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HQ 555170

May 30, 1989

CLA-2 CO:R:C:V 555170 BJO

CATEGORY: CLASSIFICATION

Paul E. Linet, Esq.
Aresty, Levin, Orenstein & Wernick
World Trade Center
Suite 104
Boston, Massachusetts 02210

RE: CBI Eligibility of Foil Strain Gages (BLH Electronics, Inc.)

Dear Mr. Linet:

This is in response to your letters of November 4, 1988, and January 30, 1989, on behalf of BLH Electronics, Inc., in which you request a ruling that foil strain gages manufactured by your client are products of Costa Rica for purposes of the Caribbean Basin Economic Recovery Act (CBERA)(19 U.S.C. 2701-2706), and that the foil strain gages are properly classified for tariff purposes under either subheading 8533.90.00 or 9031.90.60 of the Harmonized Tariff Schedules of the United States (HTSUS). The following is a ruling on the CBERA issue; your request for a classification ruling will be separately answered. For purposes of the following, we will assume the product is properly classified under one of the aforementioned HTSUS subheadings, both of which are CBERA-eligible.

FACTS:

Each strain gage is less than one-tenth the size of a postage stamp, and is composed of thin metallic foil circuit bonded to a flexible organic sheet. You state that foil strain gages are devices used with a metal element or "transducer" to test or measure physical stress. For example, the strain gages can be used to measure stress on an aircraft wing, or used in a scale. The strain gage will be attached to a transducer. It appears from the technical information submitted that an electrical charge is fed through the foil circuit. A force applied to the transducer will be translated into a proportional change in the electrical resistance of the gage, and, consequently, the electrical output. Comparison of the electrical input to the gage with the output will yield the amount of strain.

The foil strain gages will be produced as follows:

(1) In the United States, the metallic foil in circuit patterns will be placed on the organic backing. These will be produced "in bulk;" that is, over a hundred individual foil patterns will be bonded to a single sheet measuring approximately three by ten inches. These "bulk etched sheets" will then be shipped to Costa Rica for additional processing.

(2) Upon receipt in Costa Rica, the sheets will be visually inspected.

(3) The sheets will then be subjected to a "post-etch" operation. This involves manually applying a mild acid or fine polishing abrasive to the sheets to thin the metallic foil. This thinning operation is necessary to raise the resistance value of the strain gages to their required performance level. If this operation were not performed, the strain gages would have only between 20 to 30 percent of the requisite resistance value. You state that constant attention to detail and repeated review of the actual amount of thining being performed are monitored through use of magnifying instruments. After the desired resistance value is achieved, the acid is neutralized with a mild alkaline solution.

(4) The sheets will then be subjected to slicing and trimming operations in which the "bulk etched sheets" will be mechanically punched or cut into individual strain gages.

(5) Because the importer intends to produce several different models of the foil strain gages, some of the sheets will be subjected to additional processing before and after the slicing and trimming operations. These sheets will be encapsulated, whereby tape or foil will be cut to shape in Costa Rica, affixed to the sheets by clamps, and fused thereon by a 2 to 4 hour oven baking. Pre-cut leads will then be soldered or welded to the strain gage.

(6) All the strain gages will be tested to measure electrical resistance, visually inspected, packed, and shipped.

You also state that the direct processing costs in producing the strain gages in Costa Rica will be equivalent to between 25 and 77 percent of the value of the finished gage, depending upon the model, and that the remaining percentage of value of the various models will be attributable to cost of U.S. materials.

ISSUE:

Whether the foil strain gages are products of Costa Rica for purposes of the CBERA.

LAW AND ANALYSIS:

Under the CBERA, eligible articles the growth, product, or manufacture of a beneficiary country ("BC") which are imported directly to the U.S. from a BC qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or two or more BC's, plus (2) the direct costs of processing operations performed in a BC or countries is not less than 35% of the appraised value of the article at the time it is entered. See 19 U.S.C. 2703(a)(1).

An article composed of materials produced in a non-BC, as here, is the "growth, product, or manufacture" of the BC if the non-BC materials are substantially transformed in the BC into a "new and different article of commerce." See 19 CFR

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 The Torrington Co. v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985).

You state that the processing of the "bulk etched sheets" in Costa Rica results in a new and different article of commerce, namely, the finished strain gages. Specifically, you state that the product undergoes a change in name, from "bulk etched sheets" to "foil strain gages;" that the thinning of the metal circuit by chemical or mechanical means, and cutting or punching the bulk etched sheets into individual units (as well as encapsulating and attaching leads to some models) represents a character change; and that as a result of the thinning operations, the resistance value of the product is increased to the level to permit the article to be used as a strain gage. In sum, you state that until processed in Costa Rica, the bulk-etched sheets are not known as strain gages, cannot function as strain gages, and cannot be sold as strain gages.

We find that the strain gages are not new and different articles of commerce which are substantially transformed from the bulk-etched sheets. Rather, the bulk-etched sheets and strain
gages are "merely different stages of the same product." See Superior Wire v. United States, Appeal No. 88-1020, 23 Cust. Bull. 50 (No.10) (Fed. Cir. February 15, 1989). In Superior Wire, the Court of Appeals for the Federal Circuit affirmed the determination of the Court of International Trade that drawing wire from wire rod was a minor rather than substantial transformation, even though the physical properties of the wire rod, and therefore its use, were affected as a result of the processing. The record in that case showed that the wire that emerged from the drawing process was stronger and rounder than the wire rod. However, because these properties of the wire, which affected the use to which it could be put, were predetermined by the chemical content of the rod and the cooling process used in its manufacture, the court found that wire drawn from the rod was not a new and different product, but the last stage in the processing of the same product.

