OT:RR:CTF:VS H325450
Juan Moreno
Director, Trade Compliance
Sandler, Travis & Rosenberg P.A.
601 Montgomery St., Suite 1208
San Francisco, CA 94111
RE: Country of Origin; Stud Finders; Section 301 Measures
Dear Mr. Moreno:
This is in response to your letter, dated May 13, 2022, on behalf of Zircon Corp. In your letter, you request a binding ruling pursuant to 19 C.F.R. Part 177 on the country of origin, for purposes of the Section 301 measures, of an electronic stud finder that will be imported from Mexico.
FACTS:
According to the information provided, Zircon develops and manufactures electronic stud finders, metal detectors, and electrical scanners. At issue here is the “StudSensor HD 55,” which is a handheld device used to locate framing studs behind walls. The StudSensor HD 55 is equipped with an LCD display and a “Target SpotLite” that projects light on a surface to indicate the edge of a stud. The unit, which is powered by a 9-volt alkaline battery, allows the user to select from two different scanning modes.
The production process for the StudSensor HD 55 spans the United States, Canada, South Korea, China, and Mexico. The application-specific integrated circuit (“ASIC”) chip is manufactured in the United States by X-FAB Texas, Inc. You state that the ASIC is “an integrated circuit chip customized for a particular use, rather than intended for general-purpose use.” The ASIC is sent to Canada, where it is tested and electronically mapped to identify functional and defective chips. Once the testing is complete, the ASIC is shipped to South Korea, where it undergoes a “dicing process, wire bonding, trimming, and packaging into the ASIC device carrier.” You state that once this process is complete, the ASIC becomes suitable for use in electronic devices.
The completed ASIC is then shipped to China. In China, the ASIC is surface mounted onto a bare printed circuit board along with components such as diodes, capacitors, resistors, switches, a transducer, a battery contact, and an LED. Except for the ASIC, all electrical components incorporated into the PCBA are of Chinese origin. In addition to the production of the PCBA, the creation of the plastic case of the device, as well as final assembly, occurs in China. The case of the device is produced by injection molding and dying ABS resin materials. Final assembly involves placing the PCBA into the case, sealing the case, securing the case with a screw, placing the finished units into plastic bags, and then boxing the finished units for transportation. The finished stud finders are then bulk shipped to Mexico, where they undergo retail packaging before exportation to the United States. You state that the finished products will be entered under 8531.80.90, Harmonized Tariff Schedule of the United States (“HTSUS”).
ISSUE:
What is the country of origin of the stud sensors for purposes of the Section 301 measures?
LAW AND ANALYSIS:
The United States Trade Representative (“USTR”) has determined that additional duties will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). In accordance with U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified in subheading 8531.80.90, HTSUS, unless specifically excluded, are subject to an additional 7.5% ad valorem rate of duty.
When determining the country of origin for purposes of applying Section 301 measures, the substantial transformation analysis applies. See, e.g., Headquarters Ruling (“HQ”) H301619, dated November 6, 2018. To determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, or use are primary considerations in such cases. See, e.g., HQ H311606, dated June 16, 2021. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process may be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
The Court of International Trade has indicated that “[f]or courts to find a change in character, there often needs to be a substantial alteration in the characteristics of the article or components.” See Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (CIT 2016) (citing Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121 (1996) and Nat’l Hand Tool Corp. v. United States, 16 Ct. Int’l Trade 308, 311 (1992)). Courts have also considered “the ‘essence’ of a completed article to determine whether an imported article has undergone a change in character as a result of post importation processing.” Id. (citing Uniden America Corp. v. United States, 120 F. Supp. 2d 1091, 1095-1098 (CIT 2000) and Uniroyal, Inc., v. United States, 542 F. Supp. 1026, 1030 (CIT 1982). In Uniroyal, the court determined that the shoe upper was “the very essence of the completed shoe” and that the attachment of the imported shoe uppers to an outer sole in the United States was a “minor manufacturing or combining process which leaves the identity of the upper intact,” therefore, the shoe upper was not substantially transformed in the United States. The court also noted that the minor assembly operation in the United States “require[d] only a small fraction of the time and cost involved in producing the uppers.” Id. at 1030.
Here, you assert that “the USA origin ASIC is the essential functional component of the finished article.” In other words, you argue that the ASIC imparts the essential character to the finished stud finder. In your view, while the production of the PCBA and the final assembly of the product are “integral” to the stud finder’s function, they do not substantially transform the ASIC into a new and different article of commerce with a name, character, and use distinct from the ASIC. Accordingly, you submit that the country of origin of the stud finder is the United States.
In support of this view, you quote HQ H287548, dated March 23, 2018, concerning the country of origin of monochrome laser printers, in which we stated that: “[a]dditionally, the overall structure and each functional circuit of the ASIC, the main component of the PCB, will be designed and manufactured in Japan.” You state that this case “clearly establishes that the importance of the ASIC is critical to the overall function of the complete stud finder and is the main component of a printed circuit board assembly.”
Even assuming that the ASIC retains its U.S. origin after undergoing significant processing in South Korea, HQ H287548 does not support a conclusion that the ASIC imparts the essential character to the finished product. To the contrary, in holding that the printers underwent their last substantial transformation in Japan, we noted that “the main PCB assembly is the motherboard of the printers, which communicates with the PC, houses the memory in the printer, and forms the image printed on the page. It also includes key functional circuits, including mechanical control and printing data processing.” Accordingly, we held that “[t]ogether, the firmware and the main PCB, which serve major functions and are high in value, constitute the essential character of the printers.” See also HQ H302801, dated October 3, 2019 (holding that the PCBA imparted the essential character to a smartwatch).
HQ H287548 is consistent with other decisions holding that surface mounting of components onto a PCBA results in a substantial transformation. See, e.g., HQ H311447, dated September 10, 2020 (“CBP has consistently held that the assembly of components onto a printed circuit board is a substantial transformation”); HQ 735306, dated December 21, 1993 (“[w]ith respect to printed circuit boards, Customs has ruled that the complete assembly of all the components onto a printed circuit board was a substantial transformation of the printed circuit board because the assembly process was complex and involved a considerable amount of skill and time); and, HQ H302801 (“[t]he [surface-mount technology] operations result in a new and different product with an overall use and function different than any one function of the individual components. Each individual component serves a particular purpose or function once incorporated into the PCBA. Prior to the SMT operations, these components are stand-alone, general use items.”).
For this reason, the series of New York rulings that you cite is also unpersuasive. Here, as in the headquarters decisions cited above, the surface mounting of various components onto the PCBA will result in a substantial transformation. Accordingly, because the last substantial transformation will occur in China, we hold that the country of origin of the StudSensor HD 55 for purposes of the Section 301 measures is China.
HOLDING:
Based on the information presented, the country of origin of the StudSensor HD 55 for purposes of the Section 301 measures in China. At the time of importation, you must report the applicable Chapter 99 subheading (here, 9903.88.15, HTSUS), in addition to the primary classification of the good (8513.80.90, HTSUS).
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by [CBP] field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
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 CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch