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HQ 735541


September 15, 1994

MAR-2-05 CO:R:C:S 735541 MLR

CATEGORY: MARKING

Mr. Richard Kuslan
Associates Mega Sub-System, Inc.
12881 Ramona Boulevard
Irwindale, California 91706

RE: Country of origin marking of notebook computers; assembly; substantial transformation; remove labels; CPU; RAM; hard/floppy disk drive; VGA docking station board; LCD display assembly; keyboard; DC/DC converter

Dear Mr. Kuslan:

This is in reference to your letters of February 1, 1994, and March 14, 1994, requesting a ruling regarding the country of origin marking requirements of certain notebook computers assembled in the U.S. from domestic and imported components.

FACTS:

Associates Mega Sub-System, Inc. ("AMS") will perform two types of assembly operations in the U.S., both of which involve the assembly of foreign and U.S. components to create a finished notebook computer normally classifiable under subheading 8471.20, Harmonized Tariff Schedule of the United States (HTSUS). The first assembly operation, which takes approximately 10 minutes, basically consists of adding a RAM chip, CPU chip, and hard disk drive to an imported unfinished notebook computer. In a telephone conversation with a member of my staff, you indicated that none of the components are of Canadian or Mexican origin. The U.S.-made components inserted into this computer are the CPU chip, RAM chip, and hard disk drive. The finished notebook computer will then be sold in the U.S., Mexico, and Canada.

The second assembly operation, which takes approximately 20 minutes, basically involves inserting a floppy disk drive, keyboard, DC/DC converter, a CPU, RAM, and hard disk drive (as in assembly process one); popping in a VGA docking station board; attaching a LCD display assembly; and sliding in a plastic battery cover into an imported unfinished notebook computer. The U.S. components used in this assembly include the CPU chip, RAM chip, motherboard chip set, video chip set, power management chip set, various TTLs, and the hard drive. Possibly a foreign-made hard drive may be used. All other components are of foreign- origin and are imported into the U.S. None of the components are from Mexico or Canada. These finished notebook computers will be sold in the U.S., Mexico, and Canada.

ISSUE:

Whether the assembly of the various components into an imported unfinished notebook computer constitutes a substantial transformation, thereby excepting the computer from country of origin marking.

LAW AND ANALYSIS:

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 imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or 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. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co. Inc., 27 CCPA 297, 302, C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations {19 CFR 134.1(b)}, defines "country of origin" as the country of manufacture, production or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of the marking laws and regulations.

For country of origin marking purposes, a substantial transformation of an imported article occurs when it is used in the U.S. in manufacture, which results in an article having a name, character, or use differing from that of the imported article. In such circumstances, the manufacturer or processor in the U.S. who converts or combines the imported article into the different article will be considered the "ultimate purchaser" of the imported article, and the article is excepted from marking and only the outermost container is required to be marked. See 19 CFR 134.35.

In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (CIT 1983), aff'd, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D. 85-25. However, the issue of whether a substantial transformation occurs is determined on a case-by-case basis.

In HRL 734097 dated November 25, 1991, Customs considered the installation of U.S.-manufactured terminal logic boards, keyswitches, T-connector cables, and custom keyboards into imported terminal video shells to create a functional computer terminal for use with certain computer systems. Customs considered the processor to be the "ultimate purchaser" of the imported video shell for purposes of section 134.35, thereby excepting the imported articles from marking, provided the disposable packages were marked with their country of origin.

In HRL 734213 dated February 20, 1992, Customs considered an imported computer monitor which was tested; an International Electrotechnical Commission (IEC) power plug was installed; the CRT was lifted out; the bucket, swivel base, and front plastic bezel were prepared for painting; and the transorb board was installed. This domestic processing was held to result in an article known not simply as a computer monitor, but as a touchscreen monitor, with a different commercial identity. Most significant, was the change in use from a monitor merely capable of displaying information to an interface device in which information could be directly input. Consequently, as a result of the substantial transformation, and in accordance with 19 CFR 134.35, the imported monitor was excepted from marking provided the cartons were properly marked with their country of origin and Customs officials at the port of entry were satisfied that the monitors would be transformed in this manner.

In HRL 711967 dated March 17, 1980, Customs indicated that the assembly of printed circuit boards, power transformers, yokes, and tuners from Korea, and picture tubes, cabinets, and additional wiring from the U.S., to make a television set in Mexico, constituted a substantial transformation.

However, in HRL 734518 dated June 28, 1993, Customs considered a CPU chip implanted onto a motherboard. Although the CPU was by far the most important chip on the board, it was determined that because the most significant aspect of the CPU came from its development and manufacture, not from implanting it onto the motherboard, no complex and meaningful assembly resulting in a substantial transformation was found.

In this case, the first assembly involves inserting the CPU chip, RAM chip, and hard disk drive into the imported notebook assembly. While these operations do not appear to be exceedingly complex, as stated in HRL 734518, the CPU chip is the most significant part of the motherboard. Furthermore, given that the CPU chip, RAM chip and hard disk drive are of U.S. origin, it is our opinion that the assembly of these components constitutes a substantial transformation of the imported notebook computer. Consequently, the imported computers are excepted from individual marking, provided the cartons in which AMS receives them are properly marked with their country of origin, and Customs officials at the port of entry are satisfied that the components will be assembled in this manner.

In regard to the second assembly operation, a floppy disk drive, VGA docking station board, keyboard, DC/DC converter, as well as a CPU, RAM, and hard disk drive are inserted; a LCD display assembly is attached; and a plastic battery cover is slid into the imported unfinished notebook computer. It is our opinion that in combining these components in the manufacture of a notebook computer, a new article of commerce that is separate and distinct from the individual components that compose it is created. The second assembly process involves several components and also includes the assembly of the CPU which allows the computer to function. Consequently, the imported computers are excepted from individual marking, provided the cartons in which AMS receives them are properly marked with their country of origin, and Customs officials at the port of entry are satisfied that the components will be assembled in this manner.

You also ask whether the finished notebook computers for sale in the U.S. may be marked "Made in the U.S.A." You should contact the Federal Trade Commission, Division of Enforcement, 6th & Pennsylvania Avenue, N.W., Washington, D.C. 20508, which has jurisdiction concerning the approval of markings "Made in the U.S.A."

You also ask whether the finished notebook computers for sale in Mexico or Canada may be marked "Made in the U.S.A." For questions concerning the Canadian Marking Program, please contact:

Chief, Interdepartmental Programs
Commercial Operations
Revenue Canada, Customs, Excise and Tax
5th Floor
555 Mackenzie Avenue
Ottawa, Ontario K1A 0L5
Tel: (613) 954-7129; FAX: (613) 952-1698

For questions concerning the import requirements relating to imports into Mexico under the North American Free Trade Agreement, please contact:

Secretaria de Hacienda y Credito Publico
Subsecretaria de Ingresos
Direccion General Fiscal Internacional
Avenida Hidalgo #77, Modulo 1
Planta Baja, Colonia Guerrero
Delegacion Cuauhtemoc
06300 Mexico, D.F.

You also seek authorization to remove labels attached to some of the components which indicate their country of origin. Since the components in both scenarios will be substantially transformed, it is permissible to remove the labels after the components lose their status as articles of foreign origin. See HRL 734541 dated September 17, 1992.

HOLDING:

On the basis of the information submitted, we find that the imported components are substantially transformed, and, therefore, are excepted from individual marking, provided the cartons in which AMS receives them are properly marked with their country of origin, and Customs officials at the port of entry are satisfied that the components will be assembled in this manner. Approval of the marking "Made in the U.S.A.", after the notebook computers are assembled, is within the jurisdiction of the Federal Trade Commission. In regard to the marking of the computers for sale in Canada and Mexico, you should contact the Government of Canada and Mexico. Any labels indicating the imported components' country of origin may also be removed since the components will be substantially transformed.

Sincerely,

John Durant, Director

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