OT:RR:CTF:VS H315287 UBB
Thomas M. Keating
Rock Trade Law LLC
134 N. LaSalle St. Suite 1800
Chicago, IL 60602
RE: Country of origin marking and tariff applicability under HTSUS 9903.88.01 of a centrifugal water cooling pump manufactured in Mexico
Dear Mr. Keating,
This is in response to your ruling request letter dated October 14, 2020. In your letter you requested a finding that certain centrifugal cooling pumps produced by Johnson Electric North America are considered products of Mexico for all country of origin purposes, including 19 CFR 134.1 marking purposes, and are not subject to additional tariffs under Section 301.
FACTS:
You describe the subject merchandise as a centrifugal pump with an internal permanent magnetic direct current motor (“centrifugal pump” or “pump”). The centrifugal pump is used as a cooling pump for the battery pack in Hybrid or all-electric passenger automobiles. The pump is not used to cool internal combustion engines. You classify the pump under subheading 8413.70.20, of the Harmonized Tariff Schedule of the United States (“HTSUS”). You further note that while this classification carries a general duty rate of “Free”, items classified under this tariff provision are subject to an additional 25 perfect tariff when the country of origin is China, pursuant to List 1 of the Section 301 China tariffs.
You state that the components used to manufacture the pumps originate from China, Serbia and various other third-party countries. At Johnson Electric’s factory in Mexico, approximately 27 unique components are manufactured into subassemblies for a brushless DC motor, including a stator, rotor and housing subassemblies. The subassemblies are then combined to assemble a finished centrifugal pump. You describe the key manufacturing processes used to create the subassemblies and centrifugal pump as: stamping, plastic injection molding and over-molding, winding of the bobbin to create the field coil, magnetization, ultra-sonic welding and soldering. You argue that these methods completely change the identity of the components. You note that there are 34 separate steps required to manufacture each pump. The manufacturing process for each of the subassemblies and the centrifugal pump are described in more detail below:
Stator Subassembly
You state that the stator subassembly consists of eight (8) steps, all performed at the Johnson Electric factory in Zacatecas, Mexico. To produce the stator subassembly, first the individual stator laminations are formed by feeding slitted Japanese silicon steel sheet into a progressive die and stamping it in a high-speed press. This process blanks and pieces the die into a lamination. The laminations are then stacked and compressed to form a stator stack. The front bobbin is then formed by injection molding thermo-plastic resin from Japan using an injection molding process. A rear bobbin is formed by over molding three Chinese electric terminals with thermo-plastic resin from Japan in an injection molding process. Front and back bobbins formed in Mexico are then joined with the lamination stack using a pneumatic press. Copper winding wire from Mexico is then spun around the stator assembly in a specific pattern that provides a finished motor with characteristics such as power, torque and efficiency. The stator is then placed in an electric spot welder, where a high voltage current and force is applied against the terminal hooks and copper winding wire, fusing the wire to the terminal and forming a permanent electrical connection. Finally, the electrical integrity of the stator is tested.
Rotor Subassembly
You state that the rotor subassembly consists of eight (8) steps that all take place at Johnson Electric’s factory in Zacatecas, Mexico. First, individual rotor laminations are formed by stamping Japanese slitted silicon steel sheet in a progressive die, which blanks and pierces the flat sheet into a lamination. Multiple laminations are then stacked and compressed to form a rotor stack. An impeller blade guard and a bushing holder are then formed by plastic injection molding of thermo-plastic resin from Japan. The formed lamination stack and bushing holder are then joined with unmagnetized magnets and two bushings (from China) by over-molding with thermoplastic Japanese origin resin in an injection molding machine, creating a rotor. The rotor is then over-molded a second time with Japanese thermoplastic resin to form a rotor-impeller subassembly. Next, the injection molded blade cover is ultra-sonically welded to the rotor impeller. Finally, the new rotor assembly is placed into a machine that induces an electromagnetic field around the subassembly to transform the ferrite bars into permanent magnets, making the rotor functional.
Motor Housing Subassemly Production
You state that the motor housing subassembly process consists of six (6) steps performed at Johnson Electric’s factory in Mexico. First, a plastic EMC coated motor housing from China is fit with the previously assembled stator subassembly to create a housing assembly. A rubber sleeve (from China) is then fitted around the housing assembly. A rubber o-ring and six metal springs (from China) are inserted into the motor housing assembly using a machine. A plastic EMC coated waterproof sleeve with a shaft is then fitted into the housing assembly. The housing assembly is vacuum cleaned and a washer is inserted into the shaft of the stator assembly. Finally, lubricant is added to the sleeve in preparation for the rotor/impeller assembly.
Pump Final Assembly
You state that the final pump assembly consists of twelve (12) steps performed at Johnson Electric’s Mexico factory. First, the rotor and stator are machine fit into the housing subassembly. The rotor is then lubricated and a rubber o-ring is added to the housing. Thermoplastic resin from Japan is injection molded into a volute using a plastic injection molding process. A ceramic washer (from China) is fit to the volute, and the volute is fit to the o-ring of the housing and screwed into place. The pump is then tested. Next, a pump controller printed circuit board controller (PCBA) from Serbia is inserted into the housing base and screwed into place. The PCBA is then soldered onto the housing terminals to form a permanent electrical connection. An o-ring is then seated to the base of the housing and a gap filler is added to protect the PCBA from vibration. An air vent is inserted into an end cap (from China), and the end cap assembly is fit to the pump sub assembly. The end cap is secured to the base of the housing with screws as fasteners. Finally a controller leakage test is performed.
ISSUE:
What is the country of origin of the centrifugal pumps for all country of origin purposes, including marking and the application of Section 301 trade remedies?
LAW AND ANALYSIS:
Marking
The marking statute, Section 304, Tariff Act of 1930, as amended (19 U.S.C.
§ 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134 of the U.S. Customs and Border Protection (“CBP”) Regulations (19 C.F.R. Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304.
To provide a more seamless transition to the U.S.-Mexico-Canada Agreement (“USMCA”) for Canadian and Mexican traders, at this time, CBP continues to utilize the marking rules 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 of those countries. 19 C.F.R. § 102.11(a) provides that the country of origin of a good is the country in which:
The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
(3) 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.
“Material” means a good that is incorporated into another good as a result of production with respect to that other good, and includes parts, ingredients, subassemblies, and components.” 19 C.F.R. § 102.1(l).
“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 centrifugal pump is neither “wholly obtained or produced” nor “produced exclusively from domestic materials.” Therefore, paragraphs (a)(1) and (a)(2) cannot be used to determine the country of origin of the pump, and paragraph (a)(3) must be applied next to determine the origin of the finished article. The tariff shift requirement in Section 102.20 for the centrifugal pump at issue states:
A change to subheading 8413.11 through 8413.82 from any other subheading outside that group.
This tariff shift rule requires a shift to subheading 8413.70, HTSUS, from any other subheading outside of the 8413.11 through 8413.82, HTSUS. According to the information you provided as part of the ruling request, none of the components used to produce the centrifugal cooling pump are classified in subheadings 8413.11 through 8413.82. As such, the components all undergo the change in tariff classification set out in 19 C.F.R. § 102.20(o).
Accordingly, the country of origin of the centrifugal pump for marking purposes is Mexico. The centrifugal pump must be marked “Made in Mexico” under 19 U.S.C. § 1304.
Section 301
There is no dispute that the instant centrifugal cooling pump is classified under subheading 8413.70.20 of the Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for “Pumps for liquids, whether or not fitted with a measuring device…: Other centrifugal pumps: Other: Single-stage, single-suction, close-coupled: With discharge outlet under 5.08 cm in diameter.” 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 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(b), HTSUS. Among the subheadings listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, is 8413.70.20, HTSUS.
When determining the country of origin for purposes of applying current 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).
The question presented is whether the discrete parts from China are substantially transformed when they are assembled into a finished centrifugal cooling pump in Mexico. In determining 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 CIT 220, 542 F. Supp. 1026 (1982), aff’d 702 F. 2d 1022 (Fed. Cir. 1983).
In HQ H282391, dated March 16, 2017, CBP determined that the country of origin of a gear motor was the United States because the assembly process in the United States amounted to a substantial transformation. The gear motor was comprised of two subassemblies, a gear box and a motor. The assembly of the gear motor consisted of assembling together 131 unique parts, and at least a total of 200 parts. These parts were imported from various origins and were used to first assemble the gear box and motor subassemblies, and then to assemble the complete gear motor through a complex operation with specialized skill and expertise. CBP noted that the complex operations involved at least 27 steps and took approximately two hours. CBP also considered the worker experience and training, stating that the workers were hired with previous experience and underwent additional training in order to reach proficiency in the assembly process. CBP thereby concluded that the foreign components lost their individual identities and became an integral part of a new article, the gear motor, and possessed a new name, character and use, amounting to a substantial transformation as a result of the assembly operations.
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 of the operations that occur within that country, including any subassembly processes that take place in that country. For example, in HQ H303529, dated June 6, 2019, the subject merchandise was an incomplete postage meter, which functioned as a specialized printer in a mail handling system. While one of the major subassemblies was made in Malaysia, the remaining subassemblies were made in China, and the final assembly process of connecting the subassemblies also occurred in China. CBP found that the assembly process that occurred in China was sufficiently extensive and complex as to substantially transform the components into a product of China. In doing so, CBP noted that the question of the complexity of the assembly process which occurred in China was not limited to an examination of the assembly of the various subassemblies to one another, but included an examination of all the assembly processes involved in China in the production of the incomplete postage meter. See Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (2016) (“case law…indicates that a determination of substantial transformation must be based on a totality of factors”) (citing National Hand Tool Corp. v. United States, 16 C.I.T. 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993) and Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121 (1996)).
In H304126, dated February 13, 2020, approximately 20 discrete parts from China were shipped to Serbia to be manufactured into subassemblies, and then combined to form a finished centrifugal dishwasher pump. The assembly was complex and involved magnetization of the rotor, pneumatic pressing of multiple components, ultraviolet glue curing, and induction soldering. As such, CBP found that the discrete parts were substantially transformed when they were combined to form a finished centrifugal pump in Serbia.
In the instant case, over 27 unique components from China, Mexico, Serbia and various other third-party countries are used to manufacture centrifugal cooling pumps at Johnson Electric’s factory in Mexico. There are 34 separate steps required to manufacture each pump. As described in more detail above, the manufacturing process comprises of four separate subassemblies, including the assembly of a stator, a rotor, and a housing to produce a brushless DC motor, which is then combined to assemble a finished centrifugal pump. The assembly is complex and the process involves stamping, which includes the production of the stator subassembly by forming the stator laminations using a stamping process. It is during this process that the laminations are stacked and compressed to form a stator stack. The processing also includes plastic injection molding and over-molding, machine-fitting, winding of the bobbin to create the field coil, magnetization, ultra-sonic welding and soldering. Therefore, we find that the discrete parts are substantially transformed when they are created and combined to form a finished centrifugal cooling pump in Mexico.
As the assembly of the Chinese parts into a centrifugal cooling pump results in a substantial transformation, the pump is a product of Mexico. Therefore, Section 301 measures will not apply.
HOLDING:
Pursuant to 19 C.F.R. § 102.11(a)(3), the country of origin of the centrifugal cooling pump for marking purposes is Mexico. The centrifugal cooling pump must be marked “Made in Mexico” under 19 U.S.C. § 1304.
The country of origin of the centrifugal cooling pump for the purposes of the application of subheading 9903.88.01, HTSUS, is Mexico. As the merchandise will be a product of Mexico, Section 301 measures will 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 [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