HQ 555206: Entry of Rechargeable Flashlights under the Generalized System of Preferences

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                                   HQ 555206

                                   March 10, 1989


          CLA-2  CO:R:CV:V  555206 BJO

          CATEGORY: Classification

          Mr. Gordon W. Larson
          Rudolph Miles & Sons, Inc.
          4950 Gateway East
          P.O. Box 144
          El Paso, Texas 79942


          RE: Entry of Rechargeable Flashlights under the Generalized
              System of Preferences

          Dear Mr. Larson:

                This is in response to your letter of November 28,
          1988,?onbehalf of BRK Electronics ("importer"), in which you
          request?aruling that the cost or value of battery charger
          boards?assembledin Mexico and incorporated into
          rechargeable?flashlights, whichwill be imported into the U.S.,
          may be counted?toward the 35percent value-content requirement of
          the Generalized?System ofPreferences (GSP)(19 U.S.C. 2461-2466).


          FACTS:

                You state that the importer's subsidiary will
          assemble?therechargeable flashlights in Mexico.  One of the
          components of?theflashlight is a printed circuit board assembly
          ("PCBA"), which?isused to recharge the flashlight's battery when
          it is plugged?intoan electrical outlet.  The importer's
          subsidiary will?eitherpurchase a finished PCBA from an unrelated
          firm in Mexico,?orwill purchase a bare printed circuit board from
          the?unrelatedfirm, and stuff the board at its own facility in
          Mexico. ?Most ofthe components, including diodes, resistors,
          contacts,?andcopper-laminated phenolic plastic board, will be
          imported?intoMexico.  The PCBA will be produced from these
          imported?componentsas follows:

          1. Phenolic plastic sheets laminated with copper,
          measuringfour?feet by eight feet by 1/16 of an inch, will be cut
          bythe circuit?board manufacturer to smaller size panels
          andcleaned.

          2. In accordance with specifications provided by
          theimporter's?subsidiary, the circuit board manufacturer will
           print on the copper layer of each panel the
          requisiteconductive?paths with an ink resistant to the chemicals










          usedin the etching?operation.j?































































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          3. In the etching operation, the panel will be passedthrough
          a?chain of chemical baths which removes all of thecopper
          laminate?except that printed with the protective ink. The panel
          will then?be passed through a final chemical bathwhich removes
          the ink from?the panels, but leaves theunderlying copper surface.
          The panel?will then be rinsedand dried in an oven.

          4. Each panel, on the non copper-laminated side, will
          beprinted?by silk-screen process with a circuit design
          whichdesignates?where the components are to be placed.  The
          panelwill then be?placed in an oven to dry the ink.

          5. A mask will then be printed on the copper side of theboard
          to?cover those portions not designed to be soldered. The panels
          will?then be passed through an ultraviolet lightto cover the
          mask.

          6. The panel will then be drilled for holes for theplacement
          of?components and punched with the requisite boardbase shape.

          7. Diodes, resistors, contacts, and a capacitor will
          then?beinserted into the prepunched holes in the printed
          circuitboard?bases.  The diodes and resistors will be purchased
          inrolls, which?will be fed through a sequence machine
          whichreorders the?components in new rolls in the proper
          sequencefor insertion into?the printed circuit board bases.
          Panelswith multiple printed?circuit board bases will then be
          fedinto an insertion machine,?along with the sequenced rolls
          ofcomponents.  The capacitor leads?will be manually formed
          byoperators with hand tools, inserted?into the circuit
          boardbases, which will then be cut and bent. ?The metal
          contactswill be likewise inserted.

          8. The panel with inserted components will then be
          inspectedand?put on trays for the soldering operation.  In a
          wavesoldering?machine, lead-tin solder will be deposited on
          thebare copper?circuit as well as on the leads of theelectronic
          components and?contacts.  The panels will then bepassed through a
          bath of?de-ionized water to eliminate allthe flux residue of
          the?soldering.  After a final visual andelectric inspection,
          the?PCBA's will be packed and sent tothe stockroom.
          R




















                        - 3 -

                The PCBA will then be joined with other components in a
          12-step assembly process to produce the
          imported?rechargeableflashlight.  This process includes printing
          the?product name onthe housing of the flashlight with a Tampo
          Print?Machine,attaching a switch, battery, the PCBA, bulb,
          shield,?lens, bezel,and reflector into the housing,
          electronically?testing thecompleted flashlight, packing the
          flashlights between?two blistersheets which are electrically
          welded, and packing the?product incorrugated boxes.

