CLA-2 CO:R:C:S 555856 KCC
Mr. Bernard R. Nottling
Rudolph Miles & Sons
4950 Gateway East
P.O. Box 11057
El Paso, Texas 79983
RE: Gas Furnace Ignition Devices. GSP; substantial trans-
formation; spark transformer; winding; potting; fitting;
printed circuit board assemblies; assembly; Belcrest Linens;
C.S.D. 85-25; 555420; 051102; 555727;
Dear Mr. Nottling:
This is in response to your letter dated January 16, 1991,
on behalf of Control Products Division, Johnson Controls (Control
Products), concerning the eligibility of gas furnace ignition
devices for duty-free treatment under the Generalized System of
Preferences (GSP) (19 U.S.C. 2461-2466). Samples of the printed
circuit board assemblies and the completed gas furnace ignition
devices were submitted for examination.
FACTS:
Control Products produces gas furnace ignition devices
(ignition devices) in Mexico and currently enters them under
subheadings 9032.89.6025 and 9802.00.80, Harmonized Tariff
Schedule of the United States (HTSUS). However, upon review of
the ignition devices it appears that they are properly classified
under subheading 8537.10.00, HTSUS, which provides for boards,
panels (including numerical control panels), consoles, desks,
cabinets and other bases, equipped with two or more apparatus of
heading 8535 or 8536, for electric control or the distribution of
electricity, including those incorporating instruments or
apparatus of chapter 90, other than switching apparatus of
heading 8517; for a voltage not exceeding 1,000 V, dutiable at
the rate 5.3% ad valorem. This tariff provision is a GSP
eligible provision. For a binding classification determination,
we suggest utilizing the administrative ruling program as
described in 19 CFR Part 177.
The ignition devices are produced with U.S. origin and non-
Mexican foreign origin components. The ignition devices under
consideration in this ruling are model #600 A and model #600 L.
Upon receiving a signal from a thermostat that a room requires
heat, both models are designed to create an electrical spark,
turn on the pilot light, light the pilot flame, and turn on the
main gas valve which will be lit by the pilot flame. Once the
room is adequately heated, the ignition device will shut down the
main burner and the pilot flame. #600 L is a technically
advanced model as it contains memory capabilities which allow it
to monitor the operation, and if a failure occurs, shut itself
down. The foreign operations for both models are as follows:
Model #600 A - Standard Gas Ignition Device without Lockout
1. All incoming components are counted and inspected for
mechanical, dimensional, electrical and quality control
qualifications, and then arranged by part number in the
stock room. When a production order is scheduled, the
appropriate parts are gathered into a kit and delivered to
the production area.
2. 6 lead wires are cut to length and stripped of insulation
at the ends. Terminals are crimped on to one end of each
wire, visually inspected and "pull tested" to verify the
integrity of the connection.
3. The spark transformer is manufactured in the following
manner:
a. The secondary winding (119 turns per layer for a total
of 3000 turns) is performed on an automatic winding
machine in which 16 windings are made on a stick.
These windings are cut from the stick producing 16
individual coils. The end wires are stripped, solder
tinned, and electrically tested.
b. The primary winding (8 turns) is produced one at a
time on a dedicated winder. The end wires are
stripped and solder tinned.
c. The secondary and primary windings are attached to a
ferrite core and terminal assembly, and then inserted
into a black plastic transformer housing.
d. The transformer housing assembly is potted with an
epoxy in a vacuum chamber.
e. The completed spark transformer is cleaned and tested
for coil impedance and wave form analysis.
4. 23 fixed resistors and 7 diodes are automatically inserted
into prepunched holes in the printed circuit board (PCB).
11 capacitors, 6 transistors, 1 fuse, 2 relays, 1 mounting
bracket, the spark transformer, and 6 lead wires are
manually attached to the PCB. The PCB is fluxed, preheated,
and soldered on a wave solder machine. The PCB is cleaned
to remove any residual flux or solder, the excess leads are
trimmed, and it is visually inspected. The PCB is then
electrically tested to insure all components are correctly
placed, orientated, soldered, and performing correctly. The
PCB is heat cured for 1 hour to eliminate moisture and then
it is coated with a sealant to prevent moisture from
entering the PCB. Thereafter, the completed panel printed
circuit board assembly (PCBA) is visually inspected to
insure complete coverage of the sealant.
