HQ H018467 - U.S. Government Procurement; Title III, Trade Agreements Act of 1979 (19 U.S.C. § 2511); Subpart B, Part 177, CBP Regulations; Country of Origin of Multifunctional Machines - United States International Trade Commision Rulings

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HQ H018467

January 4, 2008

MAR-2-05 OT:RR:CTF:VS H018467 GOB

CATEGORY: MARKING

Madeline B. Kuflik, Esq.
Assistant General Counsel
Panasonic Corporation of North America
One Panasonic Way, 3B-6
Secaucus, NJ 07094

RE: U.S. Government Procurement; Title III, Trade Agreements Act of 1979 (19 U.S.C. § 2511); Subpart B, Part 177, CBP Regulations; Country of Origin of Multifunctional Machines

Dear Ms. Kuflik:

This is in response to your letter of October 5, 2007, requesting a final determination on behalf of Panasonic Corporation of North America (“PNA”), pursuant to subpart B of Part 177, Customs and Border Protection (“CBP”) Regulations (19 CFR § 177.21 et seq.). Under these regulations, which implement Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purpose of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government. In response to our request, you provided additional information with your correspondence of November 7, 2007 and December 5, 2007.

This final determination concerns the country of origin of certain color digital multifunctional machines. We note that PNA is a party-at-interest within the meaning of 19 CFR § 177.22(d)(1) and is entitled to request this final determination.

FACTS:

You describe the pertinent facts as follows. The product at issue is a full-color digital multifunctional machine which can scan, copy, and print. The machine has the following functions: up to 26 ppm color printing; 600 dpi x 600 dpi scanning resolution; 1200 dpi x 1200 dpi printing resolution; high-speed image editing; high speed image compression; network function; automatic duplex scanning; automatic duplex printing; paper ejection; and direct printing function from SD card and PC card. The machine is sold under model number DP-C354.

You state that the multifunctional machine consists of the following units:

1. automatic document feeder unit – takes several pages and feeds the paper one page at a time into the scanner.

2. scanner unit – consists of CCD board, lens, lamp, mirror, drive motor, detection sensor, scanner controlling board, image signal conversion board and SD (secure digital) memory board.

3. operation panel unit – consists of tilt mechanism, 7.8 inch LCD, 23 operation buttons, 14 LED, five printing boards, and backup battery.

4. feed unit – consists of feeding roller, pick up roller, pick up solenoid, paper detection sensor, paper passage sensor and electromagnetic timing clutch.

5. manual paper feed unit – for use with special paper; consists of feeding roller, pick up roller, pick up solenoid, paper detection sensor, paper passage sensor and electromagnetic timing clutch.

6. lift-up motor unit – consists of driving motor, paper detection sensor and pick-up sensor.

7. automatic document transferring unit – feeds the printing paper to the toner transferring unit; consists of driving motor, cooling fan, paper passage sensor, paper ejection roller, transferring roller, switching solenoid, electromagnetic clutch, jam-proof door and pinch roller.

8. induction heating fuser unit – fuses the toner on paper by the induction heating method; consists of induction heating coil, fusing belt, heating roller, fusing roller and pressure roller.

9. induction heating power supply unit – supplies power to the induction fuser unit.

10. transcription unit – transcribes the unit on the printing paper; consists of bias roller and OPC (organic photo conductor) drum unit.

11. OPC drum unit – this unit is charged with electricity and the laser beam sweeps across it to make the electrostatic latent image; consists of cleaning blade, cleaning roller and OPC drum.

12. developing unit – transfers the toner to the charged part of the OPC drum; consists of concentration sensor, magnet roller, developer, doctor blade and screw.

13. laser scanning unit – irradiates the laser beam on the OPC drum to make the surface potential; consists of lens, mirrors, polygon motor and fan.

14. motor drive board – controls the driving of the motors.

15. automatic duplex unit board – controls the paper detection sensor and paper passage sensor.

16. high-voltage power supply board – controls the high-voltage power supply.

17. low-voltage power supply board – controls the low-voltage power supply.

18. main drive unit – controls the transcription unit, OPC drum and developing units.

19. subassembly units – there are five different types of simple units which consist of two to five parts.

20. system control board - This board, which acts as the central control system, has a central processing unit (CPU) and 512 MB of memory. It performs “image processing” which is the editing, color tuning, enlarging, reducing and manipulating of the image data to fit the image quality which is designated by the user for the copy output or the print output. Image data is the data which is scanned by the scanner. The user controls the multifunctional printer by touching the operational panel and sending the data from the PC. The system control board processes the data from the operation panel and PC and sends the processed command to the other boards that control the function which meets the user’s intention. The three other boards which receive data from the system control board are the scanner unit, the operation panel unit and the engine control board. The system control board is the core part of this product. It measures approximately 244 mm long and 330 mm wide and it contains approximately 2750 parts.

21. engine control board - This board controls the machinery parts that feed the recording papers. The machinery parts controlled by the engine control board are the feed unit, manual paper feed unit, lift up motor unit, automatic document feeding unit and main drive unit. The board also controls the units that print the image to the recording papers such as the induction heating fuser unit, transcription unit, OPC drum unit, developing unit and laser scanning unit. This board is approximately 244 mm long and 187 mm wide and consists of approximately 1610 parts.

In your submission of December 5, 2007, you state that “[t]he system control board can be compared to the brain of a human being as it is responsible for coordinating all of the activity of the machine and controlling all of the following important functions of the machine.” These functions include: all image processing functions (e.g., where the toner is to be applied and the temperature of the toner); enlargement and reduction functions; all functions which are available from the control panel (e.g., choices of multiple copies, double-sided copies, etc.); color image tuning (adding or subtracting color); user interface control (control panel and touch screen operations); and “rastering” of the printed data (the process of taking data sent by a computer’s printer driver and converting it so that it can be understood by the engine control board to put the image on paper).

In the same submission, you state that “[t]he engine control board can be analogized to the nervous system of a human being. It carries out the commands of the brain, or in this case the system control board.” The engine control board controls the functions relating to the feed of paper, including the paper feed units, the manual feed units, the automatic document feeder unit, the paper lift-up motors, and the main drive unit motor. The engine control board also controls the following units with respect to the printing process: the laser unit, which exposes the photo-receptor to create the copy; the photo-conductor unit; the transfer belt units; the developing units, which contain the toners which are applied to the photo-conductors and transfer unit; and the fixing unit, which makes the toner permanent on the paper.

PNA’s request involves two manufacturing scenarios. In the first scenario, there are three countries in which manufacturing occurs; in the second scenario, there are two countries in which manufacturing occurs.

First Scenario – Manufacturing in China, the Philippines, and Japan

The following seven units are manufactured in China from components produced in various countries: automatic document feeder unit; scanner unit; operation panel unit; feed unit; manual paper feed unit; lift up motor unit; and subassembly units. After these components are manufactured in China, they are sent to the factory in the Philippines.

The following eleven units are manufactured in the Philippines from components produced in various countries: automatic document transferring unit; induction heating fuser unit; induction heating power supply unit; transcription unit; developing unit; laser scanning unit; main drive unit; motor drive board; high voltage power supply board; low voltage power supply board; and automatic duplex unit board. The components manufactured in China and those manufactured in the Philippines are assembled into one main body in the Philippines. That body is sent to the factory in Japan.

The following work is performed in Japan. The OPC drum unit and the toner reservoir are manufactured. The system control board and the engine control board, which are manufactured in Japan, are mounted and inspected. Approximately 1,600 electronic parts and 500 electronic parts are mounted on the back of the system control board and the engine control board, respectively, by three large mounting machines. The boards are then inspected. At that point, about 1,100 electronic parts and 1,000 electronic parts are mounted on the front sides of the system control board and the engine control board, respectively. The boards are then inspected again. Workers then mount 19 parts on the system control board and 40 parts on the engine control board by hand soldering. The boards are then inspected again.

You state that the workers involved in the mounting and soldering of the parts should be highly skilled because the parts are mounted densely in view of the large number of parts and the fact that each electronic part is microminiaturized. After the mounting process is completed, the boards are inspected as to functionality by special measurement equipment. This inspection takes approximately 10 to 20 minutes per board.

At this point in the process, the OPC drum unit, the toner reservoir, the system control board and the engine control board are incorporated into the main body which was assembled in the Philippines. The next step is the installation of firmware into the system control board and the engine control board. You state that the firmware in the system control board controls the user interface, imaging, and memories; the firmware in the engine control board controls machinery. You state that the firmware, which is developed in Japan, is similar to the application software of a personal computer.

The process concludes with the inspection of the completed product and adjustments to the concentration in the toner, print position, print color, and print quality. These adjustments are necessary for accurate printing.

Second Scenario – Manufacturing in the Philippines and Japan

The following 18 units are manufactured in the Philippines from components produced in various countries: automatic document feeder unit; scanner unit; operation panel unit; feed unit; manual paper feed unit; lift up motor unit; subassembly units; automatic document transferring unit; induction heating fuser unit; induction heating power supply unit; transcription unit; developing unit; laser scanning unit; main drive unit; motor drive board; high voltage power supply board; low voltage power supply board; and automatic duplex unit board. These components are assembled into one main body in the Philippines. That body is sent to the factory in Japan.

