CLA-2 CO:R:C:S 556694 WAW

Mr. Angel A. Oliva-Hardison
Angelo International
265 E. 12th St.
P.O. Box 8378
Brownsville, TX 78520-8378

RE: Eligibility of display panel and central panel for dishwashers for duty-free treatment under the GSP; C.S.D. 85- 25; C.S.D. 88-37; 555206; C.S.D. 89-118; C.S.D. 88-37

Dear Mr. Oliva-Hardison:

This is in response to your letters of April 16, and June 10, 1992, requesting a ruling on the eligibility of a display panel and a central panel for a dishwasher ("E2 Escutcheon Eaton Index #116 and 117") for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). In connection with your request, you also submited a videotape on the manufacturing processes and placards with components attached representing the different assembly operations for our review.

FACTS:

The merchandise at issue (E2 Escutcheon Eaton Index #116 and 117), is described as a display panel and central panel for a dishwasher. You state that the product serves to display and control the functions of a dishwasher, and diagnoses any problems that may occur. The following is a description of the assembly operations performed in Mexico to produce the E2 Escutcheon:

(1) E2 Logic Board subassembly

(a) Automatic inserted components - Axial components (resistors, diodes, capacitors) in reels of 5,000 pieces will be placed in a sequencing machine to prepare them for automatic insertion into the printed circuit board. The operations performed by the automatic inserter consist of preforming, inserting and trimming the leads.

(b) Hand inserted radial lead components - This involves a hand preforming and trimming operation for radial components such as electrolytic capacitors, integrated circuits, transistors, displays, toroids, microprocessor, etc. After the preforming operation, the components are manually asembled into the printed circuit board which already contains the axial lead components.

(c) 18-pin connector - Loose terminals are hand inserted into the 18-pin connector. The connector is then placed in a hand press which preforms and seats the terminals.

The above operations create the printed circuit board assembly (PCBA) which is then placed onto a conveyor in preparation for wave-soldering. After the PCBA has passed over the solder wave, it is sent to the touch-up station where wave-solder and assembly defects are repaired. The 18-pin connector is then assembled onto the PCBA.

The PCBA is 100 percent in-circuit tested on the Gen-Rad and then is put into burn-in for 20 hours at 75 degrees C. After the burn-in procedure, the PCBA is functionally tested.

You claim that the cost or value of the bare board imported into Mexico and the approximately 72 additional components assembled to that board undergo a double substantial transformation, thereby enabling the cost or value of these components to be counted toward the 35% value-content requirement for purposes of determining whether the E2 Escutcheon will be eigible for duty-free treatment under the GSP when imported into the U.S.

(2) Other Sub-Assemblies

(a) Harnesses - Wire is cut and stripped from large spools and then taken to an applicator where terminals are assembled onto the ends of the wire. The terminated wires are assembled onto switches and brackets. A large harness assembly is procured from General Electric's plant in Chihuahua, Mexico which is made by coloring, cutting, terminating, and assembling wires and switches together.

(b) Detergent trip - A small harness is made similar to the process described above for the harnesses. The motor is assembled to a mounting bracket with a micro switch, a harness, and a cam and trip leaver device which serves as a detergent dispenser.

(c) L.E.D. board assembly - Light Emmitting Diodes (L.E.D.'s) are preformed and cut by hand along with other diodes which are then assembled onto a printed circuit board using a ribbon cable. All the components are hand soldered. The result is a display unit indicating which of the various dishwasher options are in use at any given time. (d) Thermistor assembly - The thermistor wires are stripped, terminated, and assembled with a spring and separator before the terminals are placed into a connector.

(e) Keyboard assembly - The keyboard assembly is made by hand inserting plastic buttons onto a larger plastic receptacle. The logic board assembly, L.E.D. board assembly, keyboard assembly, filter display and plastic housing in addition to numerous other components are assembled to create the control assembly. You state that the control assembly is capable of controlling, monitoring, and displaying information based on pre- programmable signals input via the keyboard. The control assembly functional test, which is performed after all of the subassemblies are assembled, verifies the interface between moving keypads and light indicators on the LED assembly with the logic board assembly. You claim that the production of the control assembly results in a second substantial transformation of the components comprising the logic board assembly.

Finally, the Escutcheon assembly is created by combining the control assembly with a thermistor assembly, two harness assemblies, and a detergent trip motor assembly. The finished product has the capability of dispensing detergent, monitoring wash, rinse and dry cycles as well as water temperature.

ISSUE:

Whether the operations performed in Mexico on the component parts of the logic board assembly result in a double substantial transformation, thereby enabling the cost or value of those imported component parts to be counted toward the 35% value- content requirement for purposes of the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible products of a designated beneficiary developing country (BDC) which are imported directly into the U.S. qualify for duty-free treatment if the sum of (1) the cost or value of the material produced in a BDC, plus (2) the direct costs involved in processing the eligible article in the BDC, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See section 10.176(a), Customs Regulations (19 CFR 10.176(a)).

As stated in General Note 3(c)(ii)(A), Harmonized Tariff Schedule of the United States (HTSUS), Mexico is a designated BDC. In addition, it appears from your description of the merchandise that the product at issue will be classified under subheading 8422.90.0540, HTSUS, which provides for "[d]ishwashing machines; machinery for cleaning or drying bottles or other containers. . . Parts: Of dishwashing machines. . . Of the household type. This subheading is a GSP eligible provision and, therefore, the E2 Escutcheon will qualify for duty-free treatment if it is "imported directly" from Mexico to the U.S., is a "product of" Mexico and the 35% value-content requirement is satisfied.

