HQ 555045

July 14, 1989

CLA-2 CO:R:C:V 555045 DBI

CATEGORY: Classification

Mr. Adolfo Loera

6044 Gateway East

Suite 506

El Paso, Texas 79905

RE: Eligibility of certain cable television equipment for duty-

free treatment under the Generalized System of Preferences

Dear Mr. Loera:

This is in response to your letter of October 23, 1987, on

behalf of Texscan Corporation, requesting a ruling that certain

cable television equipment assembled in Mexico is eligible for

duty-free treatment under the Generalized System of Preferences

(GSP). You also request advise concering the classification of

the merchandise. We regret the delay in responding to your

request.

FACTS:

You advise that your client wishes to obtain duty-free

treatment under the GSP for certain cable television distribution

equipment which is currently being assembled in Mexico. The

products consist of two main lines of cable television

electronics equipment with 400 to 500 slight variations.

You state that the description of the \"trunk station\" is

representative of the other assemblies, including the bridge

amplifier module, diplex filter module, distribution passive

device, multipoint distribution passive device, automatic level

and slope module, trunk amplifier module, reverse amplifier

module and multichannel multipoint distribution device. The

first step is the production of the base and cover. These

components are subject to the following steps:

\(1\) Drill and tap holes and mill seal all surfaces.

\(2\) Deburl, wash, vacuum impregnate and apply conversion

coating.

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\(3\) Test for water leakages under controlled air pressure.

The assembly of the input and output modules consist of the

following steps:

\(1\) Cut enamel wires to specified lengths. Wind manually

and automatically the chokes and tin leads. Inspect visually.

\(2\) Preform leads of discrete components manually or

automatically. Preform and cut wires. Install eyelets in PCB\'s.

\(3\) Assemble components of steps 1, 2, and 3 in the PCB\'s.

Inspect visually.

\(4\) The assembled PCB\'s are wave soldered, cleaned and all

leads at the bottom are cut.

\(5\) Certain wires and components are soldered to the PCB\'s

manually.

\(6\) Some hardware and connectors are installed.

\(7\) All PCB\'s are installed in the relative chassis and

more hardware is installed.

\(8\) Unit is visually inspected.

\(9\) Align and test for flatness response, return less and

insertion loss per Test and Alignment Procedures.

\(10\) Unit is checked by quality control.

\(11\) Set aside for final assembly.

The production of the power supply consists of the

following:

\(1\) Cut enamel wires to specified length.

\(2\) Wind manually and automatically the wires around

toroids. Tin leads. Cut leads. Inspect visually.

\(3\) Preform leads of discrete components manually and

automatically. Preform and cut wire harness as specified.

Install eyelets in PCB. Inspect visually.

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\(4\) Assemble two cables with sockets and ties.

\(5\) Silkscreen plastic cover.

\(6\) Machine base plate.

\(7\) Assemble resistors, capacitors, transformers, diodes,

I.C. Inspect visually.

\(8\) Wave solder the assembled PCB. Clean. Cut all leads

at the bottom of the PCB.

\(9\) Some components, wires and hardware are assembled as

secondary operation.

\(10\) Mount the assembled PCB on the Base Plate. Inspect

visually.

\(11\) Test for continuity, output voltage range, ripple,

line and load regulation, input and output overvoltage

protection, voltages at test point and overcurrent protection.

\(12\) Secure plastic cover with proper hardware.

\(13\) Unit is checked and tested by quality control.

\(14\) Set aside unit for final assembly.

The final assembly consists of the following steps:

\(1\) Install the input module, output module and the power

supply in the housing with the proper hardware.

\(2\) Pack unit with the specified corrugation.

\(3\) Unit is checked by quality assurance.

You claim that the assembly process of the printed circuit

boards, the number of steps required, the careful attention to

detail and quality control, and the large number of discrete

components assembled by specially trained personnel is sufficient

to constitute substantial transformation of the component parts

into a PCB, which is a new and different article of commerce.

You contend that the assembly of the PCB with the remaining

components of the articles constitutes a second substantial

transformation.

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ISSUE:

Whether the operations performed on the component parts of

the cable television equipment result in a double substantial

transformation, thereby enabling the cost or value of the

constituent material to be counted toward the 35 percent value-

content requirement for purposes of the GSP.

LAW AND ANALYSIS:

Under the GSP, eligible products of a designated

beneficiary developing country (BDC) which are imported directly

into the U.S. qualify for duty-free treatment if the sum of the

cost or value of the constituent materials produced in the BDC

plus the direct costs involved in processing the eligible article

in the BDC is at least 35 percent of the article\'s appraised

value at the time of its entry into the U.S. See 19 U.S.C. 2463.

The cost or value of materials which are imported into the

BDC to be used in the production of the article, as here, may be

included in the 35 percent value-content computation only if the

imported materials undergo a double substantial transformation in

the BDC. That is, the non-Mexican components must be

substantially transformed in Mexico into a new and different

intermediate article of commerce, which is then used in Mexico in

the production of the final imported article, the cable

television equipment. See 19 CFR 10.177(a).

The test for determining whether a substantial

transformation has occurred is whether 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 Inc. v. United States, 69 CCPA 152, 681 F.2d 778

(1982).

We have previously held that the assembly of a printed

circuit board from several component parts produced a

substantially transformed constituent material of a rechargeable

flashlight, with a new name and function different from its

component parts. Therefore, the cost or value of the printed

circuit boards assembled in Mexico was able to be included

towards the 35 percent value-content requirement of the GSP as

consituent material costs. We further held that the

incorporation of the printed circuit board into the flashlight

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constitutes a second substantial transformation, resulting in a

product with a distinct name, use and character. See also ruling

554850, September 10, 1988).

In the present case, we find that the manufacture of the

PCB constitutes a substantial transformation. The separate

component parts imported into Mexico acquire new attributes, and

the PCB\'s differ in character and use from the component parts

from which it is composed. The production of the PCB\'s involve

cutting, shaping, winding, tinning, soldering and quality control

testing, which increase the components\' value and endow them with

new qualities which transform them into an article with a

distinct new commercial identity.

We also find that the assembly of the PCB\'s with the base,

cover, and power supply, creating the final product, results in a

second substantial transformation. The assembly of the

constituent materials (the PCB\'s) changes their character and

results in a finished product which is recognized as a new and

different article of commerce with a distinct name, character and

use.

Additionally, the assembly process involves a large number

of components and a significant number of different operations,

requires a relatively significant period of time as well as

skill, attention to detail, and quality control, and results in a

significant economic benefit to the BDC from the standpoint of

both the value added to each component part and the overall

employment generated by the operations. C.S.D. 85-25, 19 Cust.

Bull. 544 (1984).

Finally, these operations are not the type of \"pass-

through\" operations which Congress intended to prohibit from

receiving GSP benefits. \"Keeping in mind the GSP\'s fundamental

purpose of fostering industrialization in beneficiary developing

countries,\" we believe that the operations performed in this

instance are the type of substantial operations contemplated by

the GSP statute. See Torrington v. United States, 764 F.2d at

1571\.

Information concerning the proper tariff classification of

the products will be provided in a separate letter.

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HOLDING:

On the basis of the information submitted, it is our

opinion that the cost or value of the constituent materials

(PCB\'s) used in the assembly of the cable television equipment

may be included for purposes of satisfying the GSP 35 percent

value-content requirement.

Sincerely,

John Durant

Director, Commercial

Rulings Division