OT:RR:CTF:VS H315298 JMV
Jeremy R. Page
Page-Fura PC
939 W. North Avenue, Suite 750
Chicago, IL 60642
RE: Country of origin of an Automotive Armrest; Section 301 Trade Remedy; Marking
Dear Mr. Page:
This is in response to your request, dated October 25, 2020, filed on behalf of your client Yanfeng Seating Mexico S.A. de C.V. (“YFS”). In your letter, you request a binding ruling on the applicability of Section 301 trade remedies and country of origin marking for an automotive armrest.
FACTS:
The product at issue is an automotive armrest that YFS will be producing to the specifications of a motor vehicle Original Equipment Manufacturer (“OEM”) customer. The production entails multiple steps involving 62 to 78 unique components exclusive of stapling, with production and associated assembly operations in all instances to occur in Mexico. Two different proposed sourcing/production scenarios are considered in this ruling.
Production Scenario One
Under the first production scenario proposed by YFS, the automotive armrest will be made of 62 distinct components, 47 of Chinese origin and 15 of Mexican origin. First, YFS will create the armrest main foam subassembly that will provide the internal structure of the complete armrest. This subassembly will be produced from armrest foam and a foam reinforcement pad sourced from Mexico, and a Velcro adhesive sourced from China.
The second subassembly is a cupholder lid trim that will be produced from raw materials sourced from within Mexico (either leather or PVC) which will first be die cut to shape before undergoing an overcast sewing operation. The further manufactured trim will then be clad to a non-woven material also of Mexican origin.
The third subassembly is the main armrest trim, which will also be produced from raw materials sourced in Mexico (either leather or PVC). The PVC or leather will be die cut to shape, then subject to an overcast sewing operation. Then, bristle and non-woven material of Mexican origin will be sewn with the main trim cover to produce the finished subassembly
With those three subassemblies complete, YFS will then manufacture the main armrest assembly. YFS will combine the three subassemblies with an additional 43 distinct components of Chinese origin and two manufactured components of Mexican or Italian origin (an induction charger wrap produced in Mexico from Mexican raw materials and a cupholder trim also produced in Mexico from Italian raw materials). YFS will produce the main armrest assembly with the following steps:
Wrap the lid internal plastic and lid foam with the cupholder lid trim. The cupholder inner base will then be combined with the cupholder trim and cupholder inner bottom to produce a “Cupholder Subassembly.”
The induction charger panel will be wrapped with the induction trim, then assembled with the induction charger unit (further identified as the “Induction Charger Unit Subassembly”).
The console storage will then be combined with the lid release latch, lid locks, springs, lid axis and dampers, which is then further assembled with the Cupholder Subassembly.
Adjoin the subassembly from step 3 to the Armrest Main Trim Subassembly with metal clips.
Join the Induction Charger Unit Subassembly to the Armrest Main Trim Subassembly.
Affix the Cupholder Subassembly to the Armrest Main Trim Subassembly with the affixation of the Wood Deco Assembly with metal clips.
An additional eight components of Chinese origin, brackets and bracket hinges that affix the armrest to the seat structure of the motor vehicle, will be combined with the Armrest Main Assembly to produce the finished armrest.
Production Scenario Two
Under the second production scenario proposed by YFS, 78 unique components will be combined to produce the final motor vehicle armrest, starting with the production of the same three subassemblies from Scenario 1: the armrest main foam subassembly, the cupholder lid trim subassembly and the armrest main trim subassembly. The sourcing and production steps will remain the same as in Scenario 1 except for the sourcing of the non-woven material used to produce the cupholder lid trim assembly will be from China in lieu of Mexico.
Under production Scenario 2, YFS will also produce additional subassemblies in Mexico: the wood deco subassembly, and the frame and rod subassembly. Producing the wood deco subassembly will require hot melting silver trim rings of Mexican origin to a plastic decorative wood trim item of Turkish origin. The finished wood deco subassembly will form the framing for the cupholder integrated into the finished armrest. The frame and rod subassembly will provide additional structural integrity to the armrest and will consist of nine components: five of Mexican origin and four of Chinese origin. The Mexican components will include the left-hand and right-hand side frames as well as the center frame and two reinforcing pin brackets. The Chinese components consist of a center header rod, an axis bushing, an axis and a limit shaft. All of the components will be combined through a welding operation to create a single, bound subassembly.
YFS will then produce the armrest main assembly. In addition to the subassemblies above, 43 discrete components (17 components of Mexican origin and 26 of Chinese origin) are required to produce the armrest main assembly. Included among the Mexican components are the foam and internal plastic to complete the cupholder lid trim assembly, and the main body assembly that forms the internal skeleton of the armrest overall. Key components of Chinese origin include the internal tray, latching components, and a mini-drive actuator that consists of a direct current motor and transmission mechanism that provides rotational motion to the transmission which, in turn, pulls the Armrest control cable to release the Armrest from its locked position to free rotation. By changing the input current direction, the actuator can release the cable and relock the Armrest.
Concurrent with production of the armrest main assembly, YFS will also produce a hinge bracket assembly that will secure the armrest to the motor vehicle seat while also enabling the vehicle passenger to engage/disengage armrest usage. That Assembly will consist of seven components (four of Mexican origin and three of Chinese origin), which will be welded together. The Mexican components will include the hinge bracket, a gas spring bracket, and a tether wire. The Chinese components will include the console pivot bracket and several fasteners.
Finally, five components of Mexican origin (including the hinge bracket assembly) and three of Chinese origin, will be assembled with the armrest main assembly to produce the finished armrest. These remaining components consist primarily of the brackets and bracket hinge that are used to affix the armrest to the seat structure of the underlying motor vehicle.
In both scenarios, the finished automotive armrest will be classified under subheading 9401.90.10 of the Harmonized Tariff Schedule of the United States (“HTSUS”). In Scenario 1, 19 components of foreign origin will also be classified in 9401.90.10, HTSUS. In Scenario 2, six components of foreign origin will also be classified in 9401.90.10, HTSUS.
ISSUE:
What is the country of origin of the automotive armrest for purposes of applying Section 301 trade remedies?
What is the country of origin of the automotive armrest for marking purposes?
LAW AND ANALYSIS:
Section 301 Duties
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 7.5% will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(s), HTSUS. Among the subheadings listed in U.S. Note 20(s) of Subchapter III, Chapter 99, HTSUS, is 9401.90.10, HTSUS. When determining the country of origin for purposes of applying trade remedies under Section 301, the substantial transformation analysis is applicable.
The test for determining whether a substantial transformation will occur 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 C.C.P.A. 151 (1982). In deciding whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. Factors which may be relevant in this evaluation may include the nature of the operation (including the number of components assembled), the number of different operations involved, and whether a significant period of time, skill, detail, and quality control are necessary for the assembly operation. See C.S.D. 80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97. If the manufacturing or combining process is a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982), aff’d 702 F.2d 1022 (Fed. Cir. 1983).
The Court of International Trade more recently interpreted the meaning of “substantial transformation” in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016). 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 Energizer court reviewed the “name, character and use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc., 3 C.I.T. 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. In addition, the court 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, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
Similarly, when processing consists primarily of assembly, CBP is hesitant to find that a substantial transformation occurred. In HQ H290528, dated February 21, 2018, CBP considered whether aluminum panels, which were used as an architectural finish, were substantially transformed by processing in the United States. The panels consisted of three main parts imported from Italy: the casing, core and mounting brackets. In the United States, workers cut some of the cores to size; drilled holes into the casing and core; and extruded, machined, bent, and cut-to-size the mounting blades. Workers then inserted the core into the casing and secured the mounting blades to the panel. CBP found that the U.S processing of the panels was minimal and did not alter the character of the casing and core. CBP noted that the pre-importation processing was significantly more complicated than the post-importation processing, which essentially consisted of some cutting and assembling of parts.
On the other hand, CBP has found that a substantial transformation may occur when the processing involved consists largely of assembly in combination with domestic materials. CBP has held that whether an assembly process is sufficiently complex to rise to the level of substantial transformation is determined upon consideration of all the operations that occur within that country, including any subassembly processes that take place in that country. For example, in Headquarters Ruling Letter (“HQ”) W563456, dated July 31, 2006, CBP held that certain office chairs assembled in the U.S. were products of the United States for purposes of U.S. government procurement. The office chairs were assembled from 70 domestic and foreign components. The imported components alone were insufficient to create the finished chairs and substantial additional work and materials were added to the imported components in the United States to produce the finished chairs. In finding that the imported parts were substantially transformed in the United States, CBP stated that the components lost their individual identities when they became part of the chair as a result of the U.S. assembly operations and combination with U.S. components. Notably, CBP mentioned that the majority of components were of U.S. origin.
More recently, in H314637, CBP considered the welding of various parts of Mexican, U.S. and Chinese origin to create an automotive rear seat frame in Mexico. CBP noted that the welding did not otherwise alter the shape of the various parts involved, but also noted that the non-Mexican origin components alone were insufficient to create the automotive rear seat frame and most of the components were of Mexican origin. The welding of the non-Mexican components to the components of Mexican origin made them an integral part of the rear seat frame. Therefore, although the processing consisted of assembly alone, CBP found that the individual components lost their identity when assembled with components of mostly Mexican origin and there was a substantial transformation by the processing in Mexico to create the automotive seat frame.
Similarly, in HQ H315295, dated April 9, 2021, CBP considered the function of various components when determining the country of origin of an automotive headrest. In that case, PVC or leather of Mexican or Chinese origin was cut and sewn to shape in Mexico and stuffed with formed foam, which also originated in Mexico. In determining the country of origin for purposes of Section 301, CBP noted that while the frame from China provided structure, the PVC or leather and foam formed the part of the headrest that provided the padding and support for the head of a seated passenger. Therefore, CBP found that the frame of Chinese origin was substantially transformed by its assembly into the headrest in Mexico and Section 301 duties did not apply.
In both scenarios under consideration, while the assembly of the various components of foreign origin are not altered in their shape, the non-Mexican origin components alone are insufficient to create the automotive armrest and a large portion of the components are of Mexican origin. Additionally, as in HQ H315295, key components will be produced in Mexico. The armrest foam will be formed to shape in Mexico and glued to a Mexican-originating foam reinforcement pad. Together, the foam and pad will provide the internal structure of the complete armrest. Additionally, the main armrest trim will also be produced from raw materials sourced in Mexico (either leather or PVC), which will be die cut to shape and overcast sewn, then sewn to a bristle and a non-woven material also of Mexican origin. When these created components are combined with the non-Mexican components, the non-Mexican components will lose their individual identities and become an integral part of automotive armrest. Therefore, we find that the non-Mexican components will be substantially transformed by the processing in Mexico and the country of origin of the automotive armrest in both production scenarios will be Mexico for purposes of Section 301 remedies.
Marking
Section 304(a) of the Tariff Act of 1930, as amended (19 U.S.C. § 1304(a)), 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 manner as to indicate to an 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. Friedlaender & Co., 27 C.C.P.A. 297, 302 (1940); American Burtonizing Co. v. United States, 13 Ct. Cust. 652, 654 (Ct. Cust. App. 1926).
To allow for a more seamless transition period, at this time, CBP continues to utilize the marking rules set forth in 19 C.F.R. Part 102, with the exception of 19 C.F.R. § 102.19, for purposes of country of origin marking with respect to goods from Canada and Mexico. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes, with the exception of textile goods which are subject to the provisions of 19 C.F.R. § 102.21. See 19 C.F.R. § 102.11. Applied in sequential order, the required hierarchy establishes that the country of origin of a good is the country in which:
(a)(1) The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
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.
. . .
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the automotive armrests are neither wholly obtained or produced or produced exclusively from “domestic” (Mexican, in this case) materials. Because the analysis of sections 102.11(a)(1) and 102.11(a)(2) does not yield a country of origin determination, we look to section 102.11(a)(3). “Foreign material” is defined in section 102.1(e) as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” The applicable tariff shift requirement in section 102.20 for the automotive armrests of subheading 9401.90.10, HTSUS, is “[a] change to subheading 9401.90 from any other heading, except from subheading 9403.90.” Since 19 components of foreign origin in Scenario 1, and 6 components of foreign origin in Scenario 2 are also classified under heading 9401, HTSUS, the tariff shift requirement of section 102.11(a)(3) is not met. Since an analysis of section 102.11(a) has not produced a country of origin determination, we turn to section 102.11(b) of the regulations. Section 102.11(b)(1) provides 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 Rule 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 . . .
When determining the essential character of a good under 19 C.F.R. § 102.11, 19 C.F.R. § 102.18(b)(1) provides that only domestic and foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the § 102.20 specific rule or other requirements applicable to the good shall be taken into consideration. In Scenario 1, 28 components of both Mexican and foreign origin will not undergo the applicable tariff shift. In Scenario 2, 33 components of both Mexican and foreign origin will not undergo the applicable tariff shift.
Section 102.18(b)(2), Customs Regulations (19 C.F.R. § 102.18(b)(2)), provides:
For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under § 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:
The nature of each material, such as its bulk, quantity, weight or value; and
The role of each material in relation to the use of the good.
Of the parts that do not undergo the applicable tariff shift requirement, you assert, and we agree, that no single item imparts the automotive armrest with its essential character. None of these parts individually contribute significantly to the purpose of an automotive armrest. Therefore, 19 C.F.R. § 102.11(b) cannot be used to determine the country of origin of the automotive armrest.
The country of origin of the automotive armrest cannot be determined by application of 19 C.F.R. § 102.11(c), as the automotive armrest is not specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture, or composite good pursuant to General Rule of Interpretation 3. Accordingly, we next consider section 102.11(d) of the hierarchical rules, which provides:
Where the country of origin of a good cannot be determined under paragraph (a), (b), or (c) of this section, 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.
19 C.F.R. § 102.11(d).
“Minor processing” is defined in 19 C.F.R. § 102.1(m) as including, in part, the mere dilution with water or another substance, cleaning, application of preservative or decorative coatings, trimming, filing, or cutting off small amounts of excess materials, unloading, reloading, putting up in measured doses, packing, repacking, packaging, repackaging, testing, marking, sorting, or grading, ornamental or finishing operations incidental to textile good production, repairs and alterations, washing laundering, or sterilizing. “Simply assembly” is defined in section 102.1(o) as “the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing.
Based on the facts provided, we find that the operations performed in Mexico will constitute more than “minor processing” and exceed a “simple assembly,” as defined in 19 C.F.R. 102.1(o). Therefore, subparagraphs (1) and (2) of 19 C.F.R. § 102.11(d) are inapplicable. Consequently, by application of 19 C.F.R. § 102.11(d)(3), the country of origin of the automotive armrest is the last country in which the goods underwent production. The term “production,” as defined in 19 C.F.R. § 102.1(n), includes manufacturing, processing, and assembling a good. The operations performed in Mexico will constitute production. Accordingly, we find that the country of origin of the automotive armrest will be Mexico for marking purposes.
HOLDING:
The country of origin for the purpose of Section 301 measures will be Mexico under both production scenarios. The country of origin of the automotive armrest for the purposes of marking under both scenarios will be Mexico.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch