MAR-2-05 CO:R:C:S 735137 KR
Mr. Peter Sultan
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
RE: Country of origin marking of automatic test equipment for
semiconductors; substantial transformation; 19 CFR 134.35.
Dear Mr. Sultan:
This is in response to your letter dated April 26, 1993, on
behalf of Advantest America, Inc.("Advantest"), requesting a
country of origin marking ruling regarding automatic test equipment
for semiconductors. You submitted a videotape of the factory for
examination. We regret the delay in responding.
FACTS:
You state that Advantest intends to assemble imported
components and domestic components in the U.S. to create automatic
testing equipment for semiconductors. The semiconductors are used
in computers, telecommunication equipment and other electronics.
Advantest believes that the assembly of the components effects a
substantial transformation of the components, creating a new and
different article -- the automatic test equipment.
The assembly operations that Advantest undertakes are:
1. Initial quality inspection and analysis.
2. Subassembly of the mainframe housing.
3. Incorporation of electrical components into the housing
and interconnection of electrical components.
4. Diagnostic testing.
5. Aging.
6. Program testing.
7. Final inspection.
You state that the assembly process takes between 17 to 27
days. The domestic components include the mainframe, cabling and
printed circuit board assemblies. The imported components are
from Japan, and include circuit board assemblies and subassemblies.
You state that the assembly of the equipment requires special
equipment and technical expertise.
The initial quality inspection takes three days and involves
specially trained technicians using a video microscope and special
integrated circuit test equipment to insure adequate soldering. A
standard microscope is used to inspect a cross section of the
wiring to ensure consistent quality.
The frames that are assembled are of U.S. origin. Advantest
attaches hinges and brackets for the electrical components and
installs fans, power supplies and a basic wiring board. This
process takes three to eight days depending on the features and
complexity of the model.
The printed wiring boards are installed into the housing, and
electrical connections of the assemblies are made to the frame and
interconnected with other assemblies within the housing. A visual
inspection is also performed at this stage. You state that this
work is highly detailed and is performed by employees with a
vocational technical background and takes two to four days.
The automatic test equipment is then subjected to diagnostic
testing and replacement of faulty components and calibration of the
system. This testing requires substantial technical expertise
performed by employees with technical degrees or extensive
electrical experience and specialized in-house training. This
process takes three to four days.
The automatic test equipment is then "aged" by being further
tested in a special enclosure with above normal operating
temperatures. Components not capable of handling the higher
temperatures are removed and new components are integrated into the
automatic test equipment.
The automatic test equipment is further tested for each of its
functions and undergoes calibration and adjustment over a three to
four day process. The automatic test equipment then undergoes a
comprehensive visual pre-inspection. The equipment then is
subjected to additional diagnostics testing and thorough visual
inspection, calibration and fine tuning over a three to four day
period.
You state that you wish to mark the automatic testing
equipment "Made in the U.S.A. with Foreign Components" or
"Assembled in the U.S.A." If, however, Customs finds there to be
no substantial transformation in the U.S., you wish to mark the
product "Assembled in U.S.A., Made in Japan".
ISSUE:
Are the imported components of the automatic test equipment
substantially transformed by the processing with U.S. parts which
occurs in the U.S. pursuant to section 134.35, Customs Regulations
(19 CFR 134.35)?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or container) will permit, in such a manner as to indicate
to the ultimate purchaser in the U.S. the English name of the
country of origin of the article. The Court of International Trade
stated in Koru North America v. United States, 701 F. Supp. 229, 12
CIT 1120 (CIT 1988), that "in ascertaining what constitutes the
country of origin under the marking statute, a court must look at
the sense in which the term is used in the statute, giving
reference to the purpose of the particular legislation involved."
The purpose of the marking statute is outlined in United States v.
Friedlaender & Co., 27 CCPA 297 at 302, C.A.D. 104 (1940), where
the court stated that: "Congress intended that the ultimate
purchaser should be able to know by an inspection of the marking on
the imported goods the country of which the goods is the product.
