CLA-2 CO:R:C:S 556924 BLS
Patrick F. O'Leary, Esq.
Tanaka Ritger & Middleton
655 Fifteenth Street, N.W.
Washington, D.C. 20005-5793
RE: Applicability of subheading 9802.00.80, HTSUS, to
printed circuit boards; insertion of electronic
components into circuit board; cutting; clinching;
gluing; wave soldering; substantial transformation;
sections 10.12(e); 10.14(b); HRL 553945; HRL 554936
Dear Sir:
This is in response to your letter dated September 14, 1992,
on behalf of Alpine Electronics Mfg. of America, Inc., ("AOMA"),
requesting a ruling with regard to thr applicability of
subheading 9802.00.80, HTSUS, to certain circuit boards ("PCBs")
which are exported from the United States to AOMA's affiliate
Alcom Electronics de Mexico ("Alcom"), for soldering and assembly
with other components and then reimported. Samples of the PCBs
upon exportation and reimportation have been submitted.
FACTS:
AOMA imports electronic components and blank PCB's in bulk
from Japan, which are used to manufacture two kinds of tuning
elements for the car radios manufactured by AOMA in Greenwood,
Indiana. The two tuning elements are identified as subassembly
No. MB1A0010 and MB1A8020.
MB1A0010 is a PCB to which 81 components have been inserted
or mounted in Greenwood, Indiana. An additional 19 components
are inserted or mounted in Mexico. MB1A8020 is a PCB to which
141 components have been inserted or mounted in Indiana. An
additional 26 components are inserted or mounted in Mexico.
For both PCBs, all the insertions and mounting in Indiana
are done by automated equipment. Certain components are inserted
by a computer-programmed automatic insertion machine. Numerous
components are loaded on the machine which inserts as the PCB
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moves around the machine platform. As the components are
inserted, the components' leads are cut and "clinched" by the
machine. The "clinching" affixes the components to the PCB. The
components cannot be removed without bending the leads back to a
straight position. If for some reason, the components are
removed, they cannot be reloaded into the automatic insertion
machine because the leads have been cut. These removed
components become unusable.
On the reverse side of the PCBs, chips are mounted by a chip
placement machine, a computer programmed automated machine into
which the chips have been previously loaded. The chips, some of
which are only a small fraction of a square inch in area, are
affixed to the PCB by glue, which has been applied to the
selected mounting areas beforehand by a computer programmed glue
machine. After mounting, the PCBs pass through a glue drying
oven. The chips cannot be removed except by use of some sort of
prying tool.
The approximate cost of the automated equipment used for
the foregoing operations are as follows:
Automated Insertion Machine $320,000.00
Glue Machine $ 96,000.00
Chip Placement Machine $412,000.00
Drying Oven $ 80,000.00
At the time of export to Mexico, four PCBs are physically
joined. In Mexico, both subassemblies undergo a similar process.
Some additional components are manually inserted, the electrical
connections are made by a wave soldering machine, the PCBs are
encasede in a metal chassis, and the finished articles undergo
inspection and adjustment. The PCBs are then packed ready for
shipment to the United States.
ISSUE:
Whether the manufacturing operations performed in the United
States result in a substantial transformation of the foreign
components into products of the U.S. for purposes of being
eligible for the duty allowance under subheading 9802.00.80,
HTSUS.
LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS, provides a partial duty
exemption for:
(a)rticles assembled abroad in whole or in part of
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fabricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form, shape,
or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and
except by operations incidental to the assembly process,
such as cleaning, lubricating and painting.
All three requirements of subheading 9802.00.80, HTSUS, must
be satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty
upon the full cost or value of the U.S. components assembled
therein, upon compliance with the documentary requirements of
section 10.24, Customs Regulations (19 CFR 10.24).
Section 10.12(e), Customs Regulations (19 CFR 10.12(e)),
provides generally that an article wholly or partially of foreign
components or materials, may be a "product of the United States"
if such components or materials are "substantially transformed"
by a process of manufacture into a new and different article.
Section 10.14(b) provides that a "substantial transformation"
occurs when, as a result of manufacturing processes, a new an
different article emerges, having a distinctive name, character,
or use, which is different from that originally possessed by the
article or material before being subject to the manufacturing
process. If the manufacturing or combining process is merely a
minor one which leaves the identity of the article intact, a
substantial transformation has not occurred. See, Belcrest
Linens v. United States, 573 F.Supp.1149 (CIT 1983), 741 F.2d
1368 (1984).
In Headquarters Ruling Letter (HRL) 554936, dated March 5,
1986, foreign made electronic components were imported into the
U.S. and there inserted into printed circuit boards by an
automatic process and exported to Mexico for further assembly
before being returned to the U.S. as lightwave and microwave
transmission systems. During this process, the components were
"driven" into the board, and the leads were cut to a specified
lengthy and "clinched" to the board. Upon completion of the
process, the components were said to be permanently inserted and
dedicated to the board and ready for wave and hand soldering in
Mexico. About 80 percent of the components were inserted into
U.S. made boards in the United States. The balance of the
components, numbering approximately 100, were inserted manually
and welded during the final assembly in Mexico.
We stated in that case that the auto insertion of some 400
components into the blank circuit boards, with a substantial
degree of permanence and dedication attached to the overall
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integrated pattern, would amount to such a conversion that
results in a new and different article of commerce. The identity
of each component is lost and becomes subordinated and merged
into a new identity with a new name, character, and use.
Therefore, we held that a substantial transformation took place
in the U.S. under that scenario, for purposes of item 807.00,
TSUS (the precursor of subheading 9802.00.80, HTSUS).
A similar operation resulted in a similar holding in HRL
554936, dated June 30, 1989. As in the instant case, it was
stated that after the insertion process, the parts could not be
reused in the same operation.
Given the similarity of the facts in this case to HRL 553945
and HRL 554936, we find that those rulings are controlling. In
the instant case, the electronic components were inserted into
the PCBs by computer-programmed automatic machines, and the leads
are cut and "clinched". If for some reason the components are
removed, they cannot be reloaded into the automatic insertion
machine and become unusable. As we stated in HRL 554936,
"[T]here was an irreversible commitment to utilize the inserted
components in the manufacture of the printed circuit boards, and
their attachment was permanent even though there was a subsequent
soldering abroad to ensure proper electrical connection."
Under the circumstances, we hold that the process of
inserting the components into the PCBs, with the accompanying
cutting and "clinching", results in the emergence of a new or
different article of commerce, having a distinctive name,
character or use, which is different than that originally
possessed by the articles (PCBs and electronic components) before
being subjected to the manufacturing process. A substantial
transformation has taken place within the meaning of section
10.14(b), Customs Regulations, and as a result, the foreign
components and PCBs imported into the U.S. subjected to this
manufacturing process are considered products of the United
States.
HOLDING:
The described manufacturing operations, consisting of
insertion of the electronic components into PCBs by computer-
programmed automatic machines, and including cutting and
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"clinching", result in a substantial transformation of the
foreign electronic components and PCBs into products of the U.S.
for purposes of being eligible for the partial duty exemption
under subheading 9802.0080 HTSUS.
Sincerely,
John Durant, Director
Commercial Rulings Division