CLA-2 RR:TC:SM 559070 AT
George R. Tuttle, Esq.
Law Offices of George R. Tuttle
Three Embarcadero Center, Suite 1160
San Francisco, California 94111
RE: Ruling Request concerning classification and GSP
eligibility of cordless telephone sets imported from the
Philippines; "Product of"; de minimis; sets; T.D. 91-7
Dear Mr. Tuttle:
This is in response to your letter dated January 25, 1995,
on behalf of TEMIC TELEFUNKEN Microelectronics (Phils.), Inc.
("TEMIC") requesting a ruling concerning the proper
classification and duty eligibility under the Generalized System
of Preferences ("GSP") for cordless telephone sets imported into
the U.S. from the Philippines. At your request, a meeting was
held at Customs Headquarters on August 25, 1995, with Mr. Steve
Spraitzar from your firm and members of my staff, to further
discuss the GSP eligibility of the imported cordless telephones.
Pursuant to the August 25 meeting, you submitted supplemental
information dated January 4, 1996. We regret the delay in
responding.
FACTS:
You state that TEMIC intends to import the General Electric
900 MHZ Cordless Telephone Set, Model 2-9910 ("GE cordless
telephone set") into the U.S. from the Philippines. Each GE
cordless telephone set consists of: a base unit, cordless
handset, desk mounting bracket, AC/DC 9V converter power supply
with power supply cord, two telephone cords (long and short--only
one of which is necessary for the operation of the telephone) and
an instruction booklet. The above components are packaged
together for sale to a consumer. You state that the major
functioning components of the GE cordless telephone set are the
"base unit" and the "handset" which contain printed circuit
boards and other electrical components which enable the handset
to operate remotely from the base unit by radio frequency.
According to your submission, the GE cordless telephone sets
will be assembled in the Philippines from components produced
from members of the Association of South East Asian Nations
("ASEAN"; consisting of Indonesia, Malaysia, Philippines and
Thailand) and from non-ASEAN components in the following manner:
A. Base Unit
The base unit is comprised of a two-piece cabinet (top and
bottom) that are molded in the Philippines, a Base Unit Printed
Circuit Board Assembly ("PCBA"), an RF Base PCBA that enables the
telephone signal to be transmitted to and received from the
Handset, two shields, and various other piece components.
1. Base Unit PCBA
Prior to the assembly of the Base Unit PCBA, various
electronic parts are pre-formed to facilitate insertion and to
prevent assembly and soldering problems. Glue is applied to a
bare printed circuit board ("PCB"). The various electronic parts
are then surface mounted onto the PCB and reflow soldered.
Additional electronic parts and other components are then
manually inserted and leads are soldered. The resulting Base
Unit PCBA is visually inspected and any necessary repairs are
made. An in-circuit test is performed to detect any defects. A
module test is then performed on the completed Base Unit PCBA to
ensure that the electrical functions are within customer
specifications. Defective units are sent back for required
repairs, visually inspected, and re-tested. The completed Base
Unit PCBA is then ready for assembly into the Base Unit of the
telephone set.
2. RF Base PCBA (top & bottom)
Prior to the assembly of the RF Base PCBA, various
electronic parts are pre-formed to facilitate insertion and to
prevent assembly and soldering problems. Solder paste is applied
to the top of a bare PCB. Electronic parts are then surface
mounted onto the PCB, visually inspected, and reflow soldered.
Solder paste is applied to the bottom side of the PCB and
electronic parts are surfaced mounted, visually inspected, and
reflow soldered. Additional electronic parts and other components are manually mounted and leads soldered. The
resulting RF Base PCBA is visually inspected and any necessary
repairs made. An in-circuit test is then performed to detect any
defects. Defective units are sent back for required repairs,
visually inspected, and re-tested. After testing, a completed RF
Base PCBA is then ready for assembly into the Base Unit of the
telephone.
