MAR-2-05 R:C:S 735608 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 desktop 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 June 15, 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 desktop computers which are being offered to the United
States Army Information System Selection and Acquisition Agency
("U.S. Army") in a procurement designated under U.S. Army
Solicitation No. DAHC94-94-R-0007, also referred to as "the
solicitation". You are counsel to Acer America Corporation
("Acer"), a U.S. company that will either manufacture or import
the desktop computers in question. Accordingly, Acer is a party-
at-interest within the meaning of 19 CFR 177.22(d)(1), and is
entitled to request this final determination.
Contained in your submission 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 Acer intends to either
manufacture desktop computers in the United States (Scenarios 1
and 3) or import desktop computers manufactured by [ ] in the
Netherlands (Scenarios 2 and 4) to sell to the U.S. Army under
the solicitation. In the United States or the Netherlands, the
desktop computers will be manufactured from parts and components
sourced through multiple vendors from various countries. The
desktop computers in question consist of the system box,
exclusive of the monitor, keyboard and mouse.
The parts and components used in the United States
(Scenarios 1 and 3) and the Netherlands (Scenarios 2 and 4) in
the production of the desktop computers consist of the following:
1. The Case Assembly. Includes as one unit the
computer case (essentially an empty shell), the system power
supply and floppy disk drive. The case assembly is also known as
the Uniload B chassis. The case assembly is of [ ] origin.
2. Partially Completed Motherboard. The motherboards
are of [ ] origin which in scenarios 1 and 2 will be missing the
CPU, the system basic input and output system ("BIOS") and the
keyboard BIOS. In scenarios 3 and 4 the partially completed
motherboards will only be missing the CPU.
3. The Central Processing Unit ("CPU"). The CPU is the
component of a computer system with the circuitry to control the
interpretation and execution of instructions and includes the
arithmetic-logic unit and control unit. None of the CPUs will be
of [ ] origin.
4. Hard Disk Drive ("HDD"). The HDD is a fast
auxiliary storage device that is part of the desktop computer.
The HDD will be sourced from either [ ].
5. Slot Boards. The slot boards provide sockets into
which expansion boards are inserted. The slot boards will be of
[ ] origin.
6. Aluminum heat sinks
7. Bezels 8. Brackets
9. Screws
10. Labels
11. Miscellaneous hardware
12. Keyboard BIOS
13. System BIOS
14. Real Time Clock
According to your submission additional parts may be
assembled into the desktop computer, depending on the model, in
the United States or the Netherlands, which may include one or
more of the following: additional floppy drive, compact disk read
only memory ("CD ROM"), memory boards/SIMMS, cache memory,
network cards, controller cards, fax modems, video display cards
and multimedia kits.
The four scenarios for which you have requested a final
determination are described below:
Scenario 1
In scenario 1, Acer imports into the United States the
various foreign computer parts (case assembly, partially
completed motherboards, hard disk drives and slot boards) and
delivers them to its California location. Acer places the
imported parts into inventory after the items pass receiving
inspection.
After receiving an order for desktop computers, Acer issues
a work order for the quantity of desktop computers to be
manufactured. The work order identifies the bill of materials
with the number of each part required to manufacture the number
of desktop computers covered by the order. Acer employees then
pull the required parts from inventory.
Acer sends the appropriate number of hard drives and
partially completed motherboards necessary to manufacture the
quantity of desktop computers called for by the work order to the
prep room.
In the prep room, Acer installs the CPU chips, the system
BIOS chips, the keyboard BIOS chips and the real time clocks onto
the partially completed motherboards. First, the CPU chip is
installed by Acer employees utilizing specialized tooling. The
partially completed motherboard is placed on a fixture and the
operator inspects the CPU for correctness, taking steps to eliminate the possibility of electrostatic discharge to the CPU.
The operator uses the U51 socket or similar tool to install the
CPU, taking considerable care to position correctly all relevant
parts. Next, Acer employees further stuff the partially
completed motherboard with the system BIOS chip, the keyboard
BIOS chip and the real time clock. An operator then establishes
the proper BIOS and jumper settings, which must be established
accurately. The completed motherboard is then additionally
tested. Upon successful completion of the testing, Acer sends
the completed motherboard onto the floor to be used in the
manufacture of desktop computers.
Acer also sends the hard disk drives pulled from inventory
to the prep room prior to taking them to the manufacturing floor.
In the prep room, a certified operator downloads (the process of
transferring data from one system to another system) the hard
drive with software to fit the model to be manufactured.
Software downloaded normally includes Microsoft DOS, Microsoft
Windows, mouse driver and system utilities and other software.
The downloading of the hard disk is accomplished by attaching the
target and source hard disk drives to machinery dedicated for
this purpose. As part of the downloading process Acer determines
and sets jumper settings which are required to be set to coincide
to the settings needed for the specific source and target hard
drives being used. Acer also conducts during the loading process
a test which determines that the drive is not defective and a
virus scan to ensure that no software viruses have been
introduced to the system. The operator rejects any hard disk
drives that experience errors during the downloading process.
