MAR-2-05 OT:RR:CTF:VS H015324 HEF
Mr. Harold Paul Luks
Poliner & Luks LLP
1300 19th Street, N.W.
Suite 401
Washington, DC 20036
RE: U.S. Government Procurement; Final Determination; country of origin of stereoscopic displays; substantial transformation; 19 C.F.R. part 177
Dear Mr. Luks:
This is in response to your letter dated August 2, 2007, requesting a final determination on behalf of Planar Systems, Inc. (“Planar”), pursuant to subpart B of part 177, Customs and Border Protection (“CBP”) Regulations (19 C.F.R. § 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.), CBP issues country of origin advisory rulings and final determinations on whether an article is or would be a product of a designated country or instrumentality 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.
This final determination concerns the country of origin of certain stereoscopic displays. We note that Planar is a party-at-interest within the meaning of 19 C.F.R. § 177.22(d)(1) and is entitled to request this final determination. Confidential treatment for certain business information identified in your request for a final determination will be extended in accordance with your request. Photographs of the manufacturing process were also submitted with your request. In preparing this final determination, consideration was given to your supplemental submissions dated August 23, 2007; September 25, 2007; November 9, 2007; November 13, 2007; and January 2, 2008.
FACTS:
The products subject to this final determination are stereoscopic display models, which, you explain, create three-dimensional digital images of video output by a computer or other stereoscopic video source. The stereoscopic display models and their key components were designed and developed in the United States through the use of Planar’s proprietary StereoMirrorTM technology. You advise that the stereoscopic display models are used in a variety of applications where two-dimensional images are insufficient because of the lack of depth and position, including: photogrammetry, intelligence, and environmental applications; remote vehicle operations; medical imaging; complex modeling/visualization applications; and three-dimensional simulations for gaming and situational training.
The two models that are the subject of your request are the SD2020 and the SD2320W. The SD2020 model incorporates two 20-inch LCD monitors, and the SD2320W model incorporates two 23-inch wide-format LCD monitors. The SD2020 model has a total of 240 parts, and the SD2320W model has a total of 238 parts. You describe the configuration of the stereoscopic display models as follows.
The two LCD monitors are mounted in a custom-made stand in an up/down configuration at a 110º angle. A special beamsplitter mirror is mounted at the bisecting angle between the two monitors. The stand is manufactured so that the two images are aligned as if looking at one monitor. A graphics card in the computer transmits/outputs right eye and left eye video separately. The left eye image is sent to the lower monitor. Because the right eye image is reflected by the beamsplitter, the right eye image is sent through a custom-designed and manufactured mirror-flip PCI card (included with the system) that reverses the image before it is sent to the top monitor. The user of the SD system wears passive polarizing glasses provided with the system that enable each eye to see only the image from one of the monitors (i.e., the glasses block the right eye from seeing the image on the lower monitor and block the left eye from seeing the image on the top monitor). Thus, the two images appear to the user as a fused stereoscopic three-dimensional image.
Planar procures the LCD monitors and beamsplitter mirrors from foreign vendors and imports the articles to the United States. The LCD monitors originate in either China or Taiwan, and the mirrors are of either Japanese or German origin. You note that the beamsplitter mirror is custom manufactured to Planar’s specifications and has no other function apart from its use in the display.
Planar sends one of the LCD monitors to a third-party in the United States for an optical transformation process. Pursuant to your request, we are according confidential treatment to the specific details of this process. However, you provide the following non-confidential summary of the process:
Planar Systems requires that the polarization orientation of light emitted from the monitor be effectively rotated 90°. This complex process requires the careful removal and replacement of optical films on both the liquid crystal display panel and the backlight film stack. Specialized machines operated by experienced and trained technicians in clean-room, ESD [electrostatic discharge]-protected environments are required to complete these changes in a non-destructive manner.
Your submission also relates that this process requires five days to complete and is of such a complex nature that Planar is not capable of performing it in-house, despite twenty-four years of display manufacturing experience. Upon completion of the process, the LCD monitor is reassembled, tested for functionality, packaged, and returned to Planar.
You explain that the stereoscopic display’s mirror flip card acts to “flip” the image for the user’s right eye, so that the image is accurate when reflected in the beamsplitter mirror. In order to achieve this capability, Planar designed a special electronic circuit board to mirror the digital visual interface (“DVI”) video input content, one row at a time, and output the reversed video to the top monitor of the stereoscopic display. The mirror flip card is manufactured in the United States by two companies, in accordance with the specifications and directions provided by Planar. The first company manufactures a four-layer printed circuit board (“PCB”). You explain that each layer of the PCB is built of a copper clad, which consists of an insulating substrate and a layer of copper of a specified thickness. Each layer of the copper clad is etched to remove unwanted copper to reveal the trace and contacts for the circuitry. The four layers are then aligned and laminated together to form a single substrate. Next, holes are milled for components and hardware. Then, the holes are “seeded” and plated. The PCB is silk-screened with a solder mask and reference designators and routered to the specific board dimensions. Finally, the PCB is tested and packaged before being shipped to the second company. At the second company’s U.S. facility, the PCB will be assembled with the remaining components of the mirror flip card. First, the PCB is silk-screened with a solder paste to leave a thin layer of solder on specific pads for the remaining components. Automated equipment places some of the parts on the PCB. You describe the process as iterative, as it may require several attempts to achieve the proper placement. Parts that the machine cannot place are placed by hand. Then, the populated PCB is soldered in an infrared reflow machine that passes the circuit under an infrared light source with a programmed time and temperature file. The PCB is manually “stuffed” with the remaining components like the DVI and power connectors. Then, the PCB is passed through a wave solder machine to solder these parts. Finally, the completed mirror flip card is tested for functionality before being packaged and shipped to Planar.
