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HQ 735137

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December 13, 1994

MAR-2-05 CO:R:C:S 735137 KR

CATEGORY: MARKING

Mr. Peter Sultan
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036

RE: Country of origin marking of automatic test equipment for semiconductors; substantial transformation; 19 CFR ?134.35.

Dear Mr. Sultan:

This is in response to your letter dated April 26, 1993, on behalf of Advantest America, Inc.("Advantest"), requesting a country of origin marking ruling regarding automatic test equipment for semiconductors. You submitted a videotape of the factory for examination. We regret the delay in responding.

FACTS:

You state that Advantest intends to assemble imported components and domestic components in the U.S. to create automatic testing equipment for semiconductors. The semiconductors are used in computers, telecommunication equipment and other electronics. Advantest believes that the assembly of the components effects a substantial transformation of the components, creating a new and different article -- the automatic test equipment.

The assembly operations that Advantest undertakes are:

1. Initial quality inspection and analysis.

2. Subassembly of the mainframe housing.

3. Incorporation of electrical components into the housing and interconnection of electrical components.

4. Diagnostic testing.

5. Aging.

6. Program testing.

7. Final inspection.

You state that the assembly process takes between 17 to 27 days. The domestic components include the mainframe, cabling and printed circuit board assemblies. The imported components are from Japan, and include circuit board assemblies and subassemblies. You state that the assembly of the equipment requires special equipment and technical expertise.

The initial quality inspection takes three days and involves specially trained technicians using a video microscope and special integrated circuit test equipment to insure adequate soldering. A standard microscope is used to inspect a cross section of the wiring to ensure consistent quality.

The frames that are assembled are of U.S. origin. Advantest attaches hinges and brackets for the electrical components and installs fans, power supplies and a basic wiring board. This process takes three to eight days depending on the features and complexity of the model.

The printed wiring boards are installed into the housing, and electrical connections of the assemblies are made to the frame and interconnected with other assemblies within the housing. A visual inspection is also performed at this stage. You state that this work is highly detailed and is performed by employees with a vocational technical background and takes two to four days.

The automatic test equipment is then subjected to diagnostic testing and replacement of faulty components and calibration of the system. This testing requires substantial technical expertise performed by employees with technical degrees or extensive electrical experience and specialized in-house training. This process takes three to four days.

The automatic test equipment is then "aged" by being further tested in a special enclosure with above normal operating temperatures. Components not capable of handling the higher temperatures are removed and new components are integrated into the automatic test equipment.

The automatic test equipment is further tested for each of its functions and undergoes calibration and adjustment over a three to four day process. The automatic test equipment then undergoes a comprehensive visual pre-inspection. The equipment then is subjected to additional diagnostics testing and thorough visual inspection, calibration and fine tuning over a three to four day period.

You state that you wish to mark the automatic testing equipment "Made in the U.S.A. with Foreign Components" or "Assembled in the U.S.A." If, however, Customs finds there to be no substantial transformation in the U.S., you wish to mark the product "Assembled in U.S.A., Made in Japan".

ISSUE:

Are the imported components of the automatic test equipment substantially transformed by the processing with U.S. parts which occurs in the U.S. pursuant to section 134.35, Customs Regulations (19 CFR ?134.35)?

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 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. The Court of International Trade stated in Koru North America v. United States, 701 F. Supp. 229, 12 CIT 1120 (CIT 1988), that "in ascertaining what constitutes the country of origin under the marking statute, a court must look at the sense in which the term is used in the statute, giving reference to the purpose of the particular legislation involved." The purpose of the marking statute is outlined in United States v. Friedlaender & Co., 27 CCPA 297 at 302, C.A.D. 104 (1940), where the court stated that: "Congress intended 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."

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. ?1304. Section 134.35, Customs Regulations (19 CFR who converts or combines the imported article into a different article having a new name, character or use will be considered the ultimate purchaser of the imported article within the contemplation of 19 U.S.C. ?1304 and the article shall be excepted from marking. The outermost containers of the imported articles shall be marked, but the new article resulting from the U.S. processing or manufacturing is excepted from country of origin marking.

Section 134.1(b) defines "country of origin" as:

"the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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."

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, 6 CIT 204, 573 F. Supp. 1149 (1983), aff'd, 2 Fed. Cir. 105, 741 F.2d 1368 (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. 80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97.

A substantial transformation occurs when articles lose their identity and become new articles having a new name, character or use. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at 270 (1940); National Juice Products Association v. United States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986); Koru North America v. United States, 701 F. Supp. 229, 12 CIT 1120, (CIT 1988). Two court cases have considered the issue of whether imported parts combined in the U.S. with domestic parts were substantially transformed for country of origin marking purposes. In the first case, Gibson-Thomsen, the court held that imported wood brush block and toothbrush handles which had bristles inserted into them in the U.S. lost their identity as such and became new articles having a new name, character and use. The second case involved imported shoe uppers which were combined with domestic soles in the U.S. The imported uppers were held in Uniroyal, Inc. v. United States, 542 F. Supp. 1026, 3 CIT 220 (CIT 1982), to be the "essence of the completed shoe" and therefore, not substantially transformed.

In HQ 731432 (June 6, 1988), Customs set forth some factors to be considered in determining whether imported goods combined in the U.S. with domestic products were substantially transformed for country of origin marking purposes. The following six factors were considered:

1) whether the imported article is completely finished;

2) the extent of the manufacturing process of combining the imported article with the domestic article as compared with the manufacturing of the imported article;

3) whether the imported article is permanently attached to its counterparts;

4) the overall importance of the imported article to the finished product;

5) whether the imported article is functionally necessary to the operation of the finished article, or whether it is an accessory which retains its independent function; and

6) whether the imported article remains visible after the combining.

These factors are not exclusive and there may be other factors relevant to a particular case and no one factor is determinative. See HQ 728801 (February 26, 1986). See also HQ 734219 (September 3, 1991).

Customs has previously issued rulings concerning the substantial transformation of computer monitors and television chassis. In HQ 711967 (March 17, 1980), Customs held that television sets which were assembled in Mexico with printed circuit boards, power transformers, yokes and tuners from Mexico and picture tubes, cabinets, and additional wiring from the U.S. must be marked with the country of origin as Mexico because the U.S. parts were substantially transformed by the processing performed in Mexico and all the components lost their individual identities to become integral parts of the new article.

In HQ 732170 (January 5, 1990), a back-less television cabinet containing a tuner, speaker and circuit board were imported into the U.S. where they were combined with a color picture tube, deflection yoke, electron beam bender and degousser coil, and a remote control unit assembled into the chassis. The U.S. technicians placed wire ties and attached the cabinet back, tested, aligned and packaged the televisions. Customs held that the domestic operations substantially transformed the imported chassis and components. But see HQ 730515 (June 29, 1987) (holding that there was no substantial transformation when the television chassis or cabinet was combined in the U.S. with the television set).

In HQ 734097 (November 25, 1991), Customs ruled that imported terminal video shells (computer terminal housings that contain video electronics, but no logic boards) were substantially transformed in the U.S. when they were processed by the installation of certain key components, such as the terminal logic boards, to make them into dumb terminals for certain computer systems. The addition of the logic boards was determined to create a new article. Computer terminal housings containing video electronics but no logic boards were manufactured in Korea. In the U.S., four components (the terminal logic board, key switches, T-connector cables, and custom keyboards) were installed into the empty shells and the video unit was aligned to receive new communication protocol transmissions. Even though no cost or skill data was submitted, Customs held that this installation amounted to a substantial transformation in the U.S. of the imported shells into a new article -- a functional computer terminal. Of clear import in the reasoning in the decision of this case and the cases cited therein, is that the assembly was performed in the U.S. and the major components of the video unit were U.S. See HRL 732170 supra. See HQ 734213 (February 20, 1992)(finding a substantial transformation when a computer monitor was changed into a touchscreen monitor because the touchscreen monitor had a different use than the plain computer monitor). See also HQ 734045 (October 8, 1991) (finding that the combining of sub-assemblies and other components of lap-top and notebook personal computers was a substantial transformation).

In C.S.D. 89-118 (July 14, 1989), Customs held that the manufacture of printed circuit board assemblies ("PCB's") constituted a substantial transformation. The separate component parts imported into Mexico acquired new attributes, and the PCB's differed in character and use from the component parts from which it was composed. The production of the PCB's involved cutting, shaping, winding, tinning, soldering and quality control testing, which increased the components' value and endowed them with new qualities which transformed them into an article with a distinct new commercial identity. Customs found that the assembly of the PCB's with the base, cover, and power supply, creating the final product changed their character and resulted in a finished product which was recognized as a new and different article of commerce with a distinct name, character and use. Additionally, the assembly process 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 a significant economic benefit to the country of assembly from the standpoint of both the value added to each component part and the overall employment generated by the operations. See also C.S.D. 85-25, 99 Cust. Bull. 544 (1984).

In regard to this case, considering the U.S. components used and the extensive assembly and testing of the various parts as discussed above, we find that the processing creates an article which has a different name, character and use than the parts from which it is created. The processing in this situation involves a considerable amount of time, skill and attention to detail and requires stringent quality control, sophisticated equipment and facilities, and technically skilled employees. The character of the components changes upon their assembly into a different article of commerce; from circuit boards to automatic testing equipment. Therefore, because of the many steps and expertise required to produce the automatic testing equipment, we determine that this is not a simple assembly operation and the imported components are substantially transformed in the U.S.

You wish to mark the automatic testing equipment "Made in the U.S.A. with Foreign Components" or "Assembled in the U.S.A." This ruling does not address whether the product may be marked with the U.S.A. symbol. While Customs has determined that the imported components are substantially transformed in the U.S., and therefore no country of origin marking is required, the determination of whether an article may be marked "Made in USA" is under the primary jurisdiction of the Federal Trade Commission. We therefore recommend that you contact the Federal Trade Commission, Division of Enforcement, located at 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20580, for any views concerning marking the finished steel flanges with the "USA" symbol.

HOLDING:

The imported components processed with the U.S. components in the U.S., as described above effects a substantial transformation and the automatic testing equipment is, therefore, excepted from country of origin marking pursuant to 19 CFR 134.35. However, the outermost container of the imported components must be marked with the components' origin.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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