The cost or value of materials which are imported into the BDC to be used in the production of the article, as here, may be included in the 35% value-content computation only if the imported materials undergo a double substantial transformation in the BDC. That is, the non-Mexican components must be substantially transformed in Mexico into a new and different intermediate article of commerce, which is then used in Mexico in the production of the final imported article. See section 10.177(a), Customs Regulations (19 CFR 10.177(a)), and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed.Cir. 1989).

The test for determining whether a substantial transformation has occurred 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, 69 CCPA 152, 681 F.2d 778 (1982).

You maintain that two separate substantial transformations take place during the assembly of the escutcheon assembly. The first claimed substantial transformation results from the assembly of the logic board subassembly. You claim that the second substantial transformation results when the PCBA is assembled with various subassemblies and components to create the control assembly which, in turn, is assembled with the harnesses, thermistor assembly, and detergent trip motor assembly to create the E2 Escutcheon.

We have previously held in C.S.D. 85-25 dated September 25, 1984 (Headquarters Ruling Letter (HRL) 071827), that the process of incorporating numerous component parts onto a printed circuit board constituted a processing sufficiently complex so as to result in the subassembly being considered a substantially transformed constituent material of the personal computer into which it subsequently was incorporated. The focus of C.S.D. 85-25 centered on a PCBA which was produced by assembling in excess of 50 discrete fabricated components (e.g., resistors, capacitors, diodes, transistors, integrated circuits, sockets, and connectors) onto a PCB. Customs determined that the assembly of the PCBA involved a large number of components and a significant number of different operations, required a relatively significant period of time as well as skill, attention to detail, and quality control, and resulted in significant economic benefit to the BDC from the standpoint of both value added to the PCBA and the overall employment generated thereby. In addition, Customs found in that case that the PCBA represented a distinct article, different from both the components from which it was made and the computer into which it was incorporated and, therefore, the assembled PCBA constituted an intermediate article within the meaning of 19 CFR 10.177(a). Therefore, it was determined that the cost or value of the PCBA's could be counted toward the GSP 35% value-content requirement. See also C.S.D. 88-37, 22 Cust. Bull. 26 (1988); HRL 555206 dated March 10, 1989.

Similarly, in C.S.D. 89-118, 23 Cust. Bull. 26 (1989) (HRL 555045/555126), we held that PCBA's manufactured in Mexico from numerous component parts and subsequently assembled with a base, cover, and power supply to create the final article (cable television distribution equipment) were substantially transformed constituent materials of the cable television equipment for GSP purposes. See also HRL 047150 dated January 18, 1977.

In the present case, we find that the production of the E2 logic board subassembly (PCBA) constitutes a substantial transformation. The separate components imported into Mexico acquire new attributes, and the PCBA differs in character and use from the component parts of which it is composed. Moreover, the production of the PCBA involves substantial operations (cutting, mounting, soldering, preforming, trimming, and quality control testing), increasing the components' value and endowing them with new qualities which transform them into an article with a new, distinct commercial identity.

We also find that the further complex assembly of the logic board PCBA with the plastic housing, harnesses, detergent trip, L.E.D. board assembly, thermistor assembly, keyboard assembly, and other components, creating the final article - E2 Escutcheon - results in a second substantial transformation. The further assembly operation of the logic board PCBA subassembly changes the character of the constituent materials (resistors, diodes, capacitors, etc.) to enable the logic board to become an integral part of the E2 Escutcheon. The logic board PCBA is a separate article of commerce that manufacturers may wish to buy and sell for their own purposes. As a result of the assembly of the logic board PCBA subassembly with the other subassemblies and components to produce the E2 Escutcheon, a finished product emerges with a separate identity and, therefore, is a new article of commerce.

Additionally, we are of the opinion that the complex assembly of the logic board PCBA with other subassemblies and components to create the final E2 Escutcheon assembly involves a large number of components and a significant number of different operations, requires a relatively significant period of time as well as skill, attention to detail, and quality control, and results in significant economic benefit to the BDC from the standpoint of both the value added to the component parts and the overall employment generated by the operations. See C.S.D. 85-25, 19 Cust. Bull. 544 (1984); and C.S.D. 88-37, 22 Cust. Bull. 415 (1988). Finally, this assembly is not the type of "pass-through" operation which Congress intended to prohibit from receiving GSP benefits.

HOLDING:

Based on the information submitted, we are of the opinion that the assembly of the logic board PCBA, its assembly with other components to create the control assembly, and the final subassembly of the control assembly with numerous other components to produce the E2 Escutcheon results in a double substantial transformation of the component parts of the logic board PCBA for purposes of the GSP. Therefore, the cost or value of the component parts of the PCBA may be included in the GSP 35% value-content requirement. If the sum of the cost or value of the logic board PCBA plus the direct costs of processing operations incurred in Mexico exceeds 35% of the appraised value of the E2 Escutcheon at the time of importation and the article has been imported directly into the U.S., then it will be entitled to duty-free treatment under the GSP.

Sincerely,

John Durant, Director
Commercial Rulings Division