OT:RR:CTF:VS H341544 RRB
John F. McKenzie
Baker McKenzie
Two Embarcadero Center, Suite 1100
San Francisco, CA 94111
RE: Country of Origin of an Analog Integrated Circuit
Dear Mr. McKenzie:
This is in response to your correspondence, dated April 4, 2024, on behalf of your client, 3PEAK, Inc. ("3PEAK"), requesting a ruling concerning the country of origin of an analog integrated circuit.
FACTS:
The merchandise at issue is an integrated circuit. 3PEAK states that the applications for its analog integrated circuits include communications, industrial, security monitoring, medical and healthcare, instrumentation, new energy and automotive.
3PEAK explains that its manufacture of analog integrated circuits occurs in three stages.
Development of Semiconductor Circuit Designs in China
In the first stage, 3PEAK's engineers at its facilities in China develop the basic circuit design for its products, and convert that circuit design into a GDSII file. This file can be used by a semiconductor foundry to make photomasks as part of the production of circuitry on silicon wafers in the second stage of production.
Front-End Processing in Japan or Taiwan
During the second stage of manufacturing the analog integrated circuits, 3PEAK engages the services of third-party semiconductor foundries in Japan or Taiwan to manufacture the integrated circuits on semiconductor wafers. This stage involves the following steps:
Epitaxial Wafer Production: This step consists of deposition, by means of epitaxial growth, of a thin film of semiconductor material on a bare silicon substrate. This epitaxial process perfects the crystal structure of the silicon substrate and improves its electrical characteristics.
Oxidation: During oxidation, the silicon wafer is exposed to oxygen in a very high temperature furnace to produce a layer of silicon oxide on the surface of the wafer. This silicon oxide layer acts as an insulator and mask for further processing of the wafer.
Thin-Film Deposition: By means of chemical vapor deposition, thin films of material are deposited on the silicon wafer. These thin film layers may act as structural layers of the integrated circuit or as separators between layers.
Lithography: This is the process by which the circuit pattern of the integrated circuit is transferred from a mask to the surface of the silicon wafer. During this process, light-sensitive material, called a "photoresist," is coated on the wafer and then exposed to ultraviolet light through a mask that contains the designed circuit pattern.
Etching: Etching removes unwanted materials from the silicon wafer by exposing the wafer to a plasma of reactive gases, which removes material from exposed portions of the wafer. A particular silicon wafer will undergo multiple etchings of each layer in the manufacture of the integrated circuits on that wafer.
Ion Implantation: During this step, the silicon wafer undergoes doping by introducing impurities into selected areas of the wafer in order to change its electrical characteristics. This step is performed by bombarding certain areas of the silicon wafer with a beam of selected high energy ions.
Chemical Mechanical Planarization: Chemical mechanical planarization ("CMP") is used to remove excess material from the wafer at several stages in the manufacturing process. CMP consists of "polishing" the wafer to remove material by chemical and mechanical means.
Metal Wiring Process: Also referred to as "metallization," this step involves forming interconnections between or among the layers of the integrated circuit. During this step, aluminum or copper is deposited on the surface of the silicon wafer by means of chemical vapor deposition. The metal layer is then patterned by means of photolithography and etching to create wires and contacts for connecting the various components and terminals of the integrated circuit.
Wafer Testing: The final step in the front-end processing of the analog integrated circuit consists of testing the wafer to identify those integrated circuits on the wafer that are defective or damaged.
3PEAK states that after the front-end processing is complete, each of the 12,000 individual die on a single wafer produced in Japan has complete integrated circuit functionality, while each of the 36,000 individual die on a single wafer produced in Taiwan also has complete integrated circuit functionality.
Back-End Processing in China
Once front-end processing of the wafers in Japan or Taiwan is completed, the wafers are shipped to 3PEAK's third-party semiconductor assembly and test entities ("OSATs") in China for assembly of the wafers into finished integrated circuits. This stage involves the following steps:
Bumping: Bumping involves forming a layer of copper pillars or "bumps" on the front surface of a semiconductor wafer to provide interconnection contact points for the individual die on a semiconductor wafer.
Back Grinding: The packaging process begins with back grinding, during which the back side of the silicon wafer is thinned to allow for stacking and high-density packaging of integrated circuits.
Wafer Sawing: The semiconductor wafer is cut into individual die, which can then be packaged into individual integrated circuits.
Lead Frame Attachment: During this step, a lead frame, which is a thin layer of metal that provides external connection with circuitry of the die, is attached to each individual die.
Wire Bond: During this step, gold wire is used to secure the connections between the lead frame and the packaging of the integrated circuit, in order to connect the integrated circuit to the printed circuit board to which it will be affixed.
Molding: The assembled integrated circuit is encapsulated or packaged by coating the surfaces of each die with epoxy molding compound to seal the integrated circuit, which protects it from damage, moisture, and heat.
Package Sawing: This step involves cutting the lead frame on each integrated circuit into a unit package.
Final Testing: The finished integrated circuits undergo electrical testing before shipment in order to confirm that each integrated circuit is fully functional and meets 3PEAK's specifications and requirements.
ISSUE:
What is the country of origin of the analog integrated circuit?
LAW AND ANALYSIS:
The United States Trade Representative ("USTR") has determined that an additional ad valorem duty of 25 percent will be imposed on certain Chinese imports pursuant to its authority under Section 301(b) of the Trade Act of 1974 ("Section 301 measures"). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(f), HTSUS.
When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character, or use, different from that possessed by the article prior to processing. See Texas Instruments, Inc. v. United States, 69 C.C.P.A. 151 (1982). The substantial transformation determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993).
3PEAK posits that the front-end processing steps that will occur either in Japan or Taiwan establish the essential character and use of the integrated circuits because the individual die on the semiconductor wafers manufactured in Japan or Taiwan will include complete integrated circuit functionality with pre-determined end uses. Moreover, 3PEAK states that none of the back-end processing steps occurring in China will change such character and use. Thus, 3PEAK asserts that the integrated circuits will not undergo a substantial transformation as a result of back-end processing in China. Accordingly, 3PEAK seeks confirmation that the country of origin of its analog integrated circuits will be either Japan or Taiwan-depending on where the front-end processing occurs-since a substantial transformation will not occur as a result of back-end processing in China.
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. 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. In Texas Instruments v. United States, 69 C.C.P.A. at 158, the court observed that the substantial transformation issue is a "mixed question of technology and customs law."
The Court of International Trade more recently interpreted the meaning of "substantial transformation" in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016). Energizer Battery involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All of the components of the flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States and assembled into the finished Generation II flashlight. The Energizer Battery court reviewed the "name, character and use" test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc., 3 C.I.T. 220, 226, 542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983), that when "the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change." Energizer Battery at 1318. In addition, the court noted that "when the end-use was pre-determined at the time of importation, courts have generally not found a change in use." Energizer Battery at 1319, citing as an example, National Hand Tool Corp. v. United States, 16 C.I.T. at 312.
CBP has examined the country of origin of integrated circuit technology and similar merchandise in various rulings. In C.S.D. 80-227, dated February 13, 1980, CBP found that assembly of silicon semiconductor chips into integrated circuits resulted in a substantial transformation. There, assembly operations consisted of attachment of the die, attachment of lead wires, encapsulation, testing, and marking. However, C.S.D. 80-227 is silent on what the front-end operations consisted of. In finding that the assembly operations resulted in a substantial transformation, CBP explained that prior to those operations, the "semiconductor chips and other materials [were] of no functional use in their imported state" until assembly operations such as attachment of the die and lead wires and encapsulation were performed on the integrated circuit.
CBP has cited to C.S.D. 80-227 in a number of rulings. Many of these rulings involve older technology such as that described in C.S.D. 80-227, and include very little information about the front-end operations. However, the analytical focus in these rulings is on the operations that provided functionality to the integrated circuits. See, e.g., Headquarters Ruling Letter ("HQ") 732357, dated May 21, 1990; HQ 734518, dated June 28, 1993; New York Ruling Letter ("NY") C80261, dated October 17, 1997; HQ 560753, dated February 10, 1998; NY C84914, dated March 25, 1998; NY M82158, dated April 27, 2006; NY M87019, dated September 28, 2006; HQ W968244, dated October 2, 2006; HQ W968421, dated January 9, 2007; and NY N007032, dated February 23, 2007.
In HQ H309802, dated May 27, 2020, CBP considered the country of origin of semiconductor transistors manufactured using silicon carbide substrates. There, the production process consisted of three stages, i.e., substrate construction in the United States, front-end operations in Italy, and back-end operations in China. In HQ H309802, much of the front-end operations (e.g., wafer fabrication, epitaxial growth, photolithography, etching, ion implantation) are identical to those at issue in the instant matter. The back-end operations in HQ H309802 are also substantially similar to those that occur in China in the production of the analog integrated circuit (e.g., wafer sawing, encapsulation of the die (molding), testing). In HQ H309802, CBP noted that after the front-end operations in Italy were complete, the merchandise was usable as transistors, whereas the back-end processing in China did not change the character or function of the transistors. After analyzing each of the processing stages in HQ H309802, CBP concluded that the complex fabrication and associated front-end operations in Italy resulted in a substantial transformation of the transistors because it was at that point that the integrated circuits were functional. In finding as such, CBP relied on C.S.D. 80-227. While in C.S.D. 80-227, the functionality of the integrated circuit was rendered by back-end assembly operations that resulted in a substantial transformation, the more complex front-end operations in HQ H309802, which involved newer technology, rendered the merchandise functional.
Other recent rulings also apply CBP's long-standing position that the processes that render an integrated circuit to be functional results in a substantial transformation of the merchandise. For example, in HQ H338127, dated September 17, 2024, CBP explained that the dominant component that provides the character and essence of a silicon carbide Schottky diode was the silicon carbide semiconductor die/chip contained in the wafer. CBP further noted that the extensive and complex front-end operations in the United States that created the silicon carbide semiconductor die/chip, including single crystal growth; fabrication; chemical-mechanical polishing; epitaxial growth; further wafer processing such as photolithography, photoresist, and etching and ion implantation; and chip probing, were what created the silicon carbide semiconductor die/chip. Accordingly, CBP concluded in HQ H338127 that where back-end operations in China, including wafer sawing, cleaning, and trimming, only amounted to minor processing of a product whose use and identity were already established by the extensive front-end operations, the country of origin of the merchandise was the United States. See also, NY N337307, dated January 22, 2024 (in a ruling concerning merchandise substantially similar to HQ H338127, CBP concluded that front-end operations in the United States, including single crystal growth, fabrication, epitaxial growth, photolithography, photoresist, etching and ion implantation, and chip probing, imparted the essence of the merchandise, which did not undergo a substantial transformation as a result of back-end processing in China).
Similarly, in NY N326981, dated July 26, 2022, CBP concluded that the integrated circuits were substantially transformed after front-end operations such as wafer production, lithography, thin film deposition and etching were completed in South Korea, which rendered the merchandise to be fully functional with a pre-determined use. In NY N333934, dated July 28, 2023, which involved similar processing as in NY N326981, CBP also concluded that a substantial transformation occurred following front-end operations such as wafer production, epitaxial deposition, thin-film deposition, photolithography, etching and ion implantation that established the functionality of the integrated circuit.
Based upon the facts presented, we note that the individual die on the semiconductor wafers include complete integrated circuit functionality after the completion of extensive and complex front-operations either in Japan or Taiwan. On the other hand, the back-end operations described in your submission, including wafer sawing and trimming, only amount to minor processing of a product whose use and identity will already be established by the extensive front-end operations, a position that we have consistently applied in past rulings. See, e.g., HQ H309802, HQ H338127, HQ W968244, NY N333934, and NY N313340. These back-end operations do not change the essential character and use of the analog integrated circuit, which were already established as a result of various front-end operations. Accordingly, the analog integrated circuit does not undergo a substantial transformation in China during back-end processing.
In sum, where the comparatively minor back-end operations in China will not substantially transform the analog integrated circuit, the country of origin will be either Japan or Taiwan, depending on whether the services of third-party semiconductor foundries in Japan or Taiwan are used to manufacture the integrated circuits on semiconductor wafers during front-end operations.
HOLDING:
The country of origin of the analog integrated circuit diode will be either Japan or Taiwan, depending on where the front-end processing occurs.
Please note that 19 C.F.R. 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by [CBP] field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based."
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch