CLA-2 OT:RR:CTF:TCM H171035 RES
Maria S. Villanueva
International Trade Compliance Consultant
Villanueva International Trade Compliance Consultants, LLC
60 N. 75th Street
Kansas City, KS 66111
RE: Country of Origin Marking Determination of Remanufactured Automotive Parts.
Dear Ms. Villanueva:
This is in response to your letter dated May 16, 2011, on behalf of your client Haldex Brake Products Corporation (“Haldex”), for a ruling concerning the country of origin marking of various used parts of commercial vehicles imported from NAFTA and non-NAFTA countries and remanufactured/reconditioned after importation in the United States.
FACTS:
The articles at issue are used commercial vehicle parts (“cores”) imported from NAFTA and non-NAFTA sources, which are shipped to Haldex’s service centers located within the United States for remanufacturing. The used parts are disassembled from used vehicles in NAFTA and non-NAFTA countries. These parts include: clutches, valves, brake shoes, water pumps, alternators, starters, compressors, fuel pumps, and power steering pumps. Haldex subjects the cores to a variety of processes during the remanufacturing process which include: sorting; disassembling the cores; washing/sand blasting to clean the cores and parts; drill tapping heads; grinding; sealing; installing bearings, spacers, pins, and rings using a hydraulic/arbor press; and quality control testing of finished articles. The finished remanufactured articles that are deemed fit for sale are packaged and sold exclusively in North America.
According to your memorandum, most of the imported cores are not marked with any country of origin and if one does have a country of origin marking, it is not certain whether such a country designation refers to the country where the casting of the used part was made or the country of origin of a component of the core.
ISSUE:
What are the country of origin marking requirements for used vehicle parts imported from non-NAFTA countries that are re-manufactured within the United States?
What are the country of origin marking requirements for used vehicle parts imported from NAFTA countries that are re-manufactured within the United States?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. § 1304 (2012)), 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).
Section 134.1(b), CBP Regulations (19 CFR 134.1(b) (2012)), 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; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Haldex indicated in its memorandum that it imports cores taken from vehicles in use in non-NAFTA and NAFTA countries to the United States for remanufacturing. Because there are different analytical approaches for determining country of origin based on whether a good is imported from a non-NAFTA or NAFTA country, these two scenarios are analyzed separately.
Cores from Non-NAFTA Countries
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)). Under this principle, the manufacturer or processor in the United States who coverts or combines the imported article into a different article will be considered the “ultimate purchaser” of the imported article.
Thus, the processing of cores imported from non-NAFTA countries must effect a substantial transformation in order to render the United States as the country of origin. As noted supra, Haldex imports a variety of used parts that include clutches, valves, brake shoes, water pumps, alternators, starters, compressors, fuel pumps, power steering pumps, and so on. According to Haldex, these used parts are taken from vehicles in use in whatever non-NAFTA country they are imported from and some are marked while others are not. According to Haldex, the imported cores, whatever the specific part, are generally subjected to identical remanufacturing process steps in the United States. The question is whether the U.S. processing results in a loss of identity for the cores: a change in name, character, or use.
In National Hand Tool, imported hand tool components were used to produce flex sockets, speeder handles, and flex handles; tools used for tightening and loosening nuts and bolts. National Hand Tool 16 C.I.T. at 309-10. The tool components were cold-formed or hot-forged into their final shape before importation into the United States, with the exception of the speeder handles which were reshaped after importation. Id. The post-importation operations the tool components underwent included: heat treatment; sand-blasting; tumbling and chemical vibration to prepare for electroplating; electroplating with nickel; and assembly of components with other parts. Id. The court determined that the imported tool components did not undergo a substantial transformation because the components did not undergo a change in identity; the character, name, and use of the components remained the same. Id. at 311. The names of the imported components were the same before and after the operations, the character of the imported components was not altered by the operations, and the use of the imported components was predetermined at the time of importation. Id.
Similar to the imported components in National Hand Tool, the used vehicle parts that Haldex imports from non-NAFTA countries do not undergo a change in identity. The character (structure, form, materials, and functionality) of the used parts is the same after undergoing the remanufacturing processes. The structure, form, materials, and functionality that make up the composition of the used part is not altered or fundamentally changed by the remanufacturing processes to which the cores are subjected. For example, a core that is a used water pump functions the same way, is made up of the same type of components (whether a replacement or an original one), and constructed of the same basic materials after undergoing the remanufacturing processes as it did prior to remanufacturing. Likewise, the names of the imported used parts are the same. For example, a used water pump is still called a water pump after remanufacturing; a used alternator is still called an alternator after remanufacturing, and so on. Finally, the use of the imported used parts will remain the same.
In addition, CBP has previously ruled that imported used parts reconditioned in the United States do not undergo a substantial transformation. In HQ 561939, dated December 20, 2000, used/broken auto parts were imported from non-NAFTA countries into the United States where the parts underwent reconditioning. The used parts were imported with country of origin markings based on the country in which the cores were used. Citing National Hand Tool, CBP determined that the use of the automotive parts was not altered. Rather, CBP found that their use was predetermined at the time of importation and was not altered by the reconditioning of the used auto parts.
