OT:RR:CTF:FTM H301910 JER
Alexander D. Chinoy
Covington & Burling LLP
One City Center
850 Tenth Street, NW
Washington, DC 20001-4956
RE: Country of Origin of mailing machine engines used in certain postage meters; substantial transformation
Dear Mr. Chinoy:
This is in response to your correspondence, dated November 13, 2018, filed on behalf of Canon Finetech Nisca Inc. (“CFN”), requesting a prospective ruling pursuant to 19 C.F.R. § 177(a)(1) regarding the country of origin of mailing machine engines (“engine” or “merchandise”), imported for use in an original equipment manufacturer’s postage meters.
You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as your request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), your request for confidentiality is approved. The information contained within brackets and all attachments to the ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
According to your submission, CFN produces mailing machine engines that are used in postage meters. This ruling request pertains to six different models of the engines [], which is one of the main components of a postage meter.
The engine is entirely designed and developed in Japan. The primary components of the mailing machine engine are the print head, the carriage, the maintenance station (purge unit), the envelope feeding mechanism, the main printed circuit board assembly (“PCBA”), the print control firmware, the enclosure, the chassis, the harness, and the power supply. The main PCBA, the print control firmware, and the print head control the engine’s operation and enable printing of the correct postage when the engine is later assembled into a postage meter. The firmware, designed and developed in Japan, controls the mechanical components of the engine: the print head, the carriage motor, and the transport motor that feeds the envelope past the print head.
The body of the engine is assembled in China with components from various countries, including Japan, Taiwan or Thailand, and China. The assembly and processing in China consists of assembling the carriage unit, the envelope feeder mechanism, maintenance station (purge unit), moistener unit, enclosures, performing the printing test, and packaging. Then the body of the engine is sent to Japan for final assembly, in addition to manufacturing of the main PCBA, the print head, and the print control and diagnostic firmware.
The main PCBA manufacturing process takes [] days to complete. It consists of approximately [] components. The primary components of the PCBA, such as the Central Processing Unit (“CPU”), flash memory, Ferroelectric Random Access Memory (“FRAM”), and Field-Programmable Gate Array (“FPGA”) are made in Japan, and other components are imported into Japan from other countries. First, [] components are surface mounted onto the printed circuit board, and the print manager software is downloaded to the flash ROM on the PCBA. Then, the remaining [] components are inserted into the main PCBA, waves are soldered, and spot-soldering is performed. Finally, circuit and function testing of the main PCBA is performed, and the main PCBA is inspected, packaged, and sent to CFN to be assembled into the body of the engine.
Separately, the print head manufacturing takes [] days to complete, including the time it takes to grow the silicon wafer that will ultimately be used in the print head chip. The process consists of installing the patterning process on the wafer, a nozzle creation process, dicing and completing a print head chip, assembling the print head chip and other components, and performing a print inspection. Then the print heads are packaged with the assembled engine.
In addition to the main PCBA, the print head manufacturing, and the installation of the print control and diagnostic firmware, the following steps also take place in Japan: unpacking the partially assembled body from China, opening the upper cover, installing previously described Japanese-manufactured PCBA, closing the upper cover, installing a print head for testing, executing the end of line test, taking out the test print head, and packaging, including the new Japanese-made print head for use by the end-customer. The preceding steps takes approximately [] minutes.
There are six different models subject to this ruling request and the preceding assembly processes apply to all models. Depending on the model, the Japanese –sourced components make up from [] to [] (or either majority or a significant plurality) of the total cost of the completed mailing machine engines.
ISSUE:
What is the proper country of origin of the imported mailing machine engines?
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 United States 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 United States 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 C.F.R. 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 C.F.R. § 134.1(b)), defines “country of origin” as the country of manufacture, production or growth of any article of foreign origin entering the United States. 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.
In determining whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of the operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 6 C.I.T. 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 that leaves the identity of the imported article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982).
In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. Primary considerations in such cases include: the country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
In Headquarters Ruling Letter (“HQ”) H219519, dated April 3, 2013, CBP addressed the substantial transformation of a laser jet printer and fax machine that included parts which were produced in China and where the final assembly of all component parts occurred in Mexico. The laser jet printer/fax machine was composed of a print engine, motors, control board (with firmware), paper trays, rollers, transfer belt, a formatted printed circuit boards, and other components. In HQ H219519, CBP determined that the assembly in Mexico was not complex or significant enough to result in a substantial transformation. CBP explained that the assembly in Mexico did not change or define the use of the finished laser jet printer/fax machine. In HQ H219519, CBP considered the amount of time to complete the finally assembly of the product. In one scenario, the timeframe to complete the assembly was 3-4 minutes. In the second scenario, it took 7-8 minutes and in a third scenario assembly was completed within 2-3 minutes. Meanwhile, the complexity, time and skill involved in producing the controller board (with firmware), printed circuit boards, print engine and the remaining components exceeded the simplistic assembly that took place in Mexico. Finally, CBP reasoned that the since the print engine was the central mechanism by which the printer/fax machine performed its printing and because the controller board and PCB were the central command components which determined when and how the machines were to function – that these components combined to constitute the essence of the overall printer/fax machine.
