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HQ 557051




April 2, 1993

CLA-2 CO:R:C:S 557051 WAW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Ms. Christine Johnson
Robert Bosch Corporation
P.O. Box 10347
Charleston, SC 29418

RE: Applicability of the partial duty exemption under subheading 9802.00.80, HTSUS, to imported electronic control units; assembly; C.S.D. 85-25; substantial transformation; "product of"; belting '

Dear Ms. Johnson:

This is in response to your letter of December 9, 1992, requesting a ruling on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), to certain electronic control units to be imported as part of automobiles. A sample of the merchandise was submitted for our review.

FACTS:

The Robert Bosch Corporation manufactures electronic control units in the U.S. which are used in Bosch Anti-lock Braking Systems (ABS). You state that the articles are produced by a lengthy, complex, labor-intensive process from hundreds of components that your client either fabricates from raw materials or sources from domestic or foreign suppliers. These components then undergo an assembly process which is subdivided into various stages of assembly, to create the final product. In the instant case, you state that the integrated circuits and relay housing are of German-origin and the capacitors are of Japanese-origin. The remaining components are all of U.S.-origin.

The Robert Bosch Corporation produces two types of electronic control units in the U.S. The first type is a stand-alone unit which is mounted under the passenger seat and encompasses a number of additional components. The second type is newer, smaller and more technical than the first type and is subassembled into the final article.

The U.S. manufacturing processes used in the production of the electronic control units are as follows:

(1) Automatic Insertion: Integrated circuits are mounted on beth sides of a printed circuit beard. On the top side, solder paste is stenciled onto the beard in the areas where components are needed. These components are then automatically placed in the paste with a high speed assembly machine. The beards then pass through an oven to melt the solder paste and bend these components to the circuit beard. The foregoing processes (e.g, stenciling paste, component placement, and oven reflowing) are performed by means of automated handling equipment.

The next step in Auto Insertion procedure involves inserting electronic components through the holes in the circuit beard. High speed insertion equipment automatically inserts various components through holes in the circuit beard and cuts the component's legs to the correct length. The two machines in this area are also tied together by means of automated handling equipment. The final step in Auto Insertion is placing components on the bottom side of the circuit beard. The circuit beard first passes through a glue machine which puts very small dots of glue on the beard where components are needed. Components are then automatically placed in the glue by means of a high speed assembly machine. The beard then passes through an oven that cures the glue.

(2) Panel Shearing: The circuit beards in Automatic Insertion are assembled in a large panel comprised of four individual circuit beards. The next step involves shearing the panel into four circuit boards. This is accomplished by a hydraulic shear machine.

(3) Frame Assembly: An aluminum frame is assembled so that the circuit beard can be mounted to it. The assembly is performed by means of an automated assembly line that includes a robot. Spacers, insulation plates, transistors, holding springs and a diode are all mounted onto the frame at this stage in the production line by means of an automatic riveting machine.

(4) Circuit Board to Frame Assembler: In the next stage of production, the assembled circuit beard is attached to the per-assembled frame. A connector is also attached to the circuit beard on this line. Both of these operations are performed by semi-automatic riveting machines.

(5) Hand Insertion/Wave Solder: After the beard is mounted onto the frame, additional components (e.g, hybrids,, crystal, quartz and integrated circuits) which cannot be mounted automatically are inserted by hand onto the board. The electronic control units are then transported automatically through a soldering machine. This machine applies flux to the electronic control unit, heats it, and solders all of the bottom side components to the electronic control unit.

(6) Test: A visual inspection of the electronic control unit is performed to verify that all components are in place and have the correct value. The electronic control units are tested using extreme temperature. They are transported to a hot chamber, fully tested for function, and then transferred to a cold chamber, fully tested for function, and lastly transported to the final assembly line.

(7) Final Assembly Test: The final step involves mounting the electronic control unit to an aluminum housing and performing a final function test. The test data from this test is stored in a computer by a serial labeling number for fifteen years. This assembly line also uses automated material handling, a vision system to read data, and torque-controlled screw drivers for assembling the housing.

You claim that in certain instances, the finished electronic control units are sold to foreign automobile manufacturers, who will bolt the units into their automobiles. Certain automobiles containing the electronic control unit will then be returned to the U.S. for resale.

