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 > 1993 HQ Rulings > HQ 0951877 - HQ 0951985 > HQ 0951951

Previous Ruling Next Ruling



HQ 951951

October 1, 1992

CLA-2 CO:R:C:M 951951 DWS

CATEGORY: CLASSIFICATION

TARIFF NO.: Not Applicable

Mr. John N. Politis
Politis, Pollack & Doram
3255 Wilshire Blvd., Suite 1688
Los Angeles, CA 90010

RE: Delay Line; Filter Assembly; Pulse Transformer; DC-DC Converter; Substantial Transformation; Torrington Co. v. U.S.; Texas Instruments Incorporated v. U.S.

Dear Mr. Politis:

This is in response to your letters of March 16, 1992, and of September 8, 1992, on behalf of Valor Electronics, Inc., concerning the country of origin of certain electronic products under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The subject merchandise consists of delay lines, filter assemblies, pulse transformers, and DC-DC converters. The components required to make these articles are from the United States, Hong Kong, Taiwan, and other countries in the Pacific Rim. These components are staged and gathered in Hong Kong, and then shipped to China for assembly. The components arrive in Hong Kong in bulk shipments, and then are packed together in kits forming the unassembled articles. After assembly in China, the completed articles are shipped back to Hong for electrical testing.

When the unassembled parts of the delay line, model no. DL 1885, arrive in China, they are subject to the following assembly operation. First, double backed tape is applied to the integrated circuit. A phenolic rod is then cut to length and is wound with wire with six taps. The capacitors and a resistor are soldered to the shimstock, and a wire lead is soldered to the bar. The capacitor bar is soldered to the integrated circuit assembly pins, and the rod assembly is soldered to the capacitor bar/integrated circuit assembly. The whole assembly is then electrically tested for function, and the case is filled with epoxy and allowed to dry. The total time to assemble the delay line is 6.27 minutes. The total cost incurred in China per unit is $0.0991, representing 11.01 percent of its total cost.

Once in China, the unassembled parts for the pulse transformer, model no. LT 1750, are subject to the following assembly operation. First, the lead pins are inserted into the small holes of the lead frame. Three cores are wound with wire, and pliolite is applied to the cores to keep them from unwinding. The core leads are soldered to the lead frame assembly pins. The assembled article is then electrically tested for function, the case is filled with epoxy and allowed to dry, the lead pins are trimmed to size, and the article is trimmed and marked. The total time to assemble the pulse transformer is 6.34 minutes. The total cost incurred in China per unit is $0.1002 or 12.52 percent of its total cost.

Once in China, the unassembled parts for the filter assembly, model no. PT 3877, are subject to following assembly operation. First, wire is wound around the cores and pliolite is applied to keep the wires from unwinding. Capacitors are then mounted on the tape. Twelve lead pins are inserted into the lead frame, and the coilforms are then taped to the lead frame. The capacitors on tape are attached to the lead frame, and the leads are soldered to the lead pins of the lead frame. The assembly is then electrically tested for function. The core is assembled to the lead frame and the article is filled with epoxy. The leads are then trimmed to size and cleaned. The total time to assemble the filter assembly is 12.87 minutes. The total cost incurred in China per unit is $0.2033 or 12.71 percent of its total cost.

Upon arrival in China, the unassembled parts for the DC-DC converter, model no. PM 7102, are subject to the following assembly operation. First, the cores are wound with wire. Five capacitors, two cores, three resistors, three diodes, and two transistors are assembled to the printed circuit board. The assembly is then electrically tested for function. The article is wave soldered and the lead frame is assembled to the circuit board. The lead frame is inserted into the header, and the printed circuit board is soldered to the lead frame/header assembly. Another electrical test is performed. The cover is assembled to the lead frame, epoxy is applied, and the leads are trimmed to size, bent, and cleaned. The total time to assemble the DC-DC converter is 20.37 minutes. The total cost incurred in China per unit is $0.3218 or 11.49 percent of its total cost.

ISSUE:

Whether the assembly of the four electronic products in China constitutes a substantial transformation? What is the proper country of origin of the subject electronic products?

LAW AND ANALYSIS:

"Country of origin" is defined in 19 CFR 134.1(b) 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 Torrington Co. v. U.S., 764 F.2d 1563, 1568, 3 CAFC 158, 163 (Fed. Cir. 1985), it was stated that "[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."

In Texas Instruments Incorporated v. U.S., 681 F.2d 778, 69 CCPA 151 (CCPA 1982), the Court held that "[a]ssembly of encapsulated integrated circuits in Taiwan from slices containing many integrated circuit chips, gold wire, lead frame strips, molding compound, and epoxy, all imported from the United States, constituted substantial transformation of such items into a new and different article of commerce . . ."

The Court in Texas Instruments stated that:

[g]iven our holding that the IC's and photodiodes were the result of extensive manufacturing operations in Taiwan which converted materials into articles, as distinguished from mere assembly, that there was "substantial transformation" into new and different articles of commerce, and granting that a statute must be so interpreted as to implement its legislative purpose, we conclude that our decision in the case is harmonious with the legislative purpose. The facts of record indicate that a number of employees were needed, and had to be technically trained in numerous skills to "convert materials into articles" in the manner we have described above, laying the groundwork for the acquisition of even higher skills and more self-sufficiency.

It is our position that the assembly of the subject electrical products in China constitutes a substantial transformation. The process of assembling these articles is similar to the facts in Texas Instruments. The creation of the articles in China involves the following operations: attaching several different components, wave soldering, applying pliolite to prevent unwinding, and electrical testing for function. The assembly of the electrical products requires a number of technically trained employees involved in a number of operations.

HOLDING:

The assembly of the articles in China creates new and different articles of commerce, with a new, character, and use different from that possessed by the individual parts incorporated therein. Consequently, because a substantial transformation has occurred, the country of origin of the subject articles is China.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling