HQ 0954148 - HRL 951951 affirmed; LT 1750 pulse transformer; country of origin; 19 CFR 134.1(b); substantial transformation; Torrington Co.; Texas Instruments Inc.; Belcrest Linens - United States International Trade Commision Rulings

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HQ 954148
March 29, 1994

CLA-2 CO:R:C:M 954148 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: N/A

John N. Politis, Esq.
Politis, Pollack & Doram
3255 Wilshire Blvd., Suite 1688
Los Angeles, California 90010

RE: HRL 951951 affirmed; LT 1750 pulse transformer; country of origin; 19 CFR 134.1(b); substantial transformation; Torrington Co.; Texas Instruments Inc.; Belcrest Linens

Dear Mr. Politis:

This is in response to your letter dated May 7, 1993, on behalf of Valor Electronics, requesting reconsideration of Headquarters Ruling Letter (HRL) 951951 (October 1, 1992), which determined the country of origin of certain electronic products. Arguments you made at a meeting on January 12, 1994, with a member of my staff were considered for this decision.

FACTS:

The merchandise at issue in this request is the pulse transformer, model no. LT 1750. The components required to make the pulse transformer are from the United States, Hong Kong, Taiwan, and other countries in the Pacific Rim. These components are staged and gathered in Hong Kong, and then shipped to the People's Republic of China ("PRC") for manufacturing operations. The components arrive in Hong Kong in bulk shipments, and then are packed together in kits forming the unassembled articles. After the manufacturing operations in the PRC, the completed articles are shipped back to Hong Kong for electrical testing before importation into the U.S.

In the PRC, the unassembled parts for the pulse transformer are subject to the following operations:

1) Three toroid cores are wound with wire and pliolite is applied to the cores to keep them from unwinding. 2) The core leads are soldered to the lead frame assembly pins. 3) The lead pins are inserted into the small holes of the lead frame.
4) The assembled article is subjected to electrical tests to insure that it functions correctly.
5) The case is filled with epoxy and allowed to dry. 6) The lead pins are trimmed to length.
7) The pulse transformer is cleaned and marked.

The total time to assembly the pulse transformer in the PRC is 6.34 minutes. The total cost incurred in the PRC per unit is $0.1002 or 12.52% of its total cost.

In HRL 951951, the manufacturing operations performed in the PRC were found to constitute a substantial transformation. Therefore, the country of origin of the pulse transformer was determined to be the PRC.

ISSUE:

Whether the assembly of the pulse transformer in the PRC constitutes a substantial transformation? What is the proper country of origin of the pulse transformer?

LAW AND ANALYSIS:

"Country of origin" is defined in section 134.1(b), Customs Regulations (19 CFR 134.1(b)), 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 this part."

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, Torrington Co. v. United States, 764 F.2d 1563, 3 CAFC 158 (Fed. Cir. 1985).

In HRL 951951, it was our position that the manufacture of the pulse transformer, as well as other electrical products, in the PRC constituted a substantial transformation. We found that the process of manufacturing the pulse transformer was similar to the facts in Texas Instruments Inc. v. United States, 681 F.2d 778, 69 CCPA 151 (1982). In Texas Instruments, the Court held that "[a]ssembly of encapsulated integrated circuits in Taiwan from slices containing many integrated circuit chips, gold wire, lead frame strips, molding compound, and epoxy, all imported from the United States, constituted substantial transformation of such items into a new and different article of commerce...."

You state that section 12.130, Customs Regulations (19 CFR 12.130), further describes the criteria for determining the country of origin of imported products. However, 19 CFR 12.130 involves the country of origin of textiles and textile products. The pulse transformer is not a textile product. Therefore, reliance on 19 CFR 12.130 is inappropriate.

After review of the cited authority in your request for reconsideration and the arguments presented at the meeting on January 12, 1994, we are of the opinion that the manufacture of the pulse transformer in the PRC results in a substantial transformation. The manufacturing operation of attaching components, wave soldering, applying pliolite and testing create a new and different article of commerce, with a new name, character, and use different from that possessed by the individual components incorporated therein. Although the time involved and value added appear to be minimal, the operation performed in the PRC requires technically trained employees.

In addition, in determining whether the combining of parts or materials constitutes a substantial transformation, a consideration, in addition to the extent of operations performed, is whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 741 F.2d 1368 (Fed. Cir. 1984). After the PRC operations are performed, there is an integration of the parts to the point where they lose their separate identity. Moreover, the PRC operations significantly affect the character and use of the parts. For all intents and purposes, the ultimate use and essential character of the pulse transformers is determined by the PRC operations. As separate components the parts do not serve any function, but as assembled together, they operate as a pulse transformer.

HOLDING:

The manufacture of the pulse transformer in the PRC constitutes a substantial transformation. Consequently, the country of origin of the pulse transformer is the People's Republic of China.

HRL 951951 is affirmed.

Sincerely,

John Durant, Director

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