MAR-2-05 CO:R:C:S 735541 MLR
Mr. Richard Kuslan
Associates Mega Sub-System, Inc.
12881 Ramona Boulevard
Irwindale, California 91706
RE: Country of origin marking of notebook computers; assembly;
substantial transformation; remove labels; CPU; RAM;
hard/floppy disk drive; VGA docking station board; LCD
display assembly; keyboard; DC/DC converter
Dear Mr. Kuslan:
This is in reference to your letters of February 1, 1994,
and March 14, 1994, requesting a ruling regarding the country of
origin marking requirements of certain notebook computers
assembled in the U.S. from domestic and imported components.
FACTS:
Associates Mega Sub-System, Inc. ("AMS") will perform two
types of assembly operations in the U.S., both of which involve
the assembly of foreign and U.S. components to create a finished
notebook computer normally classifiable under subheading 8471.20,
Harmonized Tariff Schedule of the United States (HTSUS). The
first assembly operation, which takes approximately 10 minutes,
basically consists of adding a RAM chip, CPU chip, and hard disk
drive to an imported unfinished notebook computer. In a
telephone conversation with a member of my staff, you indicated
that none of the components are of Canadian or Mexican origin.
The U.S.-made components inserted into this computer are the CPU
chip, RAM chip, and hard disk drive. The finished notebook
computer will then be sold in the U.S., Mexico, and Canada.
The second assembly operation, which takes approximately 20
minutes, basically involves inserting a floppy disk drive,
keyboard, DC/DC converter, a CPU, RAM, and hard disk drive (as in
assembly process one); popping in a VGA docking station board;
attaching a LCD display assembly; and sliding in a plastic
battery cover into an imported unfinished notebook computer. The
U.S. components used in this assembly include the CPU chip, RAM
chip, motherboard chip set, video chip set, power management chip
set, various TTLs, and the hard drive. Possibly a foreign-made
hard drive may be used. All other components are of foreign-
origin and are imported into the U.S. None of the components are
from Mexico or Canada. These finished notebook computers will be
sold in the U.S., Mexico, and Canada.
ISSUE:
Whether the assembly of the various components into an
imported unfinished notebook computer constitutes a substantial
transformation, thereby excepting the computer from country of
origin marking.
LAW AND ANALYSIS:
The marking statute, section 304, Tariff Act of 1930, as
amended (19 U.S.C. 1304) provides that, unless excepted, every
article of foreign origin imported into the U.S. shall be marked
in a conspicuous place as legibly, indelibly, and permanently as
the nature of the article (or container) will permit, in such a
manner as to indicate to the ultimate purchaser in the U.S. the
English name of the country of origin of the article.
Congressional intent in enacting 19 U.S.C. 1304 was "that the
ultimate purchaser should be able to know by an inspection of the
marking on the imported goods the country of which the goods is
the product. The evident purpose is to mark the goods so that at
the time of purchase the ultimate purchaser may, by knowing where
the goods were produced, be able to buy or refuse to buy them, if
such marking should influence his will." United States v.
Friedlaender & Co. Inc., 27 CCPA 297, 302, C.A.D. 104 (1940).
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and the exceptions of
19 U.S.C. 1304. Section 134.1(b), Customs Regulations {19 CFR
134.1(b)}, defines "country of origin" as the country of
manufacture, production or growth of any article of foreign
origin entering the U.S. Further work or material added to an
article in another country must effect a substantial
transformation in order to render such other country the "country
of origin" within the meaning of the marking laws and
regulations.
For country of origin marking purposes, a substantial
transformation of an imported article occurs when it is used in
the U.S. in manufacture, which results in an article having a
name, character, or use differing from that of the imported
article. In such circumstances, the manufacturer or processor in
the U.S. who converts or combines the imported article into the
different article will be considered the "ultimate purchaser" of
the imported article, and the article is excepted from marking
and only the outermost container is required to be marked. See
19 CFR 134.35.
In determining whether the combining of parts or materials
constitutes a substantial transformation, the issue is the extent
of operations performed and whether the parts lose their identity
and become an integral part of the new article. Belcrest Linens
v. United States, 573 F. Supp. 1149 (CIT 1983), aff'd, 741 F.2d
1368 (Fed. Cir. 1984). Assembly operations which are minimal or
simple, as opposed to complex or meaningful, will generally not
result in a substantial transformation. See C.S.D. 85-25.
However, the issue of whether a substantial transformation occurs
is determined on a case-by-case basis.
In HRL 734097 dated November 25, 1991, Customs considered
the installation of U.S.-manufactured terminal logic boards,
keyswitches, T-connector cables, and custom keyboards into
imported terminal video shells to create a functional computer
terminal for use with certain computer systems. Customs
considered the processor to be the "ultimate purchaser" of the
imported video shell for purposes of section 134.35, thereby
excepting the imported articles from marking, provided the
disposable packages were marked with their country of origin.
