## Facts

- Texas Instruments Inc. (TI) imported “cue modules,” electronic camera parts consisting of a flexible circuit board populated with integrated circuits (ICs), a photodiode, a capacitor, a resistor, and a jumper wire.
- Customs classified the modules as “other parts of photographic cameras” and assessed a 10% ad valorem duty; TI did not dispute classification.
- TI sought duty-free entry under the Generalized System of Preferences (GSP), asserting the articles were produced in Taiwan, a beneficiary developing country.
- Key inputs used in Taiwan included U.S.-origin silicon slices containing multiple fabricated chips, lead frame strips, mold compound, gold wire, and chip-mounting materials (epoxy or gold preforms).
- In Taiwan, the silicon slices and other materials underwent multi-step processing to produce finished ICs and photodiodes, including: separating chips from the slices (“scribe and break”), mounting chips on lead frames, wire-bonding with gold wire, encapsulation in mold compound, and testing/finishing.
- The finished ICs and photodiodes were then assembled onto flexible circuit boards with other discrete components to form the cue modules.
- The Court of International Trade granted summary judgment to the Government, holding the modules were not entitled to GSP duty-free treatment.
- TI appealed to the United States Court of Customs and Patent Appeals.

## Issues

1. Whether processing in Taiwan substantially transformed imported silicon slices and related materials into new articles of commerce (ICs and photodiodes) that qualify as “materials produced” in a beneficiary developing country for GSP purposes.
2. Whether, counting those components as beneficiary-country materials (together with direct processing costs), the cue modules satisfied the GSP requirement that at least 35% of appraised value derive from such materials and processing.

## Decision

- The appellate court reversed the Court of International Trade.
- The court held that the Taiwan operations substantially transformed the imported inputs into distinct ICs and photodiodes.
- Because those ICs and photodiodes were then used to produce the cue modules, their cost or value could be counted as “materials produced” in Taiwan toward the 35% GSP value-content requirement.
- The cue modules therefore qualified for duty-free entry under the GSP.

## Legal Principles

- For GSP eligibility, duty-free treatment is available only if, among other requirements, the sum of (1) the cost or value of materials produced in the beneficiary developing country and (2) the direct costs of processing there is at least 35% of the appraised value at entry.
- “Materials produced” in a beneficiary developing country includes materials that result from a substantial transformation in that country—i.e., processing that creates a new and different article of commerce with a distinct name, character, or use.
- Multi-step semiconductor/device manufacturing (separating chips, mounting, wire-bonding, encapsulation, and testing/finishing) may constitute substantial transformation rather than mere assembly.
- When imported materials are substantially transformed into intermediate components in the beneficiary country and those components are then incorporated into the final exported article, the intermediate components’ value may be treated as beneficiary-country materials for the 35% calculation (a double substantial-transformation analysis).

## Conclusion

The court held that Taiwan’s manufacturing operations converted imported semiconductor inputs into marketable ICs and photodiodes and that incorporating those components into cue modules allowed their value to be counted toward the GSP’s 35% requirement, entitling the imported cue modules to duty-free treatment.


Texas Instruments Inc. v. United States, 681 F.2d 778 (C.C.P.A. 1982)