HQ 954148: HRL 951951 affirmed; LT 1750 pulse transformer; country of origin; 19 CFR 134.1(b); substantial transformation; Torrington Co.; Texas Instruments Inc.; Belcrest Linens

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 954148
                          March 29, 1994

CLA-2 CO:R:C:M 954148 KCC

CATEGORY:  Classification

TARIFF NO.: N/A

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

RE:  HRL 951951 affirmed; LT 1750 pulse transformer; country of
     origin; 19 CFR 134.1(b); substantial transformation;
     Torrington Co.; Texas Instruments Inc.; Belcrest Linens

Dear Mr. Politis:

     This is in response to your letter dated May 7, 1993, on
behalf of Valor Electronics, requesting reconsideration of
Headquarters Ruling Letter (HRL) 951951 (October 1, 1992), which
determined the country of origin of certain electronic products. 
Arguments you made at a meeting on January 12, 1994, with a
member of my staff were considered for this decision.

FACTS:

     The merchandise at issue in this request is the pulse
transformer, model no. LT 1750.  The components required to make
the pulse transformer 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 the
People's Republic of China ("PRC") for manufacturing operations. 
The components arrive in Hong Kong in bulk shipments, and then
are packed together in kits forming the unassembled articles. 
After the manufacturing operations in the PRC, the completed
articles are shipped back to Hong Kong for electrical testing
before importation into the U.S.

     In the PRC, the unassembled parts for the pulse transformer
are subject to the following operations:

1)   Three toroid cores are wound with wire and pliolite is
     applied to the cores to keep them from unwinding.  
2)   The core leads are soldered to the lead frame assembly pins.
3)   The lead pins are inserted into the small holes of the lead
     frame.
4)   The assembled article is subjected to electrical tests to
     insure that it functions correctly.
5)   The case is filled with epoxy and allowed to dry.
6)   The lead pins are trimmed to length.
7)   The pulse transformer is cleaned and marked.  

     The total time to assembly the pulse transformer in the PRC
is 6.34 minutes.  The total cost incurred in the PRC per unit is
$0.1002 or 12.52% of its total cost.

     In HRL 951951, the manufacturing operations performed in the
PRC were found to constitute a substantial transformation. 
Therefore, the country of origin of the pulse transformer was
determined to be the PRC. 

ISSUE:

     Whether the assembly of the pulse transformer in the PRC
constitutes a substantial transformation?  What is the proper
country of origin of the pulse transformer?

LAW AND ANALYSIS:

     "Country of origin" is defined in section 134.1(b), Customs
Regulations (19 CFR 134.1(b)), as "the country of manufacture,
production, or growth of any article of foreign origin entering
the U.S.  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."

     A substantial transformation occurs when, as a result of
manufacturing processes, a new and different article emerges,
having a distinctive name, character, or use, which is different
from that originally possessed by the article or material before
being subjected to the manufacturing process.  See, Torrington
Co. v. United States, 764 F.2d 1563, 3 CAFC 158 (Fed. Cir. 1985).

     In HRL 951951, it was our position that the manufacture of
the pulse transformer, as well as other electrical products, in
the PRC constituted a substantial transformation.  We found that
the process of manufacturing the pulse transformer was similar to
the facts in Texas Instruments Inc. v. United States, 681 F.2d
778, 69 CCPA 151 (1982).  In Texas Instruments, 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...."

     You state that section 12.130, Customs Regulations (19 CFR
12.130), further describes the criteria for determining the
country of origin of imported products.  However, 19 CFR 12.130
involves the country of origin of textiles and textile products. 
The pulse transformer is not a textile product.  Therefore,
reliance on 19 CFR 12.130 is inappropriate.

     After review of the cited authority in your request for
reconsideration and the arguments presented at the meeting on
January 12, 1994, we are of the opinion that the manufacture of
the pulse transformer in the PRC results in a substantial
transformation.  The manufacturing operation of attaching
components, wave soldering, applying pliolite and testing create
a new and different article of commerce, with a new name,
character, and use different from that possessed by the
individual components incorporated therein.  Although the time
involved and value added appear to be minimal, the operation
performed in the PRC requires technically trained employees.

     In addition, in determining whether the combining of parts
or materials constitutes a substantial transformation, a
consideration, in addition to the extent of operations performed,
is whether the parts lose their identity and become an integral
part of the new article.  Belcrest Linens v. United States, 741
F.2d 1368 (Fed. Cir. 1984).  After the PRC operations are
performed, there is an integration of the parts to the point
where they lose their separate identity.  Moreover, the PRC
operations significantly affect the character and use of the
parts.  For all intents and purposes, the ultimate use and
essential character of the pulse transformers is determined by
the PRC operations.  As separate components the parts do not
serve any function, but as assembled together, they operate as a
pulse transformer.

HOLDING:

     The manufacture of the pulse transformer in the PRC
constitutes a substantial transformation.  Consequently, the
country of origin of the pulse transformer is the People's
Republic of China.

     HRL 951951 is affirmed.

                              Sincerely,


                              John Durant, Director
                              Commercial Rulings Division