OT:RR:CTF:VS H316545 EE
Ms. Rachael Goding
International Automated Brokers
1655 St. Andrews Cove
San Diego, CA 92154
RE: Custom Battery Packs; USMCA
Dear Ms. Goding:
This is in response to your correspondence, dated February 1, 2021, in which you request a ruling on behalf of your client, Inventus Power (“Inventus”), concerning the eligibility of certain custom order battery packs for duty-free treatment under the United States-Mexico-Canada Agreement.
FACTS:
The subject merchandise is described as custom battery packs for a radiology injection machine used in medical settings. The battery packs incorporate a main board assembly, wiring/wiring harnesses, fasteners, plastic housing, and twelve lithium-ion cells. You submitted confidential diagrams and photographs of the production of the battery packs as well as the bill of materials.
You state that the custom battery packs are classified under subheading 8507.60.00, Harmonized Tariff Schedule of the United States (“HTSUS”). You state that the battery packs are manufactured in Mexico with the majority of components of Mexican and U.S. origin. The non-originating materials of the custom battery packs are the insulating material from Korea classified under subheading 3917.32, HTSUS; the fuse from the Philippines classified under subheading 8533.40, HTSUS, and lithium-ion cells from China classified under subheading 8507.90, HTSUS.
You state that the production of the battery packs begins with testing the printed circuit board assembly (“PCBA”). Further processing on the PCBA is then performed such as attaching thermistors, wires, and cables with harness. Wires are then soldered with nickel in order for the energy from the cell to be accessible. The cells undergo a complex welding and soldering process where all wires and cables are attached to appropriate places so that the cell can function as an energy source. The package of batteries is wrapped in insulation to protect the cells from exploding. Lastly, the PCBA board is attached to the new battery pack, cables, and thermistors.
You claim that the regional value content (“RVC”) of the custom battery packs using the transaction value method is 73 percent.
ISSUE:
Whether the custom order battery packs classified under subheading 8507.60.00, HTSUS, imported into the United States from Mexico, are eligible for duty-free treatment under the United States-Mexico-Canada Agreement.
LAW AND ANALYSIS:
The United States-Mexico-Canada Agreement (“USMCA”) was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). GN 11 of the HTSUS implements the USMCA. GN 11(a)(i) provides:
Goods that originate in the territory of Mexico, Canada or the United States (hereinafter referred to as “USMCA country” or “USMCA countries” as further defined in subdivision (l)(xxiv) of this note) under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury (including Uniform Regulations provided for in the USMCA), and goods enumerated in subdivision (p) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn, followed by the symbol “S” in parentheses, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act; and
Goods that originate in the territory of a USMCA country under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn, followed by the symbol “S+” in parentheses, or under a subheading whose article description provides for originating goods of one or more USMCA countries, as the case may be, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act.
GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if—
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
…
Since the custom order battery packs contain non-originating materials, they are not considered goods wholly obtained or produced entirely in a USMCA country under GN 11(b)(i) and they do not qualify under GN 11(b)(ii).
We must next determine whether the custom order battery packs qualify under GN 11(b)(iii). The custom order battery packs are classified under subheading 8507.60.00, HTSUS. The applicable rule of origin for the custom order battery packs classified under subheading 8507.60.00, HTSUS, is in GN 11(o)/85.17, HTSUS. The subheading rule which provides that “[t]he underscoring of the designations in subdivision 17 pertain to goods provided for in subheading 8507.60 for use in a motor vehicle of chapter 87” does not apply since the custom battery packs at issue are not for use in motor vehicles of chapter 87. Rather, they are for use in radiology injection machines. GN 11(o)/85.17, HTSUS, provides:
(A) A change to a battery of subheading 8507.60, of a kind used as the primary source of electrical power for the propulsion of an electric passenger vehicle or light truck from any other subheading, excluding battery cells of 8507.90;
(B) No change in tariff classification to a battery of subheading 8507.60, used as the primary source of electrical power for the propulsion of an electric passenger vehicle or light truck provided that the regional value content is:
(1) 85 percent where the transaction value method is used; or
(2) 75 percent where the net cost method is used;
(C) A change to any other good of subheading 8507.60 from any other heading; or
(D) A change to any other good of subheading 8507.60 from subheading 8507.90, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used; or
(2) 50 percent where the net cost method is used.
