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HQ 555856


May 13, 1991

CLA-2 CO:R:C:S 555856 KCC

CATEGORY: CLASSIFICATION

Mr. Bernard R. Nottling
Rudolph Miles & Sons
4950 Gateway East
P.O. Box 11057
El Paso, Texas 79983

RE: Gas Furnace Ignition Devices. GSP; substantial trans- formation; spark transformer; winding; potting; fitting; printed circuit board assemblies; assembly; Belcrest Linens; C.S.D. 85-25; 555420; 051102; 555727;

Dear Mr. Nottling:

This is in response to your letter dated January 16, 1991, on behalf of Control Products Division, Johnson Controls (Control Products), concerning the eligibility of gas furnace ignition devices for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466). Samples of the printed circuit board assemblies and the completed gas furnace ignition devices were submitted for examination.

FACTS:

Control Products produces gas furnace ignition devices (ignition devices) in Mexico and currently enters them under subheadings 9032.89.6025 and 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). However, upon review of the ignition devices it appears that they are properly classified under subheading 8537.10.00, HTSUS, which provides for boards, panels (including numerical control panels), consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of chapter 90, other than switching apparatus of heading 8517; for a voltage not exceeding 1,000 V, dutiable at the rate 5.3% ad valorem. This tariff provision is a GSP eligible provision. For a binding classification determination, we suggest utilizing the administrative ruling program as described in 19 CFR Part 177.

The ignition devices are produced with U.S. origin and non- Mexican foreign origin components. The ignition devices under consideration in this ruling are model #600 A and model #600 L. Upon receiving a signal from a thermostat that a room requires heat, both models are designed to create an electrical spark, turn on the pilot light, light the pilot flame, and turn on the main gas valve which will be lit by the pilot flame. Once the room is adequately heated, the ignition device will shut down the main burner and the pilot flame. #600 L is a technically advanced model as it contains memory capabilities which allow it to monitor the operation, and if a failure occurs, shut itself down. The foreign operations for both models are as follows:

Model #600 A - Standard Gas Ignition Device without Lockout

1. All incoming components are counted and inspected for mechanical, dimensional, electrical and quality control qualifications, and then arranged by part number in the stock room. When a production order is scheduled, the appropriate parts are gathered into a kit and delivered to the production area.

2. 6 lead wires are cut to length and stripped of insulation at the ends. Terminals are crimped on to one end of each wire, visually inspected and "pull tested" to verify the integrity of the connection.

3. The spark transformer is manufactured in the following manner: a. The secondary winding (119 turns per layer for a total of 3000 turns) is performed on an automatic winding machine in which 16 windings are made on a stick. These windings are cut from the stick producing 16 individual coils. The end wires are stripped, solder tinned, and electrically tested. b. The primary winding (8 turns) is produced one at a time on a dedicated winder. The end wires are stripped and solder tinned. c. The secondary and primary windings are attached to a ferrite core and terminal assembly, and then inserted into a black plastic transformer housing. d. The transformer housing assembly is potted with an epoxy in a vacuum chamber. e. The completed spark transformer is cleaned and tested for coil impedance and wave form analysis.

4. 23 fixed resistors and 7 diodes are automatically inserted into prepunched holes in the printed circuit board (PCB). 11 capacitors, 6 transistors, 1 fuse, 2 relays, 1 mounting bracket, the spark transformer, and 6 lead wires are manually attached to the PCB. The PCB is fluxed, preheated, and soldered on a wave solder machine. The PCB is cleaned to remove any residual flux or solder, the excess leads are trimmed, and it is visually inspected. The PCB is then electrically tested to insure all components are correctly placed, orientated, soldered, and performing correctly. The PCB is heat cured for 1 hour to eliminate moisture and then it is coated with a sealant to prevent moisture from entering the PCB. Thereafter, the completed panel printed circuit board assembly (PCBA) is visually inspected to insure complete coverage of the sealant.

