HQ 0556272 - Request for Reconsideration of Headquarters Ruling Letter 555856; GSP treatment of Gas Furnace Ignition Devices; substantial transformation; 555921; 555727 - United States International Trade Commision Rulings

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HQ 556272

February 27, 1992

CLA-2 CO:R:C:S 556272 WAW

CATEGORY: CLASSIFICATION

Mr. Bernard R. Nottling
Rudolph Miles & Sons
4950 Gateway East
P.O. Box 11057
El Paso, Texas 79983

RE: Request for Reconsideration of Headquarters Ruling Letter 555856; GSP treatment of Gas Furnace Ignition Devices; substantial transformation; 555921; 555727

Dear Mr. Nottling:

This is in response to your letters dated September 11, and December 23, 1991, on behalf of Control Products Division, Johnson Controls (Control Products), requesting a reconsideration of Headquarters Ruling Letter (HRL) 555856 dated May 13, 1991. We held in HRL 555856 that certain materials imported into Mexico were not subjected to a double substantial transformation during the production of gas furnace ignition devices and, therefore, the materials' cost or value could not be included in the 35% value-content requirement under the Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466).

FACTS:

In HRL 555856 we held that the assembly of the panel and memory module PCBA's and the production of the spark transformer results in a substantial transformation of the materials imported into Mexico for use in producing those items. However, we held that the final assembly of the spark transformer and panel and memory module PCBA's with a few additional components which make up the ignition devices' housing unit does not constitute the requisite second substantial transformation. We held that these final simple assembly operations merely involve fitting together a small number of components by screwing, inserting, and riveting, which do not require a great deal of time or cost. Accordingly, we stated that the cost or value of the materials imported into Mexico and used in the production of the ignition devices may not be included in the 35% value-content minimum required for eligibility under the GSP.
ISSUE:

Whether the components imported into Mexico and used in the production of the spark transformer and the panel PCBA have undergone a double substantial transformation, thereby enabling the cost or value of those materials to be counted toward the 35% value-content requirement for purposes of the GSP.

LAW AND ANALYSIS:

A full enunciation of the law pertaining to eligibility of articles under the GSP was provided in HRL 555856 and, therefore, it will not be repeated here. Discussion of the applicable law will be limited to the current issue -- whether the components used in the production of the spark transformer and panel PCBA have undergone a double substantial transformation.

In C.S.D. 85-25, 19 Cust. Bull. 844( 1985), we stated that while a "complex or meaningful" assembly operation may result in a substantially transformed constituent material, a "minimal, simple, assembly-type operation" ordinarily will not result in a substantially transformed constituent material. Whether an operation is complex or meaningful depends on the nature of the operation. In making this determination, it is necessary to consider the time, cost, and skill involved, the number of components assembled, the number of different operations, the attention to detail and quality control, a well as the benefit accruing to the BDC as a result of the employment opportunities generated by the manufacturing process.

You argue that "two new and different articles (spark transformer and panel board) are produced and further substantially transformed to create another new and different article (a gas furnace ignition device)." In support of your contention, you cite HRL 555921 dated June 17, 1991, which you believe is factually analogous and controlling in regard to the instant case. In HRL 55592l, Customs considered the eligibility of certain computer terminals for duty-free treatment under the GSP. In that case, the computer terminals were produced by the assembly of components in a three-stage process. First, the foreign components were assembled onto a printed circuit board (PCB). The second stage consisted of a testing procedure (in- circuit test, functional test, burn-in test, final adjust and quality assurance test). Finally, the plastic housing was subassembled, the cathode ray tube (CRT), plastic housing and harnesses were assembled with the PCBA to produce the finished computer terminal.

We held in HRL 555921 that two separate substantial transformations took place during the assembly of the computer terminal. The first substantial transformation resulted from the operations which included cutting, mounting, soldering, and quality control testing of the fabricated components parts in the production of the PCBA. The final sub-assembly of the plastic housing and the assembly of the CRT, plastic housing and harnesses with the PCBA into the computer terminal constituted the second substantial transformation. We held that the assembly of the CRT, plastic housing and harnesses with the PCBA into the computer terminal in HRL 555921 involved a complex procedure which required a relatively significant period of time to complete the subassembly and assembly of all of the component parts, as well as, skill, attention to detail, and quality control. In addition, we found that the final assembly of the computer terminal resulted in a significant economic benefit to Mexico because of the technologically sophisticated equipment and facilities, as well as the number of technically skilled employees required to perform the operations. The production of the subassembly and the final assembly of all of the components involved substantial operations, increasing the components' value and endowing them with new qualities which transformed them into an article with a new distinct commercial identity.

In regard to the spark transformer, we previously determined in HRL 555856 that the production of the spark transformer results in a single substantial transformation. We held that the spark transformer emerges as a new article with new characteristics, a different name and a defined specific use different from that possessed by the components from which the spark transformer is made. You argue that the further assembly of the spark transformer with numerous other components to create the panel PCBA results in a second substantial transformation, thereby enabling the cost or value of the materials comprising the spark transformer to be counted toward the 35% value-content requirement of the GSP.

We believe that the assembly of the spark transformer with other components to produce the panel board and the further assembly of the panel board with additional components to create the completed gas furnace ignition device is analogous to the assembly of the computer terminal in HRL 555921, and constitutes a second substantial transformation of the materials comprising the spark transformer. In HRL 555921, the creation of the computer terminals involved the assembly of numerous components onto a bare circuit board and the subsequent complex assembly of the PCBA to the cathode ray tube, plastic housing and other component parts. In the instant case, once the spark transformer is produced, it is subassembled onto a populated panel board and hand soldered into place. Next, the panel PCBA and other components are attached to the metal frame.

The further assembly of the spark transformer, like the subsequent assembly of the PCBA subassembly in HRL 555921, changes the character of the constituent materials to enable them to become gas furnace ignition devices. The spark transformer is a separate article of commerce that manufacturers may wish to buy and sell for their own purposes. Moreover, the assembly of the spark transformer with other component parts changes the character of the transformer and results in a finished product which is recognized as a new and different article of commerce with a distinct name, character and use.

As previously stated, we determined in HRL 555856 that the production of the panel and memory module PCBA's results in a substantial transformation. Therefore, the question remains as to whether a second substantial transformation occurs while assembling the panel PCBA (which contains the manufactured spark transformer) with a few additional components that make up the ignition devices' housing unit.

We find that the assembly of the panel and memory module PCBA's to the metal frame involves a small number of components which are merely attached, inserted and affixed to one another by means of screwing, inserting, and riveting, to form the finished gas furnace ignition devices, and do not constitute the requisite second substantial transformation. We are of the opinion that these operations are the "minimal, simple, assembly-type operations" which were not intended to constitute a substantial transformation for GSP purposes. The components are complete articles which directly enter into the assembly process. Furthermore, with the exception of the spark transformer, none of the components are subjected to further fabrication before assembly as contemplated by the "complex or meaningful" assembly operation found in C.S.D. 85-25. We believe that the assembly of the panel and memory module PCBA's with the frame is more closely analogous to the assembly process in HRL 555727 dated January 31, 1991. In HRL 555727, we held that substantially transformed PCBA's are not subjected to a second substantial transformation by final assembly with a cover and bracket or base assembly to create certain car parts, i.e., interval windshield wiper governor assemblies, premium sound amplifiers, and speed control amplifier assemblies. Consistent with HRL 555727, we find that the attachment of the panel PCBA (and memory module PCBA in Model #600L) with the metal frame in this case is also a simple assembly operation which will not result in the PCBA's being considered substantially transformed constituent materials of the completed ignition devices, since based on the information submitted, it does not appear to involve a considerable amount of time, skill, attention to detail or quality control.

Therefore, upon reconsideration of HRL 555856, we conclude that the materials which make up the spark transformer have undergone the requisite double substantial transformation, thereby permitting the cost or value of these materials to be counted toward the 35% value-content requirement for purposes of the GSP. However, as the other components comprising the panel PCBA are not subjected to a double substantial transformation, their cost or value may not be included in the 35% computation. HRL 555856 is modified accordingly.

HOLDING:

Based on the information provided, we find that the production of the spark transformer, its subsequent assembly with numerous other components to create the panel PCBA, and the final assembly of the panel PCBA with a few other components to create the ignition device constitutes a double substantial transformation. Therefore, the cost or value of the imported materials used to produce the spark transformer may be counted toward the GSP 35% value-content requirement. However, while the assembly of the panel PCBA results in a substantial transformation, the subsequent simple assembly of the PCBA with a few other components to create the final article is not a second substantial transformation. Therefore, the cost or value of the imported components comprising the panel PCBA (except for the materials from which the spark transformer are made) may not be included in the 35% computation.

Sincerely,

John Durant, Director

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