5. The final assembly operations involve attaching the panel
PCBA to the metal frame with a screw, snapping a plastic
Molex connector into the frame, inserting 3 lead wires into
the connector, inserting and riveting the spark transformer
into the frame, inserting 4 lead wires into the main
terminal block, attaching the ground wire terminal bracket
onto the metal cover, attaching the ground wire from the
PCBA to the internal terminal of the ground bracket in the
cover, inserting the main terminal block into the cover,
screwing the cover over the frame, quality control testing,
labeling and packaging for shipment to the U.S.
Model #600 L - Gas Ignition Device with Lockout (memory)
1. The incoming components are processed in the same manner as
#600 A.
2. 5 lead wires are processed in the same manner as #600 A.
3. The spark transformer is processed in the same manner as
#600 A.
4. In this model two separate PCBAs are produced.
a. The memory module PCBA - Lead terminals are
automatically and manually inserted into prepunched
holes on a PCB. Adhesive is applied and 24 fixed chip
resistors and 7 chip capacitors are attached to the
PCB. The PCB is cured in an infra red oven which sets
the adhesive and secures the chip components for later
handling and wave soldering. A micro processor, 2
diodes, 3 capacitors, and 1 ceramic resonator are
manually attached to the PCB. The PCB is fluxed,
preheated and wave soldered. Thereafter, the completed
PCBA is cleaned to remove all residual flux and solder,
and then it is inspected and quality control tested.
b. The panel PCBA - 22 fixed resistors and 4 diodes are
automatically inserted into prepunched holes in the
PCB. 7 capacitors, 4 transistors, 2 relays, 1 mounting
bracket, the spark transformer, 5 lead wires and the
memory module PCBA are manually attached to the PCB.
The PCB is fluxed, preheated and soldered using a wave
solder machine. The PCB is cleaned to remove any
residual flux or solder, the excess leads are trimmed,
and it is visually inspected. The PCB is electrically
tested to insure all components are correctly placed,
orientated, soldered and performing correctly. The PCB
is heat cured to eliminate moisture and then coated
with a sealant to prevent moisture from entering the
PCB. Thereafter, the completed panel PCBA is visually
inspected to insure complete coverage of the sealant.
5. The final assembly operations involve attaching the panel
PCBA to the metal frame with a screw, snapping a plastic
Molex connector into the frame, inserting 5 lead wires and
jumper wire into the connector, inserting and riveting the
spark transformer into the frame, inserting 5 lead wires
into the main terminal block, attaching the ground wire
terminal bracket onto the metal cover, attaching the ground
wire from the PCB to the internal terminal of the ground
bracket in the cover, inserting the main terminal block into
the cover, screwing the cover over the frame, quality
control testing to verify the correct operation parameters,
labeling and packaging for shipment to the U.S.
Assembly time in hours
(per unit): #600 A #600 L
Lead Wires .009 .009
Spark Transformer .144 .144
Panel PCBA .249 .249
Memory PCBA N/A .241
Final Assembly .177 .177
Total .562 .820
ISSUE:
Whether the spark transformer and the panel and memory
module PCBAs produced in Mexico qualify as substantially
transformed constituent materials of the gas furnace ignition
devices, thereby enabling the cost or value of these materials to
be counted toward the 35% value-content requirement for purposes
of the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product or
manufacture of a designated beneficiary developing country (BDC)
which are imported directly into the customs territory of the
U.S. from a BDC may receive duty-free treatment if the sum of 1)
the cost or value of materials produced in the BDC, plus 2) the
direct costs of the processing operation in the BDC, is
equivalent to at least 35% of the appraised value of the article
at the time of entry. See, 19 U.S.C. 2463(b).
Mexico is a BDC. See, General Note 3(c)(ii)(A), HTSUS.
Based on your submission, it appears that the gas furnace
ignition devices are classified under subheading 8537.10.00,
HTSUS, which is a GSP eligible provision.
If an article is produced or assembled from materials which
are imported into the BDC, the cost or value of those materials
may be counted toward the 35% value-content minimum only if they
undergo a double substantial transformation in the BDC. See,
section 10.177, Customs Regulations (19 CFR 10.177), and Azteca
Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd,
890 F.2d 1150 (Fed. Cir. 1989). That is, the cost or value of
the imported materials used to produce the spark transformer and
PCBAs may be included in the GSP 35% value-content computation
only if they are first substantially transformed into a new and
different article of commerce, which is itself substantially
transformed into the gas furnace ignition devices.
A substantial transformation occurs "when an article emerges
from a manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process." See, Texas Instruments Incorporated v. United States,
2 CIT 36, 520 F. Supp. 1216 (CIT 1981), reversed, 681 F.2d 778,
69 CCPA 151 (CCPA 1982).
We have previously held in Headquarters Ruling Letter (HRL)
555420 dated September 6, 1989, that production of a inductor
coil resulted in a substantially transformed constituent material
of a control transformer. The inductor coil was produced by
stripping copper wire, winding the wire around a previously
manufactured bobbin, cutting and interleaving insulation
materials with the copper coilings, and attaching various leads
at appropriate points on the coilings.
Based on the previous rulings and the information submitted,
it is our opinion that the manufacture of the spark transformer
results in a substantial transformation. There clearly is a name
change from wire, epoxy and plastic housing unit to spark
transformer. Moreover, the winding, potting and fitting
operations change the character and use of the components by
rendering the components capable of generating a spark to light
the pilot light and main burner. 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.
In C.S.D. 85-25, 19 Cust.Bull. 844 (1985) (HRL 071827 dated
September 25, 1984), Customs held that an assembly process will
not constitute a substantial transformation unless the operation
is "complex and meaningful." Whether an operation is "complex
and meaningful" depends on the nature of the operation, including
the number of components assembled, number of different
operations, quality control, and the benefit to the BDC from the
standpoint of both the value added to the PCBA and the overall
employment generated thereby. Additionally, C.S.D. 85-25 stated
that the factors which determine if a substantial transformation
occurs should be applied on a case-by-case basis.
The focus of C.S.D. 85-25 was a PCBA produced by assembling
in excess of 50 discrete fabricated components (e.g., resistors,
capacitors, diodes, transistors, integrated circuits, sockets,
connectors) onto a PCB. Customs determined that the assembly of
the PCBA involved a very 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 significant economic
benefit to the BDC from the standpoint of both value added to
the PCBA and the overall employment generated thereby.
We are of the opinion that the assembly of the panel and
memory module PCBAs results in a substantial transformation. The
process of assembling the PCBAs in the present case is closely
analogous to the facts in C.S.D. 85-25. The PCBAs are created by
automatically and manually attaching 40-50 components to the bare
printed circuit board; wave soldering; oven backing to reflow the
solder; cleaning to remove all residual flux and solder; and
testing prior to its joinder with the other components to create
the remote control. Therefore, the assembly of the PCBAs creates
new and different articles of commerce, with a new name,
character, and use different from that possessed by the
individual components incorporated therein.
The next determination to be made is whether a second
substantial transformation occurs while assembling the panel PCBA
(which contains the manufactured spark transformer and in model
#600 L the memory module PCBA) with a few additional components
that make up the ignition devices' housing unit. Using the
standards defined in C.S.D. 85-25, these final assembly
operations do not constitute the required second substantial
transformation. These operations merely fit together a small
number of components by screwing, inserting, and riveting.
Whereas the assembly of the panel and memory module PCBAs
required skilled operations, there appears to be no real demand
for skilled labor to complete the assembly of the panel PCBA with
the housing unit components. In sum, the time, cost, and
complexity (or degree of skill) which help to determine whether a
substantial transformation occurs, indicate that there is no
second substantial transformation.
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). In the final assembly of the
ignition devices, which principally involves the addition of
protective coverings, there is no real integration of the panel
PCBA and the outer coverings to the point where they lose their
separate identity. Moreover, the final assembly does not
significantly affect the character and use of the panel PCBA.
For all intents and purposes, the ultimate use and essential
character of the ignition devices are determined by the panel
PCBA, e.g., the ignition of a gas furnace. See also, HRL
555727 dated January 31, 1991, which 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.
HOLDING:
The production of the spark transformer and the complex
assembly of the panel and memory module PCBAs each constitutes a
substantial transformation. However, no additional substantial
transformation results from the final simple assembly operations.
Therefore, the cost or value of the materials imported into
Mexico may not be included in the 35% value-content minimum
required for eligibility under the GSP.
Sincerely,
John Durant, Director
Commercial Rulings Division