Reconsideration of NY N302899; Country of Origin; Sound Activated LED Light String

HQ H303818 June 6, 2019 OT:RR:CTF:VS H303818 CMR CATEGORY: Classification Ms. Paula M. Connelly, Esq. Law Offices of Paula M. Connelly 100 Trade Center Suite 660 Woburn, MA 01801 RE: Reconsideration of NY N302899; Country of Origin; Sound Activated LED Light String Dear Ms. Connelly: This is in response to your request, on behalf of your client, Fourstar Group, Inc., for reconsideration of New York Ruling Letter (NY) N302899, dated March 13, 2019, in which the country of origin of the company’s sound activated light string product was determined to be China. We reviewed your request and we believe that NY N302899 is correct for the reasons set forth herein. The sound activated light string is described in NY N302899, along with the production process to manufacture it, as follows: The Sound Activated Light String consists of an LED light string of approximately 195.5 inches long with 100 LED lamps and a battery compartment (control box) of approximately 3 inches wide x 2 inches deep x 1 inch high for three AA batteries (not included). The battery compartment (control box) contains a sound activated light string chip, a microphone and transistors, resistors, capacitors and a push-button switch for Light Show (responds to music), Steady On, Slow Pulse or Blinking. The sound activated light string chip allows the LED’s to flash in sync with the music. One merely turns the external music on, i.e., cell phone, stereo or similar, sets the sound activated light string into Light Show mode and the LED light string will pulse to the beat of the music. The Sound Activated Light String is comprised of the following components: LED Light String from China; Integrated Circuit designed and made in Taiwan; Printed Circuit Board (includes the IC and other components), and Plastic Battery Compartment (including compartment parts) from Vietnam. The production steps in Vietnam are as follows: 1) PCB production – This consists of the Surface Mount Technology processing. All electrical components including the integrated circuit (Taiwanese origin), microphone, resistors and transistors are added to the board. Upon completion, the board is tested to ensure that it functions properly. 2) Completed PCB is added into the Battery Compartment (control box). 3) Battery Compartment (control box) – manufactured in a plastic injection molding process. 4) Battery Compartment parts – Each battery contact is soldered into the Battery Compartment (control box). 5) Light String - the Chinese origin string is cut to length and then wound to a coil. It is hot dipped in tin on one end and soldered to the printed circuit board assembly. The printed circuit board and LED string are then hot glued to the Battery Compartment (control box). 6) Finished set testing. Testing includes powering up and testing sound activation function, testing the button function, and checking the string for any defective LED’s. 7) Finished set packaging. In NY N302899, Customs and Border Protection (CBP) found the origin of the finished sound activated light string to be China. The ruling stated that the production processing in Vietnam did not effect a substantial transformation and the Chinese origin light string retained its essential identity and character as a light string. You believe that the origin of the product should be Vietnam as the highest value is in the design and structure of the controller, not the LED string. You further submit that, as imported into Vietnam, the LED string cannot function without the Vietnamese manufactured control box and the components contained within it, i.e., the microphone and related circuitry. To support your position, you provided a value breakdown which shows that 51 percent of the value of the finished good is attributable to components manufactured in Vietnam and the processing which occurs there. Only 18 percent of the value of the finished good is attributable to the Chinese produced LED light string, and 20 percent is attributable to the design and manufacture of the integrated circuit in Taiwan. Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such a manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was that the ultimate purchaser should be able to know by an inspection of the markings on the imported goods the country of which the good is the product. "The evident purpose is to mark the goods so at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co., 27 C.C.P.A. 297 at 302 (1940). Part 134, Customs and Border Protection (CBP) Regulations (19 C.F.R. 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 134.1(b), CBP Regulations (19 C.F.R. 134.1(b)), defines "country of origin" 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 [the marking regulations]. . . .” A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, or use which differs from the original material subjected to the process. United States v. GibsonThomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940); Texas Instruments v. United States, 681 F.2d 778, 782 (1982). In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative. In this case, the sound activated light string is made from a printed circuit board (PCB) assembled in Vietnam. The assembly of the PCB uses a Taiwanese integrated circuit, microphone, and other components. Next, the control box is manufactured in Vietnam by plastic injection molding and soldering Vietnamese-produced metal contact pieces. The control box, the Vietnamese origin printed circuit board, and the Chinese origin LED light string are assembled in Vietnam to produce the finished article. You submit that the character and use of the finished article is determined by the control box produced in Vietnam as it allows the LED light string to function and sync to the beat of music. In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade (“CIT”) interpreted the meaning of “substantial transformation.” Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All of the components of the Generation II flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States where they were assembled into the finished Generation II flashlight. The court reviewed the “name, character and use” test utilized in determining whether a substantial transformation has occurred and noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. at 226, 542 F. Supp. at 1031, aff’d, 702 F.2d 1022 (Fed. Cir. 1983), that when “the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change.” Energizer at 1318. In addition, the court noted that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.” Energizer at 1319, citing as an example, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 310, aff’d, 989 F.2d 1201 (Fed. Cir. 1993). In reaching its decision in Energizer, the court expressed the question as one of whether the imported components retained their names after they were assembled into the finished Generation II flashlights. The court found “[t]he constitutive components of the Generation II flashlight do not lose their individual names as a result [of] the post-importation assembly.” The court also found that the components had a pre-determined end-use as parts and components of a Generation II flashlight at the time of importation and did not undergo a change in use due to the post-importation assembly process. Finally, the court did not find the assembly process to be sufficiently complex as to constitute a substantial transformation. Thus, the court found that Energizer’s imported components did not undergo a change in name, character, or use as a result of the post-importation assembly of the components into a finished Generation II flashlight. The court determined that China, the source of all but two components, was the correct country of origin of the finished Generation II flashlights under the government procurement provisions of the TAA. See HQ H298653, dated November 19, 2018. You cite to HQ H014068, dated October 9, 2007, to support your position that the origin of the sound activated light string is Vietnam. You submit that the sound activated light string origin determination is similar to situations in which CBP has determined the origin of a product to be “based upon the origin/programming of software that allows a machine to operate.” In H014068, cellular phones were assembled in China or Malaysia. They were then shipped to Sweden where TEMS software developed in Sweden was loaded onto the phones. CBP determined that the origin of the cellular phones was Sweden as the TEMS software substantially transformed the use and function of the pre-existing cellular phones into devices that were substantially used to measure and check telecommunication networks. We find this case to be distinguishable from the cellular phones in HQ H014068. In this case, the LED light string produced in China is simply cut to length and attached to the Vietnamese produced PCBA and control box in Vietnam. The attachment of the LED light string to the PCBA and control box is a simple assembly and does not change the character of the LED light string; it remains an LED light string. The end use of the LED light string, pre-determined when it was imported into Vietnam, is not changed. While the control box acts to determine when the light string lights up, it is the light string, similarly to the shoe upper in Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), that is the “essence” of the finished article. Therefore, we find the origin of the finished sound activated light string is China, and that NY N302899, dated March 13, 2019, correctly determined the country of origin of the sound activated light string. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch