CLA-2-CO:R:C:S W557323 RAH
Mr. Richard J. Little Assistant General Counsel
Mitsubishi Electric America, Inc. 5665 Plaza Drive
P.O. Box 6007
Cypress, CA 90630
RE: Applicability of partial duty exemption to printed circuit boards; substantial transformation
Dear Mr. Little:
This is in response to your letter of April 30, 1993, requesting a ruling on the eligibility of certain PCBs for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
Mitsubishi Consumer Electronics America, Inc ("MCEA"), a subsidiary of Mitsubishi Electric America, Inc., produces projection television receivers at its factory in California. MCEA proposes to perform some of the assembly work for television chassis in a maquiladora facility in Mexico. In that regard, MCEA will import unpopulated printed wire boards ("PCBs") and electronic components which will be inserted onto the boards. At MCEA in California approximately 2700 components will be mounted on the PCBs by an automated insertion process ("automated insertion parts"). The partially completed PCBs and the remaining 300 components will be packaged in kit form and exported to Mexico where the components will be manually inserted ("manual insertion parts") and soldered onto the PCBs and exported back MCEA in California as television chassis under subheading 8529.90.1500, HTSUS, and subheading 8529.90.2000, HTSUS.
Out of approximately 3000 components which constitute the five fully populated PCBs of the television chassis, only eighteen (18) will be imported from Singapore and the rest are
imported from Japan.
Automated Insertion Process at MCEA
Each television chassis consists of five populated PCBs: The signal board, the MBC board, the convergence board, the main board and the terminal board. The parts which are manually and automatically inserted onto the PCBs include resistors, transistors, capacitors, diodes, etc.
Automated insertion is a process whereby electrical and electronic components are permanently inserted on the PCB by automated machinery. Only components and PCBs meeting precise design criteria are suitable for automated insertion. At MCEA in California, bare PCBs are fed into the automated insertion machines and positioned on movable work tables which rotate on an "X" and "Y" axis. Alternately, they are fed into fixed position tables and three machine heads move along the "X" and "Y" axis.
In either instance, taped components are fed into the machine head where they are bent and formed to specified configurations. The machine head moves over the bare PCB, the component is positioned, and the lead or legs of the component are inserted through the pre-drilled placement holes on the PCB at the designated location. The leads of the components are clinched and excess lead material is trimmed off. This cycle continues until all automated insertion components have been mounted on the five different PCBs. The boards are automatically removed from the holding fixture and placed on magazine racks to await further processing. This sequence is repeated for each of the five PCBs and on a variety of automated insertion machines, depending on the type and size of electrical components to be mounted, until all auto insertable components have been permanently secured to the PCBs. Approximately 85-90% of the discrete components will be attached to the PCBs by the automatic insertion process at MCEA. Next, the electrical circuits are tested and the
partially-populated boards are kitted with the appropriate combination of manual insertion parts. Then, they are packed and shipped to the maquiladora plant in Mexico.
Assembly at the Maguiladora Plant in Mexico
Each shipment to the maquiladora plant will consist of 300 sets of five boards each plus the appropriate mix of manual parts to complete 300 television chassis. The manual insertion parts include the flyback transformer, power transformer, heat sinks, some integrated circuits and microprocessors, some capacitors, the tuner, CRT sockets, connector plugs, variable resistors, switches, etc. When the manual insertion parts are mounted, the fully populated PCBs (with the automated and manual insertion parts) will be wave soldered. The boards then undergo electrical testing. One of the five boards will be mounted on a chassis frame (to which the other four boards will be attached later at
MCEA) and the 300 completed but unassembled chassis will then be shipped back to MCEA in California.
When the assembled chassis are received at MCEA, some will be visually inspected, retested for functionality and placed into work in process for final assembly with CRT's mirrors, lenses, screens, cabinets, speakers, back cover, control panel, terminal board, clampers, connectors, cables and the wiring harness.
After assembly of the complete televisions, they will undergo "burn in" testing of approximately 90 minutes, followed by alignment, final inspection, high voltage check and packaging.
You contend that the assembly involving automatic insertion and electrical testing at MCEA constitutes a substantial transformation of the PCBs and that the foreign components exported to the maquiladora plant in Mexico have been transformed into U.S. products pursuant to section 10.14(b), Customs Regulations (19 CFR 10.14(b)). You further claim that the requirements of subheading 9802.00.80, HTSUS, are satisfied by the limited manual insertion and soldering processing to be performed in Mexico.
ISSUE:
Whether the operations performed in the U.S. result in a substantial transformation of the foreign components into products of the U.S. for purposes of being eligible for the duty allowance under subheading 9802.00.80, HTSUS.
LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:
[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section
10.24, Customs Regulations (19 CFR 10.24).
Section 1..0.12(e), Customs Regulations (19 CFR 10.12(e)), provides generally that an article wholly or partially of foreign components or materials, may be a "product of the United States" if such components or materials are "substantially transformed" by a process of manufacture into a new and different article.
Section 10.14(b) provides that a "substantial transformation" occurs when, as a result of manufacturing processes, a new and different articles emerges, having a distinctive name, character, or use, which is different from that originally possessed by the article or material before being subject to the manufacturing process. If the manufacturing or combining process is merely a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. See Belcrest Linens
v. United States, 573 F. Supp. 1140 (CIT 1983), 741 F.2d 1368
(1984).
customs has held that the automatic insertion operation in question constitutes a substantial transformation. In Headquarters Ruling Letter 556924 dated January 12, 1993, we held that electronic components and blank PCBs from Japan which are used to manufacture tuning elements for car radios were substantially transformed in the U.S. as a result of those components being inserted into the PCB by a computer-programmed automatic insertion machine for purposes of being eligible for the partial duty exemption under subheading 9802.00.80, HTSUS. In 556924, as in this case, the subassemblies were exported to Mexico where additional components were manually inserted, soldered, and tested. See also HRL 556924 dated January 12,
1993 (a partial duty allowance under item 807.00, Tariff Schedule of the United States (now subheading 9802.00.80, HTSUS), was allowed for approximately 400 components inserted into board blanks by an automatic process which substantially transformed those components into a product of the U.S. Those subassemblies were also exported to Mexico for final assembly by manually stuffing and welding approximately 100 components to the boards).
Consistent with the foregoing rulings, we find in the instant case, that the operations described above consisting of insertion of the electronic components into PCBs by computer programmed automatic machines, result in a substantial transformation of the foreign components and PCBs into products of the U.S. for purposes of being eligible for the partial duty exemption under subheading 9802.00.80, HTSUS. Moreover, the operations performed in Mexico, consisting of the manual insertion of parts and wave soldering of parts onto the PCB and the mounting of a PCB onto a chassis, constitute acceptable assembly operations for purposes of subheading 9802.00.80, HTSUS.
HOLDING:
Insertion of numerous foreign electronic components into a PCB by computer programmed automatic machines in the U.S., results in a substantial transformation of the foreign components and PCB into products of the U.S. for purposes of being eligible for the partial duty exemption under subheading 9802.00.80, HTSUS. Therefore, when the partially-stuffed PCBA's are shipped to Mexico for assembly operations and subsequently returned as television chassis, allowances may be made under this tariff provision for the cost or value of the U.S. components, upon compliance with the documentation requirements of 19 CFR 10.24.
Sincerely,
John Durant, Director
Commercial Rulings Division
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