ISSUES:

(1) Whether the electronic control units will qualify for a duty allowance under subheading 9802.00.80, HTSUSA, when returned to the U.S. as part of automobiles.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUSA, 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, lubrication, and painting...

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

For a component to be eligible for subheading 9802.00.80, HTSUSA, treatment it must first be a "product of" the U.S. According to section 10.12(e), Customs Regulations (19 CFR 10.12(e)), a "product of the United States" is an article manufactured within the customs territory of the U.S. and may consist wholly of U.S. components or materials, of U.S. and foreign components or materials, or wholly of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article. A substantial transformation occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character or use, which is different from that originally possessed by the article or material before being subjected to the manufacturing process. See Texas Instruments. Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

The first issue that we must address is whether the German and Japanese-origin components which are used in the assembly of the electronic control units in the U.S. are substantially transformed into "products of" the U.S.

We have previously held in C.S.D. 85-25 dated September 25, 1984 (Headquarters Ruling Letter (HRL) 071827), that the process of incorporating numerous component parts onto a printed circuit beard subassembly constituted a processing sufficiently complex to result in the subassembly being considered a substantially transformed constituent material of the final article (matrix printer) for purposes of the Generalized System of Preferences (GSP). The focus of C.S.D. 85-25 was a PCBA which was produced by assembling in excess of 50 discrete fabricated components (e.g., resistors, capacitors, diodes, transistors, integrated circuits, sockets, and connectors) onto a printed circuit board. Customs determined that the assembly of the PCBA involved a 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 country of assembly from the standpoint of both the value added to the PCBA and the overall employment generated thereby. In addition, Customs found in C.S.D. 85-25 that the PCBA represented a distinct article which was different from both the components from which it was made and the matrix printer into which it was incorporated and, therefore, the assembled PCBA constituted an intermediate article within ~he meaning of 19 CFR 10,177(a).

In the present case, we are of the opinion that the foreign components (i.e., integrated circuits, capacitors and relay housing) used in the production of the electronic control unit are substantially transformed into a "product of" the U.S. You state that in excess of 70 discrete fabricated components (e.g., resistors, capacitors, diodes, transistors, integrated circuits, connectors, a printed circuit board, and a housing) are used to produce the final article. These separate components imported into the U.S. acquire new attributes, and we find that the final article differs in character and use from the component parts of which it is composed. Moreover, the production of the electronic control unit involves substantial operations (mounting, soldering, riveting, quality control testing, bolting, gluing, curing, machining, etc.), which increase the value of the individual components, endow them with new qualities and result in an article with a new and distinct commercial identity.

On the basis of the information submitted, we are of the opinion that the assembly of the electronic control units in the U.S. results in a substantial transformation of the German and Japanese-origin components into "products of" the U.S. The remaining issue is whether the electronic control unit is eligible for the duty exemption available under subheading 9802.00.80, HTSUSA, when it is exported, incorporated into an automobile by means of bolting, and then subsequently returned to the U.S.

Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states in part that:

[t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners.

The operation which results in securely joining the electronic control unit to the automobile by means of bolting is considered an acceptable assembly operation. See 19 CFR 10.16(a);"HRL 556764 dated October 5, 1992 (securely joining a hydraulic unit to an automobile by means of bolting is considered an acceptable assembly operation). Therefore, as the U.S. components used in the assembly process will be exported in condition ready for assembly without further fabrication, will not lose their physical identity in the assembled article, and will not be advanced in value or improved in condition except by assembly operations, the returned electronic control unit will be eligible for an allowance in duty under subheading 9802.00.80, HTSUSA.

HOLDING:

Based on the information and sample submitted, we are of the opinion that the materials imported into the U.S. and assembled into the electronic control unit are substantially transformed into a "product of" the U.S. Additionally, the foreign operations which consist of bolting the electronic control unit into an automobile is an acceptable assembly operation. Therefore, the imported automobile may be entered under subheading 9802.00.80, HTSUSA, with an allowance in duty for the cost or value of the electronic control unit, upon compliance with the documentary requirements of 19 CFR 10.24.

Sincerely,

John Durant, Director
Commercial Rulings Division


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