CLA-2 RR:TC:SM 559800 MLR
Ms. Dionisia Virginia D¡az
Parque Industrial Itabo, S.A.
Km. 18, Carrelera S nchez Itaho Haina
Box 21427 Santo Domingo
RE: Eligibility of RediSafe and RediKey for duty-free
treatment under the Caribbean Basin Economic Recovery
Act (CBERA); double substantial transformation; printed
circuit board subassembly
Dear Ms. D¡az:
This is in response to your letter dated April 18, 1996,
inquiring whether "RediSafes" and "RediKeys" from the
Dominican Republic are eligible for duty-free treatment under
the Caribbean Basin Initiative (CBI).
Photographs of the "RediSafes" and "RediKeys" to be
manufactured in the Dominican Republic are provided.
Together, the RediSafe and RediKey are intended for use in
the real estate business. The brochure submitted indicates
that the RediSafe is steel and coated with rubber, and it is
designed to hold a key. The key is obtained by entering a
code into the RediKey and aiming it at an infra-red sensor to
open the RediSafe.
The RediSafes and RediKeys are made from components
imported from the U.S., Hong Kong, and Taiwan. Based upon
telephone conversations with Carlos Paladano, integrated
circuits will be imported from the U.S., and electronic
resistors, capacitors, transistors, and boards will be
imported from Hong Kong and Taiwan. Furthermore, the steel
housing components for the RediSafe and the plastic housing
components for the RediKey will be imported from Hong Kong or
Taiwan. In the Dominican Republic, the integrated circuits,
electronic resistors, capacitors, and transistors are
assembled onto the boards, which are either for the RediSafe
or RediKey. The housing components for the RediSafe and
RediKey are then assembled around their respective printed
circuit board. The finished RediSafes and RediKeys are
tested and shipped to the U.S.
Whether the RediSafes and RediKeys are eligible for
duty-free treatment under the CBERA.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product,
or manufacture of a designated beneficiary country (BC),
which are imported directly to the U.S. from a BC, qualify
for duty-free treatment, provided the sum of (1) the cost or
value of materials produced in a BC or two or more BCs, plus
(2) the direct costs of processing operations performed in a
BC or BCs is not less than 35 percent of the appraised value
of the article at the time it is entered into the U.S. 19
U.S.C. 2703(a)(1). In addition, the cost or value of
materials produced in the U.S. may be applied toward the 35
percent value-content minimum in an amount not to exceed 15
percent of the imported article's appraised value. See 19
CFR 10.195(c). As stated in General Note 7(a), Harmonized
Tariff Schedule of the United States (HTSUS), the Dominican
Republic is a designated BC under the CBERA.
To determine whether an article will be eligible to
receive duty-free treatment under the CBERA, it must first be
classified under a tariff provision for which a rate of duty
of "Free" appears in the "Special" subcolumn followed by the
symbol "E" or "E*." The RediSafe is classifiable under
subheading 8303.00.00, HTSUS, and the RediKey is classifiable
under subheading 8537.10.90, HTSUS, which are both tariff
provisions eligible for duty-free treatment under the CBERA.
Therefore, the RediSafe and RediKey will receive duty-free
treatment if they are considered to each be a "product of"
the Dominican Republic, the 35 percent value-content
requirement is met, and they are "imported directly" into the
U.S. from the Dominican Republic.
Where an article is produced from materials that are
imported into the BC, the article is considered "the growth,
product or manufacture" of the BC only if the imported
materials are substantially transformed there into a new and
different article of commerce. See 19 CFR 10.195(a).
Moreover, the cost or value of those imported materials may
be included in calculating the 35 percent value-content
requirement only if they undergo a "double substantial
transformation" in the BC. That is, the Hong Kong and
Taiwanese components must be substantially transformed in the
Dominican Republic into a new and different intermediate
article of commerce, which is then used in the Dominican
Republic in the production of the final imported articles,
the RediSafe and RediKey. See 19 CFR 10.196(a). 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, 156, 681 F.2d 778, 782 (1982).
