OT:RR:CTF:VS H321787 EE
Ms. Lauren Wyszomierski
White & Case LLP
701 Thirteenth Street NW
Washington, DC 20005
RE: Country of Origin; Section 301; Outdoor Split Air Conditioning Units
Dear Ms. Wyszomierski:
This is in response to your request, dated October 7, 2021, on behalf of your client, Midea America Corporation (“Midea”), concerning the country of origin of certain outdoor split air conditioning units for purposes of Section 301 trade remedies. 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 products at issue are four outdoor split air conditioning unit models referred to as platform X2 AC systems. You state that the models are similar in cost and share the same key material production processes. Once imported, the outdoor units are paired with indoor evaporator units to make a complete air conditioning system that cools and heats. You only inquire about the origin of the outdoor units.
The outdoor units consist of a chassis that primarily contains a compressor, a condenser, which is referred to as a heat exchange unit, a fan-motor assembly, a printed circuit board (“PCB”) assembly, and a 4-way valve.
The exterior chassis, which consists of a panel top cover, and left and right plates, are manufactured in Thailand from sheet metal. Steel coil is cut into pieces, punched using a punching press, bent and welded, spray treated, dried, power sprayed, and cured. Some of the resulting components are then screwed to other parts.
Exterior components, such as the wind net, the handle, the affixing plate, the water receiving cover and the protective cover, are manufactured in Thailand using a plastic injection process. Plastic particles are mixed with a color master feed and then processed using an injection molding machine.
The heat exchange unit (condenser) is assembled in Thailand of Chinese-origin copper and aluminum. The aluminum foil coil is cut, stamped, bent and formed into fins. The copper pipe is cut and shaped into U-tubes. The copper tubes are then inserted into the aluminum fins, and the assembled heat exchanger undergoes an expansion process, followed by a drying process. Next, rings are soldered onto the open ends of the heat exchanger unit.
The PCB assembly is formed in Thailand by mounting, affixing, gluing, and welding electrical components from China on an electrical board. Once completed, the PCB assembly undergoes inspections and testing.
The final assembly of each outdoor unit occurs in Thailand and begins by placing the compressor rubber pads over the screw bolts of the chassis sub-assembly. The Chinese compressor is then installed and affixed to the chassis. The 4-way Chinese valve and the condenser (the heat exchange unit) are then screwed into place. The air exhaust and input pipes are connected to their applications. Nitrogen is added and the nitrogen pipes are installed. Compressor wiring is connected and the fan motor supporter is screwed into place. A vacuum is then created, and refrigerant is charged. The processing pipe is sealed. The compressor cover is then fixed into place. Next, a Chinese axial fan and a Chinese motor are installed. A right plate is fastened to the condenser, which allows the temperature sensor wire to be inserted into its slot. The electronic PCB assembly is then installed, and the necessary Chinese wiring is connected. The front and right side panels, the back grill, other covers, and the water collector are installed and screwed into place. Various inspections and testing for each unit (including the valves) are completed throughout the assembly process.
You submitted the owner’s manual and an installation manual for the split-type room air conditioner; a costed bill of materials; process flowcharts; and tools and equipment lists.
ISSUE:
What is the country of origin of outdoor split air conditioning units for purposes of Section 301 trade remedies?
LAW AND ANALYSIS:
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty 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)(i), HTSUS. Among the subheadings listed in U.S. Note 20(s)(i) is 8415.90.80, Harmonized Tariff Schedule of the United States (“HTSUS”).
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). If the manufacturing or combining process is a minor one which leaves the identity of the article intact, a substantial transformation has not occurred, and the essence of the article is considered. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d 702 F.2d 1022 (Fed. Cir. 1983). 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.
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (CIT 2016), the court interpreted the meaning of “substantial transformation.” The court reviewed the “name, character, or use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc. v. United States, 3 CIT 220, 226, 542 F. Supp. 1026, 1031 (1982), 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 Battery at 1318. The court stated that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.” Id. at 1319, citing Nat’l Hand Tool Corp., 16 CIT at 311-12 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
In New York Ruling Letter (“NY”) N311459, dated April 30, 2020, outdoor units used in a split AC system were assembled in India from subassemblies and components including a four-way valve assembly for some models, a throttle assembly, a suction pipe assembly, a condenser assembly from India, a compressor from South Korea, and a motor from China. CBP held that the South Korean and Chinese components were substantially transformed in India into outdoor units used in a split AC system when they were combined with the components and subassemblies from India. Accordingly, the country of origin of the outdoor units was found to be India.
In the instant case, the outdoor split air conditioning units are assembled in Thailand from components from China and Thailand. The processing in Thailand includes the fabrication of sheet metal into components, the production of certain plastic parts, the production of subassemblies such as the PCB assembly and the heat exchange unit (condenser), as well as the final assembly of the outdoor split air conditioning units. Since the condenser and many other components which constitute the outdoor split air conditioning units are sourced from Thailand, where the final assembly occurs, in accordance with NY N311459, we find that the country of origin of the outdoor split air conditioning units is Thailand for purposes of Section 301 trade remedies.
HOLDING:
The country of origin of the outdoor split air conditioning units is Thailand for purposes of Section 301 trade remedies.
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