The evident purpose is to mark the goods so that at the time of
purchase the ultimate purchaser may, by knowing where the goods
were produced, be able to buy or refuse to buy them, if such
marking should influence his will."
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and exceptions of 19
U.S.C. 1304. Section 134.35, Customs Regulations (19 CFR
134.35), provides that the manufacturer or processor in the U.S.
who converts or combines the imported article into a different
article having a new name, character or use will be considered the
ultimate purchaser of the imported article within the contemplation
of 19 U.S.C. 1304 and the article shall be excepted from marking.
The outermost containers of the imported articles shall be marked,
but the new article resulting from the U.S. processing or
manufacturing is excepted from country of origin marking.
Section 134.1(b) defines "country of origin" as:
"the country of manufacture, production, or growth of any
article of foreign origin entering the United States.
Further Work or material added to an article in another
country must effect a substantial transformation in order
to render such other country the `country of origin'
within the meaning of this part."
In determining whether the combining of parts or materials
constitutes a substantial transformation, the issue is the extent
of operations performed and whether the parts lose their identity
and become an integral part of the new article. Belcrest Linens v.
United States, 6 CIT 204, 573 F. Supp. 1149 (1983), aff'd, 2 Fed.
Cir. 105, 741 F.2d 1368 (1984). Assembly operations which are
minimal or simple, as opposed to complex or meaningful, will
generally not result in a substantial transformation. See C.S.D.
80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51,
and C.S.D. 90-97.
A substantial transformation occurs when articles lose their
identity and become new articles having a new name, character or
use. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at 270
(1940); National Juice Products Association v. United States, 628
F. Supp. 978, 10 CIT 48 (CIT 1986); Koru North America v. United
States, 701 F. Supp. 229, 12 CIT 1120, (CIT 1988). Two court cases
have considered the issue of whether imported parts combined in the
U.S. with domestic parts were substantially transformed for country
of origin marking purposes. In the first case, Gibson-Thomsen, the
court held that imported wood brush block and toothbrush handles
which had bristles inserted into them in the U.S. lost their
identity as such and became new articles having a new name,
character and use. The second case involved imported shoe uppers
which were combined with domestic soles in the U.S. The imported
uppers were held in Uniroyal, Inc. v. United States, 542 F. Supp.
1026, 3 CIT 220 (CIT 1982), to be the "essence of the completed
shoe" and therefore, not substantially transformed.
In HQ 731432 (June 6, 1988), Customs set forth some factors to
be considered in determining whether imported goods combined in the
U.S. with domestic products were substantially transformed for
country of origin marking purposes. The following six factors were
considered:
1) whether the imported article is completely finished;
2) the extent of the manufacturing process of combining
the imported article with the domestic article as
compared with the manufacturing of the imported article;
3) whether the imported article is permanently attached
to its counterparts;
4) the overall importance of the imported article to the
finished product;
5) whether the imported article is functionally necessary
to the operation of the finished article, or whether it
is an accessory which retains its independent function;
and
6) whether the imported article remains visible after the
combining.
These factors are not exclusive and there may be other factors
relevant to a particular case and no one factor is determinative.
See HQ 728801 (February 26, 1986). See also HQ 734219 (September
3, 1991).
Customs has previously issued rulings concerning the
substantial transformation of computer monitors and television
chassis. In HQ 711967 (March 17, 1980), Customs held that
television sets which were assembled in Mexico with printed circuit
boards, power transformers, yokes and tuners from Mexico and
picture tubes, cabinets, and additional wiring from the U.S. must
be marked with the country of origin as Mexico because the U.S.
parts were substantially transformed by the processing performed in
Mexico and all the components lost their individual identities to
become integral parts of the new article.
In HQ 732170 (January 5, 1990), a back-less television cabinet
containing a tuner, speaker and circuit board were imported into
the U.S. where they were combined with a color picture tube,
deflection yoke, electron beam bender and degousser coil, and a
remote control unit assembled into the chassis. The U.S.
technicians placed wire ties and attached the cabinet back, tested,
aligned and packaged the televisions. Customs held that the
domestic operations substantially transformed the imported chassis
and components. But see HQ 730515 (June 29, 1987) (holding that
there was no substantial transformation when the television chassis
or cabinet was combined in the U.S. with the television set).