As the components arrive at Planar’s U.S. facility, they are inspected to determine compliance with their respective specifications. After three shipments are received, fully inspected, and found to be in compliance, the part number and vendor are approved for random lot inspections. If a problem arises, the full inspection process will be reinstated until another three shipments are found to be without faults. After inspection, technicians assemble the stereoscopic displays in accordance with the company’s detailed work instructions. First, a technician creates a “Build Setup” profile in a Lotus database designed to track inventory and production and assigns a serial number to the unit. The lower and upper monitor assemblies are assembled by removing the accompanying stands from the LCD monitors, attaching and routing the DVI cables, and securing the monitors with screws to a custom-made U.S.-origin stand. Then, a support for the mirror is attached to the lower monitor assembly. In total, the upper monitor assembly consists of 12 parts and the lower monitor assembly consists of 16 parts. Next, the mirror assembly is manufactured by assembling the mirror frame with protective gaskets and screws, inspecting the mirror panel with a “glass defect guide template,” inserting the beamsplitter mirror into the frame, and affixing the mirror assembly to the mirror support on the display stand. The assembly of the mirror involves 29 parts. Assembly of the stereoscopic display is completed by the attachment of the upper monitor assembly to the lower monitor assembly with alignment pins and screws.
A software test file is used to align the system and the mirror is adjusted until it achieves a one-pixel tolerance for a normal viewing angle and a three-pixel tolerance for a view from the left or right edges of the mirror. The technicians ensure that the beamsplitter is precisely positioned at a bisecting angle between the two monitors to prevent loss or confusion of the stereoscopic image. You advise that even a small misalignment may cause users to experience headaches, eye fatigue, nausea or other discomfort. The alignment process may require up to 90 minutes to ensure accurate and precise alignment and co-planarity of the stereoscopic images.
After assembly and alignment, the display undergoes testing and quality assurance processes to ensure its proper performance. The displays are also examined for pixel defects, and the mirror and stand are inspected for cosmetic defects. Finally, the display is packaged with the mirror flip card, a user manual, and U.S.-origin polarized glasses and cables. The final product is then shipped to the U.S. customer. You advise that the production of each unit requires approximately 135 minutes of work by a skilled Planar technician. You also attest that the processing and assembly operations performed in the United States add significant value to the product, as Planar’s customers will pay a premium of up to ten times the cost of a standard LCD monitor to obtain the three-dimensional display capability of Planar’s stereoscopic display models.
ISSUE:
What is the country of origin of the stereoscopic display models for purposes of U.S. Government procurement?
LAW AND ANALYSIS:
Pursuant to subpart B of part 177, 19 C.F.R. § 177.21 et seq., which implements Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations on whether an article is or would be a product of a designated country or instrumentality for the purposes of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government.
Under the rule of origin set forth at 19 U.S.C. § 2518(4)(B):
An article is a product of a country or instrumentality only if (i) it is wholly the growth, product, or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.
See also, 19 C.F.R. § 177.22(a).
In rendering advisory rulings and final determinations for purposes of U.S. Government procurement, CBP applies the provisions of subpart B of Part 177 consistent with the Federal Procurement Regulations. See 19 C.F.R. § 177.21. In this regard, CBP recognizes that the Federal Procurement Regulations restrict the U.S. Government’s purchase of products to U.S.-made or designated country end products for acquisitions subject to the TAA. See 48 C.F.R. § 25.403(c)(1). The Federal Procurement Regulations define “U.S.-made end product” as:
…an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.
48 C.F.R. § 25.003
Therefore, the question presented in this final determination is whether, as a result of the operations performed in the United States, the stereoscopic display models are substantially transformed into products of the United States.
In determining whether the combining of parts or materials constitutes a substantial transformation, the determinative 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, 6 Ct. Int’l Trade 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). If the manufacturing or combining process is a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred. Uniroyal Inc. v. United States, 3 Ct. Int’l Trade 220, 542 F. Supp. 1026 (1982). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D. 80-111, C.S.D. 85-25, and C.S.D. 90-97.
In C.S.D. 85-25, 19 Cust. Bull. 844 (1985), Headquarters Ruling Letter (“HRL”) 071827, dated September 25, 1984, CBP determined that assembly of a large number of fabricated components onto a circuit board resulted in a substantial transformation of the constituent components for purposes of the Generalized System of Preferences program. In that decision, CBP stated that an assembly process would not constitute a substantial transformation unless the operation is “complex and meaningful.” Whether an operation is complex and meaningful depends on the nature of the operation, including the number of components assembled, number of different operations, time, skill level required, attention to detail, quality control, the value added to the article, and the overall employment generated by the manufacturing process.
