MAR-2-05 CO:R:C:S 735346 AT
Kevin P. Connelly, Esq.
Seyfarth, Shaw, Fairweather & Geraldson
815 Connecticut Avenue, N.W.
Washington, D.C. 200006-4004
RE: U.S. Government Procurement; Final Determination -
concerning the country of
origin of Auto/Marine Adapters for Computers;
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. Connelly:
This is in response to your request dated August 31, 1993,
as supplemented on April 28, 1994, 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
certain auto/marine adapters for computers which are being
offered to the U.S. Federal Bureau of Investigation ("FBI") in a
procurement designated under FBI Solicitation No. 6178, also
referred to as "the solicitation". You are counsel to Laptops,
Etc. ("Laptops"), a U.S. company that will either manufacture or
import the auto/marine adapters in question. Accordingly,
Laptops is a party-at-interest within the meaning of 19 CFR
177.22(d)(1), and is entitled to request this final
determination. A conference was held at Customs Headquarters on June 7,
1994, with representatives from Customs, Laptops and yourself to
further discuss the assembly operations of the auto/marine
adapter. On June 9, 1994, supplemental information detailing the
assembly operation of the auto/marine adapter was submitted in
furtherance of that meeting.
Contained in your submissions 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 Laptops intends to either
manufacture auto/marine adapters in the U.S. or import
auto/marine adapters from a vendor that manufactures the
merchandise in the Netherlands to sell to the FBI under the
solicitation. The FBI plans to use the auto/marine adapter in
conjunction with a laptop computer. The auto/marine adapter is
plugged into a cigarette lighter (or equivalent) on a boat or
automobile and is also connected to a laptop. The laptop user
may then use the auto/marine adapter to recharge the laptop's
batteries or as a power source in which case the user may work on
the laptop while it is connected to the auto/marine adapter.
The parts and components used in the United States (the
Netherlands in Scenario II) in the production of auto/marine
adapters consist of the following:
1. The Voltage Regulator Subassembly - consists of the DC
to DC converter, Power Interface Board Assembly and Power
Distribution Board Assembly.
a. The DC to DC converter, converts 9 to 24 volt input
to 12 volt output. The voltage may vary according to the voltage
requirement of the laptop.
b. The Power Interface Board Assembly (PIBA), which is
attached to the DC to DC converter provides for power input from
the Cigarette Adapter Cable.
c. The Power Distribution Board Assembly (PDBA), which
is attached over the PIBA provides the interface with power
management and distribution functions of the auto/marine adapter.
The PDBA interfaces with the Computer Adapter Cable's power
output function. 2. Cigarette Adapter Cable - a subassembly which plugs
into the cigarette lighter to receive power. The LED light is
activated when the connection is made. The other end of the
adapter cable is one inch of exposed wire which is soldered to
the DC to DC converter. The parts which make up this subassembly
consist of (1) 5 foot, 18 AWG, 2 conductor, 105C, insulated
electrical wire; (2) cigarette adapter connector; and (3) strain
relief plug.
3. Computer Adapter Cable - a subassembly in which one
end is plugged into the laptop and the other is soldered to the
DC to DC converter. The parts which make up this subassembly
consist of: (1) 5 foot, 18 AWG, 2 conductor, 105C, insulated
electrical wire; (2) Barrel connector, center positive, 1/4" OD
1/8" ID; (3) ferrite component (used to reduce radio and
electrical frequency interference).
4. LED Board Subassembly (LEDBSA) - indicates the power-
up condition of the auto/marine adapter. The LEDBSA is attached
to the PDBA and fits into a recessed socket in the adapter case.
5. Adapter case - Case that encases the electronic
components of the auto/marine adapter, and protects the
components from the environment.
6. 10 K Trimpot - Adjusts the voltage for precise voltage
conversion. This part is critical in preventing damage to the
laptop computer when used with the auto/marine adapter. The 10 K
Trimpot is an integral part of the PBDA.
You state that the DC to DC converter is manufactured in
Taiwan, while the remainder of the components and component parts
are manufactured in the U.S. (Scenario I) or the Netherlands
and/or U.S. (Scenario II).
You indicate that the entire processing/assembly operation
and testing of each auto/marine adapter takes approximately [
]. You also indicate that the DC to DC converter is the single
most expensive component of the auto/marine adapter, representing
approximately 72 percent of the total manufacturing costs of the
auto/marine adapter. Furthermore, it is your understanding that
the DC to DC converter is classified under subheading
8536.69.0060 HTSUS while the auto/marine adapter is classified
under subheading 8504.40.0004.
The two scenarios for which you have requested a final
determination are described below: Scenario I
In Scenario I, [ ] ships DC to DC converters of
Taiwanese origin to its California location. [ ]
subsequently will ship the converters to Laptops from the
California location as Laptops orders these items. Laptops
places the DC to DC converters into inventory after the items
pass receiving inspection.
Laptops acquires U.S. origin LED lights, adapter cases,
ferrite components, 10 K trimpots, fuses, cigarette adapter
connectors, strain relief plugs, 18 AWG wire, barrel connectors,
lens covers, and other U.S. origin parts from multiple U.S.
suppliers. After passing through receiving inspection, Laptops
places these items into inventory. After receiving an order for
an auto/marine adapter, Laptops pulls the parts from inventory
and again visually inspects all parts for defects.
Laptops next manufactures the Computer Adapter Cable and
Cigarette Adapter Cable subassemblies from parts pulled from
inventory. This process consists of [ ]. Then wires 1 and 2
are tested for conductivity. Wires that fail the conductivity
test are scrapped. In the event that wire 1 passes, it becomes a
computer adapter cable. In the event wire 2 passes, it becomes a
cigarette adapter cable.
Laptops next works on the voltage regulator subassembly.
After visually inspecting the DC to DC converter and testing the
converter with the multimeter for continuity, the manufacture of
the Power Interface Board Assembly occurs. This consists of [
]. At the conclusion of these operations, the DC to DC
converter, Power Interface Board Assembly and Power Distribution
Board Assembly are in a fully integrated finished form and
stocked as a single unit subassembly, known as the Voltage
Regulator Subassembly.
Next, the cigarette adapter is soldered to the Power
Interface Board Assembly (PIBA) portion of the Voltage Regulator
Subassembly. This consists of [ ]. Following this
operation, the Computer Adapter Cable is soldered to the Power
Distribution Board Assembly (PDBA). This consists of [
]. Then the LED Board Subassembly is soldered to the Voltage
Regulator Subassembly. This involves [ ]. This light will
light up when the auto/marine adapter is plugged into a power
source.
After these operations are completed, the various
subassemblies are assembled together creating the auto/marine
adapter. First [ ]. Six screws are installed into
sockets which are checked for proper torque, fit and seal of the
case. Subsequently, the completed auto/marine adapter is
visually inspected and tested for correct voltage. Scenario II
The process in Scenario II is identical to Scenario I, with
the exception that the steps performed in the United States in
Scenario I, are to be performed in the Netherlands by a company
from which Laptops will import the auto/marine adapters. The DC
to DC converter is still of Taiwanese origin, with all other
parts and components of the auto/marine adapter manufactured in
the Netherlands (or potentially in the United States). The
manufacture of the Cigarette Adapter Cable, as well as the
Computer Adapter Cable is to be performed in the Netherlands.
In conclusion, you assert that the assembly processes
described above result in a substantial transformation of the DC
to DC when used in the production of auto/marine adapters in the
United States (Scenario I) and the Netherlands (Scenario II).
ISSUE:
Do the assembly operations performed in the two scenarios
stated above effect a substantial transformation of the Taiwanese
DC to DC converter such that the auto/marine adapter may be
considered as a product of the U.S. (Scenario I) or the
Netherlands (Scenario II).
LAW AND ANALYSIS:
As prescribed under Title III of the Trade Agreements Act,
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.
Substantial Transformation Applied to Scenario I and II
The inquiry must resolve whether, under the two scenarios,
the processing performed in the U.S.(Scenario I) or the
Netherlands (Scenario II) 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.
