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HQ 556924

January 12, 1993

CLA-2 CO:R:C:S 556924 BLS


TARIFF NO.: 9802.00.80

Patrick F. O'Leary, Esq.
Tanaka Ritger & Middleton
655 Fifteenth Street, N.W.
Washington, D.C. 20005-5793

RE: Applicability of subheading 9802.00.80, HTSUS, to printed circuit boards; insertion of electronic components into circuit board; cutting; clinching; gluing; wave soldering; substantial transformation; sections 10.12(e); 10.14(b); HRL 553945; HRL 554936

Dear Sir:

This is in response to your letter dated September 14, 1992, on behalf of Alpine Electronics Mfg. of America, Inc., ("AOMA"), requesting a ruling with regard to thr applicability of subheading 9802.00.80, HTSUS, to certain circuit boards ("PCBs") which are exported from the United States to AOMA's affiliate Alcom Electronics de Mexico ("Alcom"), for soldering and assembly with other components and then reimported. Samples of the PCBs upon exportation and reimportation have been submitted.


AOMA imports electronic components and blank PCB's in bulk from Japan, which are used to manufacture two kinds of tuning elements for the car radios manufactured by AOMA in Greenwood, Indiana. The two tuning elements are identified as subassembly No. MB1A0010 and MB1A8020.

MB1A0010 is a PCB to which 81 components have been inserted or mounted in Greenwood, Indiana. An additional 19 components are inserted or mounted in Mexico. MB1A8020 is a PCB to which 141 components have been inserted or mounted in Indiana. An additional 26 components are inserted or mounted in Mexico.

For both PCBs, all the insertions and mounting in Indiana are done by automated equipment. Certain components are inserted by a computer-programmed automatic insertion machine. Numerous components are loaded on the machine which inserts as the PCB
moves around the machine platform. As the components are inserted, the components' leads are cut and "clinched" by the machine. The "clinching" affixes the components to the PCB. The components cannot be removed without bending the leads back to a straight position. If for some reason, the components are removed, they cannot be reloaded into the automatic insertion machine because the leads have been cut. These removed components become unusable.

On the reverse side of the PCBs, chips are mounted by a chip placement machine, a computer programmed automated machine into which the chips have been previously loaded. The chips, some of which are only a small fraction of a square inch in area, are affixed to the PCB by glue, which has been applied to the selected mounting areas beforehand by a computer programmed glue machine. After mounting, the PCBs pass through a glue drying oven. The chips cannot be removed except by use of some sort of prying tool.

The approximate cost of the automated equipment used for the foregoing operations are as follows:

Automated Insertion Machine $320,000.00
Glue Machine $ 96,000.00
Chip Placement Machine $412,000.00
Drying Oven $ 80,000.00

At the time of export to Mexico, four PCBs are physically joined. In Mexico, both subassemblies undergo a similar process. Some additional components are manually inserted, the electrical connections are made by a wave soldering machine, the PCBs are encasede in a metal chassis, and the finished articles undergo inspection and adjustment. The PCBs are then packed ready for shipment to the United States.


Whether the manufacturing operations performed in the United States result in a substantial transformation of the foreign components into products of the U.S. for purposes of being eligible for the duty allowance under subheading 9802.00.80, HTSUS.


Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

(a)rticles assembled abroad in whole or in part of
fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Section 10.12(e), Customs Regulations (19 CFR 10.12(e)), provides generally that an article wholly or partially of foreign components or materials, may be a "product of the United States" if such components or materials are "substantially transformed" by a process of manufacture into a new and different article. Section 10.14(b) provides that a "substantial transformation" occurs when, as a result of manufacturing processes, a new an different article emerges, having a distinctive name, character, or use, which is different from that originally possessed by the article or material before being subject to the manufacturing process. If the manufacturing or combining process is merely a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. See, Belcrest Linens v. United States, 573 F.Supp.1149 (CIT 1983), 741 F.2d 1368 (1984).

In Headquarters Ruling Letter (HRL) 554936, dated March 5, 1986, foreign made electronic components were imported into the U.S. and there inserted into printed circuit boards by an automatic process and exported to Mexico for further assembly before being returned to the U.S. as lightwave and microwave transmission systems. During this process, the components were "driven" into the board, and the leads were cut to a specified lengthy and "clinched" to the board. Upon completion of the process, the components were said to be permanently inserted and dedicated to the board and ready for wave and hand soldering in Mexico. About 80 percent of the components were inserted into U.S. made boards in the United States. The balance of the components, numbering approximately 100, were inserted manually and welded during the final assembly in Mexico.

We stated in that case that the auto insertion of some 400 components into the blank circuit boards, with a substantial degree of permanence and dedication attached to the overall
integrated pattern, would amount to such a conversion that results in a new and different article of commerce. The identity of each component is lost and becomes subordinated and merged into a new identity with a new name, character, and use. Therefore, we held that a substantial transformation took place in the U.S. under that scenario, for purposes of item 807.00, TSUS (the precursor of subheading 9802.00.80, HTSUS).

A similar operation resulted in a similar holding in HRL 554936, dated June 30, 1989. As in the instant case, it was stated that after the insertion process, the parts could not be reused in the same operation.

Given the similarity of the facts in this case to HRL 553945 and HRL 554936, we find that those rulings are controlling. In the instant case, the electronic components were inserted into the PCBs by computer-programmed automatic machines, and the leads are cut and "clinched". If for some reason the components are removed, they cannot be reloaded into the automatic insertion machine and become unusable. As we stated in HRL 554936, "[T]here was an irreversible commitment to utilize the inserted components in the manufacture of the printed circuit boards, and their attachment was permanent even though there was a subsequent soldering abroad to ensure proper electrical connection."

Under the circumstances, we hold that the process of inserting the components into the PCBs, with the accompanying cutting and "clinching", results in the emergence of a new or different article of commerce, having a distinctive name, character or use, which is different than that originally possessed by the articles (PCBs and electronic components) before being subjected to the manufacturing process. A substantial transformation has taken place within the meaning of section 10.14(b), Customs Regulations, and as a result, the foreign components and PCBs imported into the U.S. subjected to this manufacturing process are considered products of the United States.


The described manufacturing operations, consisting of insertion of the electronic components into PCBs by computer- programmed automatic machines, and including cutting and

"clinching", result in a substantial transformation of the foreign electronic components and PCBs into products of the U.S. for purposes of being eligible for the partial duty exemption under subheading 9802.0080 HTSUS.


John Durant, Director
Commercial Rulings Division

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