Similarly, in HQ H287548, dated March 23, 2018, CBP determined that the country of origin of a monochrome laser printer was Japan despite having component parts made in Vietnam and where the final assembly took place in the United States. In HQ H287548, the main PCB and firmware were produced in Japan, while the feeder unit, fuser unit, photo conductor, toner cartridge and operation panel were all produced in Vietnam. CBP determined that the PCB and firmware embodied the primary essence of the laser printer because the firmware provided the control program for the printers and enabled the main PCB assembly to function as the electronic “brains” of the printers by controlling all printer functions. Moreover, the production of the feeder unit, fuser unit, photo conductor, toner cartridge and operation panel was inexpensive and did not require a sophisticated skill set to effect production. Likewise, the final manufacturing in the United States was concluded in 40 minutes (including testing) did not rise to the level of complex processes necessary for a substantial transformation to occur.
In HQ H114395, dated May 18, 2011, CBP considered the country of origin of a DLP projector that used LEDs as its light source for projecting photos and videos from mobile devices onto any surface. We were asked to consider two scenarios. In the first scenario, PCBA-ICs from Japan, Thailand, the U.S., Korea, and Malaysia; and fly eyes from Japan were shipped to China. Some Taiwanese origin components (DMDs, DPP 1505 chips, EPROM’s, LEDs, and lenses) were also be shipped to China for assembly with Chinese-origin components (PCBs, projecting lenses, mirrors, and mechanical parts), the ICs, and fly eyes for making modules for the light engine and the PCBA main board. In China, two types of Taiwanese firmware for operating the projector were downloaded to memory chips located on the light engine and PCBA main board modules. The modules assembled in China were then shipped to Taiwan for quality inspections. In the second scenario, PCBA-ICs from Japan, Thailand, the U.S., Korea, and Malaysia; and fly eyes from Japan were shipped to Taiwan. The assembly and programming operations that took place in China, under the first scenario, were all performed in Taiwan. We determined that the light engine module and the PCBA main board were the essence of the projector, and it was at their production where the last substantial transformation occurred. Therefore, when the light engine module and PCBA main board module were assembled and programmed in China, the country of origin of the projectors was China for the purposes of U.S. government procurement. However, we also ruled that if the light engine module and PCBAs main board modules were assembled and programmed in Taiwan, then the country of origin of the projectors was Taiwan for purposes of U.S. government procurement.
In HQ H018467, dated January 4, 2008, CBP considered two manufacturing scenarios for multi-function printers. In one scenario, manufacturing took place in two countries; in the other, it took place in three countries. In the two-country scenario, 18 units were manufactured in the Philippines from components produced in various countries. The units were sent to Japan where the system control board, engine control board, OPC drum unit, and the toner reservoir were manufactured and incorporated into the units. The control boards were programmed in Japan with Japanese firmware that controlled the user interface, imaging, memories, and the mechanics of the machines. The machines were then inspected and adjusted as necessary. CBP found that the manufacturing operations in Japan substantially transformed the Philippine units such that Japan was the country of origin of the multifunctional machines. In making the determination (and in addition to the finding that operations performed in Japan were meaningful and complex and resulted in an article of commerce with a new name, character and use), CBP took into consideration the fact that the system control board, the engine control board, and the firmware, which were very important to the functionality of the machines, were manufactured in Japan.
We find that the instant case is similar to the decisions in HQ H219519 and HQ H287548. Much like the aforementioned rulings, the final assembly of the subject mailing machine engine, that occurs in Japan is neither complex nor time intensive. Nonetheless, as we explained in HQ H287548, HQ H114395 and HQ H018467, the component or components which constitute the primary essence of a product is a significant factor in determining the country of origin of that product. In our case, the main PCBA, the print control firmware, and the print head combined, constitute the primary and fundamental essence of the mailing machine engine. These components control the engine’s function, operations and enables the printing of the correct postage when the engine is later assembled into a postage meter. In particular, the main PCBA itself, is composed of components that are essential to the fundamental function and primary purpose of the mailing engine machine. The components of the PCBA includes: the Central Processing Unit, the flash memory, the Ferroelectric Random Access Memory, and the Field-Programmable Gate Array; all of which combine to form the “brain” of the machine. As the electronic brain of the subject mailing machine engine, the PCBA communicates with and directs the other components of the machine, and houses the memory to inform the printer components which information to print on the postage meter. Similarly, the firmware controls the mechanical components of the engine: the print head, the carriage motor, and the transport motor which feeds the envelope past the print head. Lastly, the print head effects the actual printing of the postage onto the envelope.
Notwithstanding the foundational importance of the mechanical components of the engine, the primary purpose of the subject merchandise is to facilitate the printing of the correct postage from a postage meter. This process cannot be performed absent the PCBA, the print head, and the print control firmware. As such, these components combined, are most vital to the primary purpose and ultimate use of the finished product. Inasmuch as the main PCBA, the print control firmware, and the print head are all produced in Japan, the country of origin of the subject mailing engine machine is Japan.
HOLDING:
Based on the facts provided, the country of origin of the mailing machine engines is Japan.
A copy of this ruling letter 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 CBP officer handling the transaction.
Sincerely,
Yuliya A. Gulis, Chief
Food, Textiles and Marking Branch