General Note 3(a)(iv), HTSUS; Wireless Spectrum Analyzer Device

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H271842 December 7, 2016 CLA–2 OT:RR:CTF:VSP H271842 tmf CATEGORY: Valuation William L. Blum Solomon Blum Heymann LLP 40 Wall Street 35th Floor New York, New York 10005 RE: General Note 3(a)(iv), HTSUS; Wireless Spectrum Analyzer Device Dear Mr. Blum: This is in response to your letter dated December 28, 2015 requesting a ruling concerning the eligibility for duty-free treatment of certain wireless Spectrum Analyzer Devices (called “Gray Matter”) under General Note (3)(a)(iv) of the Harmonized Tariff Schedule of the United States (hereinafter referred to as “HTSUS”). Supplemental information was submitted on November 9, 2016. Our decision on this matter is set forth below. FACTS: You propose to manufacture the Spectrum Analyzer Device in the U.S. Virgin Islands (USVI). You describe the Spectrum Analyzer Device as a multiple protocol wireless spectrum analyzer device that is housed in a custom built enclosure suitable for mobile operations in austere environments. You state the product must operate with a controller via Ethernet wire or Bluetooth connection, and that it can be powered by either two 24-volt batteries, or by an external power source such as a power cord that plugs into the side of the device. You state that there are five radio frequency (“RF”) connectors upon which five antennas are attached: Wi-Fi, Survey, SMS, GPS and Rx/Tx; and once it is connected to a controller, fitted with the antennas, and connected to a power source, it is ready for use. You also mention that the primary use of this device is for defense, intelligence, search and rescue and standard telecommunications industries. You state that the product has two operating modes: the “Survey Mode” and the “Interrogation Mode.” In the Survey Mode, a user selects bands to be surveyed and scans for the presence of signal sources in the bands selected. A display that is integral to the product will graphically display individual sources of the frequency bands selected. Your submission also states that a display that is integral to the product will then graphically display individual sources of the frequency bands selected. By selecting the graphical representation of a particular source, characteristics of that source may be displayed to the user. You state that surveying cellular bands allows a user to scan an area for cellular towers, the number of towers, and obtain information from those towers; and that with surveying Wi-Fi bands, the user can scan an area for Wi-Fi access points and other devices, including the number of each and other information. In the Interrogation Mode, you indicate that the user configures the device to operate as a Wireless Base Transceiver Station (“BTS”) for RF test and measurement, point-to-point communications, and a variety of other wireless applications where size, weight, and power consumption of the survey and measurement equipment are critical. A list of the Analyzer’s components with their countries of origin are as follows: Component Quantity Company Name/Country  Chassis 1 US  Interface board 2 US  Software Defined Radio (BTS) 1 Canada  Software Defined Radio (Survey) 4 US  Power Amplifier 1 US  Modem 3 US  Controller Laptop 1 US  Polar Vortex Software 1 US  GSM (BTS) Software 1 Canada  GSM (L2/L3) Software 1 US  GSM (Controller) Software 1 US  UMTS- Universal Mobile Telecommunications System (BTS) 1 Canada  UMTS (L2/L3 Software 1 US  CDMA2K (BTS) Software 1 Canada  CDMA2K (L2/L3) Software 1 US  CDMA2K (Controller) Software 1 US  LTE (BTS) Software 1 Canada  LTE (L2/LE) Software 1 US  LTE (Controller) Software 1 US  Skylight Survey Software 1 US  WiFI Wizard Software 1 US  Application Program Interface Software 1 US   As noted above, you state the product contains five components (four types of software and 1 piece of hardware) which originate in Canada. They are made by a telecommunications equipment and software supplier in Canada. You note that the software is not transformed, but is controlled (i.e., integrated) in a specific manner by the L2/LE software; the Controller software and the Polar Vortex software, all of which are stated to be made in the U.S. You state that the value of the foreign components of the device is less than 10 percent of the total value of the whole product. You have provided us with the costs of all components, labor in the USVI, and value of the finished good. In the manufacturing process, technicians in the U.S. Virgin Islands (USVI) will assemble and solder the mechanical component parts together and load the software to produce a cellular base station for tactical purposes. In addition, the assembly process includes the use of soldering stations, Anritsu signal generators, and power meters, as well as various mechanical tools. ISSUE:Whether the wireless Spectrum Analyzer Device, which is entered into the U.S. following assembly in the U.S. Virgin Islands from various domestic and foreign components, is entitled to duty-free treatment under General Note 3(a)(iv), HTSUS, as a product of the U.S. Virgin Islands.LAW AND ANALYSIS: Under General Note 3(a)(iv), HTSUS, goods imported from an insular possession (including U.S. Virgin Islands) may enter the customs territory of the U.S. duty free of duty provided they:      (1)     are the growth or product of the possession; or are manufactured or produced in any such possession from materials which are the growth, product or manufacture of any such possession or of the customs territory of the U.S., or of both;     (2)     do not contain foreign materials which represent more than 70 percent of the goods' total value (or more than 50 percent with respect to textile and apparel articles subject to textile agreements, and other goods described in section 213(b) of the Caribbean Basin Economic Recovery Act) (CBERA); and      (3)     come directly to the U.S. customs territory from the insular possession. The USVI is a U.S. insular possession. A. “Product of” Requirement and Substantial Transformation To comply with the requirements of General Note 3(a)(iv), HTSUS., we must first determine whether the components assembled in the U.S. Virgin Islands are substantially transformed, and therefore become a product or manufacture of that possession. A substantial transformation occurs when 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 v. United States, 69 CCPA 152, 681 F.2d 778 (1982); see also Headquarters Ruling Letter (HRL) 733563, dated June 24, 1991 (noting substantial transformation occurs when a new and different article of commerce emerges from a process with a new name, character or use.) In this case, you note that each component has its own specific properties and industry-recognized specifications; and none may be used as the finished Analyzer device. For purposes of this ruling request, we will assume the origin of each component is as claimed. Based on your description of the assembly process, we agree with your claim that the Spectrum Analyzer Device will be a product of the USVI as it is derived by the process of substantial transformation resulting in a new, distinctive, unique product that is created through a complex assembly of the various components. B. Foreign Value Content Limitation Requirement In this case, based on the information provided, taking into account the costs of the U.S. materials and USVI labor, the foreign materials will not represent more than 70% of the goods’ total value, and the value-content requirement will be satisfied. Therefore, it is not necessary to determine whether the Canadian components undergo a “double substantial transformation.” With respect to the value content requirement of the subject analyzer device, you calculated the foreign value of the spectrum analyzer to be 9.11 percent of the total appraised value of the entire device. Therefore, we find the Spectrum Analyzer Device will be eligible for duty-free treatment provided the origin of the components and value content is satisfied at the time of entry, and they are imported directly from the USVI to the U.S. HOLDING: On the basis of the information provided, the subject wireless spectrum analyzer device will be considered to be a “product of” the U.S. Virgin Islands as it will undergo a substantial transformation as a result of the assembly operations performed in the insular possession. Accordingly, we find the Spectrum Analyzer Device will be eligible for duty-free treatment under General Note 3(a)(iv), HTSUS provided it is imported directly from the U.S. Virgin Islands to the U.S. and the origin of the components and 70 percent foreign value limitation is met at the time of entry. 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 & Special Programs Branch