As stated in your submission, U.S. components and a
Taiwanese D.C. to D.C. converter (Scenario I) or Netherlands (or
possibly U.S.) components and a Taiwanese D.C. to D.C. converter
(Scenario II) will be further processed and assembled into
auto/marine adapters in the respective countries. Thus, the
critical issue that must be addressed in determining the country
of origin of the auto/marine adapters is whether the Taiwanese DC
to DC converter is substantially transformed as a result of the
operations performed in one of the two countries. That is, does
the name, character or use of the converter change as a result of
the processing and assembly operations performed to manufacture
the auto/marine adapter in the U.S. or the Netherlands.
The DC to DC converter is the single most expensive
component of the auto/marine adapter, representing approximately
72 percent of the total manufacturing costs of the auto/marine
adapter. The converter is also a significant component of the
auto/marine adapter.
In National Hand Tool Corp., v. United States, Slip Op. 92-
61 (April 27, 1992), aff'd, 989 F.2d 1201 (1993), the Court of
International Trade held that imported hand tool components which
were used to produce flex sockets, speeder handles and flex
handles were not substantially transformed when further processed
and assembled in the U.S. One of the factors considered by the
court in reaching its conclusion was that the name of the
imported components did not change as a result of the U.S.
processing and assembling operations. The court found that the
name of each article imported had the same name in the completed
tool. In support of this conclusion, the court cited the
following example:
For example, when the lug or "G-head", component of a
flex handle imported from Taiwan (Ex. E) was shown,
plaintiff's witness called it a "G-head." When the
government counsel asked the name of the part where
the
lug component is attached to a completed flex handle
(Ex. J.), the witness also called it a "G-head.
The court also considered whether the use of the imported
components changed as a result of the processing and assembling
operations performed in the U.S. In finding that the use of the
imported components did not change, the court stated that the use
of the imported articles was predetermined at the time of
importation due to the fact that each component was intended to
be incorporated in a particular finished mechanics' hand tool. Although the court recognized the fact
that only one predetermined use of imported articles does not
preclude the finding of substantial transformation (See,
Torrington Co., v. United States, 764 F.2d. 1563 (1985)), it
went on to say that the determination of substantial
transformation must be based on the totality of the evidence.
Based upon the totality of the evidence in this case, we
find that the DC to DC converter is substantially transformed in
the U.S. (Scenario I) or the Netherlands (Scenario II) as a
result of the processing and assembly operations performed there.
Unlike the imported hand tool components in National Hand
Tool, the name of the DC to DC converter changes as a result of
the processing and assembly operations in that it is a DC to DC
converter before, and a part of an auto/marine adapter after,
processing and assembly. We note however, that the courts have
held that a change in the name of the article is the weakest
evidence of a substantial transformation. See, Uniroyal, Inc.,
v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff'd.,
702 F.2d. 1022 (Fed. Cir. 1983).
The use of the DC to DC converter also changes as a result
of the processing and assembly operations performed. The purpose
of the auto/marine adapter is to supply regulated DC power from a
variety of DC power sources (i.e., motorcycle, boat, airplane, or
auto batteries), ranging from 9 to 24 volts, to a portable laptop
computer requiring a specific voltage and current. The adapter
functions as a voltage and current regulator for the portable
computer by limiting the amount of voltage/current that is passed
through the adapter to the computer. The purpose of this
function is to deliver constant and steady power required by the
computer for proper operation.
As imported, the output of the DC to DC converter cannot be
used as a main power source to the computer source because the
voltages vary with each converter model. If the DC to DC
converter is used in its imported condition it will either cause
improper operation or irreversible damage to the portable
computer. However, only after the processing and assembling of
the voltage regulator subassembly is completed, which includes
the adapter's power distribution subassembly, can the converter
be used for its intended purpose as a main power source.
Furthermore, the DC to DC converter when imported can be
used as an electrical converter in numerous applications for a
variety of electrical equipment, but after being further
processed and assembled into a auto/marine adapter the
converter's use changes to a power source for automatic data
processing machines. This is evidenced by the fact that in its imported condition, the
DC to DC converter is classified under subheading 8504.40.80,
HTSUS, which provides for: "[s]tatic converters: [o]ther".