3. Base Unit Assembly
A socket, a quartz crystal, and two HF filters are glued to
the RF Base PCBA. The Base Unit PCBA and the RF Base PCBA are
joined together using a pin connector. RF Shields are then
attached to the top and bottom of the joined PCBA's to form an RF
module. The RF module is then inserted into the bottom portion
of the Base Unit cabinet. A whip antenna, tone knob, page
button, and other piece parts are inserted and wires connected.
An RF alignment of the several variable capacitors, inductors,
and resistors of the RF module is performed by a highly trained
and skilled operator using special calibration equipment. The
operator must make fine critical adjustments to tune the module
to the correct RF settings, modulation levels, and sensitivities.
The top portion of the Base Unit cabinet is left open to
facilitate a joint function test with the Handset.
B. Handset
The Handset is comprised of a two-piece molded plastic
cabinet (front and back) that is molded in the Philippines, a
Keyboard PCBA, and RF Handset PCBA, a button keyboard, slide
switches, and various other piece parts to enable remote
operation of the Handset by radio frequency.
1. Keyboard PCBA
Prior to the assembly of the Keyboard PCBA, various
electronic parts are pre-formed to facilitate insertion and to
prevent assembly and soldering problems. Glue is applied to a
bare PCB. Electronic parts are then surface mounted onto the
PCB, visually inspected, and reflow soldered. Additional
electronic parts, two slide switches, and a LED chip are then
manually inserted into the PCB and all leads are soldered. The
resulting Keyboard PCBA is visually inspected and any necessary
repairs are made. An in-circuit test is then performed to detect
any defects. Defective units are sent back for required repairs, visually inspected, and re-tested. A module test is then
performed on the completed Keyboard PCBA to ensure that the
electrical functions are within customer specifications. The
Keyboard PCBA is then ready for mounting into the Handset
assembly.
2. RF Handset PCBA (top & bottom)
Prior to the assembly of the RF Handset PCBA, various
electronic parts are pre-formed to facilitate insertion and to
prevent assembly and soldering problems. Glue is applied to a
bare PCB. Electronic parts are then surface mounted onto the
PCB, visually inspected, and reflow soldered. Additional
electronic parts are manually mounted and leads soldered. The
resulting RF Handset PCBA is visually inspected and any necessary
repairs made. An in-circuit test is then performed to detect any
defects. Defective units are sent back for required repairs,
visually inspected, and re-tested. After testing, a completed RF
Handset PCBA is then ready for assembly into the Handset.
3. Handset Assembly
A socket, a quartz crystal, and two HF filters are glued to
the RF Handset PCBA. The Keyboard PCBA and the RF Handset PCBA
are joined together using a pin connector. RF shields are then
attached to the top and bottom of the joined PCBA's to form a
module. The module is then inserted into the back portion of the
Handset cabinet. An RF alignment is performed on the module by a
highly trained and skilled operator using special calibration
equipment. The operator must make critical fine adjustments to
tune the module to the correct RF settings, modulation levels,
and sensitivities. The front portion of the Handset cabinet is
left open to facilitate a joint function test with the Base Unit.
C. Final Assembly, Testing and Packaging
The partially assembled Base Unit and Handset are subjected
to a function test using a artificial ear and an artificial mouth
that simulate the acoustic properties of the human ear and mouth.
Dialing is also performed by using a elector-pneumatically
controlled fingers. After the function test is completed, the
cabinet front is mounted onto the Base Unit and the cabinet front
is mounted onto the Handset and both are secured. Then a final
test is performed on the completely assembled cordless telephone
by using a sophisticated telephone line simulator and analyzer Then, the non-ASEAN components, including the AC/DC power supply
are package with the cordless telephone. Prior to packaging, the
AC/DC power supply is tested and the telephone battery is
charged.
You state that the total cost of direct processing in the
Philippines (i.e., direct labor and factory overhead) incurred in
the production of a GE cordless telephone averages $12.0546 per
set. You also state that it takes approximately 71 labor minutes
assemble each cordless telephone, which includes the average time
allocated to rework and retest defective components.
