OT:RR:CTF:VS H305370 JMV
Sara A. Arami
Rock Trade Law LLC
134 N. LaSalle St. Suite 1800
Chicago, IL 60602
RE: Reconsideration of HQ H301619; Preferential Tariff Treatment under NAFTA
Dear Ms. Arami:
This is in response to your request, on behalf of your client Johnson Electric North America (“Johnson”), for reconsideration of Headquarters Ruling Letter (“HQ”) H301619, dated November 6, 2018, in which the country of origin of electric motors was determined to be China. We reviewed your request and determined that HQ H301619 is correct for the reasons set forth herein.
The item at issue was described in HQ H301619 as a “Direct Current Electric Motor 1999-1020656EP, which is described as a brushed electric motor with a peak output power of 5.793 Watts…[T]he electric motor is intended to be used with electric door locks[.]”
The electric motor consists of three components: the stator or rear housing, the rotor or armature assembly, and the end cap assembly. All three components are classified under heading 8503 of the Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for “[p]arts suitable for use solely or principally with the machines of heading 8501 or 8502.” As mentioned in HQ H301619 the components of Chinese origin are imported into Mexico and assembled into the finished product.
HQ H301619 considered the country of origin of the parts classified in 8501.10.40, HTSUS for purposes of application of subheading 9903.88.01, HTSUS, which provides for “[a]rticles the product of China, as provided for in U.S. note 20(a) to this subchapter and as provided for in the subheadings enumerated in U.S. note 20(b) [to this subchapter],” and which applies an additional 25 percent ad valorem rate of duty in addition to the column one general rate of duty in the applicable subheading.
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8501.10.40, HTSUS, unless specifically excluded, are subject to an additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.01, in addition to subheading 8501.10.40, HTSUS, listed above.
The HTSUS is subject to periodic amendment so you should exercise reasonable care in monitoring the status of goods covered by the Note cited above and the applicable Chapter 99 subheading. For background information regarding the trade remedy initiated pursuant to Section 301 of the Trade Act of 1974, you may refer to the relevant parts of the USTR and CBP websites, which are available at https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions and https://www.cbp.gov/trade/remedies/301-certain-products-china respectively.
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. You assert that CBP should use the NAFTA Rules of Origin to determine the origin of the electric motors at issue. You cite New York Ruling (“NY”) N303338, dated March 20, 2019 to support your argument. However, in accordance with 19 C.F.R. § 102.0, 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 Headquarters Ruling (“HQ”) 563205, dated June 28, 2006; see also Belcrest Linens v. United States, 741 F.2d 1368, 1370-71 (Fed. Cir. 1984) (finding that “the term ‘products of’ at the least includes manufactured articles of such country or area” and that substantial transformation “is essentially the test used…in determining whether an article is a manufacture of a given country”).
In NY N303338, CBP considered the country of origin of a computer server cabinet classified in 9403.10.0040, HTSUS. The computer server cabinet was from parts of Chinese origin and was assembled in Mexico. In determining that the origin was Mexico, CBP looked to the NAFTA Rules of Origin. NY N303338 did not state that the NAFTA Rules of Origin is the correct standard for determining origin under Section 301. Instead, it stated that the cabinet at issue was “not subject to the Section 301 trade remedies as provided for under 9903.88.03, HTSUS,” although it was. Therefore, the mistake was not in H301619 finding that the correct standard to determine origin for purposes of Section 301, is the substantial transformation test, but in N303338 in finding that products classified in 9403.10.0040, HTSUS were not subject to 301 duties For your information, we are in the process of modifying N303338. Therefore, HQ H301619 is correct in using substantial transformation to determine the origin of the electric motors for purposes of applying remedies under Section 301.
HQ H301619 was also correct in finding that the origin of the computer server cabinets is China. In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade (“CIT”) found that articles imported in a pre-fabricated form with a predetermined use are not substantially transformed by assembly into the final product, without more. In Energizer, the CIT interpreted the meaning of the term “substantial transformation” as used in the Trade Agreements Act of 1979 (“TAA”) for purposes of government procurement. Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight, under the TAA. 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 in determining whether a substantial transformation had occurred, and reviewed various court decisions involving substantial transformation determinations. The court noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. 220, 226, 542 F. Supp. 1026, 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). 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 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.
Similarly, here, the components from China do not undergo a substantial transformation in China. The subassemblies are manufactured in China and, upon importation into Mexico have a pre-determined end-use as parts and components of an electric motor. Based on the information provided, the production process performed in Mexico is mere simple assembly and the foreign subassemblies are not substantially transformed. Therefore, we affirm the origin of the electric motors is China, the country of origin of the subassemblies. HQ H301619, dated November 6, 2018, correctly determined the country of origin of the electric motors. As products of China classified under subheading 8501.10.40, HTSUS, the subassemblies are subject to the additional 25 percent ad valorem rate of duty. At the time of importation, the Chapter 99 subheading, i.e., 9903.88.01, must be reported, in addition to subheading 8501.10.40, HTSUS, listed above.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division