MAR-2-05 RR:TC:SM 559336 AT
Frederick L. Ikenson, Esq.
Law Offices of Frederick L. Ikenson, P.C.
1621 New Hampshire Avenue, N.W.
Washington, D.C. 20009
RE: Country of origin marking of notebook computers assembled
in the U.S. from U.S. and foreign parts; substantial
transformation; ultimate purchaser; assembly; 19 CFR
134.35(a); 19 CFR 134.32(h)
Dear Mr. Ikenson:
This is in response to your letter dated July 25, 1995, on
behalf of your client Zenith Data Systems Corporation ("ZDS")
requesting a ruling concerning the country of origin marking
requirements for notebook computers which are assembled in the
U.S. by ZDS with U.S. and foreign components. Supplemental
information was submitted by you on October 23, 1995, for our
review and consideration. We regret the delay in responding.
FACTS:
Your submission states that ZDS intends to assemble notebook
computers in the U.S. from U.S. and foreign origin components.
The notebook computers which are the subject of this ruling
request are the "Z-Star Ex" models: ZPD-9850-KS, ZPJ-9845-KS,
ZPJ-9861-KS, ZPG-9845-KS, and ZPG-9861-KS; hereafter collectively
refer to as "subject notebook computers".
According to your submission, ZDS will assemble the subject
notebook computers by one of the four scenarios described below.
You state that the parts and components which ZDS will use to
assemble the computers in the U.S. consist of the following
items: 1. The notebook "clamshell", is a component which, in
Scenario 1 infra, consists of a single unit, with the
top (video display; either monochrome "MONO", dual-scan
passive color "DSTN" or Active-matrix color "TFT" )
portion physically attached and electronically connected
to the base, which contains the partially completed
motherboard and other operating electronics (but
not the Central Processing Unit "CPU"), and (except in
Scenario 4) the keyboard. In Scenario 1, the clamshell
consists of a single component; in Scenarios 2 and 3,
there are two components comprising the clamshell: the
top (video) component is separate from the base. In
Scenario 4, the clamshell top and base comprise two
components, and the base does not include the keyboard.
2. The CPU/daughterboard assembly, consisting of the
computer microprocessor or CPU chip, mounted to a PCB
with other electronic devices (resistors and capacitors). It is ZDS's understanding that all CPUs of
the type used in the CPU/daughterboard components for
the subject notebook computers currently are produced
only in the U.S., and the assembly of the PCB and CPU,
along with other components (such as a number of
resistors and capacitors), into the CPU/daughterboard
component is performed by the component supplier, in the
U.S.
3. The hard disk drive ("HDD"), is a component that varies,
by performance and capacity, in accordance with the
particular customer specifications or configurations
of the notebook computer ordered and being assembled.
HDDs of different specifications may be sourced from
different foreign countries. You state that although
the HDD is referred to as a single major component, ZDS
actually receives a drive component, which ZDS assembles into a plastic housing (designed to fit uniformly in the
clamshell base) fastened together with screws, to which
a "spacer" is added (if needed to secure a smaller
capacity drive into the standard housing); a bezel then
is secured to the housing by screws.
4. The floppy disk drive ("FDD"), is a component that will
be assembled into the clamshell base by ZDS in the U.S.,
except in Scenario 2.
5. The A/C adapter (or "power cube"), is a component that,
like the FDD, will be assembled into the notebook
computer by ZDS, except in Scenario 2.
6. Miscellaneous parts and components
a. display mask, is a component which is installed
over the video display panel in the clamshell
top which varies with the type of display (MONO,
DSTN or TFT).
b. keyboard, incorporated into the clamshell base,
only in Scenario 4.
c. hinge covers, which are applied when a clamshell
top is mated to a base, and a rubber foot,
attached to the clamshell base and applied after
a connecting screw is inserted from the bottom
of the base and into the clamshell, except in
Scenario 1 (where the full clamshell is received
as a unit).
You state that various other articles consisting of a
rechargeable battery, an A/C power cord, a line cord (for battery
charging), documentation and manuals and software diskettes are
packaged by ZDS with the subject notebook computers.
Factual Scenarios of Assembly
You have requested Customs to address in this ruling four
alternative factual scenarios under which ZDS intends to assemble
the subject notebook computers in the U.S. According to your
submission, the four alternative factual scenarios which you have
requested to be addressed in this ruling are as follows: Scenario 1
Under this alternative, ZDS would receive from its
foreign supplier a full clamshell, consisting of a connected top
and base, including keyboard. Separately, ZDS would receive a
CPU/daughterboard assembly to be installed in the clamshell base.
ZDS also would install the appropriate HDD assembly, and insert
the FDD and power cube components into the clamshell base. If
necessary, ZDS would install a TFT display panel in the clamshell
top; in any event, a display mask would be added to the clamshell
top and rubber feet would be attached to the clamshell base.
SCENARIO 2
Under this alternative, ZDS would receive from its foreign
supplier a clamshell top (video display component), and a
separate clamshell base (including keyboard, and with FDD and
power cube installed). ZDS would assemble the two clamshell
components together, simultaneously making the necessary
electrical connection between them, and attach the hinge covers.
Separately, ZDS would receive a CPU/daughterboard assembly to be
installed in the clamshell base. ZDS also would install the
appropriate HDD assembly and, if necessary, would install a TFT
display panel in the clamshell top. In every instance, a display
mask would be added to the clamshell top and a rubber foot would
be attached to the clamshell base.
SCENARIO 3
Under this alternative, ZDS would receive from its foreign
supplier a clamshell top (video display component), and a
separate clamshell base (including keyboard). ZDS would assemble
the two clamshell components together, simultaneously making the
necessary electrical connection between them, and attach the
hinge covers. Separately, ZDS would receive a CPU/daughterboard
assembly to be installed in the clamshell base. ZDS would
install the appropriate HDD assembly, and insert the FDD and
power cube components into the clamshell base. If necessary, ZDS
would install a TFT display panel in the clamshell top. In every
instance, a display mask would be added to the clamshell top and
a rubber foot would be attached to the clamshell base.
SCENARIO 4
Under this alternative, ZDS would receive from its foreign
supplier a clamshell top (video display component), and a
separate clamshell base, without keyboard (which would be bulk-shipped and separately maintained in production inventory). ZDS
would assemble the two clamshell components together, thereby
making the necessary electrical connection between them, and
attach the hinge covers. Separately, ZDS would receive a
CPU/daughterboard assembly to be installed in the clamshell base.
After insertion of the daughterboard (which is mounted in the
clamshell base, under the keyboard), ZDS would install the
keyboard in the clamshell base, and make the necessary electrical
connections between the keyboard and partially completed
motherboard. ZDS also would install the appropriate HDD
assembly, and insert the FDD and power cube components into the
clamshell base. If necessary, ZDS would install a TFT display
panel in the clamshell top. A display mask would be added to the
clamshell top and a rubber foot would be attached to the
clamshell base.
General Assembly and Testing Operations:
You state that a variety of assembly operations must be
performed by ZDS in the course of the production of the subject
notebook computers under each factual alternative. For example,
in Scenario 1 (where the full clamshell is received as a single
unit), the appropriate HDD must be selected in accordance with
the work order for that unit; production of the HDD assembly,
consisting of the drive component mounted in a standard housing,
with spacer (needed for smaller size drives), and holder or
bezel, may be viewed as an entire subassembly operation in itself
(which is part of the U.S. operations performed by ZDS under each
of the four scenarios). The assembler must insert the HDD
assembly into the base of the main unit, properly seat it so that
all connections are made, and using a power drive and torx bit,
secure the HDD in the base with a torx screw.
The shell must be opened, and (if required--as in the case
of TFT displays) the proper LCD panel is installed by making
connections between the wire harnesses, mounting the LCD on its
mounting posts, and securing the LCD (and shield panel) with
screws, while ensuring that all connecting wires are positioned
so as not to be pinched. Whether or not the LCD panel is
installed, the assembler must position and press fit the proper
display overlay (or LCD bezel) over the LCD panel; the overlay
varies depending upon video display type and component producer.
If the clamshell base was received with a keyboard
(Scenarios 1,2 and 3), the keyboard must be released and raised
in order to provide access to the daughterboard slot. The ZDS
assembler must then install the CPU/daughterboard assembly (the
combined components of which were assembled in the U.S. by the
supplier); with the CPU/daughterboard properly aligned with the
main board, the component must carefully be seated to achieve a
reliable connection. The keyboard then is returned to its proper
position and secured back into place. In Scenario 4, the
keyboard is initially installed at this point, by inserting three
ribbon connectors on the keyboard into the partially completed
motherboard in the clamshell base; the keyboard then is
positioned and secured into place. (Whether the assembler is
installing or repositioning the keyboard, care must be taken to
ensure the integrity of the cable connections and positioning of
wires so as not to be pinched.)
Installation of the FDD and the power cube involves the
insertion of each component into its respective receptacle in the
clamshell base. FDD and power cube installation is, essentially,
a spring-loaded, press-in procedure. The reason for this is that
(a) the power cube is designed to be consumer-removable so as to
permit the user to substitute the battery for the A/C adapter
when using the notebook as a portable unit (when external A/C
power is not available); (b) the FDD also is consumer-removable
so as to permit the installation of a second (optional) battery,
in lieu of the FDD, should the user wish to operate the unit as a
portable, for an extended period of time, using the HDD only.
You state that the snap-in design of the power cube and FDD
components not only permits the consumer to operate on battery
power, but also permits the consumer effectively to double the
battery capacity. You contend that this innovative design makes
the ZDS notebook computer far more versatile and gives the
subject notebook computers considerable commercial significance
over other notebook computers.
You state that in addition to the assembly steps described
above, where the top (video) and base clamshell components are
separate (i.e., in all scenarios other the Scenario 1), these
components must be aligned, the electrical connection between
them must be fitted together, and the components are joined and
secured by screws; hinge covers then are applied over the
physical joints. In those cases where the clamshell top and base
components are assembled together in the U.S. (Scenarios 2,3, and
4), a rubber foot is applied to cover the connecting screw
inserted from the bottom of the clamshell base; also, throughout
the assembly process (in all scenarios), various identification
and specification labels (some containing information required by
law) are attached to individual components, or to the overall
unit, as assembly progresses.
Following the assembly of the subject notebook computers,
every unit is subjected to an "audit" and "electronic assembly"
process. The audit includes verification of the type and speed
of microprocessor, verification of RAM presence and function,
verification of HDD size, FDD size and integrity, and
verification of the function of I/O devices and ports; also, the
presence and function of any assembled-to-order ("ATO") optional
devices or components are confirmed. The electronic assembly
includes setting appropriate CMOS values and "flashing" the ROM
BIOS to the appropriate version. The ROM BIOS flash (i.e.,
programming of the BIOS EPROM included in the clamshell base when
exported to the U.S.), when required, actually overwrites or
reprograms the BIOS instructions loaded by the foreign supplier
for purposes of testing the clamshell elements. Every unit
undergoes a BIOS query, in order to ensure that the unit carries
the appropriate (i.e. most current) BIOS version. Whenever an
obsolete BIOS version is detected, U.S. operations include
reprogramming the BIOS EPROM; it makes no difference that remnant
BIOS instructions are present before ZDS "flashes" the ROM BIOS--where an updated version must be provided, the overwrite is clean
and complete.
Next, every unit undergoes an extended "Burn-in" test,
during which ZDS adds whatever pre-installed software has been
ordered with the unit. Burn-in consists of several hours of
system diagnostics. Software "pre-install" also is performed via
parallel port adapters during burn-in; this provides maximum
flexibility in configuring unit-specific software. After this, a
final test consisting of another quick audit of the unit's
configuration, and a verification of function is performed to
each unit. Functions such as video quality and FDD functions
such as write-protect recognition and disk-change operation are
verified in final test.
Following assembly, BIOS flash, all testing and software
installation, final packaging consists of padding, packing, and
boxing the unit together with a battery, A/C and line cords, and
a manual pack. All verification, test, and packing operations
are performed with respect to every unit, regardless of the
imported article configuration or assembly scenario under which
the unit is created. Where the BIOS query discloses the presence
of a non-current version, reprogramming through BIOS flash also
is performed without regard to the assembly scenario involved.
You assert that under each of the four scenarios the
imported components are substantially transformed as result of
the U.S. operations performed by ZDS in the assembly of the
subject notebook computers and that pursuant to 19 CFR 134.35,
ZDS is the ultimate purchaser of the imported components. ISSUE:
Do the assembly operations performed in the four scenarios
stated above effect a substantial transformation of the foreign
components such that ZDS is the ultimate purchaser of the
components under 19 U.S.C. 1304?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the United States shall be marked in a
conspicuous place as legibly, indelibly, and permanently as the
nature of the article (or its container) will permit, in such a
manner as to indicate to the ultimate purchaser in the United
States the English name of the country of origin of the article.
Part 134 of the Customs Regulations implements the country of
origin marking requirements and exceptions of 19 U.S.C. 1304.
Part 134 of the Customs Regulations implements the country of
origin marking requirements and exceptions of 19 U.S.C. 1304.
Section 134.1(d), Customs Regulations, provides that the
"ultimate purchaser" of an imported article is generally the last
person in the U.S. to receive the article in the form in which it
was imported. In addition, that section provides that a
manufacturer may be the ultimate purchaser of an imported article
if he subjects it to a process which results in a substantial
transformation of the article.
A substantial transformation is said to have occurred when
an article emerges from a manufacturing process with a name,
character, or use which differs from the original material
subjected to the process. Torrington Co. v. United States, 764
F.2d 1563, 1568 (Fed. Cir. 1985), citing Texas Instruments, Inc.
v. United States, 631 F.2d 778, 782 (C.C.P.A. 1982). Section
134.35, Customs Regulations (19 CFR 134.35(a)), states that
the manufacturer or processor in the United States who
converts or combines the imported article into the
different article will be considered the "ultimate
purchaser" of the imported article within the
contemplation of section 304(a), Tariff Act of 1930, as
amended (19 U.S.C. 1304(a)), and the article shall be
excepted from marking. The outermost containers of the
imported articles shall be marked in accord with this
part. An imported 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 four scenarios,
the operations performed on the imported components in the U.S.
create a new and different article having a new name, character
or use. 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).
As stated in your submission, various foreign and domestic
components will be further processed, assembled and used in the
manufacture of notebook computers in the United States. Thus,
the critical issue that must be addressed in determining the
country of origin of the subject notebook computers 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 create the
subject notebook computers 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 732170 (January 5, 1990), Customs held that a
backless television cabinet containing a tuner, speaker and
circuit board imported in the U.S., was substantially transformed
there when assembled with a domestic color picture tube,
deflection yoke, electron beam bender and degaussed coil, and a
remote control into a finished television receiver. Customs
stated that the imported components lost their individual
identities as a result of the assembly operation in that they
became integral parts of a new article--a television. In HQ
735608 (April 21, 1995), Customs held that foreign components
consisting of case assemblies, partially completed motherboards,
hard disk drives and slot boards which were processed and
assembled with other components to make desktop computers in the
U.S. (Scenarios 1 and 3) and the Netherlands (Scenarios 2 and 4)
were substantially transformed in either of the two countries.
Customs stated that the foreign case assemblies, partially
completed motherboards, hard disk drives and slot boards when
combined together with other components to make the desktop
computers lose their separate identity, acquire new attributes,
and become part of a new article of commerce--the laptop
computer. Customs also stated that the character and use of the
foreign components are changed as a result of the processing and
assembly operations performed, in that the finished article, a
desktop computer, is visibly different than any of the individual
foreign components, acquiring a new use, which is processing and
displaying information.