After successful completion of downloading, Acer changes the
jumper setting on the target hard drive disk, and then places a
small label printed with the model number on the hard disk drive.
After the successful downloading and testing of the hard
drives, Acer personnel move the hard drives out to the station
where operators will complete the manufacture of the desktop
computers. The completed motherboards, as well as the rest of
the parts that Acer employees previously pulled from inventory
conforming to the work order will be brought to the appropriate
work station.
Next, the disassembly and processing of the Uniload B is
performed by Acer personnel. This process is premised on a
skilled operator working on one desktop computer at a time and
building the desktop computer from the casing up. The processing
of the Uniload B is as follows:
1. The operator first disassembles the case assembly
(the empty computer casing) which is imported together for ease
of shipment and protection of parts. The operator removes the front bezel, the upper case, the floppy drive frame, the plastic
frame (including the switching power supply (SPS) and link bar)
and rear bracket.
2. The operator next takes the completed motherboard
and installs a number of ground plates onto the board. Then, the
operator installs the motherboard into the lower case assembly
and fastens it with four screws.
3. The operator then attaches a serial number bar code
label to the back of the lower case.
4. The operator attaches a bar code label to the
motherboard.
5. Subsequent to the installation of the motherboard,
the operator installs the rear bracket into the lower case.
6. The operator next installs the slot board in the
motherboard.
7. The operator plugs the LED cable into the
motherboard.
8. The operator's next step is to plug the reset
connector into the motherboard.
9. The operator then installs the downloaded hard disk
drive into the plastic frame assembly.
10. The operator next installs the frame assembly
(including the power supply, hard disk drive and link bar) into
the case.
11. The operator plugs the power connectors into the
motherboard.
12. The operator next installs the floppy disk drive
mounting bracket.
13. The operator attaches serial number bar code labels
to the power supply, hard disk drive and floppy disk drive.
14. Following this operation, the operator plugs the
wiring assembly into the motherboard, as well as into the hard
drive and the floppy disk drive.
15. The operator connects the 34 pin cable to the floppy
disk drive and the motherboard.
16. The operator connects the 40 pin cable to the hard
disk drive and the motherboard. 17. After these operations are completed, the operator
assembles the upper case onto the lower case and latches the two
parts together.
18. The operator attaches the nameplate to the front
bezel.
19. The operator assembles the front bezel onto the
completed desktop computer.
In addition to these steps, Acer may install one or more of
the following components which are manufactured in the United
States or the Netherlands into the finished desktop computers
depending on the model: additional floppy drive, compact disk
read only memory ("CD ROM"), memory boards/SIMMS, cache memory,
network cards, controller cards, fax modems, video display cards
and multimedia kits, a memory board, additional SIMMS, and/or
other components.
After the manufacturing process of the desktop computers is
completed, Acer performs detailed testing of the desktop. Acer's
quality control includes detailed internal and external visual
workmanship inspection. [ ]. The internal inspection ensures
correct build configuration, appropriate memory size, correct
board jumper settings, no loose or missing screws or parts,
secure cable connections, correct CPU type, appropriate
motherboard and BIOS revisions, and correct barcode labels.
Rejected systems are pulled out at this point and are re-routed
to the appropriate location for rework. Acer then performs
significant function testing of every desktop computer, including
a 16 hour run-in test. Component level repairs of motherboards
are made to bring any failing desktop computer up to acceptable
standards. A final inspection of the new desktop computers is
performed and the desktop computers are packaged for shipment.
Scenario 2
Scenario 2 is identical to scenario 1 with the exception
that the operations performed in the United States in scenario 1
are performed in the Netherlands in scenario 2.
Scenario 3
Scenario 3 is identical to scenario 1 except that while Acer
installs the CPU chip onto the motherboard, it does not install
the system BIOS and keyboard BIOS onto the motherboard in the
United States. Scenario 4
Scenario 4 is identical to scenario 3 with the exception
that the operations performed in the United States in scenario 3
are performed in the Netherlands in scenario 4.
In conclusion, you assert that the foreign parts which are
used to manufacture desktop computers in the United States
(Scenarios 1 and 3) and the Netherlands (Scenarios 2 and 4) are
substantially transformed as a result of the assembly operations
described above, and thus the desktop computers may be considered
as products of the United States (Scenarios 1 and 3) or the
Netherlands (Scenarios 2 and 4).
ISSUE:
Do the assembly operations performed in the four scenarios
stated above effect a substantial transformation of the foreign
components such that the desktop computers may be considered as
products of the United States (Scenarios 1 and 3) or the
Netherlands (Scenarios 2 and 4).
LAW AND ANALYSIS:
As prescribed under Title III of the Trade Agreements Act of
1979, 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.
The inquiry must resolve whether, under the four scenarios,
the processing performed in the U.S.(Scenarios 1 and 3) or the
Netherlands (Scenarios 2 and 4) 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, foreign components consisting
of case assemblies, partially completed motherboards, hard disk
drives and slot boards will be further processed, assembled and
used in the manufacture of desktop computers in the United States
(Scenarios 1 and 3) or the Netherlands (Scenarios 2 and 4).
