CBP Ruling W555728

HQ W555728 January 2, 1991 CLA-2 CO:R:C:V W555728 KCC CATEGORY: Classification TARIFF NO.: 9801.00.10 Yoshihiro Saito, Esq. Graham & James 2000 M Street, N.W. Suite 700 Washington, D.C. 20036 RB: Photocopy machines returned from Japan and Europe. Substantial transformation; C.S.D. 85-25; testing; C.S.D. 98-27(6); 057553; cleaning; T.D. 56153(1); 067432; packaging; marking Dear Mr. Saito: This is in response to your letter dated August 24, 1990, on behalf of [your client], requesting a ruling concerning the applicability of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), and country of origin marking requirements to photocopy machines. FACTS: [Your client] manufactures photocopy and facsimile equipment in the U.S. from U.S.- and foreign-origin components. [Your client] currently exports photocopy machines to Japan and Europe. However, business conditions, including production and consumption cycles in the various markets, may require [your client] to import into the U.S. the previously exported photocopy machines. The U.S. manufacturing operation for [your client’s] photocopy machines are similar for all models, but the model of primary interest, and the representative subject of this ruling, is [your client’s] model [X] photocopy machine. [Your client’s] U.S. production of the [X] involves the fabrication of key copier components, as well as the creation of subassemblies from over 1100 domestic- and foreign-sourced parts. The key subassemblies of the [X] are the paper feed, optic unit, drum shaft unit, developer unit, fusing unit, and cleaning unit. Rigorous quality assurance measures and testing are required throughout the production process. The manufacture of the [X] is divided into the following three stages:  Fabrication of selenium drums, PCB's, harnesses, and metal and plastic components In the fabrication of the selenium drum, imported aluminum tubing is cut to an approximate, and then precise, length. The inside ends are beveled. The tube then undergoes a "super finishing" process which involves polishing the outside surface on a precision/"mirror" lathe (0.2 to 1.0 micron tolerance), ultrasonic cleaning, and degreasing with a methylene chloride solvent. Thereafter, the tube is "roughed" (0.10 to 0.3 micron tolerance) to accept a selenium coating, ultrasonically cleaned, and degreased with perchlorethylene solvent. After inspection for defects, such as scratches, marks, dust, dirt or finger prints, the tube is transferred to the "clean room". In the clean room, the tube is placed in a vacuum chamber which rotates the tube for approximately four hours on a mandrel for even coverage of the selenium coating at "micro superfinish" tolerances (0.06 to 0.3 microns tolerance). Enough time is then allocated to ensure that the aerosol contents of the coated material evaporate in the evaporation chamber. Prior to installation in the [X], the selenium drum has to be used 200 times to stabilize and activate the surface of the drum. The drum is then subjected to multiple visual copy and electronic tests, including thickness measurements. It is buffed to remove extraneous projections and cleaned with freon. Thereafter, the drum is subjected to actual use tests, and visually examined for defects. The testing operation takes approximately 16 minutes per drum. The functions of the [X] are controlled by two printed circuit boards (PCB's)--the main control board -consisting of 101 components and the optical unit control board consisting of 95 components. The components for both boards consist of semiconductor chips, IC's, resistors, capacitors, diodes, transistors, connectors, and potentiometers. The components are mounted onto etched printed wiring boards, soldered, cleaned in a chemical solution, visually examined, and tested with copier subassemblies to ensure proper function. The [X] contains five electrical harnesses which are the central nervous system of the photocopy machine. U.S.-origin coiled wire is cut to specific lengths and various foreign-origin connectors and housings are attached at the wire's ends. Each wire is matched by hand to a pattern board which indicates the appropriate position in the harness to permit the wire to reach its connecting points. The five harnesses contain a significant number of wires, each of which must have two solidly installed connectors and must be of the proper color and length.  Production of the all the harnesses is labor intensive ([your client] pays higher wages than industry scale requires and its employees must have five years experience), and requires 2.9 hours. [Your client] fabricates various components by cutting and stamping sheet metal, as well as by a plastic injection molding process. [Your client] operates twelve metal blanking and pressing machines, which range between 25 to 150 in tonnage capacity. The machines form the metal and punch holes sequentially. The metal components are then deburred and delivered to an independent contractor for painting. [Your client] produces its own dies for the fabrication of plastic parts and operates two 350-ton, two 150-ton and one 650- ton injection molding machines. Creation of subassemblies Creation of the subassemblies described below involves more than physical attachment of components to one another, but also multiple precision adjustments and alignments of the components. The paper feed subassembly consists of 70 components. Roller alignment and precise pressure is necessary to permit the rollers to pick up one and only one sheet of paper at a time. The optics subassembly consists of 130 components, of which the scanner is the most important. The position and movement of the lens must be adjusted so that the image will remain focused and clear even when a reproduction ratio is changed. The lens and mirrors must be precisely installed, so