CLA-2 CO:R:C:S 556694 WAW
Mr. Angel A. Oliva-Hardison
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.
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 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
(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
(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.
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
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.
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.
John Durant, Director
Commercial Rulings Division