5. The final assembly operations involve attaching the panel PCBA to the metal frame with a screw, snapping a plastic Molex connector into the frame, inserting 3 lead wires into the connector, inserting and riveting the spark transformer into the frame, inserting 4 lead wires into the main terminal block, attaching the ground wire terminal bracket onto the metal cover, attaching the ground wire from the PCBA to the internal terminal of the ground bracket in the cover, inserting the main terminal block into the cover, screwing the cover over the frame, quality control testing, labeling and packaging for shipment to the U.S.

Model #600 L - Gas Ignition Device with Lockout (memory)

1. The incoming components are processed in the same manner as #600 A.

2. 5 lead wires are processed in the same manner as #600 A.

3. The spark transformer is processed in the same manner as #600 A.

4. In this model two separate PCBAs are produced. a. The memory module PCBA - Lead terminals are automatically and manually inserted into prepunched holes on a PCB. Adhesive is applied and 24 fixed chip resistors and 7 chip capacitors are attached to the PCB. The PCB is cured in an infra red oven which sets the adhesive and secures the chip components for later handling and wave soldering. A micro processor, 2 diodes, 3 capacitors, and 1 ceramic resonator are manually attached to the PCB. The PCB is fluxed, preheated and wave soldered. Thereafter, the completed PCBA is cleaned to remove all residual flux and solder, and then it is inspected and quality control tested. b. The panel PCBA - 22 fixed resistors and 4 diodes are automatically inserted into prepunched holes in the PCB. 7 capacitors, 4 transistors, 2 relays, 1 mounting bracket, the spark transformer, 5 lead wires and the memory module PCBA are manually attached to the PCB. The PCB is fluxed, preheated and soldered using a wave solder machine. The PCB is cleaned to remove any residual flux or solder, the excess leads are trimmed, and it is visually inspected. The PCB is electrically tested to insure all components are correctly placed, orientated, soldered and performing correctly. The PCB is heat cured to eliminate moisture and then coated with a sealant to prevent moisture from entering the PCB. Thereafter, the completed panel PCBA is visually inspected to insure complete coverage of the sealant.

5. The final assembly operations involve attaching the panel PCBA to the metal frame with a screw, snapping a plastic Molex connector into the frame, inserting 5 lead wires and jumper wire into the connector, inserting and riveting the spark transformer into the frame, inserting 5 lead wires into the main terminal block, attaching the ground wire terminal bracket onto the metal cover, attaching the ground wire from the PCB to the internal terminal of the ground bracket in the cover, inserting the main terminal block into the cover, screwing the cover over the frame, quality control testing to verify the correct operation parameters, labeling and packaging for shipment to the U.S.

Assembly time in hours
(per unit): #600 A #600 L

Lead Wires .009 .009
Spark Transformer .144 .144
Panel PCBA .249 .249
Memory PCBA N/A .241
Final Assembly .177 .177
Total .562 .820

ISSUE:

Whether the spark transformer and the panel and memory module PCBAs produced in Mexico qualify as substantially transformed constituent materials of the gas furnace ignition devices, thereby enabling the cost or value of these materials to be counted toward the 35% value-content requirement for purposes of the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the customs territory of the U.S. from a BDC may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BDC, plus 2) the direct costs of the processing operation in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See, 19 U.S.C. 2463(b).

Mexico is a BDC. See, General Note 3(c)(ii)(A), HTSUS. Based on your submission, it appears that the gas furnace ignition devices are classified under subheading 8537.10.00, HTSUS, which is a GSP eligible provision.

If an article is produced or assembled from materials which are imported into the BDC, the cost or value of those materials may be counted toward the 35% value-content minimum only if they undergo a double substantial transformation in the BDC. See, section 10.177, Customs Regulations (19 CFR 10.177), and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F.2d 1150 (Fed. Cir. 1989). That is, the cost or value of the imported materials used to produce the spark transformer and PCBAs may be included in the GSP 35% value-content computation only if they are first substantially transformed into a new and different article of commerce, which is itself substantially transformed into the gas furnace ignition devices.