You assert that the GE cordless telephone sets are properly
classified under subheading 8525.20.50, Harmonized Tariff
Schedule of the United States ("HTSUS"). You contend that the
cordless telephone sets are eligible for duty free treatment
under the GSP because they are products of the Philippines and
satisfy the 35% value-content requirement under this provision.
ISSUES:
1. What is the proper classification for the imported GE
cordless telephone sets?
2. Whether the GE cordless telephones sets are eligible for
duty-free treatment under the GSP when imported into the U.S.
LAW AND ANALYSIS:
Classification of the GE Cordless Telephones
You state that the GE cordless telephone sets are
classifiable under subheading 8525.20.50, HTSUS, which provided,
in 1995, for "[c]ordless handset telephones." We note however,
that in 1996, subheading 8525.20.50, HTSUS, has been deleted.
Heading 8517, HTSUS, has been amended to include "line telephone
sets with cordless handsets", while subheading 8517.11.00, HTSUS,
which provides as follows, has been added:
[e]lectrical apparatus for line telephony or line
telegraphy, including line telephone sets with cordless
handsets and telecommunication apparatus for carrier-current line systems or for digital line systems; video
phones; parts therefore: [t]elephone sets; video
phones: line telephone sets with cordless handsets. Accordingly, it is our opinion that the GE cordless telephone set
(consisting of a base unit, cordless handset, desk mounting
bracket, AC/DC 9V converter power supply with power supply cord,
two telephone cords--long and short, and an instruction booklet)
is properly classifiable under subheading 8517.11.00, HTSUS.
GSP Eligibility
Under the GSP, eligible articles the growth, product or
manufacture of a beneficiary developing country ("BDC") which are
imported directly into the customs territory of the U.S. from a
BDC may receive duty-free treatment if the sum of (1) the cost or
value of materials produced in the BDC, plus (2) the direct costs
of the processing operations in the BDC, is equivalent to at
least 35% of the appraised value of the article at the time of
entry into the U.S. See, 19 U.S.C. 2463(b).
General Note 3(a)(iii), HTSUS, states that special rates of
duty under one or more of the special tariff treatment programs
(including GSP) apply to those products which are classified
under a provision for which a special rate is indicated in the
"Special" subcolumn and for which all of the legal requirements
for such program(s) have been met. Therefore, if the "Special"
subcolumn opposite the subheading under which the GE cordless
telephone set is classified contains a special duty rate for a
particular tariff preference program, then the entire set would
be entitled to that special rate, assuming compliance with the
program's requirements.
As stated in General Note 4(a), HTSUS, the Philippines is a
designated BDC. The GE cordless telephone sets are classifiable,
under subheading 8517.11.00, HTSUS. Articles provided for in
this provision are eligible for duty-free treatment under the GSP
provided that they are a "product of" a BDC, and the GSP imported
directly and 35% value-content requirement are met.
The "product of" requirement means that to receive duty-free
treatment, an article either must be made entirely of materials
originating in the BDC (or an association of countries, such as
ASEAN, treated as one BDC), or if made of materials imported into
the BDC those materials must be substantially transformed in the
BDC into a new or different article of commerce.
In T.D. 91-7, Customs held that as a general rule, a
collection classifiable in one subheading pursuant to the GRI's
will receive GSP treatment only if all of the items or components
in the collection are considered "products of" the beneficiary
country.
We agree that the printed circuit boards and various other
electronic components which are assembled in the Philippines into
the base unit and cordless handset (the major components of the
GE cordless telephone set), in the manner described above, are
substantially transformed as a result of the assembly operation,
and thus the base unit and cordless handset are considered to be
"products of" the Philippines. 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)
However, you state that the some of the components of each
GE cordless telephone set (AC/DC 9V converter power supply, long
and short power supply telephone cord and an instruction booklet)
are sourced from non-ASEAN countries. Although, you do not
dispute the fact that these components do not become a "product
of" the Philippines, since you agree that they are not
substantially transformed as a result being package with the
cordless telephone sets, you assert that these items only
represent a de minimis portion of the total cost of the GE
cordless telephone set (approximately 2.08 percent of the total
appraised value of the cordless telephone set). Thus, you
contend that these non-ASEAN sourced components should not
preclude the GE cordless telephone sets from being considered a
"product of" the Philippines for GSP purposes.
