United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1990 HQ Rulings > HQ 0544283 - HQ 0554945 > HQ 0554850

Previous Ruling Next Ruling

HQ 554850

September 19, 1988

CLA-2 CO:R:C:V 554850 DBI


District Director of Customs
Chicago, Illinois 60607

RE: Request for Internal Advice Regarding GSP Country of Origin Criteria of Land Mobile Radios and Radar Detectors

Dear Sir:

This is in response to a memorandum of November 17, 1987, from your office concerning the requested internal advice ruling by Thomas J. O'Donnell, Esq., on behalf of Uniden Corporation, dated June 18, 1987. The request concerns the correct application of the Generalized System of Preferences (GSP) country of origin criteria to land mobile radios and radar detectors from Taiwan.


The issue in this case arose when your office questioned the GSP duty-free eligibility of the subject merchandise. A review by your office of the applicable Form A's showed that the importer incorrectly calculated the country of origin value-content percentages for the merchandise on the basis of ex-factory prices rather than FOB Taiwan prices. Applying the higher FOB appraised values, many of the items were found not to meet the minimum 35 percent Taiwanese origin percentage necessary to qualify for GSP duty-free treatment.

The importer does not contest application of the higher FOB appraised values nor does he dispute that, as a result, many of the items fall below the minimum 35% value added requirement. However, he claims that the subject merchandise includes material from outside of Taiwan that undergoes a double substantial transformation and, as a result, its value may be included in the Taiwanese origin percentage. You state that your office is inclined to accept the claim for substantial transformation except for the fact that the origin percentage established by such a finding would contradict those already certified by the Taiwan certifying authority.

The manufacturing operations involved in the production of land mobile radios and radar detectors are as follows:

The Parts Receiving Depot
All incoming components go to this depot and are logged in, counted, quality control tested and then arranged by lot into a proper bin. The components are then arranged in trays and assigned to a worker who is located at a specific assembly station. Components are sent to the appropriate section (mounting, subassembly, wiring or adjustment).

Mounting Section
This is where discrete components are assembled onto printed circuit boards. The boards are masked to prevent adhesion of solder in undesired locations. The components are then soldered and/or glued into place and leads are trimmed off by circular saws. The soldering operations include preheating the PCB's prior to entering the solder bath, a solder bath, movement over rollers to remove excess solder, a second and final solder bath which applies a thin smooth solder layer, quality control testing and removal of excess solder. The components on top of the board are then straightened and the board is moved through various stations via conveyor belting where each section of the board is examined to assure placement of components and soldering. The PCB's are then quality control checked for proper electrical functioning and then sent to the subassembly section.

Subassembly Section
The PCB's received from the mounting section then are prepared for assembly. Additional components are assembled by hand to the boards, including the attachment of lead wires, capacitors, jacks, integrated circuits, and heat sinks. At this stage, the printed circuit boards become completed printed circuit board assemblies.

Wiring Section
The wiring section essentially completes the product. The various subassemblies (PCBA) are combined together and placed in the housing, various switches are assembled, input-output plugs are added, the main PCB is attached to the housing, LED's are inserted, and speakers are added. Again, the unit is quality control checked to assure that the unit, with all subassemblies, is operating correctly.

Adjustment Section
This involves the final assembly, testing, and packaging of the product. The microphone is installed, the front and rear cases are screwed to the frame, and the brand name is affixed to the housing. The completed product is fully tested to assure that it is operating correctly and conforms to all specifications.

Land mobile radios typically take from 250 to 400 minutes of actual assembly processing time to produce while radar detectors take from 83 to 112 minutes of actual assembly processing time to produce.


Whether the operations performed on the component parts of land mobile radios and radar detectors result in a dual substantial transformation, thereby enabling the cost or value of the constituent material to be counted toward the 35 percent value-content requirement for purposes of the GSP.


Section 10.176(a) of the Customs Regulations (19 CFR 10.176(a)), provides that an article may qualify for duty-free treatment under the GSP only if the sum of the cost or value of the materials produced in the beneficiary developing country (BDC), plus the direct costs of processing operations performed in the BDC, are not less than 35 percent of the appraised value of the imported article.

Section 10.177(a), Customs Regulaions (19 CFR 10.177(a)), provides that the words "produced in the beneficiary developing country" refer to the constituent materials of which the eligible article is composed which are either (1) wholly the growth, product, or manufacture of the BDC, or (2) substantially transformed in the BDC into a new and different article of commerce. In the case of materials imported into a BDC (such as the component parts in the instant case), the cost or value of that material may be counted toward the 35 percent requirement only if the imported material is first substantially transformed into a new and different intermediate article of commerce which is then used in the BDC in the production of the final imported article.

