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NY 897647

May 11, 1994



Mr. Preston T. Scott
3027 Arizona Avenue, NW
Washington, DC 20016


Dear Mr. Scott:

This is in response to your letter dated April 8, 1994, on behalf of Falco Data Products, Inc., requesting a ruling on whether imported computer terminal components are required to be individually marked with the country of origin if it is later to be processed in the U.S. by a U.S. manufacturer. A marked sample was not submitted with your letter for review.

Falco Data Products, Inc. manufactures computer terminals at their Sunnyvale, California plant. The computer terminals are manufactured by Falco from more than 30 separate components that are purchased by Falco from suppliers that are located in the United States and abroad. Falco imports some components directly from foreign suppliers. The value added in the U.S. by Falco to the cost of the imported components is more than 200 percent greater than the cost of the imported items.

Falco's computer terminal, which basically consists of a keyboard and monitor, involves a manufacturing process that consists of eight distinct manufacturing stages that requires highly specialized employee training and the use of specialized technical equipment.

The first stage involves the assembly of the main terminal housing including the construction of the power supply and related cable subassemblies. This involves the use of an electro- mechanical assembler.

The second stage involves the modification of the monitor board assembly, logic board assembly, and power supply subassembly and to calibrate the boards' components to current ECO and customer specifications. This involves the use of a de- solder station, and to apply advanced soldering as well as anti- static practices.

The third stage involves the programming of the EPROMS. Without the installation of Falco's proprietary EPROM on the logic board, the terminal would not function at all. The EPROM (Erasable Programmable Read Only Memory chip) is the device which contains the programming code which serves as the instruction set for all functions to be performed by the terminal after it is completed. This stage also involves the construction of logic boards and the installation of logic boards into the terminal housing subassembly.

The fourth stage involves the installation of the cathode ray tube onto the metal frame of the terminal housing base unit that was assembled in stage one and two. This involves the use of temperature controlled soldering stations.

The fifth stage involves the testing of the keyboards, and refitting of keys for those keyboards that will be marketed in foreign markets. Falco imports the keyboards from Taiwan, but the keyboards are not operational at this time since the keyboards contain a masked ROM that is Falco's proprietary design that cannot operate apart from matching firmware on Falco's terminal logic boards.

The sixth stage involves an alignment procedure that sets the display size and focus of the display unit. The alignment technicians use a series of specialized alignment tools to adjust the monitor board to meet video output specifications.

The seventh stage involves the testing and inspection of the terminal. These tests look for current leaks, and whether the internal ground circuitry is properly connected, functional and safe.

The last stage involves the final cleaning, power cord installation, and final packaging for shipment.

The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article.

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.41(b), Customs Regulations (19 CFR 134.41(b)), mandates that the ultimate purchaser in the U.S. must be able to find the marking easily and read it without strain. Section 134.1(d), defines the ultimate purchaser as generally the last person in the U.S. who will receive the article in the form in which it was imported. 19 CFR 134.1(d)(1) states that if an imported article will be used in manufacture, the manufacturer may be the ultimate purchaser if he subjects the imported article to a process which results in a substantial transformation of the article. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in manufacture which results in an article having a name, character or use differing from that of the constituent article will be considered substantially transformed and that the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked. See, 19 CFR 134.35.

For purposes of determining whether U.S. manufacturing processes constitute a "substantial transformation", Customs examines the extent of the manufacturing operations performed in the United States as well as whether the individual components lose their separate identities and become an integral part of the newly manufactured article. As noted above, Falco uses both imported and domestic component parts in its computer terminal manufacturing process. For example, the CRT used by Falco is manufactured in the U.S. and is purchased by Falco directly from a U.S. supplier. The power supply subassembly is purchased by Falco directly from a U.S. supplier but is manufactured in India. The EPROM is purchased by Falco from a U.S. supplier who imports it from Malaysia; however, Falco programs the imported EPROM in Sunnyvale with proprietary Falco code. The terminal housing parts are imported directly by Falco from Taiwan, as are the logic board subassemblies.

The eight-stage manufacturing process results in the creation of a different article of commerce, namely a "computer terminal", that is different in name, character, and use from any of its individual constituent component parts. Please note also HQ Ruling letters 734097 of November 25, 1991, and 734213 of February 20, 1992, in which Customs also ruled that similar merchandise was "substantially transformed". Accordingly, the manufacturing process described in this ruling request taken as a whole satisfies the "substantial transformation" test as it has been applied by Customs under 19 C.F.R. Section 134.35.

In this case, the imported computer terminal components are substantially transformed as a result of the U.S. processing, and therefore the U.S. manufacturer is the ultimate purchaser of the imported terminal components and under 19 CFR 134.35 only the containers which reach the ultimate purchaser are required to be marked with the country of origin, such as Taiwan.

This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 CFR Part 177).

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 Customs officer handling the transaction.


Jean F. Maguire
Area Director

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