In summary, CBP finds that used parts imported from non-NAFTA countries are not substantially transformed by the remanufacturing process in the United States, and thus Haldex is not considered the ultimate purchaser for country of origin marking purposes. See 19 CFR 134.35(a). The ultimate purchaser of the remanufactured parts is the end-use customer who purchases the remanufactured parts. The next question to be resolved is a determination of the country of origin when the cores are not marked at the time of importation. Under the principles of Ashdown, U.S.A., Inc., v. United States, 12 C.I.T. 808, 812 (1988), the connection to the country where an article was originally made may be broken when an article has become a bona fide part of commerce of another country for an extended period of time. See HQ 562597, date March 7, 2003 (finding that the origin of unmarked salvaged auto parts depends on the country of the automobiles, from which the salvaged auto parts were taken, where in use). Accordingly, used parts not marked with a country of origin (and the origin cannot otherwise be determined) are considered to be a product of the country in which the parts were previously used. The origin of used parts which are marked with a country of origin will be the country as marked on the part upon importation.
Cores from NAFTA Countries
As noted above, 19 CFR 134.1(b) states that for a good of a NAFTA country the NAFTA “Marking Rules” will determine the country of origin. Section 134.1(g) 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.
In the case of cores imported from Canada or Mexico, the initial question to be resolved is whether, as a result of the processing performed in the United States, the reconditioned parts are considered goods of the United States under the NAFTA Marking Rules. Part 102 of the regulations sets forth the “NAFTA Marking Rules” for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides that:
(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.
The remanufactured parts are neither “wholly obtained or produced” nor “produced exclusively from domestic (U.S.) materials.” Therefore for purposes of determining the origin of the imported good, § 102.11(a)(3) is the applicable rule that first must be applied. Under this rule, the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in § 102.20.
Pursuant to § 102.17(b), changes in tariff classification resulting from dismantling or disassembly are considered non-qualifying operations. See HQ H004446, dated April 11, 2007. Therefore, the tariff shift would not be met for any used part because the cores would have the same classification as imported as they would have after undergoing the remanufacturing processes. Furthermore, we note that you have not suggested that any claims for NAFTA preferential tariff treatment will be made. See, e.g., HQ 563321, dated November 22, 2005. As the remanufacturing process in the United States does not result in a change in classification of the foreign origin cores, § 102.11(a)(3) is not applicable.
Accordingly, § 102.11(b) of the hierarchical rules must be applied, which provides in part as follows:
(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) of 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;
* * * * *
Pursuant to § 102.18(b)(1):
For purposes of identifying the material that imparts the essential character to a good under 19 CFR 102.11, materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the section 102.20 specific rule or other requirements available to the good.
Applying 19 CFR 102.18(b), we find that the material that imparts the essential character to the imported parts in each case is the used core, e.g., the water pump. See HQ 561209, dated May 4, 1999; HQ 562597, dated March 7, 2003; and HQ 563039, dated August 24, 2004. Therefore, the country of origin of the reconditioned parts is the country of origin of the used core. If the country of origin of a used core is marked on the core, that is its country of origin.
In situations where the used core is not marked or where the remanufacturer may not be able to establish with any certainty whether cores sourced from their customers were taken from vehicles used in the U.S., Mexico, or Canada, then resort should be made to 19 CFR 102.11(d).
Section 102.11(d) provides that where the country of origin cannot be determined under paragraph (a), (b) or (c), the country of origin of the good shall be determined as follows:
(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good;
(2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts; or
(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
Where used parts are remanufactured in the United States, we find that the remanufacturing operations are more than "minor processing" and "simple assembly." See 19 CFR 102.1(m) and (o). Therefore, we must apply paragraph (3) to determine the country of origin of the used parts. Under this paragraph, the country of origin is the United States, the last country in which the worn or defective core underwent production.
For the reasons discussed above, Haldex is not the ultimate purchaser of the imported cores when they are imported from non-NAFTA country. Therefore, in this situation, Haldex is not exempted from country of origin marking for the remanufactured vehicle parts.
However, under 19 CFR § 102.11(d) of the NAFTA Marking Rules, Haldex would be considered the ultimate purchaser of the used cores and exempt from country of origin marking for the remanufactured vehicle parts.
HOLDING:
Pursuant to 19 U.S.C. § 1304, the used parts imported from non-NAFTA countries are not substantially transformed in the United States. In accordance with 19 C.F.R. §§ 134.35(a) and (b), Haldex is not considered the “ultimate purchaser” for purposes of 19 U.S.C. § 1304, and the used parts are subject to the country of origin marking requirements provided for in the marking statute.
Pursuant to 19 U.S.C. § 1304 and 19 CFR 102.11(b), where the used cores are marked, that is the country of origin. If they are not marked, pursuant to 19 CFR § 102.11(d), Haldex is the ultimate purchaser.
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.
Sincerely,
Monika Brenner, Chief
Valuation and Special Programs Branch