                A total of 53.66 hours per thousand units
          (or?approximatelythree minutes per unit) will be spent in
          stuffing?the fabricatedcircuit board bases and joining these
          completed?PCBA's with theother components to form the
          flashlights.  No time?estimate isgiven for the manufacture of the
          printed circuit board?bases, butthe importer states that from the
          description of?themanufacturing process provided by the circuit
          board?manufacturer,it appears that substantial time will be spent
          in?the actualfabrication of the boards, as well as in preparing
          the?screensfor the silk-screen operation, designing the punching
          die?ordrilling machine used to punch holes in the panel with
          the?properhole allocation, and handling and temporary storage
          of?thematerials between operations.  The value of
          the?materialsproduced in Mexico, if the value of the printed
          circuit?board isincluded, will be approximately equivalent to 35
          percent?of theentered value of the rechargeable flashlight.  The
          cost?ofassembling the PCBA and the flashlight in
          Mexico,?includingoverhead, labor, and depreciation, will
          be?approximatelyequivalent to 6 percent of the flashlight's
          final?value.


          ISSUE:

                Whether the PCBA's are substantially
          transformed?constituentmaterials for purposes of the 35% value-
          content?requirement ofthe GSP.


          LAW AND ANALYSIS:

                Under the GSP, eligible products of a
          designated?beneficiarydeveloping country (BDC) which are imported
          directly?into theU.S. qualify for duty-free treatment if the sum
          of the?cost orvalue of the constituent materials produced in the
          BDC?plus thedirect costs involved in processing the eligible
          article?in theBDC is at least 35 percent of the article's
          appraised value?atthe time of its entry into the U.S. See      19
          U.S.C. 2463.
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                        - 4 -

                The cost or value of materials which are imported into?theBDC to be usedintheproductionofthearticle,ashere,may?beincludedinthe35percentvalue-contentcomputationonlyif?theimportedmaterialsundergoadoublesubstantialtransformation?intheBDC.Thatis,thecopperlaminatedplasticboard,?diodes,resistors,capacitor,andothermaterialsimportedinto?MexicomustbesubstantiallytransformedinMexicointoanew?anddifferentintermediatearticleofcommerce,whichisthenused?inMexicointheproductionofthefinalimportedarticle,?therechargeableflashlight.See19CFR10.177(a).

                A substantial transformation occurs when an article?emergesfrom a processwithanewname,character,oruse?differentfromthatpossessedbythearticlepriortoprocessing.?SeeTexasInstruments,Inc.v.UnitedStates,69CCPA152,?681F.2d778(1982).

                Customs application of the double substantial?transformationrequirementinthecontextoftheGSPreceived?judicialapprovalinTheTorringtonCompanyv.UnitedStates,8?CIT150,596F.Supp.1083(1984),aff'd764F.2d1563(1985).The?court,afteraffirmingCustomsapplicationofthedouble?substantialtransformationconcept,said:

          Regulations promulgated by Customs define the term"materials?produced" to includematerialsfromthirdcountriesthatare?substantiallytransformedintheBDCintoanewanddifferent?articleofcommerce.19CFR10.177(a)(2).Itisnotenoughto?transformsubstantiallythenon-BDCconstituentmaterialsintothe?finalarticle,asthematerialutilizedtoproducethefinal?articlewouldremainnon-BDCmaterial.Theremustfirstbea?substantialtransformationofthenon-BDCmaterialintoanew?anddifferentarticleofcommercewhichbecomes?"materialproduced,"andthesematerialsproducedintheBDCmust?thenbesubstantiallytransformedintothenewand?differentarticleofcommerce.Itisnotedthat19CFR?10.177(a)distinguishesbetween"merchandiseproducedinaBDC"?andthecostorvalueofthe"materialsproducedintheBDC"which?demonstratesthecontemplationofadual?substantialtransformationrequirement.