The manufacturing process in Japan in this scenario is the same as the process described in the first scenario.

The second scenario differs from the first scenario in that no units are manufactured in China in the second scenario. The 18 units manufactured in the Philippines in the second scenario include the 11 units manufactured there in the first scenario and the seven units manufactured in China in the first scenario.

ISSUE:

What is the country of origin of the subject color digital multifunction machines for the purpose of U.S. Government procurement?

LAW AND ANALYSIS:

Pursuant to Subpart B of Part 177, 19 CFR § 177.21 et seq., which implements Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purposes of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government.

Under the rule of origin set forth under 19 U.S.C. § 2518(4)(B):

An article is a product of a country or instrumentality only if (i) it is wholly the growth, product, or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.

See also, 19 CFR § 177.22(a).

In determining whether the combining of parts or materials constitutes a substantial transformation, the determinative 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 (Ct. Int’l Trade 1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations that 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. If the manufacturing or combining process is a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d 702 F. 2d 1022 (Fed. Cir. 1983). In C.S.D. 85-25, 19 Cust. Bull. 844 (1985), CBP held that for purposes of the Generalized System of Preferences (“GSP”), the assembly of a large number of fabricated components onto a printed circuit board in a process involving a considerable amount of time and skill resulted in a substantial transformation. In that case, in excess of 50 discrete fabricated components (such as resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled. Whether an operation is complex and meaningful depends on the nature of the operation, including the number of components assembled, number of different operations, time, skill level required, attention to detail, quality control, the value added to the article, and the overall employment generated by the manufacturing process.

In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process may be relevant when determining whether a substantial transformation has occurred. No one factor is determinative.

In HQ 735315, dated April 10, 1995, CBP stated:

We agree . . . that the assembly of the various components into the optics module shell, mainly the PWBs which are manufactured in the U.S., constitutes a substantial transformation. . . . [W]e find that the manufacture of the PWBs and their subsequent installation into the shells constitutes a complex and meaningful assembly pursuant to C.S.D. 85-25. Although the imported shells consist of important components, such as the sampling device, furnace, light bulbs, and mirrors/optics, the PWBs give the optics module the ability to function and analyze. . . .

In HQ 561734, dated March 22, 2001, CBP determined that certain multifunctional machines (printer, copier, and facsimile) assembled in Japan were a product of Japan for purposes of government procurement. The machines were comprised of 227 parts (108 parts obtained from Japan, 92 from Thailand, three from China, and 24 from other countries) and eight subassemblies, each of which was assembled in Japan. It was further noted that the scanner unit (one of the eight subassemblies assembled in Japan) was characterized as “the heart of the machine.”

In HQ 562936, dated March 17, 2004, CBP found that a multifunctional machine (printer, copier, scanner, facsimile) was a product of Japan for the purpose of U.S. government procurement. CBP noted that a substantial portion of the machine’s components and assemblies were of Japanese origin. The requester had described certain of these components as the “most complex,” “key,” and “essential.” CBP recognized that, in addition to the Japanese subassemblies, certain critical Japanese-origin parts were incorporated into the Chinese subassemblies. CBP found that the processing that occurred in Japan was complex and meaningful, required the assembly of a large number of components, and resulted in a new and distinct article of commerce that possessed a new name, character, and use.

Based upon the facts which you present, we note that operations are performed in three countries in the first scenario and two countries in the second scenario. In situations like these, no one country imparts the dominant portion of the work conducted. Nonetheless, based upon the applicable legal standard, we determine that, with respect to each of the two scenarios, the goods imported into Japan are substantially transformed in Japan such that Japan is the country of origin of the multifunctional machines (model number DP-C354) for government procurement purposes. In making this determination, we give substantial weight to the fact that the system control board, the engine control board, and the firmware are manufactured in Japan. Based upon the facts presented, these components are of utmost importance to the functionality of the completed good. We also find that the operations performed in Japan are meaningful and relatively complex and result in an article of commerce which possesses a new name, character, and use. Therefore, as Japan is the final country of production and a substantial amount of work is performed there, we find that the country of origin in both scenarios is Japan. HOLDING:

With respect to each of the two scenarios, the goods imported into Japan are substantially transformed in Japan such that Japan is the country of origin of the multifunctional machines (model number DP-C354) for government procurement purposes.

Notice of this final determination will be given in the Federal Register, as required by 19 CFR § 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 CFR § 177.31, that CBP reexamine the matter anew and issue a new final determination. Pursuant to 19 CFR § 177.30, any party-at-interest may, within 30 days after publication of the Federal Register notice referenced above, seek judicial review of this final determination before the Court of International Trade.

Sincerely,

Sandra L. Bell
Executive Director,

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