MAR-2-05 R:C:S 559255 AT
David M. Alexander, Esq.
Stanford Financial Square
2600 El Camino Real
Palo Alto, California 94306
RE: U.S. Government Procurement; Final Determination -
concerning the country of origin of CardDock units;
Substantial Transformation; Title III, Trade Agreements Act
of 1979 (19 U.S.C. 2511); Subpart B, Part 177, Customs
Regulations (19 CFR 177.21 et seg.)
Dear Mr. Alexander:
This is in response to your requests dated June 7 and 12,
and July 21, 1995, for a final determination under Subpart B of
Part 177, Customs 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.), the
Customs Service issues country of origin advisory rulings and
final determinations as to whether, 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, an
article is or would be a product of a designated foreign country
or instrumentality.
This final determination concerns the country of origin of
CardDock units which are being offered to the United States Air
Force ("U.S. Air Force") in a procurement designated under U.S.
Air Force Solicitation No. F01620-94-R-A430, also referred to as
"Desktop V". You are counsel to Greystone Peripherals, Inc.
("Greystone"), a U.S. company that will manufacture the CardDock
units in question. Accordingly, Greystone is a party-at-interest
within the meaning of 19 CFR 177.22(d)(1), and is entitled to
request this final determination.
Contained in your submission is material which you claim as
business proprietary information and request that Customs make no
public disclosure of this information. We have agreed to your
request. The confidential information is bracketed and will not be disclosed in copies of this final determination made available
to the public. Should other persons request public disclosure of
the information under the Freedom of Information Act or
otherwise, this office will provide you with the opportunity to
defend your interests in confidential treatment.
FACTS:
Your submission states that Greystone intends to manufacture
CardDock units in the United States to sell to the U.S. Air Force
("Air Force"), under a procurement designated under Air Force
Solicitation No. F01620-94-R-A430, also referred to as "Desktop
V". In the United States the CardDock units will be
manufactured from parts and components of U.S., and [] origin.
The CardDock unit is a device which is designed to be
installed in IBM PC compatible computers. The CardDock unit
accepts electronic devices known as "PCMCIA cards" for the
purpose of interfacing those PCMCIA cards with the computer in
which the CardDock unit is installed. The PCMCIA cards which are
inserted into a CardDock unit can therefore be accessed by the
computer in which the CardDock unit is installed. These cards
include hard disk cards, modem cards, sound cards, network cards,
memory cards and other electronic components designed to work in
conjunction with computers operating under the MS-DOS/PC-DOS
operating systems.
A CardDock unit consisting of hardware and software is
installed in a desktop computer by the purchaser of the CardDock
unit. The combination of the CardDock hardware and software
allows the computer to access the functionality and features of
numerous PCMCIA type cards which may then be inserted into the
PCMCIA slots on the CardDock unit as if the functionality of
those cards had been built into the desktop machine itself, that
is, as if a hard disk drive PCMCIA card that is inserted into the
CardDock unit was a hard disk actually installed inside the
desktop machine.
Components of CardDock
The CardDock consists of several components. One component
is an interface card ("ISA card") which is inserted into an
Industry Standard Architecture slot or bus inside the desktop
computer. This card connects the CardDock Main unit with the
desktop computer. The ISA card is connected to the CardDock Main
Unit ("Main Unit") through four cables each of which is plugged
into the ISA card on one end and into the Bay Board circuit board
within the Main Unit on the other. The Main Unit consists of an injection molded ABS plastic
frame and a printed circuit board (also known as the Bay Board),
containing electronic components and connectors. The Bay Board
is electrically and mechanically connected to the frame.
The Main Unit, which is electrically connected to the ISA
card by the four cables attached to the Bay Board, is inserted
into the desktop computer and secured in a half height "drive
bay" with four supplied mounting screws.
The CardDock unit includes a 22 page printed Operation's
Manual and a 72 page printed User's Manual and one 3 1/2 inch
floppy disk which contains the software that is required for the
CardDock unit to function.
The CardDock unit cannot function unless the user installs
the software contained on the supplied floppy disk into the
user's system in such a way that this software is accessible by
the computer's central processing unit prior to any attempted use
of the CardDock unit. Typically, this software is made
accessible by requiring the desktop computer to load the software
into the desktop computer's memory system each time the desktop
is powered up.
Manufacturing Steps
Two integrated circuits, manufactured in the U.S., and one
integrated circuit manufactured in [] are purchased by Greystone
in the U.S. and exported to [] to be used in the manufacture of
the ISA board. These three circuits represent the principal
electronic component cost for the ISA board.
In [], the ISA board will be manufactured and these three
integrated circuits will be installed on the [] manufactured
circuit board, together with other electronic components in the
nature of diodes, resistors, capacitors and integrated circuits.
The completed ISA boards are then exported to the U.S. for
further processing.
The injection molded plastic frame assembly is entirely
manufactured in [] and then exported to the U.S. to be used by
Greystone in the manufacture of CardDock units. The frame is
created using tools/dies manufactured in [] and owned by
Greystone.