In HRL 734213 dated February 20, 1992, Customs considered an
imported computer monitor which was tested; an International
Electrotechnical Commission (IEC) power plug was installed; the
CRT was lifted out; the bucket, swivel base, and front plastic
bezel were prepared for painting; and the transorb board was
installed. This domestic processing was held to result in an
article known not simply as a computer monitor, but as a
touchscreen monitor, with a different commercial identity. Most
significant, was the change in use from a monitor merely capable
of displaying information to an interface device in which
information could be directly input. Consequently, as a result
of the substantial transformation, and in accordance with 19 CFR
134.35, the imported monitor was excepted from marking provided
the cartons were properly marked with their country of origin and
Customs officials at the port of entry were satisfied that the
monitors would be transformed in this manner.
In HRL 711967 dated March 17, 1980, Customs indicated that
the assembly of printed circuit boards, power transformers,
yokes, and tuners from Korea, and picture tubes, cabinets, and
additional wiring from the U.S., to make a television set in
Mexico, constituted a substantial transformation.
However, in HRL 734518 dated June 28, 1993, Customs
considered a CPU chip implanted onto a motherboard. Although the
CPU was by far the most important chip on the board, it was
determined that because the most significant aspect of the CPU
came from its development and manufacture, not from implanting it
onto the motherboard, no complex and meaningful assembly
resulting in a substantial transformation was found.
In this case, the first assembly involves inserting the CPU
chip, RAM chip, and hard disk drive into the imported notebook
assembly. While these operations do not appear to be exceedingly
complex, as stated in HRL 734518, the CPU chip is the most
significant part of the motherboard. Furthermore, given that the
CPU chip, RAM chip and hard disk drive are of U.S. origin, it is
our opinion that the assembly of these components constitutes a
substantial transformation of the imported notebook computer.
Consequently, the imported computers are excepted from individual
marking, provided the cartons in which AMS receives them are
properly marked with their country of origin, and Customs
officials at the port of entry are satisfied that the components
will be assembled in this manner.
In regard to the second assembly operation, a floppy disk
drive, VGA docking station board, keyboard, DC/DC converter, as
well as a CPU, RAM, and hard disk drive are inserted; a LCD
display assembly is attached; and a plastic battery cover is slid
into the imported unfinished notebook computer. It is our
opinion that in combining these components in the manufacture of
a notebook computer, a new article of commerce that is separate
and distinct from the individual components that compose it is
created. The second assembly process involves several components
and also includes the assembly of the CPU which allows the
computer to function. Consequently, the imported computers are
excepted from individual marking, provided the cartons in which
AMS receives them are properly marked with their country of
origin, and Customs officials at the port of entry are satisfied
that the components will be assembled in this manner.
You also ask whether the finished notebook computers for
sale in the U.S. may be marked "Made in the U.S.A." You should
contact the Federal Trade Commission, Division of Enforcement,
6th & Pennsylvania Avenue, N.W., Washington, D.C. 20508, which
has jurisdiction concerning the approval of markings "Made in the
U.S.A."
You also ask whether the finished notebook computers for
sale in Mexico or Canada may be marked "Made in the U.S.A." For
questions concerning the Canadian Marking Program, please
contact:
Chief, Interdepartmental Programs
Commercial Operations
Revenue Canada, Customs, Excise and Tax
5th Floor
555 Mackenzie Avenue
Ottawa, Ontario K1A 0L5
Tel: (613) 954-7129; FAX: (613) 952-1698
For questions concerning the import requirements relating to
imports into Mexico under the North American Free Trade
Agreement, please contact:
Secretaria de Hacienda y Credito Publico
Subsecretaria de Ingresos
Direccion General Fiscal Internacional
Avenida Hidalgo #77, Modulo 1
Planta Baja, Colonia Guerrero
Delegacion Cuauhtemoc
06300 Mexico, D.F.
You also seek authorization to remove labels attached to
some of the components which indicate their country of origin.
Since the components in both scenarios will be substantially
transformed, it is permissible to remove the labels after the
components lose their status as articles of foreign origin. See
HRL 734541 dated September 17, 1992.
HOLDING:
On the basis of the information submitted, we find that the
imported components are substantially transformed, and,
therefore, are excepted from individual marking, provided the
cartons in which AMS receives them are properly marked with their
country of origin, and Customs officials at the port of entry are
satisfied that the components will be assembled in this manner.
Approval of the marking "Made in the U.S.A.", after the notebook
computers are assembled, is within the jurisdiction of the
Federal Trade Commission. In regard to the marking of the
computers for sale in Canada and Mexico, you should contact the
Government of Canada and Mexico. Any labels indicating the
imported components' country of origin may also be removed since
the components will be substantially transformed.
Sincerely,
John Durant, Director