CLA-2 CO:R:C:S 556272 WAW
Mr. Bernard R. Nottling
Rudolph Miles & Sons
4950 Gateway East
P.O. Box 11057
El Paso, Texas 79983
RE: Request for Reconsideration of Headquarters Ruling Letter
555856; GSP treatment of Gas Furnace Ignition Devices;
substantial transformation; 555921; 555727
Dear Mr. Nottling:
This is in response to your letters dated September 11, and
December 23, 1991, on behalf of Control Products Division,
Johnson Controls (Control Products), requesting a reconsideration
of Headquarters Ruling Letter (HRL) 555856 dated May 13, 1991.
We held in HRL 555856 that certain materials imported into Mexico
were not subjected to a double substantial transformation during
the production of gas furnace ignition devices and, therefore,
the materials' cost or value could not be included in the 35%
value-content requirement under the Generalized System of
Preferences (GSP) (19 U.S.C. 2461-2466).
FACTS:
In HRL 555856 we held that the assembly of the panel and
memory module PCBA's and the production of the spark transformer
results in a substantial transformation of the materials imported
into Mexico for use in producing those items. However, we held
that the final assembly of the spark transformer and panel and
memory module PCBA's with a few additional components which make
up the ignition devices' housing unit does not constitute the
requisite second substantial transformation. We held that these
final simple assembly operations merely involve fitting together
a small number of components by screwing, inserting, and
riveting, which do not require a great deal of time or cost.
Accordingly, we stated that the cost or value of the materials
imported into Mexico and used in the production of the ignition
devices may not be included in the 35% value-content minimum
required for eligibility under the GSP.
ISSUE:
Whether the components imported into Mexico and used in the
production of the spark transformer and the panel PCBA have
undergone a double substantial transformation, thereby enabling
the cost or value of those materials to be counted toward the 35%
value-content requirement for purposes of the GSP.
LAW AND ANALYSIS:
A full enunciation of the law pertaining to eligibility of
articles under the GSP was provided in HRL 555856 and, therefore,
it will not be repeated here. Discussion of the applicable law
will be limited to the current issue -- whether the components
used in the production of the spark transformer and panel PCBA
have undergone a double substantial transformation.
In C.S.D. 85-25, 19 Cust. Bull. 844( 1985), we stated that
while a "complex or meaningful" assembly operation may result in
a substantially transformed constituent material, a "minimal,
simple, assembly-type operation" ordinarily will not result in a
substantially transformed constituent material. Whether an
operation is complex or meaningful depends on the nature of the
operation. In making this determination, it is necessary to
consider the time, cost, and skill involved, the number of
components assembled, the number of different operations, the
attention to detail and quality control, a well as the benefit
accruing to the BDC as a result of the employment opportunities
generated by the manufacturing process.
You argue that "two new and different articles (spark
transformer and panel board) are produced and further
substantially transformed to create another new and different
article (a gas furnace ignition device)." In support of your
contention, you cite HRL 555921 dated June 17, 1991, which you
believe is factually analogous and controlling in regard to the
instant case. In HRL 55592l, Customs considered the eligibility
of certain computer terminals for duty-free treatment under the
GSP. In that case, the computer terminals were produced by the
assembly of components in a three-stage process. First, the
foreign components were assembled onto a printed circuit board
(PCB). The second stage consisted of a testing procedure (in-
circuit test, functional test, burn-in test, final adjust and
quality assurance test). Finally, the plastic housing was
subassembled, the cathode ray tube (CRT), plastic housing and
harnesses were assembled with the PCBA to produce the finished
computer terminal.
We held in HRL 555921 that two separate substantial
transformations took place during the assembly of the computer
terminal. The first substantial transformation resulted from the
operations which included cutting, mounting, soldering, and
quality control testing of the fabricated components parts in the
production of the PCBA. The final sub-assembly of the plastic
housing and the assembly of the CRT, plastic housing and
harnesses with the PCBA into the computer terminal constituted
the second substantial transformation. We held that the
assembly of the CRT, plastic housing and harnesses with the PCBA
into the computer terminal in HRL 555921 involved a complex
procedure which required a relatively significant period of time
to complete the subassembly and assembly of all of the component
parts, as well as, skill, attention to detail, and quality
control. In addition, we found that the final assembly of the
computer terminal resulted in a significant economic benefit to
Mexico because of the technologically sophisticated equipment and
facilities, as well as the number of technically skilled
employees required to perform the operations. The production of
the subassembly and the final assembly of all of the components
involved substantial operations, increasing the components' value
and endowing them with new qualities which transformed them into
an article with a new distinct commercial identity.
In regard to the spark transformer, we previously determined
in HRL 555856 that the production of the spark transformer
results in a single substantial transformation. We held that the
spark transformer emerges as a new article with new
characteristics, a different name and a defined specific use
different from that possessed by the components from which the
spark transformer is made. You argue that the further assembly
of the spark transformer with numerous other components to create
the panel PCBA results in a second substantial transformation,
thereby enabling the cost or value of the materials comprising
the spark transformer to be counted toward the 35% value-content
requirement of the GSP.
We believe that the assembly of the spark transformer with
other components to produce the panel board and the further
assembly of the panel board with additional components to create
the completed gas furnace ignition device is analogous to the
assembly of the computer terminal in HRL 555921, and constitutes
a second substantial transformation of the materials comprising
the spark transformer. In HRL 555921, the creation of the
computer terminals involved the assembly of numerous components
onto a bare circuit board and the subsequent complex assembly of
the PCBA to the cathode ray tube, plastic housing and other
component parts. In the instant case, once the spark transformer
is produced, it is subassembled onto a populated panel board and
hand soldered into place. Next, the panel PCBA and other
components are attached to the metal frame.
The further assembly of the spark transformer, like the
subsequent assembly of the PCBA subassembly in HRL 555921,
changes the character of the constituent materials to enable them
to become gas furnace ignition devices. The spark transformer is
a separate article of commerce that manufacturers may wish to buy
and sell for their own purposes. Moreover, the assembly of the
spark transformer with other component parts changes the
character of the transformer and results in a finished product
which is recognized as a new and different article of commerce
with a distinct name, character and use.
As previously stated, we determined in HRL 555856 that the
production of the panel and memory module PCBA's results in a
substantial transformation. Therefore, the question remains as
to whether a second substantial transformation occurs while
assembling the panel PCBA (which contains the manufactured spark
transformer) with a few additional components that make up the
ignition devices' housing unit.
We find that the assembly of the panel and memory module
PCBA's to the metal frame involves a small number of components
which are merely attached, inserted and affixed to one another by
means of screwing, inserting, and riveting, to form the finished
gas furnace ignition devices, and do not constitute the requisite
second substantial transformation. We are of the opinion that
these operations are the "minimal, simple, assembly-type
operations" which were not intended to constitute a substantial
transformation for GSP purposes. The components are complete
articles which directly enter into the assembly process.
Furthermore, with the exception of the spark transformer, none of
the components are subjected to further fabrication before
assembly as contemplated by the "complex or meaningful" assembly
operation found in C.S.D. 85-25. We believe that the assembly of
the panel and memory module PCBA's with the frame is more closely
analogous to the assembly process in HRL 555727 dated January 31,
1991. In HRL 555727, we held that substantially transformed
PCBA's are not subjected to a second substantial transformation
by final assembly with a cover and bracket or base assembly to
create certain car parts, i.e., interval windshield wiper
governor assemblies, premium sound amplifiers, and speed control
amplifier assemblies. Consistent with HRL 555727, we find that
the attachment of the panel PCBA (and memory module PCBA in Model
#600L) with the metal frame in this case is also a simple
assembly operation which will not result in the PCBA's being
considered substantially transformed constituent materials of the
completed ignition devices, since based on the information
submitted, it does not appear to involve a considerable amount of
time, skill, attention to detail or quality control.
Therefore, upon reconsideration of HRL 555856, we conclude
that the materials which make up the spark transformer have
undergone the requisite double substantial transformation,
thereby permitting the cost or value of these materials to be
counted toward the 35% value-content requirement for purposes of
the GSP. However, as the other components comprising the panel
PCBA are not subjected to a double substantial transformation,
their cost or value may not be included in the 35% computation.
HRL 555856 is modified accordingly.
HOLDING:
Based on the information provided, we find that the
production of the spark transformer, its subsequent assembly with
numerous other components to create the panel PCBA, and the final
assembly of the panel PCBA with a few other components to create
the ignition device constitutes a double substantial
transformation. Therefore, the cost or value of the imported
materials used to produce the spark transformer may be counted
toward the GSP 35% value-content requirement. However, while the
assembly of the panel PCBA results in a substantial
transformation, the subsequent simple assembly of the PCBA with a
few other components to create the final article is not a second
substantial transformation. Therefore, the cost or value of the
imported components comprising the panel PCBA (except for the
materials from which the spark transformer are made) may not be
included in the 35% computation.
Sincerely,
John Durant, Director
Commercial Rulings Division