Customs has consistently held that a component or item is
considered to be de minimis for purposes of determining the
"product of" requirement under the GSP if:
1. The value of the component is very small as
compared to the total value of the entire
article, and
2. The component does not constitute an integral
component of the entire article without
which the entire article is rendered inoperable.
In HQ 556451 (January 28, 1992), Customs held that the
presence of two non-Israeli origin items out of 60 in a "toy
energy and lab kit", representing approximately three percent of
the total value of the kit, were de minimis and did not preclude
the kit from otherwise meeting the "product of" requirement under
the GSP. The two items in HQ 556451 were a magnifier and an eye
dropper, which Customs held "did not constitute integral
components of the entire set without which the set is rendered
inoperable". Customs stated that, although there were 60
components in the kit, only 18 components were used for the
chemistry experiments, one of which was the eyedropper. In HQ
556798 (September 23, 1993) Customs held that Malaysian origin
latex gloves, which were included in catheter kits from Mexico,
were considered to be de minimis, not precluding the kit from
being considered a "product of" Mexico. Customs stated that the
gloves were considered to be de minimis because they only
represented between approximately 1 to 5 percent of the entire
value of the kit and did not constitute an integral component of
the entire kit without which the kit is rendered inoperable.
However, in HQ 556451, supra, Customs also considered
whether a "toy junior science lab kit" imported from Israel which
included a microscope of Taiwanese origin was considered to be a
"product of" Israel for purposes of GSP eligibility. Customs
held that, because the microscope constituted an integral part of
the entire lab kit, it was not considered to be de minimis.
Thus, because the microscope was not considered to be de minimis
and since it was not an Israeli-origin component, it precluded
the entire toy chemistry kit from being a "product of" Israel.
Accordingly, neither the set nor any part thereof was entitled to
duty free treatment under the GSP.
In this case, we find that the AC/DC 9V converter power
supply, an item which is included with the GE cordless telephone
set, is not considered to be de minimis, even though it appears
to represent a very small value as compared to the total value of
the GE cordless telephone set (between approximately 1 to 2
percent). Like the microscope in HQ 556451, it is obvious that
the power supply constitutes an integral component of the entire
GE cordless telephone set without which the cordless telephone is
rendered inoperable. We also find that the AC/DC 9V converter
power supply is not substantially transformed into a "product of"
the Philippines as a result of being packaged with the cordless
telephone set. Thus, because the entire imported GE cordless
telephone set is not a "product of" the Philippines, as required
by the GSP statute, neither the cordless telephone set nor any
part thereof is entitled to duty-free treatment under this
program. The issue as to whether the GE cordless telephone set
will satisfy the 35% value-content requirement under the GSP is
not relevant in this case since the telephone set does not meet
the "product of" requirement. HOLDING:
The GE cordless telephone set, as described above, is
properly classifiable under subheading 8517.11.00, HTSUS.
The AC/DC 9V converter power supply, an item which is
packaged in the Philippines with the GE cordless telephone set,
is not substantially transformed in that country as a result of
the packaging operation. Accordingly the power supply is not a
"product of" the Philippines. The AC/DC 9V power supply
constitutes an integral component of the entire GE cordless
telephone set without which the cordless telephone is rendered
inoperable, and thus is not considered to be de minimis. Because
the entire imported GE cordless telephone set is not a "product
of" the Philippines, as required under the GSP statute, neither
the cordless telephone nor any of the components in the set are
entitled to duty-free treatment under this program.
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 Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Tariff Classification
Appeals Division