A circuit board to be mated to the frame, namely the "Bay
Board" is designed and manufactured in the U.S. After the U.S.
manufacture of the circuit board, electronic components and
electrical connectors are installed on the board in the U.S. The
nature of the components installed on the board is as follows. Numerous small resistors, of [] origin, two wire connectors
of U.S. origin, four header connectors of [] or [] origin, two
PCMCIA connectors of U.S. origin are installed onto the circuit
board to make the Bay Board. After the Bay Board has been
manufactured, it is physically examined for visually-apparent
defects. Once the Bay Board has been physically inspected for
defects, two electrical connections are made between the Bay
Board and the frame by inserting connectors from the frame into
each of two connectors on the Bay Board. Next, the Bay Board is
precisely physically positioned in reference to the frame by the
insertion, one at a time, of four screws. This positioning must
be done carefully by a trained worker. If the Bay Board is not
positioned properly the connectors will be damaged and the unit
will not be functional.
Thereafter, the Main Unit, consisting of the frame and the
Bay Board are tested. Each and every Main Unit and each and
every PCMCIA card connector on each Bay Board will be
individually tested in the U.S. Only one Main Unit can be tested
at a time and each Main Unit must be tested on an MS-DOS type
computer. The testing is accomplished as follows:
The Bay Board is connected to an ISA board through a U.S.
designed Test Fixture unit. The testing suite is then
implemented through a U.S. designed test software program which
provides a full functional testing of the Main Unit. Next, a
PCMCIA card is inserted into the left hand CardDock PCMCIA
connector.
Subsequent to the insertion of the PCMCIA card into the
lefthand connector, the test operator loads the custom test
software (which software was designed and programmed in the U.S.)
into the desktop computer. Under the tester's direction, the
test software commences a series of test operations. These
operations test for
a) the voltage required for the inserted PCMCIA card,
three or five volts;
b) the electrical integrity of each of the 68 connector
pins beginning on the ISA card and into the Bay Board and
continuing through the connections to the PCMCIA card
inserted into the CardDock unit;
c) the software present on the PCMCIA card to determine
its revision, compatibility and functionality; d) whether the PCMCIA card is responding as anticipated.
PCMCIA card response means a determination, for example,
if the inserted card is a hard drive, if it is properly
reading and writing information; if it is a memory card,
if it is properly storing and retrieving information and
so forth.
A variety of types of PCMCIA cards are used in testing the
CardDock units. If the left CardDock slot passes the test, then
the same or different PCMCIA card is inserted into the right
CardDock slot and the test suite is repeated. If the CardDock
unit passes the test suite, it is physically disconnected from
the Test Fixture Card. After the Main Unit passes these tests, a
serial number tag is affixed to the frame.
Next, the mounting hardware of U.S. origin is sealed in a
plastic bag and added to the components of the completed CardDock
unit.
Finally, one end of each of the four cables of [] origin is
physically and electrically attached to the ISA card and the
other end of each of the four cables is electrically and
physically connected to the Main Unit such that the IAS card, the
cables and the Main Unit form a finished product, a CardDock
unit. The CardDock unit is then packaged into a cardboard box
with the two manuals, the installation software and the warranty
registration card.
In conclusion, you assert that the foreign parts (ISA
circuit cards, plastic frame assemblies and cable connectors)
which are used to manufacture CardDock units in the United States
are substantially transformed as a result of the assembly
operations described above, and thus the CardDock units may be
considered as products of the United States.
ISSUE:
Do the assembly operations performed in the United States
in the manner described above effect a substantial transformation
of the foreign components such that the CardDock units may be
considered as products of the United States?
LAW AND ANALYSIS:
As prescribed under Title III of the Trade Agreements Act of
1979, the origin of an article not wholly the growth, product, or
manufacture of a single country is to be determined by the rule
of substantial transformation. 19 U.S.C. 2518(4). Such an
article is not a product of a country unless it has been
substantially transformed there into a new and different article
of commerce with a name, character, or use different from that of
the article or articles from which it was transformed.
The inquiry must resolve whether, under the facts presented
in this case, the processing performed in the U.S. results in an
article having a new name, character or use. A secondary,
supporting inquiry is whether the operations are complex, require
skill, entail expense, or add value; these findings are
ordinarily corroborative of the new name, character or use
finding. In our experience, these inquiries are highly fact-and-product specific; generalizations are troublesome and
potentially misleading. The determination is in this instance "a
mixed question of technology and customs law, mostly the latter."
Texas Instruments, Inc. v. United States, 681 F.2d. 778, 783
(C.C.P.A. 1982).
In making this final determination, we must rely upon the
judicial and administrative precedents that have considered the
issue of substantial transformation.
According to your submission, the manufacturing of the Bay
Board in the U.S. involves installing electronic components and
electrical connectors of both domestic and foreign origin onto a
U.S. manufactured circuit board. Thus, the first issue that must
be determined is what is the country of origin of the Bay Boards.
In C.S.D. 85-25, 19 Cust Bull 844 (1985), Customs held that
for purposes of the General System of Preferences, the assembly
of a large number of fabricated components, including resistors,
capacitors, diodes, integrated circuits, sockets and connectors,
onto a printed circuit board was a substantial transformation.
Similarly, in this case, we find that the foreign electronic
components and electrical connectors are substantially
transformed as a result of being installed onto the U.S. origin
circuit boards during the manufacturing of the Bay Boards. The
name, character and use of the foreign components changes as a
result of the operations performed in the U.S. to make the Bay
Boards. Accordingly, the country of origin of the Bay Boards
that are to be used in the manufacture of CardDock units in the
U.S. by Greystone, is the U.S.
Also, consistent with Customs holding in C.S.D. 85-25, we
find that the two integrated circuits of U.S. origin and the
integrated circuit of [] origin which are installed onto a []
manufactured circuit board with other electronic components
(diodes, resistors, capacitors and integrated circuits), to be
used in the manufacture of the ISA Boards in [] are substantially
transformed by the [] operations. Accordingly, the country of
origin of the ISA Boards exported from [] to be used in the
manufacture of the CardDock units in the U.S. by Greystone, is
[]. Next, as stated in your submission, foreign components
consisting of ISA boards, plastic frame assemblies and connector
cables, will be further processed, and assembled with U.S. origin
Bay Boards to manufacture the CardDock units in the U.S. Thus,
the critical issue that must be addressed in determining the
country of origin of the CardDock units is whether the foreign
components are substantially transformed as a result of the
operations performed in the U.S. That is, does the name,
character or use of the foreign components change as a result of
the processing and assembly operations performed to manufacture
the CardDock units in the U.S.
Customs has previously considered the issue of whether the
processing and assembly of electronic components into a finished
article results in a substantial transformation of the individual
components.
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 Korea and picture
tubes, cabinets, and additional wiring from the U.S. were
products of Mexico for country of origin marking purposes. The
U.S. and Korean 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--a television. In HQ 730952 (May 18, 1988), Customs held
that electrical components consisting of coils, capacitors and
cases were substantially transformed as a result of being
assembled into plug-in adapters (e.g., rectifiers). Customs
stated that the individual parts lost their separate identities
as a result of the assembly operation in that they became
integral parts of a new article--a plug-in adapter. In HQ 732350
(June 23, 1989), Customs held that foreign transducers which were
assembled with U.S. components to make hearing aids in the U.S.
were substantially transformed as a result of the U.S.
operations. Customs stated that the transducers lose their
separate identity as a result of the assembly operation in that
they become an integral part of a new article of commerce--a
hearing aid--with a new, name, character and use. In HQ 734045
(October 8, 1991), Customs held that foreign subassemblies and
other components imported into Hong Kong which were processed and
assembled with other domestic components to make laptop and
notebook personal computers were substantially transformed as a
result of the Hong Kong operations. Customs stated that the
subassemblies and other components when combined together to make
the computer lose their separate identity, acquire new
attributes, and become part of a new article of commerce--the personal computer. Customs also stated that the Hong Kong
processing results in an article that has a new name, that of a
personal computer, a new character that is visibly different than
any of the individual components, and a new use in that it can
process and display information.
Based on the totality of the circumstances of this case and
consistent with the Customs rulings cited above, we find that the
foreign components that are processed and assembled with U.S.
origin Bay Boards (an essential component of the finished
article) in the manufacture of CardDock units in the U.S., in the
manner described above, are substantially transformed as a result
of the operations performed in the U.S. The name, character, and
use of the ISA boards, frame assemblies and connector cables
change as a result of the assembly operations performed in the
U.S. Like the electrical components in HQ 730952 and the
transducers in HQ 732350, the ISA boards, frame assemblies and
connector cables after being assembled with U.S. origins Bay
Board lose their separate identity and become an integral part of
a CardDock unit as a result of the assembly operations. The
character and use of the foreign components are changed as a
result of the assembly operations performed in that the finished
article, a CardDock unit, is visibly different from any of the
individual foreign components and acquires a new use, which is
the processing of information.
Based on the reasons stated above, we find that the foreign
components (ISA boards, frame assemblies and connector cables)
which are assembled with U.S. origin Bay Boards into CardDock
units in the United States, in the manner described above, are
substantially transformed as a result of the U.S. operations.
Accordingly, the country of origin of the CardDock units is the
United States.
HOLDING:
Based on the facts presented, foreign ISA boards, frame
assemblies and connector cables which are assembled with U.S.
origin Bay Boards into CardDock units in the United States, in
the manner described above, are substantially transformed as a
result of the U.S. operations. Accordingly, the country of
origin of the CardDock units is the United States.
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 Customs reexamine the matter anew and issue a new final
determination.
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,
Harvey B. Fox, Director
Office of Regulations and Rulings