In HQ 734097 (November 25, 1991), Customs ruled that imported
terminal video shells (computer terminal housings that contain
video electronics, but no logic boards) were substantially
transformed in the U.S. when they were processed by the
installation of certain key components, such as the terminal logic
boards, to make them into dumb terminals for certain computer
systems. The addition of the logic boards was determined to create
a new article. Computer terminal housings containing video
electronics but no logic boards were manufactured in Korea. In the
U.S., four components (the terminal logic board, key switches, T-connector cables, and custom keyboards) were installed into the
empty shells and the video unit was aligned to receive new
communication protocol transmissions. Even though no cost or skill
data was submitted, Customs held that this installation amounted to
a substantial transformation in the U.S. of the imported shells
into a new article -- a functional computer terminal. Of clear
import in the reasoning in the decision of this case and the cases
cited therein, is that the assembly was performed in the U.S. and
the major components of the video unit were U.S. See HRL 732170
supra. See HQ 734213 (February 20, 1992)(finding a substantial
transformation when a computer monitor was changed into a
touchscreen monitor because the touchscreen monitor had a different
use than the plain computer monitor). See also HQ 734045 (October
8, 1991) (finding that the combining of sub-assemblies and other
components of lap-top and notebook personal computers was a
substantial transformation).
In C.S.D. 89-118 (July 14, 1989), Customs held that the
manufacture of printed circuit board assemblies ("PCB's")
constituted a substantial transformation. The separate component
parts imported into Mexico acquired new attributes, and the PCB's
differed in character and use from the component parts from which
it was composed. The production of the PCB's involved cutting,
shaping, winding, tinning, soldering and quality control testing,
which increased the components' value and endowed them with new
qualities which transformed them into an article with a distinct
new commercial identity. Customs found that the assembly of the
PCB's with the base, cover, and power supply, creating the final
product changed their character and resulted in a finished product
which was recognized as a new and different article of commerce
with a distinct name, character and use. Additionally, the
assembly process 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 a significant economic benefit
to the country of assembly from the standpoint of both the value
added to each component part and the overall employment generated
by the operations. See also C.S.D. 85-25, 99 Cust. Bull. 544
(1984).
In regard to this case, considering the U.S. components used
and the extensive assembly and testing of the various parts as
discussed above, we find that the processing creates an article
which has a different name, character and use than the parts from
which it is created. The processing in this situation involves a
considerable amount of time, skill and attention to detail and
requires stringent quality control, sophisticated equipment and
facilities, and technically skilled employees. The character of
the components changes upon their assembly into a different article
of commerce; from circuit boards to automatic testing equipment.
Therefore, because of the many steps and expertise required to
produce the automatic testing equipment, we determine that this is
not a simple assembly operation and the imported components are
substantially transformed in the U.S.
You wish to mark the automatic testing equipment "Made in the
U.S.A. with Foreign Components" or "Assembled in the U.S.A." This
ruling does not address whether the product may be marked with the
U.S.A. symbol. While Customs has determined that the imported
components are substantially transformed in the U.S., and therefore
no country of origin marking is required, the determination of
whether an article may be marked "Made in USA" is under the
primary jurisdiction of the Federal Trade Commission. We therefore
recommend that you contact the Federal Trade Commission, Division
of Enforcement, located at 6th and Pennsylvania Avenue, N.W.,
Washington, D.C. 20580, for any views concerning marking the
finished steel flanges with the "USA" symbol.
HOLDING:
The imported components processed with the U.S. components in
the U.S., as described above effects a substantial transformation
and the automatic testing equipment is, therefore, excepted from
country of origin marking pursuant to 19 CFR 134.35. However, the
outermost container of the imported components must be marked with
the components' origin.
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 Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division