OT:RR:CTF:VS H312432 AP
Adrienne Braumiller, Esq.
Braumiller Law Group PLLC
5220 Spring Valley Road
Dallas, Texas 75254
RE: Country of origin; Gasoline-powered horizontal shaft engine; Section 301 trade remedy; 9903.88.02, HTSUS
Dear Ms. Braumiller:
This is in response to your June 19, 2020 ruling request, on behalf of MTD Products, Inc. (“MTD”), regarding the country of origin of a certain gasoline-powered horizontal shaft engine (“gasoline engine”) for a snow thrower for purposes of application of subheading 9903.88.02, Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for “… articles the product of China, as provided for in U.S. note 20(c) to this subchapter and as provided for in the subheadings enumerated in U.S. note 20(d)” and that applies an additional 25 percent ad valorem rate of duty.
FACTS:
The subject merchandise is a gasoline-powered, carbureted or fuel injected, horizontal shaft engine for a snow thrower classifiable under subheading 8407.90.90, HTSUS. The engine is made from component parts all sourced from China that include a crankcase, a crankshaft, a camshaft, cylinders, pistons, a fuel system, a starter system, a lubrication system, an exhaust system, a starter, and controls. You state that over 100 separate assembly, quality control, calibration, testing, and finishing steps are necessary to produce the final engine. You submitted a list of the engine components and how they are used to make the final engine, but have requested confidential treatment on the specific steps utilized.
The finished engine is assembled in Mexico. During the assembly process involving cleaning and installation, the individual component parts of Chinese origin are first used to create sub-assemblies, which are further incorporated into larger sub-assemblies, and to a finished engine assembly. For example, the crankcase is the main component of the crankcase subassembly and the crankcase cover and a crankshaft are the main components of the crankcase cover subassembly. The crankcase and the crankcase cover subassemblies form the short block, which together with a cylinder head assembly creates the long block assembly incorporated into the finished engine.
ISSUE:
What is the country of origin of the subject engine assembled in Mexico for purposes of application of the Section 301 trade remedy for goods under subheading 9903.88.02, HTSUS?
LAW AND ANALYSIS:
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25 percent 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(d), HTSUS. Among the subheadings listed in U.S. Note 20(d) of Subchapter III, Chapter 99, HTSUS, is 8407.90.90.
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. Texas Instruments, Inc. v. United States, 69 CCPA 151, 681 F.2d 778 (1982). In deciding 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. Belcrest Linens v. United States, 6 CIT 204, 573 F. Supp. 1149 (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. See Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983).
U.S. Customs and Border Protection (“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”) H303866, dated Feb. 13, 2020, CBP examined the production of an automobile windshield washer pump. In that ruling, approximately half of the discrete parts from foreign countries were shipped to Mexico to be combined with components from Mexico into subassemblies. These subassemblies and the plastic pump components were then combined to form the finished centrifugal windshield washer pump. The assembly process was complex and involved soldering, fusing, machining, plastic injection molding, and crimping. Most importantly, both the rotor and stator were produced in Mexico, and were then used in the assembly of the pumps. CBP found that the extent of the operations in Mexico resulted in a finished centrifugal pump as a product of Mexico.
By contrast, assembly operations that are minimal or simple, and incorporate components with a pre-determined end-use, will generally not result in a substantial transformation. In
HQ H303864, Dec. 26, 2019, the assembly of a Chinese motor with an impeller, a seal, and a plastic housing to form a finished pump assembly in Mexico did not result in a substantial transformation because the assembly involved press fitting the parts into each other. Similarly, in HQ H302821, dated July 26, 2019, the assembly of five subassemblies and other components from China with a pre-determined end-use into passenger vehicles in Sweden was not complex and the individual components did not undergo a change in use. Also, in HQ H301619, dated Nov. 6, 2018, a stator or rear housing, a rotor or armature assembly, and an end cap assembly manufactured in China and assembled into an electric motor in Mexico had a pre-determined end-use as parts and components of the electric motor and the production process in Mexico was a simple assembly. In addition, in New York Ruling Letter (“NY”) N126155, dated Oct. 29, 2010, a marine thrust assembly serving as a mechanical coupling between a boat’s propeller and a boat’s engine was assembled in Germany from Swedish and German components. The components were first painted, and then dried, cleaned, and assembled. The Swedish components effected the mechanical coupling within the completed trust assembly and were visible upon examination of the final assembly. The operations performed in Germany required limited assembly operations and the Swedish components did not lose their identity as a result of the operations performed.
