CLA-2 OT:RR:CTF:TCM H168212 RES
Mr. M. Jason Cunningham
Sonnenberg & Anderson
125 South Wacker Drive
Suite 1825
Chicago, Il 60606
RE: Reconsideration of New York Ruling Letter N155818, dated April 22, 2011; Country of Origin Marking of Exhaust System Components from Various Countries.
Dear Mr. Cunningham:
This is in response to your letter dated May 24, 2011, on behalf of your client Tenneco Incorporated (“Tenneco”), requesting that U.S. Customs and Border Protection (“CBP”) reconsider New York Ruling Letter (“NY”) N155818, dated April 22, 2011. In NY N155818, CBP ruled that the imported exhaust system components did not undergo a substantial transformation during processing in the United States and were therefore not excepted from marking. In reaching our decision in this reconsideration, we considered the arguments Tenneco made in its May 24, 2011, memorandum and in a meeting with members of my staff on November 30, 2011. CBP has determined that NY N155818 is correct.
FACTS:
Tenneco imports, from various NAFTA and non-NAFTA foreign sources (such as South Africa), (1) ceramic honeycomb substrates with catalyst elements (“monolithic cores”), (2) catalytic converter assemblies (“converters”), (3) straight steel pipes, and (4) mufflers into the United States and uses them to manufacture four different exhaust systems for automobiles: (1) underfloor converter assembly; (2) front assembly; (3) converter takedown pipe assembly; and (4) strapped muffler. These four items are all assembled in the United States and are sold domestically to automobile manufacturers and auto parts merchants.
Tenneco requested on February 25, 2011, a binding ruling regarding the country of origin and marking of the four imported components. In response, CBP issued NY N155818. For the monolithic core (which is referred to as the catalytic converter in NY N155818), CBP ruled that it was not substantially transformed during the underfloor converter assembly manufacturing process, and that Tenneco was not the ultimate purchaser.
The strapped muffler is not at issue in this reconsideration because NY N155818 did not address that article. A separate ruling request will be made to the National Import Specialist to make a country of origin and marking determination for the imported components used to manufacture the strapped muffler. Regarding the other three exhaust systems, their assembly processes are discussed below.
Underfloor converter assembly: According to Tenneco, the underfloor converter assembly (“underfloor assembly”) is composed of four main components: a ceramic honeycomb substrate with catalyst elements (“monolithic core”), a ceramic fiber mat, steel blanks, and steel cones (“conical ends”), the latter three are U.S. made products. The monolithic core (figure 1) is imported from various foreign countries, such as South Africa and Mexico. The imported monolithic core is wrapped in a ceramic fiber mat, stuffed into a metal shell, and the conical ends are welded onto the metal shell’s open ends (figure 2) or created by mechanical elongation (figure 3).
Figure 1 Figure 2 Figure 3
The final product (figures 2 and 3) is the underfloor converter assembly, also known as a catalytic converter assembly.
Front assembly: The front assembly (figure 4 below) is composed of four main components: catalytic converter assembly, inlet pipe, outlet pipe, and flanges. The catalytic converter assembly (figure 5 below), is imported from various foreign sources, including NAFTA countries, while the inlet and outlet pipes and flanges are produced in the United States. The imported catalytic converter assembly is the same type of product in design and function as the underfloor converter assembly, in that both assemblies consist of a monolithic core inside a metal shell with open conical ends. The inlet pipe is welded to the inlet side of the converter assembly, and the outlet pipe is welded to the outlet end. Flanges are welded to the ends of the inlet and outlet pipes. The front assembly product is sold to U.S. customers for use in the purification of auto emission gases.
Figure 4 Figure 5
Converter takedown pipe: The converter takedown pipe assembly (“takedown pipe”) (figure 6 below) is composed of five main components: two catalytic converter assemblies, an inlet pipe, an intermediate pipe, and an outlet pipe. The catalytic converter assembly components, whether imported or domestic, are the same type of product in design and function as the underfloor converter assembly. According to Tenneco, at least one of the two catalytic converter assemblies is imported from various foreign sources, including Mexico or Canada, while the second catalytic converter assembly may be of U.S. or foreign origin. The three pipe components are of U.S. origin.
Figure 6
The inlet pipe is welded to the end of the primary catalytic converter assembly. The intermediate pipe is welded to the outlet end of the primary converter and the inlet end of the secondary converter assembly, connecting the two together. Finally, the outlet pipe is welded to the outlet end of the secondary converter. The converter takedown pipe is sold to U.S. customers for use in automobile exhaust systems to purify emission gases.
There are two different scenarios for the takedown pipe product: one uses two imported catalytic converters assemblies, and the second uses one imported and one domestic catalytic converter assembly. However, on the issue of whether an imported catalytic converter assembly undergoes a substantial transformation in the assembly operations of the takedown pipe, the distinction between the two scenarios is not relevant.
ISSUES:
Whether the components imported from non-NAFTA countries are substantially transformed in the United States for purposes of country of origin marking.
Whether the components imported from NAFTA countries become a good of the U.S. pursuant to the NAFTA Marking Rules.
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. § 1304 (2011)), 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 its container) will permit, in such a manner as to indicate to the 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 marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that 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. Friedlander & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940) (emphases added).
Part 134, U.S. Customs and Border Protection (CBP) Regulations (19 C.F.R. § 134 (2011)) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 134.1(b) defines “country of origin” as:
[T]he 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 this part [the marking regulations]; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, or use that differs from the original material subjected to the process. M.B.I. Merchandise Industries, Inc. v. United States, 16 C.I.T. 495, 502 (1992) (citing United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267, 270 (C.A.D. 98) (1940)). The question of whether a substantial transformation occurs for marking purposes is a question of fact; to be determined on a case-by-case basis. National Hand Tool Corp. v. United States, 16 C.I.T. 308, 311 (1992) (quoting Uniroyal Inc. United States, 3 C.I.T. 220 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983)).
When an article is substantially transformed or a good is processed in the U.S. in a manner that would result in the good becoming a good of the U.S. under the NAFTA Marking Rules, the article/good will be excepted from marking and the manufacturer or processor in the U.S. will be considered to be the ultimate purchaser of the article/good. See 19 CFR 134.35(a) and (b).
The components at issue are subjected to different assembly operations in the United States that result in three different end-goods. The primary assembly operation that Tenneco’s imported components are subjected to is welding to pipes and other components. Some other assembly operations include being wrapped inside a ceramic mat, placing inside a metal shell, and connecting pipes by bolts and nuts. As the imported articles will come from NAFTA and non-NAFTA countries, the analysis of these rules will be discussed in turn.
Imports from NAFTA Countries
Tenneco states that the articles at issue may be imported from either Mexico or South Africa. For those materials imported from Mexico or Canada, they are subject to the NAFTA Marking Rules pursuant to 19 CFR § 134.1(g), which defines a "good of a NAFTA country" as an article for which the country of origin is Canada, Mexico, or the United States as determined under the NAFTA Marking Rules. The NAFTA Marking Rules for determining country of origin for goods imported from a NAFTA country are set forth in 19 CFR § 102.11, which state in pertinent part:
The following rules shall apply for purposes of determining the country of origin of imported goods other than textile and apparel products covered by § 102.21.
(a) The country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
(b) Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rules of Interpretation 3, where the country of origin cannot be determined under paragraph (a) or this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good, or;
(2) If the material that imparts the essential character to the good is fungible, has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the basis of an inventory management method provided under the appendix to party 181 of this chapter.
(1) Underfloor Converter Assembly
In regard to the monolithic cores imported from a NAFTA country and used in the manufacture of the underfloor converter assemblies, Tenneco has not provided enough information to make a determination under §§ 102.11(a)(1) or (a)(2), therefore we analyze whether the articles would undergo the tariff shift required under § 102.11(a)(3) for country of origin marking purposes. The monolithic cores as imported from a NAFTA country are classified under subheading 8421.39.40, HTSUS. After Tenneco’s U.S. processing operations to produce the underfloor converter assembly, the final underfloor converter assembly products are classified under subheading 8421.39.40, HTSUS. The tariff shift rule set forth in § 102.20 for articles classified in subheading 8421.39.40, HTSUS, is as follows: “[a] change to subheading 8421.11 through 8421.39 from any other subheading, including another subheading within that group.” Here, the tariff shift is not met. The monolithic cores from a NAFTA country used to produce the underfloor converter assemblies would not meet the required tariff shift to be considered changed by manufacture for country of origin marking purposes.
Accordingly, § 102.11(b) of the hierarchical rules must next be applied. The monolithic core imparts the essential character to the underfloor converter assembly final product because it provides the sole functionality, which is to convert auto emission gases into non-toxic substances.
Therefore, the country of origin for marking purposes would be the NAFTA country the monolithic cores are imported from, and hence Tenneco would not be the ultimate purchaser of the monolithic cores when used in the production of the underfloor converter assemblies for country of origin marking purposes. The ultimate purchaser of the monolithic cores imported from a NAFTA country would be the customers who purchase or obtain the underfloor converter assemblies from Tenneco.
(2) Front Assembly
In regard to the catalytic converter assemblies imported from a NAFTA country and used in the manufacture of the front assemblies, Tenneco has not provided enough information to analyze whether the catalytic converter assemblies satisfy §§ 102.11(a)(1) or (a)(2), therefore we analyze whether the articles would undergo the tariff shift required under § 102.11(a)(3) for country of origin marking purposes. The catalytic converter assemblies as imported from a NAFTA country would be classified under subheading 8421.39.40, HTSUS. After Tenneco’s U.S. processing operations to produce the front assembly, the final front assembly product would be classified under subheading 8421.39.40, HTSUS. The tariff shift is not met. Therefore, the catalytic converter assemblies if imported from a NAFTA country would not meet the required tariff shift to be considered changed by manufacture under § 102.11(a)(3).
Accordingly, § 102.11(b) must be applied next. The imported catalytic converter assembly imparts the essential character to the front assembly final product because it provides the sole functionality of the front assembly, which is to convert auto emission gases into non-toxic substances.
Therefore, the country of origin for marking purposes would be the NAFTA country the catalytic converter assemblies are imported from, and hence Tenneco would not be the ultimate purchaser of the catalytic converter assemblies when used in the manufacture of the front assemblies for country of origin marking purposes. The ultimate purchaser of the catalytic converter assemblies imported from a NAFTA country and used in the manufacture of the front assemblies would be the customers who purchase or obtain the front assemblies from Tenneco.
(3) Converter Takedown Pipe Assembly
The analysis for the catalytic converter assemblies used in the takedown pipe is the same as the front assembly NAFTA analysis in the previous section. If the catalytic converter assemblies are imported from a NAFTA country and used as components for the takedown pipe, they would not meet the required tariff shift to be considered substantially changed by manufacture under § 102.11(a)(3). Similarly, as with the front assembly final product, the imported catalytic converter assemblies impart the essential character to the takedown pipe final products because the imported assemblies provide the sole functionality of the takedown pipe, which is to convert auto emission gases into non-toxic substances.
Therefore, pursuant to § 102.11(b), the country of origin for marking purposes would be the NAFTA country the catalytic converter assemblies are imported from, and hence Tenneco would not be the ultimate purchaser of the catalytic converter assemblies when used in the manufacture of the converter takedown pipe assemblies for country of origin marking purposes. The ultimate purchaser of the catalytic converter assemblies imported from a NAFTA country used in the manufacture of the converter takedown pipe assemblies would be the customers who purchase or obtain the converter takedown pipe assemblies from Tenneco.
Imports from Non-NAFTA Countries
(1) Underfloor Converter Assembly
As discussed supra, the operations that the monolithic cores are subjected to in the United States include wrapping with a ceramic mat; measuring and weighing, and insertion into a metal shell; and welding or mechanical elongation of conical ends onto the metal shell. However, the manufacture of the imported monolithic core must also be taken into account. Its function of purifying auto emission gases is the same as the final underfloor converter assembly.
The character of the imported monolithic cores, which includes the structure, form, material composition, and functions, is not changed by the post-importation operations. See National Hand Tool, 16 C.I.T. at 311 (stating “’[c]haracter’ is defined as ‘one of the essentials of structure, form, materials, or function that together make up and usually distinguish the individual.’” Webster’s Third New International Dictionary (1981)) No additional work is performed post-importation on the actual imported monolithic core itself in that Tenneco does not modify the structure, form, or properties of the ceramic core’s material and shape or chemically alter the Platinum and Rhodium catalysts or add additional elements/catalysts to the monolithic cores. The honeycombed structure, the ceramic material and its properties, the catalyst elements, the functionality of being able to purify auto emissions, and the cylinder shape, are all not changed by Tenneco’s post-assembly operations encasing the monolithic cores inside a metal shell. Although the monolithic cores are wrapped in ceramic mats, which increase the catalytic reaction efficiency in the processing of auto emissions, the ceramic mats still does not change the character of the monolithic cores.
In comparison to other cases where assembly operations resulted in a substantial transformation, those imported articles had some part of their character altered by the post-importation processes. For example, the imported articles in Gibson-Thomsen had assembly operations performed directly on the articles themselves that altered their structure, form, and/or functionality. In Gibson-Thomsen, imported wooden block articles became toothbrushes after manufacturing in the United States. After importation, the wooden blocks had holes bored into the blocks themselves and then bristles were embedded into the holes. The court determined that after further manufacturing the wooden blocks lost their identity and became new articles having a new name, character, and use—something functionally different than that of wooden blocks. In contrast, in the case of the underfloor assemblies, neither the ceramic mat, metallic shell, nor the conical steel ends actually change any part of the monolithic core to enable it to provide the catalytic converter function of purifying auto exhaust emissions. Rather, these components are simply part of the overall underfloor converter assembly, of which the monolithic cores provide and solely perform the actual purification of auto emission gases function. Thus, unlike the Gibson-Thomsen wooden blocks, the post-importation processing the monolithic cores are subjected to do not result in an article that is functionally different than the monolithic cores themselves.
The use of the monolithic cores is not changed by the post-importation processes either. As imported, a monolithic core’s intended use is the function of converting toxic auto emission gases into non-toxic substances. The underfloor converter assembly’s only function is exactly the same function as that of an imported monolithic core. Without the monolithic core inside an underfloor converter assembly, there would be nothing to purify or process the auto emission gases flowing through an empty underfloor converter assembly metal shell. When a customer uses the underfloor converter assembly, they are actually using the catalytic converter function—which is provided solely by the imported monolithic cores.
Furthermore, although encapsulating the imported monolithic core into a metal shell enables it to be installed in an automobile’s exhaust system and used to process auto emission gases, this does not alter the basic functionality or identity of the monolithic core as imported. Operations that enable an imported article to be used by customers do not per se mean that a substantial transformation has occurred. For example, in National Hand Tool, 16 C.I.T. at 310, imported hand tool components, which were not saleable or usable to consumers in their imported state, were found not to undergo a substantial transformation even though they were subjected to post-importation processes that rendered them useable by consumers. In National Hand Tool, the court determined that the use and function of the imported components was predetermined at the time of importation and did not change as a result of post-importation processing, that is, the name of the components did not change and the character of the steel components did not change. Id. at 311. Thus, even though the imported monolithic cores cannot be installed in an automobile’s exhaust system as imported, the monolithic cores sole use and function is predetermined at the time of importation and the characteristics of the monolithic cores and the components that make it up do not change by the processes that encapsulate it inside a metal shell.
Finally, the fact that the monolithic cores and the end-product underfloor converter assemblies are called different names is not of material consequence because another factor supportive of finding that the imported monolithic cores did not undergo a change in identity or character is the fact that the imported articles and the underfloor converter assemblies would be classifiable in the same heading. Whether there is a change in tariff classification between an imported article and the resulting finished product, although not dispositive, is a factor to be considered on the issue of whether a substantial transformation occurred. Superior Wire v. United States 11 C.I.T. 608, 614 (1987)(citing Belcrest Lines v. United States, 741 F.2d 1368, 1372 (Fed. Cir. 1984)). The imported monolithic cores are classifiable, pursuant to GRI 1, under subheading 8421.39.40, HTSUS, as catalytic converters. Likewise, the underfloor converter assembly is classifiable under the same subheading. See NY N093109, dated Feb. 19, 2010; NY I82420, dated June 12, 2002; NY H81417, dated June 18, 2001; NY H80590, dated May 3, 2001.
In summary, after examining all the factors and taking into consideration that the overall post-importation manufacturing processes are not minor ones, CBP finds that the imported monolithic cores are not substantially transformed during the post-importation operations because their identity—primarily character and use—are left intact. Thus, Tenneco would not be considered the ultimate purchaser of the imported monolithic cores for purposes of 19 CFR 134.35(a). The ultimate purchaser of the imported monolithic cores from a non-NAFTA country would be the customers who purchase or obtain the underfloor converter assembly from Tenneco.
(2) Front Assembly
As discussed supra, the imported catalytic converter assemblies (“converter assemblies”) which make up the front assembly items are welded to steel pipes. Because a front assembly’s only function is exactly the same function as that of an imported catalytic converter assembly, which is to purify auto emission gases, the issue is whether the imported catalytic converter assemblies lose their identity by undergoing a change in character, use, or name on account of the assembly operations.
