HQ 951951: Delay Line; Filter Assembly; Pulse Transformer; DC-DC Converter; Substantial Transformation; Torrington Co. v. U.S.; Texas Instruments Incorporated v. U.S.

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 951951
                         October 1, 1992


CLA-2 CO:R:C:M 951951 DWS

CATEGORY: Classification

TARIFF NO.: Not Applicable

Mr. John N. Politis
Politis, Pollack & Doram
3255 Wilshire Blvd., Suite 1688
Los Angeles, CA 90010

RE: Delay Line; Filter Assembly; Pulse Transformer; DC-DC        
    Converter; Substantial Transformation; Torrington Co. v.
    U.S.; Texas Instruments Incorporated v. U.S. 

Dear Mr. Politis:

     This is in response to your letters of March 16, 1992, and 
of September 8, 1992, on behalf of Valor Electronics, Inc.,
concerning the country of origin of certain electronic products
under the Harmonized Tariff Schedule of the United States
(HTSUS).

FACTS:

     The subject merchandise consists of delay lines, filter
assemblies, pulse transformers, and DC-DC converters.  The
components required to make these articles are from the United
States, Hong Kong, Taiwan, and other countries in the Pacific
Rim.  These components are staged and gathered in Hong Kong, and
then shipped to China for assembly.  The components arrive in
Hong Kong in bulk shipments, and then are packed together in kits
forming the unassembled articles.  After assembly in China, the
completed articles are shipped back to Hong for electrical
testing.

     When the unassembled parts of the delay line, model no. DL
1885, arrive in China, they are subject to the following assembly
operation.  First, double backed tape is applied to the
integrated circuit.  A phenolic rod is then cut to length and is
wound with wire with six taps.  The capacitors and a resistor are
soldered to the shimstock, and a wire lead is soldered to the
bar.  The capacitor bar is soldered to the integrated circuit
assembly pins, and the rod assembly is soldered to the capacitor
bar/integrated circuit assembly.  The whole assembly is then
electrically tested for function, and the case is filled with
epoxy and allowed to dry.  The total time to assemble the delay
line is 6.27 minutes.  The total cost incurred in China per unit
is $0.0991, representing 11.01 percent of its total cost.

     Once in China, the unassembled parts for the pulse
transformer, model no. LT 1750, are subject to the following
assembly operation.  First, the lead pins are inserted into the
small holes of the lead frame.  Three cores are wound with wire,
and pliolite is applied to the cores to keep them from unwinding. 
The core leads are soldered to the lead frame assembly pins.  The
assembled article is then electrically tested for function, the
case is filled with epoxy and allowed to dry, the lead pins are
trimmed to size, and the article is trimmed and marked.  The
total time to assemble the pulse transformer is 6.34 minutes. 
The total cost incurred in China per unit is $0.1002 or 12.52
percent of its total cost.

     Once in China, the unassembled parts for the filter
assembly, model no. PT 3877, are subject to following assembly
operation.  First, wire is wound around the cores and pliolite is
applied to keep the wires from unwinding.  Capacitors are then
mounted on the tape.  Twelve lead pins are inserted into the lead
frame, and the coilforms are then taped to the lead frame.  The
capacitors on tape are attached to the lead frame, and the leads
are soldered to the lead pins of the lead frame.  The assembly is
then electrically tested for function.  The core is assembled to
the lead frame and the article is filled with epoxy.  The leads
are then trimmed to size and cleaned.  The total time to assemble
the filter assembly is 12.87 minutes.  The total cost incurred in
China per unit is $0.2033 or 12.71 percent of its total cost.

     Upon arrival in China, the unassembled parts for the DC-DC
converter, model no. PM 7102, are subject to the following
assembly operation.  First, the cores are wound with wire.  Five
capacitors, two cores, three resistors, three diodes, and two
transistors are assembled to the printed circuit board.  The
assembly is then electrically tested for function.  The article
is wave soldered and the lead frame is assembled to the circuit
board.  The lead frame is inserted into the header, and the
printed circuit board is soldered to the lead frame/header
assembly.  Another electrical test is performed.  The cover is
assembled to the lead frame, epoxy is applied, and the leads are
trimmed to size, bent, and cleaned.  The total time to assemble
the DC-DC converter is 20.37 minutes.  The total cost incurred in
China per unit is $0.3218 or 11.49 percent of its total cost.

ISSUE:

     Whether the assembly of the four electronic products in
China constitutes a substantial transformation?  What is the
proper country of origin of the subject electronic products?

LAW AND ANALYSIS:

     "Country of origin" is defined in 19 CFR 134.1(b) as "the
country of manufacture, production, or growth of any article of
foreign origin entering the United States.  Further work or
material added to an article in another country must effect a
substantial transformation in order to render such other country
the 'country of origin' within the meaning of this part."  

     In Torrington Co. v. U.S., 764 F.2d 1563, 1568, 3 CAFC 158,
163 (Fed. Cir. 1985), it was stated that "[a] substantial
transformation occurs when an article emerges from a
manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process."

     In Texas Instruments Incorporated v. U.S., 681 F.2d 778,
69 CCPA 151 (CCPA 1982), the Court held that "[a]ssembly of
encapsulated integrated circuits in Taiwan from slices containing
many integrated circuit chips, gold wire, lead frame strips,
molding compound, and epoxy, all imported from the United States,
constituted substantial transformation of such items into a new
and different article of commerce . . ."

     The Court in Texas Instruments stated that:

     [g]iven our holding that the IC's and photodiodes were the
     result of extensive manufacturing operations in Taiwan which
     converted materials into articles, as distinguished from
     mere assembly, that there was "substantial transformation"
     into new and different articles of commerce, and granting
     that a statute must be so interpreted as to implement its
     legislative purpose, we conclude that our decision in the   
     case is harmonious with the legislative purpose.  The facts 
     of record indicate that a number of employees were needed,  
     and had to be technically trained in numerous skills to
     "convert materials into articles" in the manner we have 
     described above, laying the groundwork for the acquisition
     of even higher skills and more self-sufficiency.

     It is our position that the assembly of the subject
electrical products in China constitutes a substantial
transformation.  The process of assembling these articles is
similar to the facts in Texas Instruments.  The creation of the
articles in China involves the following operations: attaching
several different components, wave soldering, applying pliolite
to prevent unwinding, and electrical testing for function.  The
assembly of the electrical products requires a number of
technically trained employees involved in a number of operations.

HOLDING:

     The assembly of the articles in China creates new and
different articles of commerce, with a new, character, and use
different from that possessed by the individual parts
incorporated therein.  Consequently, because a substantial
transformation has occurred, the country of origin of the subject
articles is China.

                           Sincerely,



                           John Durant, Director
                           Commercial Rulings Division