Based on the facts in this case and consistent with the
Customs rulings cited above, we find that the foreign components
that are used in the assembly of the subject notebook computers
in the U.S. under all four scenarios 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
foreign components (i.e. clamshell base, LCD video display, hard
disk drive, floppy disk drive, A/C power adapter) change as a
result of the processing and assembly operations performed in the
U.S. to make the subject notebook computers. Like the case
assemblies, partially completed motherboards, hard disk drives
and slot boards in HQ 735608, the instant foreign components lose
their separate identity and become an integral part of a notebook
computer as a result of the assembly operations. The character
and use of the foreign components are changed as a result of the
processing and assembly operations performed, in that the
finished article, a notebook computer, is visibly different than
any of the individual foreign components, acquiring a new use,
processing and displaying information.
We also take notice of the fact that, in all four scenarios,
the CPU/daughterboard, an essential component of the notebook
computer, is manufactured in the U.S. by the U.S. supplier (CPU,
resistors, capacitors and other electronic devices are surface
mounted onto the PCB in the U.S. to make the daughterboard )
prior to being assembled by ZDS into the subject notebook.
Customs has previously determined that the assembly of the
partially completed motherboard with the CPU, system BIOS and
keyboard BIOS constitutes a substantial transformation of the
partially completed motherboard. See, C.S.D. 85-25, 19 Cust Bull
844 (1985) (Customs held that for purposes of the Generalized
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).
Based on the reasons stated above, we find that the foreign
components (i.e. clamshell base, LCD video display, hard disk
drive, floppy disk drive, A/C power adapter) which are further
processed and assembled by ZDS into the subject notebook
computers in the United States (Scenarios 1,2,3, and 4), in the
manner described above, are substantially transformed as a result
of the U.S. operations. Accordingly, ZDS is the ultimate
purchaser of the foreign components and they are excepted from
being individually marked with their own country of origin.
However, pursuant to 19 CFR 134.35(a), the outermost containers
in which the foreign components are imported must be marked to
indicate the country of origin of the components.
You state that because ZDS deals directly with the supplier
from which it purchases the imported components and is the
ultimate purchaser of the imported components, ZDS in all
instances is necessarily informed of the origin of the imported
components. Thus, you argue that the outermost containers in
which the foreign components are imported are not required to be
marked with the foreign article's country of origin pursuant to
19 U.S.C. 1304(a)(3)(H) and 19 CFR 134.32(h).
That section provides that an exception from the country of
origin marking requirements for any article may be allowed if:
An ultimate purchaser, by reason of the character of
such article or by reason of the circumstances of its
importation, must necessarily know the country of origin
of such article even though it is not marked to indicate
its origin;
In this case, we find that the outermost containers in which
the foreign components are imported may be excepted from country
of origin marking pursuant to 19 U.S.C. 1304(a)(3)(H) and 19 CFR
134.32(h), provided documentary evidence is submitted at the time
of importation to the satisfaction of the Port Director
demonstrating that ZDS necessarily knows the country of origin of
the foreign components based on the circumstances of the
importation, as required under this provision.
HOLDING:
Based on the facts presented, foreign components (i.e.
clamshell base, LCD video display, hard disk driver, floppy disk
drive, A/C power adapter) which are further processed and
assembled into the subject notebook computers by ZDS in the U.S.
(Scenarios 1,2,3 and 4), in the manner described above, are
substantially transformed as a result of the U.S. operations.
Accordingly, ZDS is the ultimate purchaser of the foreign
components and pursuant to 19 CFR 134.32(d) they are excepted
from being individually marked with their own country of origin,
if the outermost containers in which the foreign components are
imported are marked to indicate the country of origin of the
components.
The outermost containers in which the foreign components are
imported may be excepted from country of origin marking pursuant
to 19 U.S.C. 1304(a)(3)(H) and 19 CFR. 134.32(h), provided
documentary evidence is submitted at the time of importation to
the satisfaction of the Port Director demonstrating that ZDS
necessarily knows the country of origin of the foreign components
based on the circumstances of the importation.
A copy of this ruling 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
Tariff Classification
Appeals Division