CBP has considered the issue of whether the processing and assembly of electronic components into a finished article results in a substantial transformation on a number of occasions. In another final determination, HRL 735315, dated April 10, 1995, CBP held that the country of origin of optical spectroscopy instrument (“OSI”) systems was the United States for purposes of U.S. Government procurement. Each system had three essential elements: a controlling computer, an optics module, and an output device such as a printer. The optics module shell and its related components were imported from Australia. At the U.S. customer site, U.S.-origin printed wiring board assemblies (“PWBs”) were integrated into the shells to create a finished optics module. The PWBs were necessary for the control and operation of the optics module. Then, the module was further assembled with a U.S.-origin controlling computer and printer to create the OSI system. CBP found that the assembly of the PWBs and other components into the optics module shell constituted a complex and meaningful assembly and was sufficient to substantially transform the optics module into a product of the United States. As the other components of the OSI system were products of the United States, CBP held that their incorporation with the optics module rendered the OSI system a product of the United States.
In HRL 734213, dated February 20, 1992, CBP held that the conversion of an imported computer monitor into a touchscreen monitor in the United States constituted a substantial transformation of the imported monitor for country of origin marking purposes. To create the touchscreen monitor, the imported monitor was tested, a power plug was installed, and the cathode ray tube was removed. The bucket, swivel base, and front plastic bezel of the monitor were also removed and painted. Then, a transorb board and the touchscreen were installed. The touchscreen underwent testing and alignment by skilled technicians. Then, the monitor was reassembled, tested, and packed for shipment. CBP found that the touchscreen capability of the finished product was not just a simple enhancement of the monitor, but rather a significant change in its very nature, which resulted in the monitor having a new use as an interface device for a blood analyzer unit.
By contrast, assembly operations that are minimal or simple will generally not result in a substantial transformation. For example, in HRL 734050, dated June 17, 1991, CBP determined that Japanese-origin components were not substantially transformed in China when assembled in that country to form finished printers. The printers consisted of five main components identified as the “head,” “mechanism,” “circuit,” “power source,” and “outer case.” The circuit, power source and outer case units were entirely assembled or molded in Japan. The head and mechanical units were made in Japan but exported to China in an unassembled state. All five units were exported to China, where the head and mechanical units were assembled with screws and screwdrivers. Thereafter, the head, mechanism, circuit, and power source units were mounted onto the outer case with screws and screwdrivers. In holding that the country of origin of the assembled printers was Japan, CBP recognized that the vast majority of the printers’ parts were of Japanese origin and that the operations performed in China were relatively simple assembly operations.
In order to determine whether a substantial transformation occurs when components of various origins are assembled to form completed articles, CBP considers the totality of the circumstances and makes such decisions on a case-by-case basis. The country of origin of the article’s components, the extent of the processing that occurs within a given country, and whether such processing renders a product with a new name, character, or use are primary considerations in such cases. Additionally, facts such as resources expended on product design and development, extent and nature of post-assembly inspection procedures, and worker skill required during the actual manufacturing process will be considered when analyzing whether a substantial transformation has occurred; however, no one such factor is determinative.
Based on the facts provided in the instant case, we find that the processing and assembly operations performed in the United States result in a substantial transformation of the imported LCD monitors and the beamsplitter mirror into a product with a new name, character, and use. In support of this determination, we note that one LCD is subjected to significant further processing in the United States. Specifically, we find that the polarization process performed in the United States changes the essential character of the LCD, as the polarization feature of the LCD imparts the stereoscopic functionality to the entire system. In addition, the assembly, testing, and alignment of the two LCD monitors and the beamsplitter mirror to form the stereoscopic display require a significant amount of time and precision by skilled technicians. Consequently, we find these operations to be complex and meaningful.
You explain that neither the LCD monitors nor the beamsplitter mirror can generate a three-dimensional image until they are integrated with the remaining components of the finished stereoscopic display model. Although the mirror flip card and goggles are necessary for the proper operation of the stereoscopic display model, they are not integrated into the display at Planar’s facility. Similar to the PWBs in HRL 735315, supra, the mirror flip card is integrated into the display at the U.S. customer site, and the goggles will be worn by the customer during the operation of the model. As these components are of U.S. origin, we find that their incorporation and use with the stereoscopic display render the entire model a product of the United States.
HOLDING:
Based upon the facts provided, we find that the processing and assembly operations performed in the United States constitute a substantial transformation of the foreign-origin components. Therefore, the country of origin of the stereoscopic display models is the United States for purposes of U.S. Government procurement.
Notice of this final determination will be given in the Federal Register as required by 19 C.F.R. § 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 C.F.R. § 177.31, that CBP 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,
Sandra L. Bell,
Executive Director,
Office of Regulations and Rulings,
Office of International Trade.