The finished RediSafes and RediKeys emerge as new and
different articles in comparison to the imported components
from which they are made; therefore, the RediSafes and
RediKeys will be considered "products of" the Dominican
Republic. However, the issue to be resolved is whether,
during the manufacture of the RediSafes and RediKeys, the
imported components are substantially transformed into
separate and distinct intermediate articles of commerce which
are then used in the production of the finished RediSafes and
In C.S.D. 85-25, 19 Cust. Bull. 544 (1985), Customs held
that the process of incorporating a large number of discrete
component parts onto a printed circuit board (PCB) was a
sufficiently "complex and meaningful" operation, so as to
result in a substantial transformation of the parts making up
the PCB subassembly. In C.S.D. 85-25, a PCB subassembly was
produced by assembling in excess of 50 discrete fabricated
components (i.e., resistors, capacitors, diodes, transistors,
integrated circuits, sockets, and connectors) onto a PCB.
Customs determined that the assembly of the PCB subassembly
involved a large number of components and a significant
number of operations, requiring a relatively significant
period of time as well as skill, attention to detail, and
quality control, and resulted in significant economic
benefits to the beneficiary developing country from the
standpoint of both value added to the PCB subassembly and the
overall employment generated by the manufacturing process.
In addition, Customs found that the PCB subassembly
represented a distinct article, different from both the
components from which it was made and the personal computer
into which it was subsequently incorporated. Accordingly, in
C.S.D. 85-25, it was determined that the PCB subassembly
constituted an intermediate article and was a substantially
transformed constituent material of an imported computer.
Therefore, the cost or value of the components imported into
the beneficiary developing country used to produce the PCB
subassembly could be counted towards the 35 percent value-content requirement.
Similarly, in the instant case, we find that the process
of assembling the integrated circuits, resistors, capacitors,
and transistors onto the boards results in a substantial
transformation of the imported components. Therefore, the
assembled PCB subassemblies are new and different articles
with a new name, character, and use different from that
possessed by the individual components incorporated therein.
The remaining issue to be addressed concerns whether a
second substantial transformation results when the PCB
subassemblies are assembled with the housing components to
create the finished RediSafes and RediKeys. In C.S.D. 88-37,
22 Cust. Bull. 418 (1988), Customs held that the assembly of
mobile land radios and radar detectors from PCB subassemblies
substantially transformed those PCB subassemblies. Similar
to C.S.D. 88-37, we find that the assembly of housing
components with the PCB subassemblies, substantially
transforms the PCB subassemblies. The RediSafes and RediKeys
are readily identifiable as distinct articles of commerce
differing in name, character, and use from the PCB
subassemblies. While the final assembly of the housing
components for the RediSafes and RediKeys with their
respective PCB subassembly does not appear to be exceedingly
complex, it is our opinion that this is not the type of
"pass-through" operation which Congress intended to prohibit
from receiving CBERA benefits.
Accordingly, the RediSafes and RediKeys are "products
of" the Dominican Republic. Furthermore, the full cost or
value of the imported integrated circuits, transistors,
resistors, capacitors, and boards may be counted towards the
35 percent value-content requirement as they undergo a double
substantial transformation in the Dominican Republic.
Based on the information submitted, we find that the
assembly of the integrated circuits, transistors, resistors,
and capacitors onto the boards constitutes a substantial
transformation. Additionally, the assembly of the PCB
subassemblies to create the finished RediSafes and RediKeys
results in a second substantial transformation of the
components, thereby permitting the cost or value of the
components imported into the Dominican Republic (comprising
the PCB subassemblies) to be included in the CBERA 35 percent
value-content requirement. Therefore, the RediSafes and
RediKeys are "products of" the Dominican Republic and will be
entitled to duty-free treatment under the CBERA, provided the
RediSafes and RediKeys are classified in CBERA-eligible
tariff provisions at the time of entry, the RediSafes and
RediKeys are imported directly into the U.S., and the 35
percent value-content requirement is satisfied.
A copy of this ruling letter should be attached to the
entry documents filed at the time the goods are entered. If
the documents have been filed without a copy, this ruling
should be brought to the attention of the Customs officer
handling the transaction.
John Durant, Director
Tariff Classification Appeals