                In Headquarters Ruling 047150, dated January 18, 1977,?weheld that PCBA'sproducedinSingapore,thenaBDC,?andincorporatedintorechargeablesecuritylights,wereZ





















































                        - 5 -

          substantially transformed constituent materials of the?securitylights for GSPpurposes.InSingapore,therequired?circuitdesignwasprintedonlargerawfiberglassorplastic?sheet,whichwasthenetched,cleaned,andlacqueredwithan?anti-soldermaterial,punchedtoformindividualcircuitboard?basesoftherequiredsize,drilledwithholes,andstuffedwith?componentswhichweresolderedintoposition.Westatedthatthis?processresultedinanewanddifferentarticleofcommercehaving?aspecificandnewusedifferentfromitsdiscretecomponents,?andthattheprocessinginvolvedconstitutedmorethana?mereassembly.Accordingly,weheldthatthevalueofthePCBA?couldbecountedtowardthe35%value-contentrequirement.

                The process you describe in your letter is nearly?identicalto that involvedintheabove-describedruling.Inboth?cases,theprocessingintheBDCinvolvesetchingthePCB?withconductivepaths,printingtheboardwithacircuit?design,drillingholesintheboard,mountingthecomponents,?cuttingtheboardtospecificdimensions,andwavesolderingthe?componentsintoplace.Thefinishedbatterychargerboardinboth?casesisanewanddifferentarticle,withanewnameanda?functiondifferentfromitscomponentparts.Furthermore,the?PCBAisanarticleofcommerce,andnotmerely"materialin?process,"asevidencedbythePCBA'savailabilityforpurchase?fromtheunrelatedMexicanfirm.SeeAztecaMillingCo.v.?UnitedStates,SlipOp.88-168(CITDecember20,1988).?Finally,becausethebatterychargerboardwillitselfbe?substantiallytransformedinMexicobyitsincorporationintothe?rechargeableflashlight,whichhasadistinctname,use,and?character,thematerialsimportedintoMexicowillhaveundergone?therequireddoublesubstantialtransformation.

                The operations described are not the simple or minimal?typemeant to beprecludedbyT.D.76-100.SeeC.S.D.85-25,?datedSeptember25,1984(HQ071827)(Assembly-typeoperations?whichareminimalandsimple,asopposedtocomplexormeaningful,?willnotresultinsubstantiallytransformedconstituent?materials;explainsandoverrules,inpart,T.D.76-100).The?creationoftheprintedcircuitboardsfromtheimportedsheetsof?copper-laminatedphenolicplasticisnotanassemblyoperationat?all,intheusualsenseofamerejoiningoftwoormoreparts,?seeTexasInstrumentsIncorporatedv.United?States,681F.2d778,784(CCPA1982),butasubstantial?manufacturingoperation.Wehavepreviouslyheldthatanassembly?ofaPCBAfromafabricatedprintedcircuitboardandother?componentsinanoperation^

























































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          similar to that you describe was a "complex and?meaningful"operation withinthemeaningofC.S.D.85-25.SeeHQ?553217,datedJune22,1986.Theassemblyoftheflashlight?itselfmaynotconstituteacomplexormeaningfulassembly?process.However,undersection10.195(a)(2)(ii)(D),Customs?Regulations,implementingtheCaribbeanBasinEconomicRecovery?Act(CBERA)(19U.S.C.2701-2706),asimpleassemblyofasmall?numberofcomponentsshallnotbetakentobea"simplecombining?orpackagingoperation"(asopposedtoacomplexor?meaningfuloperation),ifoneofthecomponentsisfabricatedin?thebeneficiarycountrywheretheassemblytookplace.Because?thestatutoryaimoftheGSPissimilartothatoftheCBERA,and?thecountryoforigincriteriaofthetwostatutesare?nearlyidentical,wefindthattheprincipleof19?CFR10.195(a)(2)(ii)(D)shouldapplyinthiscase,wherea?componentoftherechargeableflashlightassembledinMexicoisa?printedcircuitboardfabricatedinMexico.Forthesereasons,we?findthattheassemblyofthePCBA'sandothercomponentsto?producetherechargeableflashlightsisacomplexandmeaningful?assemblyoperationwithinthemeaningofC.S.D.85-25.


          CONCLUSION:

                The cost or value of the PCBA's assembled in Mexico fromU.S.?origin componentsandaprintedcircuitboardfabricatedinMexico?maybeincludedtowardsthe35percentvalue-contentrequirement?oftheGSPasconstituentmaterialcosts.

                        Sincerely,




                        John Durant, Director
                        Commercial Rulings Division
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          cc: CLA-2 CO:R:C:V:BJO:MM:FNL 3-3-89