However, the auto/marine adapter into which the DC to DC
converter is incorporated during the assembly operations is
classified under 8471.99.34. HTSUS, which provides for
"[a]utomatic data processing machines and units thereof; . . . :
[o]ther: [o]ther: [p]ower supplies: [o]ther." Although a change
in classification is not determinative of a substantial
transformation, it is a factor to be considered in the totality
of the circumstances involved in this case. See, Koru North
America v. U.S. 701 F. Supp. 229 (CIT 1988).
Based on the reasons above, we find that the Taiwanese DC to
DC converter is substantially transformed in the U.S. (Scenario
I) and the Netherlands (Scenario II) as a result of being further
processed and assembled with other domestic components in the
manner described above into an auto/marine adapter. Accordingly,
the country of origin of the auto/marine adapter in Scenario I,
is the U.S. Likewise, where all the components except for the
Taiwanese DC to DC converter are of Netherland origin (Scenario
II), the country of origin is the Netherlands.
You have also requested a country of origin determination
for auto/marine adapters which are to be potentially assembled in
the Netherlands from U.S. Components and Taiwanese DC to DC
converters.
Since, we have determined that the DC to DC converter is
substantially transformed as a result of being further processed
and assembled into an auto/marine adapter, the remaining issue
that must be addressed in determining the country of origin of
the auto/marine adapters under these circumstances is whether the
U.S. components are substantially transformed as a result of the
operations performed in the Netherlands. That is, does the
name, character or use of the U.S. components change as a result
of the processing and assembly operations performed to
manufacture the auto/marine adapter in the Netherlands.
In HQ 734097 (November 25, 1991), Customs considered
computer video terminal housings, containing video electronics
but no logic boards, manufactured in Korea. After importation
into the U.S., four components--the terminal logic board, key
switches, T-connector cables, and customs key boards--were
installed into the empty shells, and the video unit was aligned
to receive new communication protocol transmissions. The
addition of the logic boards was determined to create a new
article. See, HQ 734213 (February 20, 1992) (finding a
substantial transformation when a computer monitor was changed
into a touchscreen monitor because the touchscreen monitor had a
different use than the plain computer monitor). In this case, we find that the U.S. origin components which
are to be assembled into the auto/marine adapter would be
substantially transformed as a result of the assembly operations
performed in the Netherlands. Taking approximately 27
components, such as wire, fuses, ferrite adapters, trimpots,
resistors, integrated circuits, capacitors, connectors, flux,
solder, silicone sealant etc., and assembling these components
into the respective subassemblies that are then assembled into an
auto/marine adapter clearly changes the name, character or use of
the individual components. Prior to the assembly operations,
each of these components could be used in the manufacture of
electrical devices. However, after assembly, the individual
components lose their separate identity and become integral parts
of an auto/marine adapter. See, HQ 730952 (May 18, 1988) (held
substantial transformation occurred when coils, capacitors,and
cases were assembled into plug-in adapters (e.g., rectifiers),
causing individual parts to lose their separate identities when
merged into a new article (the plug-in adapter)). See also, HQ
711967 (March 17, 1980) (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 substantially
transformed in Mexico in that as a result of the Mexican
processing all the components lost their individual identities to
become integral parts of the new article. Accordingly, the
country of origin of the auto/marine adapters which are to be
manufactured in the Netherlands with U.S. components and
Taiwanese DC to DC converters under the circumstances described
above would be the Netherlands.
HOLDING:
Based upon the facts presented: (1) Taiwanese DC to DC
converters are substantially transformed in the U.S. (Scenario I)
and the Netherlands (Scenario II) as a result of being further
processed and assembled with other components in the manner
described above into auto/marine adapters; (2) Taiwanese DC to DC
converters and the other components which are of U.S. origin also
are substantially transformed in the Netherlands as a result of
being further processed and assembled into auto/marine adapters.
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