OT:RR:CTF:VS H303919 CMR
Laura Fraedrich, Esq.
Chase Kaniecki, Esq.
Diego Ortega, Esq.
Jones Day
51 Louisiana Avenue, N.W.
Washington, D.C. 20001
RE: Country of Origin; Classification, Marking, Duty and NAFTA; Remote Controls
Dear Ms. Fraedrich and Messrs. Kaniecki and Ortega:
This is in response to your request, dated May 14, 2019, on behalf of your client, CG Mexico Remote Controls, S. de R.L. de C.V. (“CG Mexico”), for a ruling on the country of origin of infrared remote control units (RCUs) for marking purposes; whether the RCUs qualify for preferential tariff treatment under the North American Free Trade Agreement (NAFTA); and, the country of origin of the RCUs for section 301 tariff purposes. You also request confirmation of the classification of unprogrammed, non-functional printed circuit board assemblies (PCBAs) which are imported into Mexico for use in the production of the RCUs.
FACTS:
CG Mexico produces RCUs in Mexico using PCBAs manufactured in China. You submit that the non-programmed, non-functional PCBAs, imported into Mexico, are classified under subheading 8543.90.68, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof: Parts: Other: Printed circuit assemblies: Other.” You describe the PCBAs, manufactured in China, as fully assembled and cut-to-size to fit the plastic casing of a RCU. A sample of the PCBAs, in their condition as imported into Mexico, was submitted with your request.
The submitted sample contains four PCBAs connected to each other. You describe the PCBAs as follows:
The surface mount technology components (e.g., integrated circuits, resistors, capacitors, quartz crystals, and a power amplifier), which are of Japanese, Taiwanese, and Chinese origin, are soldered to the PCBAs in China. The PCBAs include wiring, connectors, and a microcontroller chip. The microcontroller chip is not programmed with any software or firmware and, as such, the PCBA is unable to function as a RCU at the time it is exported from China.
The PCBAs are subject to additional processing in Mexico, prior to assembly with the other components of the RCUs. The processing consists of:
Installation of a battery label illustrating and describing the battery orientation for the user.
Soldering of through hole components, including an infrared light-emitting diode (LED) positioned at the end of the circuit board; an electrolytic capacitor, which stores electric charge from the batteries that is passed along to the rest of the PCBA to power the RCU; a negative battery connector; and a positive battery connector.
Touching up or reworking of solder joints on the PCBA that are damaged during the through hole component soldering process.
Applying software programming, developed in the United States and India, onto the microcontroller chip of the PCBA which involves programming an initial batch of proprietary software and a final set of programming instructions.
Visual check of the PCBA to ensure that the through hole components are in their appropriate places.
Testing the PCBA to confirm it is able to transmit radio frequency and infrared signals and to measure the strength of those signals. If defects are found, a trained electrician electronic technician analyzes the PCBA to address the defects.
Backlight functional tests are performed.
After the PCBAs are complete, they are combined with the remaining components to form the finished RCUs. The manufacturing process consists of:
Unpacking and separating the plastic components of the RCU, such as, the front cover, upper case, lower case, and battery door. With the exception of some solder wire and paste of Mexican origin, the components of the RCUs are of Chinese origin.
Performing laser etching engraving on the RCU to indicate the part number and date code for quality control purposes.
Assembling the lower and upper rubber key pads, inserting XFinity key into housing, inserting microphone key into housing, and inserting the IR lens and front cover into the upper case of the RCU.
Assembling the PCBA, light guide film, speaker and speaker holder into the upper case of the RCU.
Pressing, combining, and screw driving the upper case, with the components described above, and the lower case of the RCU.
Visually inspecting the RCU for any imperfections or damage.
Inserting batteries into the RCU.
Testing to ensure all of the keys on the RCU are functional.
Testing to ensure that the microphone and speakers on the RCU are functional.
Inspecting the transparency/lack thereof of the keypad under a dark cover.
Installing a pull tab insert which blocks battery leads from making contact with the battery springs.
Inserting the battery door into the lower case of the RCU.
Final visual inspection for any cosmetic defects prior to packaging.
Packaging of the finished RCU.
ISSUE:
I. Whether the RCUs qualify for preferential tariff treatment under the NAFTA.
II. What is the country of origin of the RCUs for marking purposes?
III. What is the country of origin of the RCUs for purposes of section 301 tariffs?
LAW AND ANALYSIS:
NAFTA Preference
The NAFTA is implemented in General Note (GN) 12 of the HTSUS. GN 12(a)(ii) states that goods are eligible for the NAFTA rate of duty if they originate in the territory of a NAFTA party and qualify to be marked as goods of Mexico. GN 12(b) sets forth the various methods for determining whether a good originates in the territory of a NAFTA party:
* * *
(b) For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if—
(i) they are goods wholly obtained or produced entirely in the territory Canada, Mexico and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that—
(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivision (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivision (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials; ….
As the RCUs are not wholly obtained or produced entirely in the NAFTA territory, nor produced exclusively from originating materials in the NAFTA territory, they must meet the requisite tariff shift rule set forth in GN 12(t), in accordance with the requirements of GN 12(b)(ii). You submit that the RCUs imported into the United States from Mexico are classifiable under subheading 8543.70.99, HTSUS, which provides for: “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof: Other machines and apparatus: Other: Other: Other.” We agree. See New York Ruling Letter (NY) N088621, dated January 15, 2010; NY N156153, dated April 8, 2011; NY N071909, dated August 21, 2009; and, NY N007369, dated March 12, 2007. The applicable tariff shift rule for the RCUs, classifiable in subheading 8543.70, HTSUS, is:
A change to subheading 8543.70 from any other subheading, except from smart cards, other than those containing a single integrated circuit, of subheading 8523.59.
You submit the PCBAs are classifiable under subheading 8543.90, HTSUS, which provides for parts of goods of heading 8543, HTSUS. For purposes of this NAFTA analysis, we concur with the classification of the non-programmed, non-functional PCBAs in subheading 8543.90, HTSUS. However, although you request confirmation of the classification of the PCBAs in subheading 8543.90.68, HTSUS, which provides for “Parts: Other: Printed circuit assemblies: Other,” you should submit your request regarding the classification of the PCBAs to the Mexican Customs authorities as the merchandise is imported into Mexico. As the various components of the RCUs are not classifiable individually in subheading 8543.70, HTSUS, and do not contain smart cards with more than a single integrated circuit of subheading 8523.59, HTSUS, the RCUs components, when assembled in Mexico, meet the tariff shift rule. Thus, the RCUs qualify for preferential tariff treatment under the NAFTA as originating goods.
NAFTA Marking
Having met the preferential rule set forth in GN 12(b), we must determine whether the assembled RCUs qualify to be marked as goods of Mexico. We look to the NAFTA Marking Rules contained in 19 CFR Part 102 of the Customs and Border Protection (CBP) Regulations in determining the marking of the RCUs.
Section 102.11 sets forth the General Rules for determining the country of origin of imported merchandise, with the exception of textile goods which are subject to the provisions of § 102.21. In this case, § 102.11(a)(3) is applicable and provides that 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 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
As the RCUs are classifiable in subheading 8543.70, HTSUS, the applicable rule set forth in § 102.20 is:
A change to subheading 8543.70 from any other subheading, except from proximity cards or tags of subheading 8523.52 and except from other machines or apparatus of subheading 8486.10 through 8486.20.
None of the components of the RCUs is individually classifiable in subheading 8543.70, HTSUS, nor do the components include proximity cards or tags of subheading 8523.52, HTSUS, or machines or apparatus of subheading 8486.10, HTSUS, through 8486.20, HTSUS. Thus, the assembly of the various components of the RCUs in Mexico meets the requisite tariff shift and the origin of the RCUs is Mexico under the NAFTA Marking Rules.
Section 301 origin
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25% ad valorem will be imposed on certain Chinese imports pursuant to its 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, HTSUS. Among the subheadings listed in U.S. Note 20(c) of Subchapter III, Chapter 99, HTSUS, is subheading 8543.70.99, HTSUS. See U.S. Notes 20(c) and 20(d), Subchapter III, Chapter 99, HTSUS.
The 102 marking rules are applicable for the limited purposes of: “country of origin marking; determining the rate of duty and staging category applicable to originating textile and apparel products as set out in Section 2 (Tariff Elimination) of Annex 300–B (Textile and Apparel Goods); and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2 (Tariff Elimination).” See 19 C.F.R. § 102.0.
U.S. Notes 20(c) states, in relevant part, that:
[p]roducts of China that are classified in the subheadings enumerated in U.S. Note 20(d) to subchapter III and that are eligible for special tariff treatment under general note 3(c)(i) to the tariff schedule, . . ., shall be subject to the additional 25 percent ad valorem rate of duty imposed by heading 99093.88.02.
Thus, eligibility for preferential tariff treatment under a free trade agreement, including the NAFTA, does not preclude the assessment of section 301 duties for products of China. Therefore, when determining the country of origin for purposes of applying current trade remedies under Section 301, Section 232, and Section 201, the substantial transformation analysis is applicable. See Headquarters Ruling Letter (“HQ”) 563205, dated June 28, 2006; HQ H301619, dated November 6, 2018; and, HQ H303140, dated April 19, 2019.
The test for determining whether a substantial transformation has occurred 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 CCPA 152, 681 F.2d 778 (1982). In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, 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, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. 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 will 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 (“CIT”) 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 Generation II flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States where they were assembled into the finished Generation II flashlight.
The court reviewed the “name, character and use” test utilized in determining whether a substantial transformation has occurred and noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. at 226, 542 F. Supp. at 1031, aff’d, 702 F.2d 1022 (Fed. Cir. 1983), 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, 310, aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
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 pre-determined 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. Thus, the court found that 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. The court determined that China, the source of all but two components, was the correct country of origin of the finished Generation II flashlights under the government procurement provisions of the TAA. See HQ H298653, dated November 19, 2018.
In this case, all of the components of the RCUs, with the exception of some solder wire and paste of Mexican origin, are of Chinese origin. As in Energizer, the Chinese components are pre-determined to be parts of the RCUs. Although, the PCBAs of the RCUs are completed and programmed in Mexico, as in Energizer, the RCUs are assembled of components, all from China, which are dedicated as parts of the RCUs and the assembly is relatively simple. Based upon the court’s decision in Energizer, and considering the totality of the circumstances, the country of origin of the RCUs for purposes of 301 tariffs is China.
HOLDING:
The RCUs imported from Mexico into the United States are classifiable under subheading 8543.70.99, HTSUS, which provides for: “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof: Other machines and apparatus: Other: Other: Other.”
The finished RCUs imported from Mexico into the United States qualify as originating goods under the NAFTA and qualify to be marked as goods of Mexico under the NAFTA Marking Rules. Thus, the RCUs qualify for preferential tariff treatment under the NAFTA. In addition, the country of origin of the RCUs is China. As the RCUS are products of China, the § 301 additional tariffs will apply.
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 CBP 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 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 & Special Classification Branch