The primary difference in physical properties between the "bulk etched sheets" and the finished foil strain gages appears to be the higher resistance level of the latter. This characteristic of the finished strain gage, however, appears to have been predetermined in the creation of the "bulk etched sheets" in the same way that the strength characteristic of the wire in Superior Wire was metallurgically predetermined in the fabrication of the rod. It appears from the technical data, as well as your description of the strain gage's operation, that the strain gage is a conductor through which an electrical charge is sent. The resistance of a conductor depends upon its material composition, temperature, and its cross-sectional area and length. See E. Lister, Electric Circuits and Machines, 5 (5th ed. 1975). The materials used in producing the strain gages, and the length and design of the foil circuit, is determined in the U.S. production of the bulk-etched sheets. The thinning operations in Costa Rica affect only the cross-sectional area of the strain gage circuit. However, the amount of thinning that can be done in Costa Rica is predetermined by the width of the circuit produced during the U.S. operations. In Superior Wire, the lower court found that because the "parameters" of the strength characteristic of the final product were metallurgically predetermined in the fabrication of the rod, no significant change in character or use was found to have occurred as a result of the cold-drawing process. Superior Wire v. United States, 669 F. Supp. 472, 480 (CIT 1987). Here, too, the parameters of the strain gages' resistance are predetermined in the U.S., where the choice of materials, and the length and width of the circuit are fixed.

In support of its finding that the final product was predetermined by the metallurgy of the rod, the Federal Circuit in Superior Wire noted that if the rod is produced improperly for its intended application, the wire drawing process is incapable of making the product suitable for such use. 23 Cust. Bull. 50 (No.10). The same appears to be true here. If, for example, the bulk-etched sheets contained circuits too narrow in cross- sectional area, or of improper materials or length, the Costa Rican thinning operations would not appear capable of producing strain gages of the required resistance.

You claim that a change in name from "bulk etched sheets" to strain gages evidences a substantial transformation. However, as the court in Superior Wire noted, this is the least persuasive factor and is insufficient by itself to support a finding of a substantial transformation. 23 Cust. Bull. 50 (No.10).

You have also suggested that the operations performed in Costa Rica are analogous to those the Court of International Trade determined resulted in a substantial transformation in Data General Corporation v. United States, 4 CIT 182, ___ F. Supp. ___(1982). The court there ruled that programming a Progammable Read Only Memory (PROM) integrated circuit chip substantially transformed the PROM into a new and different article for purposes of item 807.00, TSUS. In response to the Government's claim that this programming was a mere finishing operation, the court stated that:

"The [government] underestimates the time, expense and expertise required to program a PROM...unlike packaging operations which can be conducted by unskilled or semi- skilled labor, programs are designed by a project engineer with many years of experience in designing and building hardware. While replicating the program pattern from a master PROM may be the quick one-step process to which the [government] refers, the development of the pattern and the production of the master PROM require much time and expertise. Because of its capability to be programmed in a manner individually desired by any end user, the PROM is a recognized article of commerce in the electronic industry...To fulfill its intended character as an article of commerce capable of being programmed, the PROM requires neither finishing nor further modification." 4 CIT at 185.

Unlike the PROM's in Data General, the bulk-etched sheets do require finishing or further modification in Costa Rica to be a recognized article of commerce, for you state that until the "post-etch" processing is completed, the product is not marketable or usable. In addition, it does not appear that the strain gages here were engineered in Costa Rica, and the Costa Rican processing operations do not appear to require highly skilled labor. Finally, programming an integrated circuit does not appear at all analogous to thinning a metallic foil with an abrasive. Programming involves rupturing or fusing electrical interconnections within the integrated circuit to bestow each circuit with its electrical function or "memory," Data General at 183, while the "post-etch" operation you describe involves thinning the metallic foil printed on the bulk-etched sheets to raise their resistance. The two operations involve different processes and products, are undertaken for different purposes, and have different physical and functional effects on the articles processed. For these reasons, we do not feel that Data General is applicable here.

The remaining operations performed in Costa Rica do not substantially transform the "bulk etched sheets" into new and different articles. The cutting of the bulk-etched sheets into individual units, attaching pre-cut leads, or encapsulating the strain gages does not change the essential character or use of the product. Both before and after these operations, the articles are clearly recognizable and dedicated for use solely as strain gages.

You state that if the product were a textile article rather than a strain gage, the "slicing and trimming" operations would by themselves result in a substantial transformation under section 12.130(e)(1)(iv), Customs Regulations (19 CFR 12.130(e)(1)(iv)). That regulation provides that the country where fabric is cut into parts and assembled into a completed article will usually be the country of origin of the completed article for purposes of textile restraint agreements. It is our view, however, that the better analogy is 19 CFR 12.130(e)(2)(ii), which provides that an article will usually not be considered a product of a country where it has merely undergone cutting to length or width and hemming or overlocking fabrics which are readily identifiable as being intended for a particular commercial use. The sample "bulk etched sheet" submitted with your ruling request is marked between each individual gage, apparently to guide the cutting or punching of the sheet into individual strain gages. The "bulk etched sheets"
are readily identifiable as intended for use as strain gages, and a simple punching or cutting operation along the lines of demarcation appears to be all that is necessary to convert them into such.

CONCLUSION:

Based upon the information presented, the foil strain gages are not products of Costa Rica for purposes of the CBERA, and, therefore, they shall not receive duty-free treatment under that program when imported into the United States.

Sincerely,

John Durant, Director

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