The character of the catalytic converter assemblies—which include the cylindrical shape of the metal casing, the metallic properties of the metal casing, the ceramic honeycombed structure and its properties, the chemical properties of the catalytic elements, and the functionality of the assembly itself—is not changed by the welding operations. Besides welding the inlet and outlet pipes onto the imported converter assemblies, Tenneco does not perform any additional work on the actual imported converter assemblies themselves. The imported catalytic converter assemblies as imported are functionally complete articles that can purify auto emission gases.
The use of a catalytic converter assembly as part of a front assembly end-product is not altered by the welding operations. The catalytic converter assemblies’ use and function are predetermined at the time of importation to be that of purifying auto emission gases. The post-importation welding operations do not change this use and function or endow this use or function upon the catalytic converter assemblies.
Although the name of the imported articles, “catalytic converter assembly,” is different than the name given to the end-product, which is “front assembly”, from a classification stand point there is no change in name. There is no change in the tariff classification between an imported converter assembly and a front assembly. Both are classifiable as catalytic converters under subheading 8421.39.40, HTSUS.
In consideration of these factors, the imported catalytic converter assemblies’ character and use, which are defined by its functionality of auto emission gases purification, are not changed by the post-importation assembly operations. Thus, the post-importation welding of inlet and outlet pipes to an imported converter assembly does not change the identity of the imported article and CBP finds that the imported catalytic converter assemblies as used in the manufacture of the front assembly items are not substantially transformed.
Therefore, Tenneco would not be considered the ultimate purchaser of the imported catalytic converter assemblies for purposes of 19 CFR § 134.35. The ultimate purchaser of the catalytic converter assemblies from a non-NAFTA country would be the customers who purchase or obtain the front assemblies from Tenneco.
(3) Converter Takedown Pipe Assembly
As with the catalytic converter assemblies that are part of the front assembly items analyzed in the previous section, the foreign catalytic converter assemblies used in the takedown pipe items are imported as functionally complete articles that are used to purify auto emission gases.
As with the converter assemblies used in the manufacture of the front assembly end-products described supra, when manufacturing the takedown pipe items the importer does not perform any finishing operations on the actual imported catalytic converter assemblies themselves. The character of the converter assemblies when used in the manufacture of the takedown pipe are not altered by the welding of pipes to the inlet and outlet ends of the converter assemblies. The converter assemblies, whether used as a primary or secondary catalytic converter assembly, are both functionally necessary to the overall takedown pipe product because they provide the primary functionality, which is to purify auto emission gases.
Likewise, the use of a catalytic converter assembly as part of a takedown pipe end-product is not altered by the welding operations. The catalytic converter assemblies’ use and function are predetermined at the time of importation to be that of purifying auto emission gases. The post-importation welding operations do not change this use and function or endow this use or function upon the catalytic converter assemblies during the manufacture of the takedown pipe end-products.
Even though the imported article is referred to as a different name than the takedown pipe end-product, there is no change in the classification name because the tariff classification of the imported converter assemblies and the takedown pipe assemblies is the same. Both are classifiable as catalytic converters under subheading 8421.39.40, HTSUS.
Thus, in consideration of these factors, the catalytic converter assemblies that are part of the takedown pipe assemblies do not lose their identity when combined with a second converter assembly and the steel pipes. The assembly operations the catalytic converter assemblies are subjected to in manufacturing the converter takedown pipe assemblies do not result in any substantive change in name or change the character or use of these articles, and thus do not result in a substantial transformation of the catalytic converter assemblies.
Therefore, Tenneco would not be considered the ultimate purchaser of the imported catalytic converter assemblies used in the manufacture of the converter takedown pipe assembly under 19 CFR 134.35. The ultimate purchaser of the catalytic converter assemblies imported from a non-NAFTA country and used in the manufacture of the converter takedown pipe assemblies would be the customers who purchase or obtain the converter takedown pipe assemblies from Tenneco.
HOLDING:
Pursuant to 19 U.S.C. § 1304, the monolithic cores and catalytic converter assembly imported from either non-NAFTA or NAFTA countries and integrated into the final goods are not substantially transformed in the United States or do not become goods of the United States. In accordance with 19 C.F.R. §§ 134.35(a) and (b), Tenneco is not considered the “ultimate purchaser” for purposes of 19 U.S.C. § 1304.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transactions.
EFFECTS ON OTHER RULINGS:
NY N155818, dated April 22, 2011, is AFFIRMED.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division