Since GN 11(o)/85.17(A) and (B) apply to batteries of a kind used as the primary source of electrical power for the propulsion of an electric passenger vehicle or light truck, they are not applicable. GN 11(o)/85.17(C) requires a change to any other good of subheading 8507.60 from any other heading. Since the non-originating lithium-ion cells from China are classified under heading 8507, HTSUS, GN 11(o)/85.17(C) is not met.
As the non-originating lithium-ion cells from China are classified under the same heading as the custom battery packs, GN 11(o)/85.17(D) will be satisfied if the applicable RVC requirement is met. GN 11(c), HTSUS, provides the methods for calculating RVC for purposes of USMCA. You utilized the transaction value in your calculations. The transaction value method is set forth in GN 11(c)(ii), HTSUS, which provides as follows:
An importer, exporter or producer of a good may calculate the regional value content of the good on the basis of the following transaction value method:
RVC = ((TV-VNM)/TV) X 100
where RVC means the regional value content of the good, expressed as a percentage; TV means the transaction value of the good adjusted to exclude any costs incurred in the international shipment of the good; and VNM means the value of non-originating materials, including materials of undetermined origin, used by the producer in the production of the good.
You provided a costed bill of materials for the custom battery packs which includes the total costs of the originating and non-originating components, as well as the production costs. You state that the transaction value of the custom battery packs under the transaction value method is $310.20. The costed bill of materials indicates that the value of non-originating materials is $76.77. Based on these figures, the RVC of the custom battery packs is 75.3 percent, which meets the RVC rule of GN 11(o)/85.17(D) part 1. Accordingly, the custom battery packs classified under subheading 8507.60.00, HTSUS, qualify as USMCA originating goods.
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(s), HTSUS. Among the subheadings listed in U.S. Note 20(s)(i) of Subchapter III, Chapter 99, HTSUS, is 8507.60.00.
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 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). No substantial transformation occurs if the imported parts are formed into their final shape prior to importation and their intended use is predetermined at the time of importation. See Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d per curiam, 989 F.2d 1201 (Fed. Cir. 1993) (hand tool components intended to be incorporated in a finished mechanic’s hand tool were cold-formed or hot-forged into their final shape prior to their importation into the U.S.).
CBP has previously held that the assembly of battery cells into battery packs does not result in a substantial transformation of the cells because the essential character of the cells does not change by being placed together in a plastic case. See Headquarters Ruling Letter (“HQ”) 563045, dated August 9, 2004. In a recent decision in HQ H306336, dated February 11, 2020, CBP affirmed New York Ruling Letter (“NY”) N306161, dated October 4, 2019, finding that the substantial transformation test to determine that the country of origin of battery packs similarly produced as those at issue was correctly applied. CBP held that the assembly processes performed in Mexico of battery packs did not result in a substantial transformation of the components sourced from China. HQ H306336 also held that the lithium-ion cells (and not the main board assembly) were the “essence” of the finished article, i.e., the battery packs. In accordance with these rulings, we find that the country of origin of the custom battery packs at issue for the purposes of the application of Section 301 trade remedy measures is China, where the lithium-ion cells are produced. Therefore, the custom battery packs are subject to Section 301 duties.
HOLDING:
Based on the information provided, custom battery packs classified under subheading 8507.60.00, HTSUS, are eligible for preferential tariff treatment under USMCA. The country of origin of the custom battery packs for purposes of the application of Section 301 trade remedy measures is China and therefore they are subject to Section 301 duties.
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,
Monika R. Brenner, Chief
Valuation and Special Programs Branch