Final Determination - U.S. Government Procurement; Country of origin of Computer Monitors (VDT's}(ADP Display Terminals}; Substantial Transformation; Title III, Trade Agreements Act of 1979 (19 U.S.C. 2511); Subpart B, Part 177, customs Regulations (19 CFR 177.21); Desktop IV.

HQ W734977 April 2, 1993 MAR-2-05 CO:R:C:V W734977KR CATEGORY: MARKING Frederick L. Ikenson, Esq. Larry Hampel, Esq. Law Office of Frederic L. Ikenson, P.C. 1621 New Hampshire Avenue, N.W., Washington, D.C. 20009 RE: Final Determination - U.S. Government Procurement; Country of origin of Computer Monitors (VDT's}(ADP Display Terminals}; Substantial Transformation; Title III, Trade Agreements Act of 1979 (19 U.S.C. 2511); Subpart B, Part 177, customs Regulations (19 CFR 177.21); Desktop IV. Dear Sirs: This is in response to your request, dated January 28, 1993, as supplemented on February 16, 1993, for a final determination under subpart B of Part 177, customs Regulations (19 CFR 177.21 et seq.). Under these regulations, which implement Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. 2511 et seq.), the customs Service issues country of origin advisory rulings and final determinations as to whether, for the purpose of granting waivers of certain "Buy American" restrictions in U.S. law or practice for products offered for sale to the U.S. Government, an article is or would be a product of a designated foreign country or instrumentality. This final determination concerns the country of origin of certain computer monitors which are being offered to the U.S. Air Force in a procurement designated under Air Force Solicitation No. F01620-91-A212, also referred to as "Desktop IV". You are counsel to Zenith Data Systems (ZDS), one of the bidders in Desktop IV. You also serve as counsel to [REDACTED], a supplier to ZDS. This latter entity will be the United States importer of the computer monitors in question, which in turn will be sold by Zenith to the Air Force. Accordingly, … is a party-at-interest within the meaning of 19 CFR 177.22(d)(1) and is entitled to re this final determination. For convenience, although is formally the party-at-interest requesting this final determination, we shall refer to the Zenith or ZDS request.  - 2 - The monitors are to be assembled in a “designated” country partly from materials produced in non-designated countries, and you urge a final determination that the monitors are substantially transformed in the designated country so as to become eligible products. Amn eligible product is an article which is a product of a country or instrumentality which has been “designated” by the President pursuant to 19 U.S.C. 2511 (b) as eligible for waiver of “Buy American” restrictions. As provided at 19 U.S.C. 2518 (4)(B), an article which consists in whole or in part of materials from another (non-designated) country or instrumentality must have been substantially transformed in a designated country or instrumentality into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed in order to be considered a product of the latter country or instrumentality. Your original request of January 28, 1993, concerned final assembly operations for the monitors which were to be conducted in the U.S. As we have advised you, although Customs is not generally precluded as a matter of law from ruling as to whether a substantial transformation is effected in the United States, the particular provisions of Title III preclude the issuance of a Title III final determination concerning substantial transformations claimed to take place in the U.S. The statutory authorization at 19 U.S.C. 2515 (b) 91) extends to determinations as to whether “… an article is or would be a product of a foreign country or instrumentality designated pursuant to section 2511 (b) of this title.” As the United States, through the President, is the designating authority and is not authorized to “designate” the country or instrumentality. Customs is in consequence not authorized to render final determinations concerning whether an article is a product of the U.S. for purposes of Title III of the Trade Agreements Act. On this point Customs has sought and followed the advice of other government offices with responsibility in the subject area. Our position is that set out by the responsible federal offices. See Memorandum of January 12, 1993, from the Office of General Counsel, USTR, to the Office of Federal Procurement Policy regarding GSA retread tire procurement, advising that a product substantially transformed in the U.S. is not covered by the waiver provisions of the Trade Agreements Act. Accordingly, this final determination will address only the final CDT assembly operations performed in the “designated country”, and not those describes in your initial submission as occurring in the U.S. The record for consideration thus consists of the initial submission, as modified by that of February 16, 1993. The entire original factual pattern is retained, except  - 3 - that the place of final assembly is to be a designated country instead of the United States. Contained in your submission is material, including the name of the party-at-interest, which you claim as business proprietary information. You request that Customs make no public disclosure of this information. We have agreed to your request. Should other persons request public disclosure of the data under the Freedom of Information Act or otherwise, this office will provide you with the opportunity to defend your interests in confidential treatment. FACTS: Your submission states that ... plans to import automatic data processing video display terminals ("VDTs"), also called computer monitors, as equipment for sale to the Air Force in Desktop IV. The final assembly of these VDTs will occur in [REDACTED] at [REDACTED] affiliate [REDACTED], from parts imported from various countries. The VDTs are being made to the explicit direction of [REDACTED]. You believe that the final assembly in [REDACTED] of the VDTs constitutes a substantial transformation of the components, such that the assembled VDT's become products of that country for purposes generally of the U.S. customs Laws and specifically, within the meaning of Title III of the Trade Agreements Act, as amended. The major components of the VDT are: An integral tube component ("ITC"), which consists of a cathode ray tube ("CRT") with a mounted yoke attached. The permanent attachment of a yoke to a CRT is known in the industry as "yawning", a term derived from the phrase "Yoke Attachment Method". The integral tube component is produced in Japan. A degaussing ring or shield which is mounted around the perimeter of the ITC face plate. This is produced in [REDACTED]. A plastic bezel or cabinet front piece to which the ITC a-n-d degaussing ring are attached. The bezel is produced in [REDACTED]. A printed circuit board ("PCB") or chassis board, which is mounted on guide rails attached to the ITC assembly. A video PCB (or CRT board) which is mounted to the pin connectors of the CRT. A plastic tub or case back which encloses all parts of the VDT and is mounted to the bezel. The tub has a swivel base attached. The tub and base are produced in [REDACTED].  - 4 - Various cables, wires, connectors, wire ties, and miscellaneous hardware (fasteners), used to create all required electrical connections between the components and to physically integrate the components. These components may be products of various countries. The original Zenith submission of January 28, 1993, set forth three final assembly scenarios, all of which took place in the U.S. As discussed above, Customs believes it is lacking in statutory authority under Title III to issue a binding final determination concerning substantial transformations occurring in the U.S., as the U.S. is not a “designated country under U.S. law. On February 16, 1993, an additional submission presented three new scenarios, in which final assembly was to be performed in [REDACTED] by [REDACTED]. This nation is a “designated country within the meaning of 19 U.S.C. 2511(b). see section 25.401, Federal Acquisition Regulations. You represent that the three [REDACTED] final assembly scenarios are in all respects the same as the three U.S. final assembly scenarios. We have renumbered these scenarios for purposes of this final determination as Scenarios I, II, and III. Scenario I Prior to importation into the country of final assembly the Japanese ITC Is shipped to [REDACTED] where the degaussing ring and the plastic bezel are attached. The main chassis board is mounted on to guide rails attached to the ITC assembly. The video board is then connected to this assembly. Certain wires are attached to each circuit board. The country of origin of all other materials, supplies, and miscellaneous parts (item 7 above) is [REDACTED]. The cabinet back is temporarily attached to the bezel, covering all the components for convenience of transport, and then the unit is shipped for final assembly in packing to be reused when shipping to [REDACTED] and its customers. Scenario II The ITC imported into the country of final assembly [REDACTED] directly from Japan. The degaussing ring, bezel, and cabinet tub are imported from [REDACTED]. The PCB is populated in [REDACTED] for convenience of transport and shipped to [REDACTED]. The main chassis board and video board are connected to the electronic components in [REDACTED], but they are not paired together, not is any connection made between them prior to importation. The country of origin of all other materials, supplies, and miscellaneous parts 9item 7 above) is unknown, and may be imported into the country of final assembly  - 5 - of [REDACTED] from various countries. The final assembly consists of attaching the degaussing ring and plastic bezel to the ITC, mounting the main circuit board and on the guide rai.ls and attaching the video circuit board, and connecting all the wires and pins. Scenario III This scenario is similar to Scenario II except that the chassis board and video board in this alternative are populated in the country of final assembly [REDACTED] The country of origin of the bare PCBs and the devices and components that connect them may vary. The ITC is imported directly from its country of origin. The degaussing ring, bezel, and cabinet back are imported from [REDACTED] The country of origin of all other materials, supplies, and miscellaneous parts (item 7 above) is unknown and may be imported from various countries. The final assembly differs from Scenario II only in that both circuit boards are populated prior to installation. Final Assembly Operations It is stated that in all the scenarios, when the bezels and backs are attached for transport, they are not "mated" to the attached pieces. The pieces are attached only temporarily for shipping purposes for protection of the parts. After arrival at the [REDACTED] facility for final assembly the parts are separated into in entry and are not predestined to be rejoined. You state that only after importation into [REDACTED] for final assembly are the major components of the VDTs (the ITC, the PCBs and the cabinet backs) integrated into a single unit. Physical integration of the components is achieved by operations such as screwing together components, inserting or attaching wires, coupling pin connectors, and soldering electrical connections. In all three scenarios of the VDT final assembly there are testing, aligning, and adjusting operations in [REDACTED] which require a great deal of skill, time and precision to perform, including the use of highly specialized tools. Over 50 percent of the active cycle time (other than burn-in and aging) is devoted to this activity. Partial Withdrawal of Request for Final Determination By letter dated Aprill, 1993, Zenith exercised its right under 19 CFR 177.6 to withdraw a portion of its request. This is in accord with normal customs ruling procedures and will be granted. Accordingly, this final determination will not consider whether the operations designated herein as Scenario I result in a product of a designated country. This partial withdrawal is without prejudice to Zenith's  - 6 - right to submit a later request concerning Scenario I, and Zenith has indicated its intention to do so. Zenith advises that in any event, the operations under Scenario I “bear no particular relation to the material facts currently before the [GSA] Board [of Contract Appeals].” Zenith indicates, and we concur, that this withdrawal will permit Customs to proceed with issuance of this decision with respect to the remaining Scenarios. Issue: Do the final assembly operations effect a substantial transformation of the components such that the finished video display terminal (VDT) may be considered a product of a country “designated” pursuant to 19 U.S.C. 2511 (b)? LAW AND ANALYSIS: Introduction As prescribed under Title III of the Trade Agreements Act, the origin of an article not wholly the growth, product, or manufacture of a single country is to be determined by the rule of substantial transformation. 19 U.S.C. 2518(4). Such an article is not a product of a country unless it has been substantially transformed there into a new and different article of commerce with a name, character, or use different from that of the article or articles from which it was so transformed. We note that the appearance of the term in the Trade Agreements Act is one of the few (if any) instances in which the test of substantial transformation is names in statute, the concept is largely a creation of the courts as they have construed various customs law principles, and today has broad application in many areas of customs law. As the submission recites, the term and concept emerged from judicial efforts to evaluate whether “manufacturing” had occurred for purposes of classification and duty drawback. The test now is applied broadly for determining an article’s origin for country of origin marking and duty purposes, eligibility for favorable duty treatment under the Generalized System of Preferences, status as a product of the U.S. exported and returned, and other purposes. Many years’ accretion of decisions and practice have tended to introduce confusing elements. In particular, the concepts of “manufacture” and “assembly” have proved troublesome to parties affected and bodies charged with constructing substantial transformation. We believe the Supreme Court portrayed the definitional problem aptly in Anheuser-Busch Brewing Assn. v. United States when it described as involving “impracticable niceties” attempts to further define “manufacture” beyond its first sense as fabrication or composition of a new article from an imported ingredient of part. 207 U.S. 556, 563 (1908). This  - 7 - is especially so because the terms "manufacture" and "assembly" have been given specialized meanings for certain customs law purposes not directly related to substantial transformation. The GSBCA Protest Decision Customs has reviewed the public portions of the December 23, 1992, decision of the General Services Administration Board of contract Appeals (GSBCA) in Desktop IV. In its decision the GSBCA found that the assembly process undertaken in the United States to produce VDT's on behalf of Zenith was not sufficient to constitute substantial transformation within the meaning of Title III of the Trade Agreements Act. In view of Zenith's April 1, 1993, withdrawal of its request with respect to Scenario I, which we understand to be materially indistinguishable from the facts considered by the GSBCA, we shall offer no comment on that decision. Substantial Transformation Applied - Scenarios II and III The inquiry must resolve whether, under the two remaining Scenarios, the assembly or manufacture in the designated country results in an article having a new name, character, or use. A secondary, supporting inquiry is whether the operations are complex, require skill, entail expense, or add value; these findings are ordinarily corroborative of the new name, character, or use finding. In our experience these inquiries are highly fact-and-product specific; generalizations are troublesome and potentially misleading. The determination is in this instance 11 mixed question of technology and customs law, mostly the latter.” Texas Instruments, Inc. v. United States, 681 F.2d 778, 783 (C.C.P.A. 1982). Reference must be had principally to the judicial and administrative decisions most closely related to the articles and processes under consideration. Televisions and computer monitor are comparable articles, and customs has had occasion to issue rulings applying the substantial transformation principle to both. In HQ 711967 (March 17, 1980) customs held that television sets which were assembled in Mexico with printed circuit boards, power transformers, yokes and tuners from Korea and picture tubes, cabinets, and additional wiring from the U.S. were products of Mexico for country of origin marking purposes. The U.S. and Korean parts were substantially transformed by the processing performed in Mexico and all the components lost their individua r identities to become integral parts of the new article. This ruling also found that the assembly process was one requiring technical skill.  - 8 - In HQ 732170 (January 5, 1990), Customs considered the case of a backless television cabinet containing a tuner, speaker and circuit board imported into the U.S., and there combined with a color picture tube, deflection yoke, electron beam bender and degausser coil, and a remote control unit assembled into the chassis. The U.S. technicians placed wire ties and attached the cabinet back, tested, aligned and packaged the televisions. Customs held the domestic operations substantially transformed the imported chassis and components. The operations were more than mere combining; the parts lost their respective identities in an assembly process that required technical skill. But see HQ 730515 (June 29, 1987} (holding that there was no substantial transformation when the television chassis or cabinet was combined in the U.S. with the television set. No information provided on complexity of assembly). In HQ 734097 (November 25, 1991), customs considered computer video terminal housings, containing video electronics but no logic boards, manufactured in Korea. After importation into the U.S. four components: the terminal logic board, key switches, T-connector cables, and custom keyboards were installed into the empty shells and the video unit was aligned to receive new communication protocol transmissions. The addition of the logic boards was determined to create a new article. See HQ 734213 (February 20, 1992) (finding a substantial transformation when a computer monitor was changed into a touchscreen monitor because the touchscreen monitor had a different use than the plain computer monitor). See also HQ 734045 (October 8, 1991) (finding that the combining of subassemblies and other components of lap-top and notebook personal computers was a substantial transformation). Even though no cost or skill data was submitted, customs accepted that considerable skill and cost was involved, and held that this installation amounted to a substantial transformation in the U.S. into a new article - a functional computer terminal. In a ruling involving Zenith Electronics Corporation, HQ 555660 (September 18, 1990), customs determined that individual parts of a computer monitor were substantially transformed for Generalized system of Preferences ("GSP") purposes, and that the assembly of the parts effected a second, or "double" substantial transformation. There were five distinct assemblies or components: The deflection yoke - a series of coils made up of ferrite cores wound with conduction wire and integrated with multiple metal and plastic frame components and wire lead connectors. The power supply module, video module, and deflection module - individual electronic components produced by combining numerous electronic devices and other parts, and mounting them on - 9 - The LED assembly - produced by inserting an LED into a plastic housing, attaching LED leads to conducting wires, inserting the wires into an insulating tube, and affixing pins and terminals to the lead wires. The frame module assembly - production involved positioning and affixing the video module, deflection module, power supply module, customer control assembly, and video connector cable to the metal frame. The integral tube component CITC) - also known as the main color cathode ray tube (CRT) or CRT/ITC. The production of the CRT/ITC assembly involved "lamming" (lamination) and "yamming" (yoke attachment) operations. The final assembly - attaching the lammed and yammed CRT/ITC assembly to the bezel or escutcheon of the monitor by means of a mounting band and brackets, installing the LED assembly and degaussing coil, and testing this advanced assembly. Next, the escutcheon assembly is joined to the frame assembly and the unit undergoes final testing. Finally, the cabinet back is installed and the tilt/swivel base is attached. Customs held that while the final assembly of the monitors did "not appear to be exceedingly complex," it did effect a substantial transformation into a new and different article (the computer monitor) with a new name, character, and use. The decision opined, however, that this final assembly, if considered in isolation, probably would not qualify as a substantial transformation. Zenith's legal position can be divided into two major points. First, it is argued that customs previously has recognized numerous assembly operations which are far less sophisticated, and involve fewer, simpler components and require far less attention to detail than the VDT assembly. See Zenith submission of January 28, 1993, at 18-20, n.16. Second, Zenith contends that assembly attended by the "extensive concentration of technical skills," as here, should be considered to effect substantial transformation, as previously recognized by customs in the various television and VDT decisions recited above, and others. See id. at 20-21. However, the element of technical skill is not fully reflected in these earlier decisions, suggests Zenith, even though its recognition is implicit in the outcomes of the rulings. The final integration of the components into operational VDT's is not accomplished solely through assembly, but also and essentially by means of the alignment and adjustment  - 10 - operations which do not fall within traditional notions of assembly. This latter line of argument has been presented.to customs in extensive detail with respect to TV's and monitors for the first time in this matter. We are not prepared to rule that adjustment and alignment alone of the VDT components is sufficient to effect transformation. For one thing, as presented in this case, we question whether it is practicable to distinguish the adjustment and alignment operations from the testing which is done at the same time. It is a rule of long standing that testing, however sophisticated, cannot result in substantial transformation. Texas Instruments. Inc. v. United States, 681 F.2d 778, 782 (C.C.P.A. 1982). It is clear from past decisions and the extensive presentation here, especially Confidential Exhibit l, that the alignment and adjustment operations, when coupled with the assembly operations, must be given weight. These operations are in some respects similar to others in the electronics and information technology field which involve programming, which customs and the courts have recognized as effecting substantial transformation. See Data General Corp. v. United States, 4 C.I.T. 182 (1982) ("...programming a PROM is no less a 'substantial transformation' than the manual interconnection of transistors, resistors and diodes upon a circuit board..."); HQ 733085 (June 13, 1990)(programming of security ID cards effects substantial transformation of the blank cards). However, we do not believe that these adjustment and alignment operations should be viewed as doing more than completing the final assembly. They are comparable for purposes of substantial transformation with the process of formatting a computer diskette. In HQ 732087 (February 7, 1990), customs ruled that a blank computer diskette is substantially transformed when a software program is copied onto it. By contrast, in HQ 732870 (March 19, 1990), customs ruled that formatting of a diskette, when the diskette was marketed in its formatted condition as a diskette and not as an article of software, did not effect a substantial transformation. The formatting was held not to change the character or use of the diskette but merely added a feature. On the same rationale, even though the adjustment and alignment operations are complex, we cannot regard them as creating an article with a new name, character, or use. The operations may serve to corroborate the loss of separate identity of the diverse components, but only if a new article of commerce emerges from the assembly. Thus, our conclusions must rest in major part upon the character and results of the physical assembly to determine which of the three Scenarios may be considered to effect substantial transformation. In Scenario II, the Integral Tube Component is imported from Japan directly to [REDACTED] and the PCB chassis board and the video CRT board are manufactured in [REDACTED]. The chassis board  - 11 - and video board are connected to the electronic components in [REDACTED]. The housing "tub" and the bezel are attached in – for shipping purposes. In this scenario the components do not acquire the essential character of a VDT (See GRI 2(a), Harmonized Tariff Schedule of the United States (HTSUS)) regarding unfinished articles) until the ITC is assembled therein. We are in no doubt that under our precedents the combining of the Japanese ITC with the other components from [REDACTED] in [REDACTED] creates a new article which is a product of the latter country. See HQ 711967 (Mexican operation combining U.S. picture tubes and cabinets with Korean PCB's power transformers, yokes and tuners effects transformation into a product of Mexico); HQ 732170 (assembly in U.S. of U.S. tube, deflection yoke, electron beam bender, and degausser coil with foreign origin tuner, speaker, and circuit board creates a U.S. product). Both decisions identified the final assembly operations as complex and requiring technical skill. Similarly, in scenario II, Japanese ITC and [REDACTED] PCB's, degaussing rings, bezels, and other components lose their separate identities when subjected to final assembly into a finished VDT. A substantial transformation takes place in [REDACTED], and the VDT is a product of that country. Scenario II includes even more extensive processing as part of the final assembly. Most notably, the main chassis board and video bard are populated in the country of final assembly. As imported into [REDACTED]the various components retain their identities as products of Japan and [REDACTED]. By reason of the operations in [REDACTED] the diverse components lose their separate identified which are subsumed within a new, commercially distinct article having a new name, character, and use. This finding is given additional weight by the populating of the printed circuit boards in [REDACTED]. Thus, as compared with Scenario II, there is significant additional componentry of [REDACTED] origin incorporated into the final VDT. Holding: Automatic data processing video display terminals whose place of final assembly is a "designated country" for purposes of Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. 2511), are determined by reason of substantial transformation to be products of that country in Scenarios II and III as set forth above. Notice of this final determination will be given in the Federal Register as required by 19 CFR 177.29. Any party-at-interest other than the party which requested - 12 - this final determination may request, pursuant to 19 CFR 177.31, that customs reexamine the matter anew and issue a new final determination. Any party-at-interest may, within 30 days after publication of the Federal Register notice referenced above, seek judicial review of this final determination before the Court of International Trade. Sincerely, Harvey B. Fox Director, Office of Regulations and Rulings