OT:RR:CTF:FTM H312891 JER
Mr. C. J. Erickson
Cowan, Liebowitz & Latman, P.C.
114 West 47th Street
New York, NY 10036
RE: Country of Origin of Catalytic Converter Assemblies; Marking; Section 301 Trade Remedy; 9903.88.01
Dear Mr. Erickson,
This is in response to your correspondence, dated July 15, 2020, in which you request a binding ruling, on behalf of your client, Cateran, Inc. (“Cateran”), concerning the country of origin of certain catalytic converter assemblies imported from Canada into the United States. Your request, submitted as an electronic ruling request, was forwarded to this office from the National Commodity Specialist Division for review. Our ruling is set forth below.
FACTS:
The merchandise consists of three catalytic converter assemblies: Model Number 53263, Model No. 33208 and Model No. 33016. The catalytic converters are emission control devices that convert toxic gases and pollutants in exhaust gas to fewer toxic pollutants by catalyzing a redox reaction. Each of the three catalytic converters consists of a monolithic core and component parts which complete the assembly. The monolithic core is made up of a ceramic substrate and precious metals. The structure of the monolithic core includes thousands of channels (or holes) which act as filtration for converting automobile gases and emissions into non-toxic substances. Model No. 53263 features a catalytic converter housing (which houses the monolithic core), a cast iron outlet, a cast iron inlet, outlet flanges and gasket and bolt accessories. Model No. 33208 features a catalytic converter housing (which houses the monolithic core) with a heat shield which is wrapped around the catalytic converter housing, a conical end on each end, a 409SS outlet pipe with an O2 sensor Boss/Nut, flanges and gasket and bolt accessories. Model No. 33016 features a catalytic converter housing (which houses the monolithic core) an inlet collector, an inlet cone (conical end), flanges, a 409SS outlet pipe with an O2 sensor Boss/Nut, brackets and gasket and bolt accessories.
The manufacturing process of the finished catalytic converter assemblies takes place in three different countries: Canada, China and the United States.
Manufacturing in the United States
Production of the ceramic fiber mat. The intumescent ceramic fiber mat (in rolls) is produced entirely in the United States through an automated process. The mat is exported to the assembly facility in China where it used for manually “canning” (or wrapping) the catalyst (monolithic core).
Manufacturing in Canada
Production of the ceramic substrate (monolithic core). The process of creating the monolithic core consists of submersion of a ceramic honeycomb structure substrate (manufactured in the United States) into a formulated slurry consisting of a washcoat and proprietary mixture of precious metals. The product is cured in an industrial oven at predetermined temperatures for the necessary time. The catalyst or ceramic substrate (monolithic core) is then shipped to China for “canning” (or wrapping). Once returned to Canada, the product is labeled, quality control inspected and packaged for export. The Canadian built catalyst makes up nearly 50% of the overall cost of the completed catalytic converter assembly.
Manufacturing in China
In China, the canning of the ceramic substrate (monolithic core) is performed. This involves the wrapping of the ceramic substrate (monolithic core) with the intumescent ceramic fiber mat (which was produced in the United States). The catalyst is wrapped into a metal shell (housing) and the inlet and outlet pipes are attached to the housing. The metal shell and attached pipes are secured to the casing through welding. The completed assemblies are returned to Canada for inspection, labeling and packaging.
ISSUE:
What is the country of origin of catalytic converters for the purposes of marking and Section 301 trade remedies?
LAW AND ANALYSIS:
Marking
The marking statute, Section 304(a), 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 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).
Pursuant to section 102.0, interim regulations, related to the marking rules, tariff-rate quotas, and other USMCA provisions, published in the Federal Register on July 6, 2021 (86 FR 35566), the rules set forth in §§ 102.1 through 102.18 and 102.20 determine the country of origin for marking purposes with respect to goods imported 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 completed catalytic converter is neither wholly obtained or produced in Canada or produced exclusively from Canadian materials. Instead, each of the three models consist of component parts and materials, which stem from three different countries. In the instant case, the shell (housing), heat shield, exhaust pipes and conical ends are produced in China, while the ceramic fiber mats are produced in the United States. Only the catalytic elements, including the ceramic monolithic core, are produced in Canada. 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 catalytic converters (which contains the ceramic monolithic core) as imported from Canada into the United States are classified under subheading 8421.39, HTSUS. The tariff shift rule set forth in § 102.20 for articles classified in subheading 8421.39, HTSUS, is as follows: “[a] change to subheading 8421.11 through 8421.39 from any other subheading, including another subheading within that group.” Following the wrapping and canning of the ceramic monolithic core in China and the attachment of the exhaust pipes and conical ends, the catalyst or ceramic substrate (monolithic core) remains classified in subheading 8421.39, HTSUS. Here, the tariff shift is not met. The catalyst (monolithic cores) from Canada used to produce finished catalytic converters, do not meet the required tariff shift to be considered changed by manufacture for country of origin marking purposes.
Accordingly, § 102.11(b) of the hierarchical rules must next be applied. 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 . . .
The rule of interpretation set forth in 19 C.F.R. § 102.18(b)(1)(iii) states that if there is only one material that is classified in a tariff provision from which a change in tariff classification is not allowed under the 19 C.F.R. § 102.20 specific rule or other requirements applicable to the good, then that material will represent the single material that imparts the essential character to the good under 19 C.F.R. § 102.11. In this case, the only material that does not undergo the applicable tariff shift is the catalyst (monolithic core). Therefore, the catalyst (monolithic core) is the material that imparts the essential character to the finished catalytic converter assembly. Inasmuch as the catalyst (monolithic core) is produced and manufactured in Canada, the country of origin for finished catalytic converter assemblies is Canada.
Section 301 Duties
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25% 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”). See Section XXII, Chapter 99, Subchapter III, U.S. Note 20(e), HTSUS. The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(f), HTSUS. Among the subheadings listed in U.S. Note 20(f) of Subchapter III, Chapter 99, HTSUS, is subheading 8421.39.40, HTSUS, in which the finished catalytic converter assemblies are classified in.
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 order to determine whether a substantial transformation has occurred, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. CBP has stated that a new and different article of commerce is an article that has undergone a change in commercial designation or identity, fundamental character, or commercial use. A determinative issue is the extent of the operations performed and whether the materials lose their identity and become an integral part of the new article. This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
In National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993), sockets and flex handles were either cold formed or hot forged into their final shape, speeder handles were reshaped by a power press after importation, and the grip of the flex handles were knurled in the United States. The imported parts were then heat treated which strengthened the surface of the steel, and cleaned by sandblasting, tumbling, and/or chemical vibration before being electroplated. In certain instances, various components were assembled together which the court stated required some skill and dexterity. The court determined that the imported components were not substantially transformed by the strengthening, cleaning, and assembly performed in the United States; therefore, they remained products of Taiwan. In making its determination, the court focused on the fact that the components had been cold-formed or hot-forged “into their final shape before importation,” and that “the form of the components remained the same” after the assembly and heat-treatment processes performed in the United States. Although the court stated that a predetermined use would not preclude the finding of a substantial transformation, the determination must be based on the totality of the evidence. No substantial change in name, character or use was found to have occurred as a result of the processing performed in the United States.
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. 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 (“Uniroyal”), 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d 702 F. 2d 1022 (Fed. Cir. 1983).
Based on the facts presented, we find that the assembly operations performed in China, which consist of the wrapping of the ceramic substrate (monolithic core) with the intumescent ceramic fiber mat, wrapping the catalyst into a metal shell (housing), attaching the inlet and outlet pipes, and welding the metal shell, pipes and the casing, do not constitute substantial transformation. See New York Ruling Letter (“NY”) N155818, dated April 22, 2011, aff’d by Headquarters Ruling Letter (“HQ”) H168212, dated December 23, 2013. The monolithic cores are not substantially transformed during the operations in China because their identity—primarily character and use—are left intact.
In HQ H168212, CBP stated that the monolithic core of an underfloor assembly imparted the essential character because the function of purifying auto exhaust emissions was performed by the monolithic core. HQ H168212 explained that “the monolithic cores provide and solely perform the actual purification of auto emission gases function.” Under our facts, the sole and primary function of a catalytic converter is to convert auto emission gases into non-toxic substances. According to the Cateran website, a catalytic converter is an emissions control device that converts toxic gases and pollutants in exhaust gas to less toxic pollutants by catalyzing a redox reaction (an oxidation and a reduction reaction). Catalytic converters are used with internal combustion engines fueled by either petrol (gasoline) or diesel—including lean-burn engines as well as kerosene heaters and stoves. What is a Catalytic Converter, Cateraninc.com, available at, https://cateraninc.com/catalytic-converter/. (Last visited 11/02/2020). The exhaust pipes, conical ends and the inlet/outlet manifolds serve only to direct the flow of the emitted gas through the converter housing over the monolithic core. The heat shields protect other areas of the vehicle from the heat emanating from the catalytic converter, while retaining the heat inside the monolithic core. Moreover, the decision in HQ H168212 noted that neither the ceramic mat, metallic shell, nor the conical steel ends actually changed any part of the monolithic core to enable it to provide the catalytic converter function of purifying auto exhaust emissions. In keeping with the decision in HQ H168212, we find that the subject monolithic core imparts the essence of the completed catalytic converter assemblies. Accordingly, the country of origin of the finished catalytic converter assemblies is Canada.
HOLDING:
Based on the information provided, the country of origin for marking purposes is Canada. Each of the three finished catalytic converter assemblies must be marked as a product of Canada. The country of origin of catalytic converter assemblies for the purposes of the application of subheading 9903.88.01, HTSUS, is Canada. As such, Section 301 remedies do not 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 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,
Yuliya A. Gulis, Chief
Food, Textiles and Marking Branch