Thus, the critical issue that must be addressed in determining
the country of origin of the desktop computers is whether the
foreign components are 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 foreign components change
as a result of the processing and assembly operations performed
to manufacture the desktop computers in the U.S. or the
Netherlands.
Customs has previously considered the issue of whether the
processing and assembly of electronic components into a finished
article results in a substantial transformation of the individual
components.
In HQ 711967 (March 17, 1980), Customs 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
products of Mexico for country of origin marking purposes. The
U.S. and Korean parts were substantially transformed by the
processing performed in Mexico and all the components lost their
individual identities to become integral parts of the new
article. In HQ 732170 (January 5, 1990), Customs held that a
backless television cabinet containing a tuner, speaker and
circuit board imported in the U.S., was substantially transformed
there when assembled with a domestic color picture tube,
deflection yoke, electron beam bender and degaussed coil, and a
remote control into a finished television receiver. Customs
stated that the imported components lost their individual
identities as a result of the assembly operation in that they
became integral parts of a new article--a television. In HQ
734045 (October 8, 1991), Customs held that foreign subassemblies
and other components imported into Hong Kong which were processed
and assembled with other domestic components to make laptop and
notebook personal computers were substantially transformed as a
result of the Hong Kong operations. Customs stated that the
subassemblies and other components when combined together to make
the computer lose their separate identity, acquire new
attributes, and become part of a new article of commerce--the
personal computer. Customs also stated that the Hong Kong
processing results in an article that has a new name, that of a
personal computer, a new character that is visibly different than
any of the individual components, and a new use in that it can
process and display information. Although four scenarios are identified in your submission,
there are essentially only two. Scenario 1 is the same as
scenario 2, except the manufacturing operations performed in the
United States in scenario 1 are performed in the Netherlands in
scenario 2. Similarly, scenario 3 and 4 are the same except the
manufacturing operations performed in the United States in
scenario 3 are performed in the Netherlands in scenario 4. Also,
the primary difference between scenarios 1/2 and scenarios 3/4 is
the number of manufacturing operations performed on the partially
completed motherboards in the United States or the Netherlands.
Based on the totality of the circumstances of this case and
consistent with the Customs rulings cited above, we find that the
foreign components that are used in the manufacture of desktop
computers in the U.S. (Scenarios 1 and 3) or the Netherlands
(Scenarios 2 and 4) in the manner described above are
substantially transformed as a result of the operations performed
in the two respective countries. The name, character, and use of
the foreign case assemblies, partially completed motherboards,
hard disk drives and slot boards change as a result of the
processing and assembly operations performed in the U.S. or the
Netherlands. Like the foreign subassemblies in HQ 734045, the
case assemblies, partially completed motherboards, hard disk
drives and slot boards lose their separate identity and become an
integral part of a desktop computer as a result of the assembly
operations. The character and use of the foreign components are
changed as a result of the processing and assembly operations
performed, in that the finished article, a desktop computer, is
visibly different than any of the individual foreign components,
acquiring a new use, processing and displaying information.
We also take notice of the fact that, in this case, some of
the foreign components are not only assembled in either the
United States or the Netherlands into a complete desktop
computer, but are further processed before being assembled. For
example, in scenarios 1 and 2, the partially completed
motherboards are inserted with the CPU, system BIOS and keyboard
BIOS prior to being assembled into desktop computers. Customs
has previously determined that the assembly of the motherboard
with the CPU, system BIOS and keyboard BIOS constitutes a
substantial transformation of the motherboard. See, C.S.D. 85-
25, 19 Cust Bull 844 (1985) (Customs held that for purposes of
the General 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,
inserting only the CPU onto the motherboard, as in scenarios 3
and 4, would not constitute a substantial transformation of the
board itself. See, HQ 734518 (June 28, 1993) (Customs ruled that
inserting only the CPU chip onto the motherboard does not result
in a substantial transformation of the board).
Based on the reasons stated above, we find that the foreign
components (case assemblies, partially completed motherboards,
hard disk drives and slot boards) which are further processed and
assembled into desktop computers in the United States (Scenarios
1 and 3) and the Netherlands (Scenarios 2 and 4), in the manner
described above, are substantially transformed as a result of the
U.S. or the Netherlands operations. Accordingly, the country of
origin of the desktop computers is the United States (Scenarios 1
and 3) and the Netherlands (Scenarios 2 and 4).
HOLDING:
Based on the facts presented, foreign case assemblies,
partially completed motherboards, hard disk drives and slot
boards, which are further processed and assembled into desktop
computers in the United States (Scenarios 1 and 3) and the
Netherlands (Scenarios 2 and 4), in the manner described above,
are substantially transfored as a result of the U.S. or the
Netherlands operations. Accordingly, the country of origin of
the desktop computers is the United States (Scenarios 1 and 3)
and the Netherlands (Scenarios 2 and 4).
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