OT:RR:CTF:VS H306809 AP
John Foust
Senior Vice President
S and Y Industries, Inc.
606 Industrial Blvd.
Winfield, KS 67156
RE: Country of Origin of an Ozone Generation Unit
Dear Mr. Foust:
This is in response to your November 15, 2019 ruling request regarding the country of origin of an ozone generation unit.
FACTS:
The ozone generation unit consists of a plastic shell, a main printed circuit board assembly (“PCBA”), a power input PCBA, a lithium battery, an ozone generator, a circulation fan, a power transformer, a silicon seal, and a hand strap. Below are images of the product and its individual components:
Front of the unit Back of the unit Internal components
Main PCBA Power-input PCBA Lithium battery
Ozone generator and Silicon housing seal Circulation fan
transformer
The ozone generator creates the ozone for the unit. The power transformer ensures that the ozone generator receives the right amount of electricity. The circulation fan keeps the unit operating temperature within the required range and circulates the ozone out of the unit and into the space where it is operating. You state that the total cost of the plastic housing, the silicon seal, the ozone generator, and the fan, which are made in China (except for the circulation fan made in China and Vietnam), is $15.
You further state that S and Y Industries will design and build the two PCBAs with U.S. sourced components. You describe the PCBA as the unit’s “brain” that allows it to function. The first PCBA will have 15 components with 20 placements, and will function as the power supply of the unit. The second PCBA will have 35 components with 50 placements, will serve as the timing device for the unit, and will allow text and readouts to appear on the liquid crystal display (“LCD”) screen. Your engineering team estimates it will take 100-150 engineering hours to design and write the programming for the two PCBAs costing $10,000-$15,000. After the design of the PCBAs is complete, it will take 10-20 minutes to assemble them. The total value of the completed PCBAs is expected to be $18-$23. The final assembly in Winfield, Kansas will take 17 minutes and the total labor value will be $12.50.
ISSUE:
What is the country of origin for the ozone generation unit?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. § 1304), 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 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. The country of origin marking requirements are set forth in Part 134, Customs Regulations (19 C.F.R. Part 134). Title 19 C.F.R. § 134.1(b) defines “country of origin” as the 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 the marking laws and regulations.
A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, or use which differs from the original material subjected to the process. See United States v. Gibson Thomsen Co., 27 C.C.P.A. 267, C.A.D. 98 (1940); Texas Instruments, Inc. v. United States, 681 F.2d 778, 782 (1982). In determining whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of the operations performed and whether the parts lose their identity and become an integral part of the new article. See Belcrest Linens v. United States, 6 CIT 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). If the manufacturing or combining process is a minor one that leaves the identity of the imported article intact, a substantial transformation has not occurred. See Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982).
In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, U.S. Customs and Border Protection (“CBP”) considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, the extent of the processing that occurs within a country, and the emergence of a product with a new name, character, or use are primary considerations. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process may be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade interpreted the meaning of “substantial transformation.” Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All of the components of the flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States and assembled into the finished Generation II flashlight. The court reviewed the “name, character and use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc., 3 CIT at 226, that when “the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change.” Energizer at 1318. The court also noted that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.” Energizer at 1319, citing as an example, Nat’l Hand Tool Corp. v. United States, 16 CIT 308, 311-12, aff’d, 989 F.2d 1201 (Fed. Cir. 1993). Furthermore, courts have considered the nature of the assembly, i.e., whether it is a simple assembly or more complex, such that individual parts lose their separate identities and become integral parts of a new article.
In reaching its decision in Energizer, the court expressed the question as one of whether the imported components retained their names after they were assembled into the finished Generation II flashlights. The court found “[t]he constitutive components of the Generation II flashlight do not lose their individual names as a result [of] the post-importation assembly.” The court also found that the components had a predetermined end-use as parts and components of a Generation II flashlight at the time of importation and did not undergo a change in use due to the post-importation assembly process. Finally, the court did not find the assembly process to be sufficiently complex as to constitute a substantial transformation. Energizer’s imported components did not undergo a change in name, character, or use as a result of the post-importation assembly of the components into a finished Generation II flashlight. Virtually all of the components of the military Generation II flashlight, including the most important component, the LED, were of Chinese origin. The court held that China was the country of origin of the finished Generation II flashlights.
In C.S.D. 85-25, 19 Cust. Bull. 844 (1985), CBP determined that for purposes of the Generalized System of Preferences, the assembly of a large number of fabricated components onto a printed circuit board in a process involving a considerable amount of time and skill resulted in a substantial transformation. In that case, more than 50 discrete fabricated components (such as resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled onto a PCB. CBP found that the assembly of the PCBA involved a very large number of components and a significant number of different operations, required a relatively significant period of time as well as skill, attention to detail, and quality control, and resulted in significant economic benefit to the beneficiary developing country from the standpoint of both value added to the PCBA and the overall employment generated thereby.
In Headquarters Ruling Letter (“HQ”) H287548, dated March 23, 2018, CBP considered the country of origin of a monochrome laser printer assembled in the United States with Vietnamese subassemblies and a Japanese-origin PCBA and firmware. CBP determined that the Japanese-origin PCBA and firmware together embodied the essential character of the laser printer because the firmware provided the control program for the printers and enabled the main PCBA to function as the electronic “brains” of the printers by controlling all printer functions. Moreover, the production of the subcomponents in Vietnam was inexpensive and did not require a sophisticated skill set to effect production. Likewise, the final manufacturing in the United States, which was concluded in 40 minutes (including testing), did not rise to the level of complex processes necessary for a substantial transformation to occur. The country of origin of the laser printers was Japan.
We find that the instant matter is similar to HQ H287548. While the ozone generator is an important component, the PCBAs that are assembled in the United States are the “brain” of the ozone generation unit enabling it to operate as intended. Specifically, the PCBAs function as the power supply, the timing device, and allow text and readouts to appear on the LDC screen. The design and programming of the PCBAs takes approximately 100-150 engineering hours with an estimated cost $10,000-$15,000.
The assembly operations in Kansas result in a new and different product with an overall use and function distinct from any one function of the individual components. The components cannot individually carry out the functions of a unit producing ozone on-demand, which is attracted to bacteria, virus, and contaminants causing odor, and after killing the bacteria reverts back into standard oxygen. The unique and full functionality of the ozone generation unit is only accessed once the individual components are connected to the PCBAs.
Therefore, we find that the country of origin for the subject ozone generation unit will be the United States.
HOLDING:
The country of origin of the ozone generation unit, produced as described herein, is the United States.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
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 transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch