is an order denying summary judgment in advance of a future trial regarding the issue.) Furthermore, subsequent to AOI’s submission, the CIT has issued its final judgment in Cyber Power. See Cyber Power Sys. (USA) v. United States, 2023 WL 2231894 (Ct. Int’l Trade 2023) (“Cyber Power 2023”). In this decision, the court reiterated its prior caution of an “essence”-based analysis and “component-by-component” analysis that would per se decide whether substantial transformation had occurred. See id. at 31-32. Nevertheless, the court determined that the country of origin of five of the six models of devices in question was China, where it was undisputed that the underlying PCBA was manufactured. In contrast, for the remaining device, the court found the Philippines to be the country of origin because the “entirety of the [device’s] manufacture occurred in the Philippines,” which therefore satisfied all three prongs of the name, character, and use test. Assuming, arguendo, that the essence test is inapplicable to the present scenario, we note that our determination as it pertains to the character of the subject devices is not based solely on the essence test. Rather, as outlined above, it is clear that the form of the PCBA remains the same after assembly in Taiwan, as supported by the fact that the PCBA and other components are merely augmented by simple “push pin” insertion of additional components into premade holes and via soldering, and as demonstrated by the fact that the final device is merely combined and held together by screws and casing. See, e.g., Energizer Battery at 1318.
In addition to the name, character, and use criteria, AOI asserts that various subsidiary factors support a finding of substantial transformation. Indeed, courts have also considered subsidiary or additional factors, such as the country of origin of the item’s components, the extent and nature of operations performed, value added during processing, a change from producer to consumer goods, or a shift in tariff provisions. See, e.g., Energizer Battery at 1319. Some courts have attempted to distinguish between minor manufacturing and combining operations or simple assembly, and processing that is more complex and meaningful. Id. (citing, e.g., Uniroyal, 3 CIT at 226, 542 F. Supp. At 1301). Consideration of subsidiary or additional factors is not consistent, and there is no uniform or exhaustive list of acceptable factors. Id. Indeed, CBP has never outlined a bright line rule in which the number of manufacturing steps or time taken in a country would render an article substantially transformed. See, e.g., HQ H317645, dated October 5, 2021 (“a review of each ruling reveals that the outcomes do not rely simply on the number of components, the number of assembly steps, the time it takes to complete assembly, or the number of workers.”) With respect to the country of origin of the item’s components, the BOMs provided by AOI indicate that the vast majority of the components used in manufacturing and packaging the devices, including those incorporated in Taiwan, originate in China. As such, this factor weighs in favor of a determination that China is the country of origin. In addition to the quantity of components used, we note that the greatest proportion of value of the components used in the construction of the subject devices is also imparted by the Chinese-origin components.
With respect to the complexity of the assembly operations, AOI argues that the Taiwan assembly contributes a “significant portion of the active labor of the products,” that AOI contributes more labor and financial resources to its facilities in Taiwan, that AOI’s operations in Taiwan utilize skilled labor, and that the majority of the value of the devices is added in Taiwan. In support of this assertion, AOI provides estimated time amounts for each step occurring in China and Taiwan, which indicates that the process in Taiwan is more time-intensive than those steps occurring in China. These estimates nevertheless account only for the time needed for the various steps undertaken once AOI receives the various components and does not account for the manufacture of many of the components. In addition, we note that the processes occurring in Taiwan are fairly simple in nature. As outlined in the request, the process in Taiwan involves simple actions such as attaching items with screws, affixing pushpin components into pre-made holes, soldering, optional AGC testing, and “connecting” and “adjusting” objects during the tuning process. Moreover, while AOI asserts the assembly operation in Taiwan requires trained technicians, the request and supporting documentation fails to discuss or provide evidence as to the level of training required. These factors do not suggest an assembly process that is complex, rather the assembly process appears to be no more than the mere assembly of components, consisting of simple attachment operations.
Furthermore, as discussed above, the underlying HGBT, HGD, and line extender units do not undergo a change in name, character or use because of these assembly operations in Taiwan; the subject assembly operations do not weigh in favor of a determination that substantial transformation occurred.
Based on the foregoing, we find that the Chinese-origin PCBA and the preponderance of Chinese-origin components that are used to produce the subject HGBT, HGD, and line extender are not substantially transformed as the result of assembly performed in Taiwan, and the country of origin of these devices is China.
HOLDING:
Based on the information provided, we find that the country of origin of the HGD, HGBT, and line extender is China.
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 [CBP] 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.
Sincerely,
Monika Brenner, Chief
Valuation and Special Programs Branch