Since the merchandise at issue is to be produced using component parts which are not the product of Taiwan, it is clear that they are not wholly the growth, product, or manufacture of that beneficiary country. It is Mr. O'Donnell's position that the production of a number of PCB subassemblies, and the subsequent assembly of the subassemblies into the final product, each constitutes a substantial transformation. Thus, he argues that the cost or value of the subassemblies may be counted toward the 35 percent requirement for purposes of determining whether the imported land mobile radios and radar detectors are eligible for duty-free treatment under the GSP.

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).

In the present situation, in order for the imported component parts to be counted toward satisfying the 35 percent value-content requirement, a finding of a double substantial transformation must be made. The double substantial transformation concept has its origins in the administrative and judicial interpretations of 19 CFR 10.177(a). See T.D. 76- 100, 10 Cust. Bull. 176 (1976) and C.S.D. 85-25 (071827), 19 Cust. Bull. 544 (1985).

Customs application of the double substantial transformation requirement in the context of the GSP received judicial approval in The Torrington Company v. United States, 8 CIT 150, 596 F.Supp. 1083 (1984), aff'd 764 F.2d 1563 (1985). The court, after affirming Customs application of the double substantial transformation concept, said:

Regulations promulgated by Customs define the term "materials produced" to include materials from third countries that are substantially transformed in the BDC into a new and different article of commerce. 19 CFR 10.177(a)(2). It is not enough to transform substantially the non-BDC constituent materials into the final article, as the material utilized to produce the final article would remain non-BDC material. There must first be a substantial transformation of the non-BDC material into a new and different article of commerce which becomes "material produced," and these materials produced in the BDC must then be substantially transformed into the new and different article of commerce. It is noted that 19 CFR 10.177(a) distinguishes between "merchandise produced in a BDC" and the cost or value of the "materials produced in the BDC" which demonstrates the contemplation of a dual substantial transformation requirement.

We have previously held in a ruling dated June 28, 1985 (HQ 553217), that the process of incorporating component parts manufactured in Romania and component parts imported into Romania onto a printed circuit board subassembly constituted a processing sufficiently complex so as to result in the subassembly being considered a substantially transformed constituent material of an imported matrix printer. We took into account the number of steps, the careful attention to detail and quality control, and the large number of discrete components assembled onto the PCB.

We also held that the PCB subassembly represented a distinct article, different from both the components from which it was made and the matrix printer into which it was incorporated and, therefore, the assembled PCB constituted an intermediate article within the meaning of 19 CFR 10.177(a). In that case, the cost or value of the PCB subassemblies were counted toward the GSP 35 percent value-content requirement. See also C.S.D. 85-25.

In the present case, we find that the manufacture of the PCB subassemblies constitutes a substantial transformation. The separate components imported into Taiwan acquire new attributes, and the PCB subassembly differs in character and use from the component parts of which it is composed. The production of the subassembly involves substantial operations (cutting, mounting, soldering, 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 PCB subassemblies, creating the final product, results in a second substantial transformation. The further assembly operation of the PCB's changes the character of the constituent material (PCB subassemblies) to enable it to become land mobile radios and radar detectors. The PCB's are separate articles of commerce that manufacturers wish to buy and sell for their own purposes. As a result of the final assembly of the PCB's into land mobile radios and radar detectors, a finished product emerges with a separate identity and, therefore, is a new article of commerce.

Additionally, the further complex assembly of the PCB subassemblies 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 beneficiary developing country from the standpoint of both the value added to each PCB and the overall employment generated by the operations.

Finally, these assemblies are not the type of "pass- through" operations which Congress intended to prohibit from receiving GSP benefits. "Keep[ing] in mind the GSP's fundamental purpose of fostering industrialization in beneficiary developing countries," we believe that the operations performed in this instance are the type of substantial operations contemplated by the GSP statute. See Torrington v. United States, 764 F.2d at 1571.

Regarding the issue of certification of the Form A, section 10.173(a) of the Customs Regulations (19 CFR 10.173(a)), as amended on July 9, 1986, reads as follows:

The Form A shall be properly completed and signed by the exporter of the merchandise, or other appropriate party having knowledge of the relevant facts. The Form A need not be certified by the designated governmental authority of that country unless that country has a verification agreement with the U.S. Customs Service.

Since Taiwan does not have a verification agreement with the U.S. Customs Service, then your office may accept corrected Form A's completed and signed by the exporter or appropriate party. They need not be certified by the Taiwan government.


The component parts imported into Taiwan and subject to the processing described in the importer's submission, may be regarded as a material produced in Taiwan within the meaning of 19 CFR 10.177, and its value may be included towards the satisfaction of the GSP's 35 percent value-content requirement.


Previous Ruling Next Ruling