A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." See, Texas Instruments Incorporated v. United States, 2 CIT 36, 520 F. Supp. 1216 (CIT 1981), reversed, 681 F.2d 778, 69 CCPA 151 (CCPA 1982).

We have previously held in Headquarters Ruling Letter (HRL) 555420 dated September 6, 1989, that production of a inductor coil resulted in a substantially transformed constituent material of a control transformer. The inductor coil was produced by stripping copper wire, winding the wire around a previously manufactured bobbin, cutting and interleaving insulation materials with the copper coilings, and attaching various leads at appropriate points on the coilings.

Based on the previous rulings and the information submitted, it is our opinion that the manufacture of the spark transformer results in a substantial transformation. There clearly is a name change from wire, epoxy and plastic housing unit to spark transformer. Moreover, the winding, potting and fitting operations change the character and use of the components by rendering the components capable of generating a spark to light the pilot light and main burner. 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.

In C.S.D. 85-25, 19 Cust.Bull. 844 (1985) (HRL 071827 dated September 25, 1984), Customs held that an assembly process will not constitute a substantial transformation unless the operation is "complex and meaningful." Whether an operation is "complex and meaningful" depends on the nature of the operation, including the number of components assembled, number of different operations, quality control, and the benefit to the BDC from the standpoint of both the value added to the PCBA and the overall
employment generated thereby. Additionally, C.S.D. 85-25 stated that the factors which determine if a substantial transformation occurs should be applied on a case-by-case basis.

The focus of C.S.D. 85-25 was a PCBA produced by assembling in excess of 50 discrete fabricated components (e.g., resistors, capacitors, diodes, transistors, integrated circuits, sockets, connectors) onto a PCB. Customs determined that the assembly of the PCBA involved a very 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 significant economic benefit to the BDC from the standpoint of both value added to the PCBA and the overall employment generated thereby.

We are of the opinion that the assembly of the panel and memory module PCBAs results in a substantial transformation. The process of assembling the PCBAs in the present case is closely analogous to the facts in C.S.D. 85-25. The PCBAs are created by automatically and manually attaching 40-50 components to the bare printed circuit board; wave soldering; oven backing to reflow the solder; cleaning to remove all residual flux and solder; and testing prior to its joinder with the other components to create the remote control. Therefore, the assembly of the PCBAs creates new and different articles of commerce, with a new name, character, and use different from that possessed by the individual components incorporated therein.

The next determination to be made is whether a second substantial transformation occurs while assembling the panel PCBA (which contains the manufactured spark transformer and in model #600 L the memory module PCBA) with a few additional components that make up the ignition devices' housing unit. Using the standards defined in C.S.D. 85-25, these final assembly operations do not constitute the required second substantial transformation. These operations merely fit together a small number of components by screwing, inserting, and riveting. Whereas the assembly of the panel and memory module PCBAs required skilled operations, there appears to be no real demand for skilled labor to complete the assembly of the panel PCBA with the housing unit components. In sum, the time, cost, and complexity (or degree of skill) which help to determine whether a substantial transformation occurs, indicate that there is no second substantial transformation.

In addition, in determining whether the combining of parts or materials constitutes a substantial transformation, a consideration, in addition to the extent of operations performed, is whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 741 F.2d 1368 (Fed. Cir. 1984). In the final assembly of the ignition devices, which principally involves the addition of protective coverings, there is no real integration of the panel PCBA and the outer coverings to the point where they lose their separate identity. Moreover, the final assembly does not significantly affect the character and use of the panel PCBA. For all intents and purposes, the ultimate use and essential character of the ignition devices are determined by the panel PCBA, e.g., the ignition of a gas furnace. See also, HRL 555727 dated January 31, 1991, which 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.

HOLDING:

The production of the spark transformer and the complex assembly of the panel and memory module PCBAs each constitutes a substantial transformation. However, no additional substantial transformation results from the final simple assembly operations. Therefore, the cost or value of the materials imported into Mexico may not be included in the 35% value-content minimum required for eligibility under the GSP.

Sincerely,

John Durant, Director
Commercial Rulings Division

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