that no unevenness, blurring or distortion occurs in the light transmission. The scanner must move smoothly and at an even rate without any vibration and must be adjusted to emit the proper amount of light. The drum shaft subassembly holds the selenium drum described above. This subassembly must be precisely positioned to ensure that the copy image is received, toner is applied and excess toner is removed. The developer subassembly consists of 80 components. It requires precise installation, including setting the gap between the doctor and the developer. The proper seating of the seals is also critical to prevent toner from escaping and sifting throughout the copier. Errors in this step of production will result in poor copies with uneven toner distribution. The fusing unit consists of 80 components. Correct gap settings and pressures in the fusing unit are vital to avoid paper jams throughout the paper path. This unit is driven by a gear and chain system which also requires precise adjustment.  The cleaning subassembly consists of 40 components. It requires correct alignment of the separating pawl and the cleaning blade to thoroughly remove residual toner without damaging the drum. The paper exit subassembly consists of 25 parts, including a motor. Sorters require precise settings to ensure smooth paper flow and to prevent paper jams. Final assembly The final assembly is performed sequentially at 20 work stations. The paper feed, exit, and drum shaft subassemblies are positioned on the base plate along with the power supply unit. The optics unit and fusing unit are then added. Harnesses are connected to the switches and to the electronic control units. Thereafter, the selenium drum is installed, followed by the cleaning unit and developer tank. The final assembly requires 81 workers and a total of 2.9 to 4.5 hours per unit. Additionally, testing and inspection is conducted at 10 stations as part of the final assembly. The finished photocopy machines are placed in hard foam packaging and plastic wrap before loading into individual hard cardboard boxes marked with the appropriate customer logo. Some of the photocopy machines will be shipped abroad, but prevailing business conditions may require that some of the photocopy machines be reimported into the U.S. The photocopy machines will not be subjected to any use, processing, alteration or other manipulation abroad, except possibly inspecting, cleaning or repackaging. The total cost of the [X] model is $[x,xxx.xx] which is derived from the most recent information available. Of this amount, the cost of the U.S.-sourced materials, labor and overhead accounts for $[x,xxx.xx] or 53.23% of the unit cost. The remainder of the cost consists of the cost of the imported foreign materials. You requested confidential treatment under 5 U.S.C. 552(b) and 19 C.F.R. 103.12(d) regarding the existence of your request, the contents of the request, and the ruling issued by Customs. You state that release of this information would cause significant competitive harm to [your client]. As requested, confidential treatment will be accorded to your request and this ruling letter.  ISSUE: Whether the [X] photocopy machine will be eligible for the exemption from duty in subheading 9801.00.10, HTSUS, when returned to the U.S. Whether country of origin marking requirements are applicable to the [X] photocopy machine when imported into the U.S. LAW AND ANALYSIS: Applicability of subheading 9801.00,10. HTSUS Subheading 9801.00.10, HTSUS, provides for duty-free entry of u.s. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad. Articles satisfying the above conditions of the statute will be afforded duty-free treatment, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. According to section 10.12(e), Customs Regulations (19 CFR 10.12(e)), a· "product of the United States" is an article manufactured within the customs territory of the U.S. and may consist wholly of U.S. components or materials, of U.S. and foreign components or materials, or wholly of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article. 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, Anheuser­ Busch Association v. United States, 207 u.s. 556, (1908); Timex Corporation v. United States, Slip Op. 88-90, 12 CIT , 691 F.Supp. 1445 (CIT 1988); and section 10.14(b), Customs Regulations (19 CFR 10.14(b)). In C.S.D. 85-25, 19 Cust. Bull. 844 (1985), we stated that while a "complex or meaningful" assembly operation may result in a substantial transformation, a "minimal, simple, assembly-type operation" ordinarily will not. Whether an operation is complex and meaningful depends on the nature of the operation. It is necessary to consider the time, cost, and skill involved, the number of components assembled, the number of different operations, and the attention to detail and quality control. We  have held in Headquarters Ruling Letter (HRL) 730837 dated June 10, 1988, that assembly of a typewriter in Taiwan from hundreds of components sourced from Taiwan and third countries constitutes a substantial transformation such that the finished typewriters are considered products of Taiwan for country of origin marking purposes. Additionally, HRL 731076 dated November 11, 1988, held that the assembly of numerous parts in Taiwan to create an automobile causes the components to lose their separate identities and emerge from the assembly operation as a new article of commerce with a new name, character and use. We are of the opinion that the imported foreign materials and components which are processed and incorporated into the [X] are substantially transformed into a product of the U.S. In the U.S., various foreign and domestic materials are processed into distinctive components, such as selenium drums, PCB's, electrical harnesses, metal and plastic components, and the seven described subassemblies, which are then assembled to create the [X] photocopy machine. The production of the [X] involves over 1100 parts and numerous different operations, requires a significant period of time, considerable cost, as well as skill, attention to detail and quality control. The [X] clearly emerges as a new and different article with a distinctive name, character and use different from that possessed by the numerous components and materials from which it is made. The packaging abroad of U.S.-made products will not preclude classification under this tariff provision when there is no improvement in condition or advancement in value of the products themselves, apart from their containers. See, United States v. John v. Carr & Sons, Inc., 69 Cust.Ct. 78, C.D. 4377 (1972), aff'd 61 CCPA 52, C.A.D. 1118 (1974), in which the court stated that absent some alteration or change in the article itself, the mere repackaging of the article even for the purpose of resale to the ultimate consumer, is not sufficient to preclude tariff treatment under item 800.00, Tariff Schedules of the United States (TSUS) (the precursor to subheading 9801.00.10, HTSUS). While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. See, Border Brokerage Company Inc. v. United States 65 Cust.Ct. 50, C.D. 4052, 314 F.Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970). We have previously held that testing/inspecting results in an advancement in value where the testing is required by law or regulation. See, C.S.D. 89-27(6), 24 Cust.Bull. (1989) (HRL 554838 dated October 31, 1988, which held that electronically testing condoms abroad advances their value by making an unmarketable product marketable). However, testing/inspecting  merely as part of the manufacturer's internal quality control is not deemed to advance in value or improve in condition the product. See, HRL's 057553 dated November 1, 1979, and 052042 dated July 27, 1979. We have also ruled that cleaning abroad to restore an article to the condition in which it left the U.S. does not result in an advancement in value and improvement in condition. See, T.D. 56153(1) dated February 27, 1964 (cleaning and mending rice bags constituted a restoration of the bags to the condition in which they left the U.S. and not an advancement in value or improvement in condition within the meaning of item 800.00, TSUS). However, sending articles abroad to be cleaned is considered an advancement in value and improvement in condition. See, 067432 dated October 6, 1981 (exporting work gloves to Canada for a cleaning operation will disqualify the gloves for duty-free treatment under item 800.00, TSUS). Based on the information provided, we are of the opinion that the cleaning and testing operations will not advance in value or improve in condition the [X]. You stated in a telephone conversation with a member of my staff that the cleaning operation is performed to remove any dust that may have accumulated during shipment or to remove lubrication grease used during shipment to protect the selenium drum during shipment. You further stated that the testing involved is merely performed for manufacturer's control to ensure that the [X] is functional. As the mere cleaning, testing and repackaging of the [X] abroad does not advance in value or improve in condition the U.S. product, the [X] will be eligible for the duty exemption under subheading 9801.00.10, HTSUS, when returned to the U.S. Applicability of country of origin marking requirements Regarding country of origin marking requirements, section 304 of the Tariff Act of 1930, as amended (19 u.s.c. 1304), generally provides that all articles of foreign origin (or their containers) imported into the U.S. are required to be legibly, conspicuously, and permanently marked to indicate the country of origin to an ultimate purchaser in the U.S. For purposes of this statute, "country of origin" means the country of manufacture, product 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" (See, section 134.l(b), Customs Regulations (19 CFR 134.l(b)). As nothing is done to the [X] while it is abroad except for cleaning and testing, a substantial transformation does not occur. A photocopy machine is exported from the U.S. and a photocopy machine is returned to the U.S. Since the [X] is a  undergoing a substantial transformation while abroad, it is excepted from country of origin marking requirements pursuant to 19 CFR 134.32(m) and, therefore, it may enter the U.S. unmarked. However, this is not determinative of whether the marking "Made in the U.S.A." may appear on the [X]. According to 19 CFR 134.31, marking requirements provided for in any other provision of any law, such as those of the Federal Trade Commission and other agencies must be complied with also. A determination as to whether the [X] may be marked "Made in the U.S.A." is within the province of the Federal Trade Commission. We recommend that you contact that agency at 6th and Pennsylvania Avenues, N.W., Washington, D.C. 20508, before you undertake to mark your products. HOLDING: Based on the information submitted, we are of the opinion that the imported foreign materials are substantially transformed into a product of the U.S. when incorporated into the [X] photocopy machine. As the [X] is not advanced in value or improved in condition while abroad by the cleaning, testing, and packaging operations, it will qualify for the duty exemption under subheading 9801.00.10, HTSUS, when imported into the U.S., upon compliance with the documentary requirements of 19 CFR 10.1. The operations performed abroad to the [X] do not substantially transform it. Therefore, upon reimportation, the [X] is exempt from marking as a product of the U.S. exported and returned. Sincerely, JOHN DURANT John Durant, Director Commercial Rulings Division