In the instant matter, you believe that the assembly operations in Mexico are “sufficiently complex and meaningful” and will result in a substantial transformation. You argue that the Chinese components, once assembled into an engine in Mexico, take on a new name, character, and use, and none of the original components impart the “very essence” of the engine.
Even though the gasoline engine involves an assembly of various components into subassemblies and the finished product, based on the information presented, we find that no substantial transformation will occur in Mexico. All component parts are of Chinese origin and are already cut, welded, and constructed in a specific way in China to be incorporated in the engine subassemblies. The component parts sourced from China have a pre-determined end-use as components of subassemblies, which are further incorporated into larger sub-assemblies and to a finished engine assembly. The individual components remain the building blocks of the subassemblies assembled into the finished engine. For instance, the Chinese-originating crankcase is the dominant component of the crankcase subassembly, which is an integral part of the short block assembly, and the long block assembly of the finished engine. The crankcase has a pre-determined end-use as component of the gasoline engine. After the assembly operations in Mexico, the crankcase remains a major component of the crankcase subassembly, the short block assembly, and the long block assembly, and without it the finished engine cannot function.
See HQ H301619; HQ H303864. Assembly operations consisting of assembling, screwing, and connecting major components into subassemblies and a complete engine constitute a “fitting together of parts and … its components … imported with a pre-determined end-use and … ready for assembly.” Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1324-25 (CIT 2016. The operations performed in Mexico are a mere “fitting together” of subassemblies of complete components manufactured in China that are the “essence” of the engine and do not undergo a change in name, character, or use during the assembly operations. See HQ H301619; HQ H302821; HQ H303864; NY N126155, supra.
You cite to a number of cases in support of your proposition that a substantial transformation would occur in Mexico but these cases are distinguishable. Unlike the cited cases, the individual components sourced from China here are not subjected to complex and meaningful assembly operations such as mounting and welding, and retain their character and pre-determined end-use as components of the subassemblies of the gasoline engine and the finished product. In HQ H270580, dated May 10, 2016, a final determination for government procurement, component parts of Chinese origin were imported into the U.S. to be assembled into exercise equipment. Although nearly all the parts were of Chinese origin, the extent of the U.S. assembly operations was sufficiently complex and meaningful to result in a substantial transformation for purposes of government procurement. The assembly involved extensive welding of separate subassemblies, cleaning and degreasing parts, grinding down and painting the frame, and spraying the frame with clear coat. The parts that comprised the final products were then assembled in a process involving fastening hardware; adding rubber grips; capping off tube ends; positioning pulleys; adding weights, cables, or belts; and placing warning placards.
Similarly, in HQ H262943, dated Nov. 1, 2016, imported materials were first welded to create three major subassemblies (the treadmill base, the console frame, and the console mast) that comprised the finished treadmill, after which extensive assembly operations took place.
You also refer to HQ H100055, dated May 28, 2010, which considered a ceiling mounted patient lift system; the issue again pertained to determining the origin for government procurement. The manufacturing and testing operations in Sweden were sufficiently complex and meaningful, in that individual components’ names, uses and identities were lost and transformed into the lift unit. Significantly, an essential component, the motor, also originated from a Trade Agreements Act of 1979 (“TAA”) country, and Swedish programmed software was involved.
HQ 555756, dated Mar. 25, 1991, is also distinguishable because engines were first produced in Mexico from Mexican, U.S., and other foreign origin components, which were then used to produce chain saws. The individual components were combined in operations such as mounting, welding, bolting, and quality control testing, which increased the components’ value and endowed them with new attributes. Further, as a case considering the Generalized System of Preferences, the second substantial transformation was not considered a “pass-through” operation considering the entire production process. HQ 560871, dated Mar. 16, 1998, and
HQ 559703, dated Aug. 23, 1996, involved the disassembly of various parts to repair an aircraft engine and how that repaired engine should be marked. CBP determined that the country of origin of the disassembled engine parts and reassembly, in fact, did not result in a substantial transformation. HQ 556976 dated June 9, 1994, too involved more extensive operations to rough castings. While each case is decided on a case-by-case basis, we note that some of the older decisions cited as support were decided before Energizer Battery, supra and Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d per curiam, 989 F.2d 1201 (Fed. Cir. 1993).
Accordingly, for the reasons explained above, the instant gasoline engine assembled in Mexico from Chinese component parts with a pre-determined end-use, which are the building blocks of the engine’s subassemblies, remains a product of China for purposes of Section 301 trade remedies.
HOLDING:
Based on the information presented, the country of origin of the gasoline-powered horizontal shaft engine for a snow thrower for purposes of application of subheading 9903.88.02, HTSUS, is China and Section 301 measures 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 [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 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 and Special Programs Branch