CLA-2 OT:RR:CTF:TCM H155376 EG
April J. Collier
Pacific Customs Brokers, Inc.
P.O. Box 4505
Blaine, WA 98231-4505
RE: Classification of the Battery Management System and Its Lithium-Ion Cells; Eligibility for the North American Free Trade Agreement Duty Preference for the Battery Management System; General Note 12, HTSUS
Dear Ms. Collier:
This responds to your letter dated September 17, 2010 which you submitted to U.S. Customs and Border Protection (CBP) on behalf of Exide Technologies (Exide). In your letter, you request a ruling on the classification of Exide’s Battery Management System (BMS) and its lithium-ion cells under the Harmonized Tariff Schedule of the United States (HTSUS). You also request a ruling on the applicability of the North American Free Trade Agreement (NAFTA) on the BMS. You forwarded a sample BMS and lithium-ion cell to our office. All confidential financial information included in this ruling letter will be bracketed and redacted from the public version of this decision.
The programmable BMS is a system of individual rechargeable lithium-ion cells of Chinese and Korean origin. The BMS is also comprised of two printed circuit board assemblies (PCBAs) and a plastic housing, all of Canadian origin. The Chinese or Korean manufacturer ships the lithium-ion cells to Canada for assembly into the finished BMS.
During the assembly process in Canada, the individual rechargeable lithium-ion cells are string-welded to the two Canadian PCBAs. The two PCBAs that make up the BMS are the Protection Board and the Power Board. The Protection Board sits on the bottom and has the circuitry to measure and balance the voltages of the individual cell strings. It establishes charge and discharge limits, and collects data for communication.
The Power Board is the top PCBA. Its electrical connections enable the BMS to communicate with other batteries when it is set up in a bank configuration. The PCBA transfers information to the outside world through a serial data interface and reports the individual BMS’ condition through an LED display. This PCBA also contains the power connection port.
After the lithium-ion cells are string-welded together and connected to the two PCBAs, the unit is placed in the plastic housing of Canadian origin. This process allows the lithium-ion cells to be joined together, thus creating a rechargeable battery. The finished BMS provides robust power that will be used for emergency lighting, closed circuit television systems, mobile communications and other commercial applications. The BMS is available in a variety of configurations. See www.restoreenergysystems.com.
You provided us with a bill of materials for the 48 Volt 10Ah BMS (10Ah BMS), which is the smallest of the BMS units. The prices are provided in Canadian dollars (C$). The name and cost of the originating and non-originating parts utilized to assemble the 10Ah BMS are as follows:
Originating Parts (Canadian Origin)
Spacer, Cell Rev. 0 [XXXX]
Fishpaper Cell Insulator [XXXX]
Nickel Tab Main [XXXX]
Nickel Tab Intercell [XXXX]
Fishpaper End Cap [XXXX]
Tape Polyamide Ft. [XXXX]
PCB -48V Power Populated [XXXX]
PCB -48V Protection Populated [XXXX]
Spacer Board 13 Cell [XXXX]
Fishpaper PCB Insulator 13 Cell [XXXX]
Wire, Jumper, 1”, 0.2”, stripped [XXXX]
Case 13 x 5 [XXXX]
Foam 8.50” x 1.25” x 0.375” [XXXX]
Screw, Hex Security Button Head [XXXX]
Screw, Philips Pan Head [XXXX]
Label, Battery Caution [XXXX]
Label, Battery [XXXX]
Non-Originating Parts (Chinese or South Korean Origin)
Lithium Ion Cell, Cobalt 18650 [XXXX]
Lithium Ion Cell Lid – 48V [XXXX]
You also stated that the cost of labor to assemble the 10Ah BMS in Canada is [XXXX]. You stated that the aforementioned prices do not include sales costs, promotion costs, marketing, shipping, packing or after-sales service costs.
1. What is the tariff classification of the BMS under the HTSUS?
2. What is the tariff classification of the lithium-ion cells under the HTSUS?
3. Is the BMS eligible for preferential treatment under NAFTA?
LAW AND ANALYSIS:
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The HTSUS provisions under consideration in this case are as follows:
8506 Primary cells and primary batteries; parts thereof …
* * *
8507 Electric storage batteries, including separators therefor, whether or not rectangular (including square); parts thereof:
8507.80 Other storage batteries …
* * *
8507.90 Parts …
* * *
The Explanatory Notes (ENs) to the Harmonized Commodity Description and Coding System represent the official interpretation of the tariff at the international level. While neither legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
EN 85.06 provides, in pertinent part, as follows:
This heading does not cover rechargeable cells and batteries, whose upper terminal is usually a perforated brass cap; these are classified in heading 85.07 as electric accumulators.
EN 85.07 states, in pertinent part, that:
Electric accumulators (storage batteries or secondary batteries) are characterized by the fact that the electrochemical action is reversible so that the accumulator may be recharged. They are used to store electricity and supply it when required …
* * *
Accumulators consist essentially of a container holding the electrolyte in which are immersed two electrodes fitted with terminals for connection to an external circuit. In many cases the container may be subdivided, each subdivision (cell) being an accumulator in itself; these cells are usually connected together in series to produce a higher voltage. A number of cells so connected is called a battery. A number of accumulators may also be assembled in a larger container…
* * *
Accumulators containing one or more cells and the circuitry to interconnect the cells amongst themselves, often referred to as “battery packs”, are covered by this heading, whether or not they include any ancillary components which contribute to the accumulators’ function of storing and supplying energy, or protect it from damage, such as electrical connectors, temperature control devices (e.g., thermistors), circuit protection devices, and protective housings. They are classified in this heading even if they are designed for use with a specific device.
The lithium-ion cells are manufactured in China or South Korea. The remaining components in the BMS are manufactured in Canada. The BMS undergoes its final assembly process in Canada before it is imported into the U.S. In order to determine if the finished BMS is a product of Canada, we must determine the tariff classification of the lithium-ion cells under the HTSUS. Then, we will use this tariff classification to determine if the assembled BMS satisfies the tariff shift rules required to be a product of Canada and thus be eligible for NAFTA preferential treatment.
The BMS contains several rechargeable lithium-ion cells string-welded together. These cells are attached to two PCBAs, and then the entire unit is placed inside plastic housing. In your ruling request, you assert that the BMS should be classified under heading 8507, HTSUS, as an electric storage battery.
The term “battery” is not defined in the HTSUS. When, as in this case, the tariff terms are not defined in the HTSUS or its legislative history, “the term’s correct meaning is its common meaning.” Mita Copystar Am. v. United States, 21 F.3d 1079, 1082 (Fed. Cir. 1994). The common meaning of a term used in commerce is presumed to be the same as its commercial meaning. Simod Am. Corp. v. United States, 872 F. 2d 1572, 1576 (Fed. Cir. 1989). To ascertain the common meaning of a term, a court may consult “dictionaries, scientific authorities, and other reliable information sources” and “lexicographic and other materials.” C.J. Tower & Sons v. United States, 673 F.2d 1268, 1271 (CCPA 1982); Simod, 872 F.2d at 1576.
In Headquarters Ruling Letter (HQ) 963870, dated July 14, 2000, CBP set forth several definitions of the term “battery.” In HQ 963870, CBP cites Van Nostrand’s Scientific Encyclopedia (D. Van Nostrand Company, Inc., 1968), which defines a battery as “a collection of chemical cells, normally connected in a series, for the production or storage of electrical energy.” CBP also cites the McGraw-Hill Multimedia Encyclopedia of Science and Technology, (McGraw Hill, Inc. 1994), which describes a storage battery as “[a]n assembly of identical voltaic cells in which the electrochemical action is reversible so that the battery may be recharged by passing a current through the cells in the opposite direction to that of the discharge. While many nonstorage batteries have a reversible process, only those that are economically rechargeable are classified as storage batteries.” Finally, EN 85.07 states that “[a] number of cells [connected together in series to produce a higher voltage] is called a battery.”
The BMS contains rechargeable lithium-ion cells which are connected together to produce a higher voltage. However, the BMS also includes two PCBAs and plastic housing. EN 85.07 states that certain batteries include ancillary components “which contribute to the accumulators’ function of storing and supplying energy, or protect it from damage, such as electrical connectors, temperature control devices (e.g., thermistors), circuit protection devices, and protective housings.” The two PCBAs assist the BMS with storing and supplying energy by monitoring voltage and determining when the BMS requires additional charging. Accordingly, the BMS is classified under heading 8507, HTSUS, as an electric storage battery because these components support the BMS’ battery functions. It is specifically provided for as an “other” storage battery under subheading 8507.80, HTSUS.
Regarding the independent classification of the rechargeable lithium-ion cells, we note that heading 8506, HTSUS, which provides for primary cells and primary batteries, and heading 8507, HTSUS, which provides for electric batteries and parts thereof, are both under consideration. The terms “primary cell” and “primary battery” are not defined in the HTSUS. In Webster’s New World Dictionary 1069 (3d. College Ed. 1988), the term primary cell is defined as “a battery cell whose energy is derived from an essentially irreversible electrochemical reaction and which is hence incapable of being efficiently recharged.” A primary battery, therefore, is a collection of primary cells. According to the dictionary definition, primary cells and primary batteries cannot be recharged. In addition, EN 85.06 states that the heading does not include rechargeable cells or batteries. Because the lithium-ion cells are rechargeable, they cannot be classified under heading 8506, HTSUS, and must be classified under heading 8507, HTSUS.
Classification of the lithium-ion cells within heading 8507, HTSUS, is governed by GRI 6. GRI 6 states that the classification of goods in the subheadings of headings shall be determined according to the terms of those subheadings, any related subheading notes and mutatis mutandis, to the GRIs 1 through 5. The HTSUS subheadings under consideration are subheading 8507.80, HTSUS, which provides for other electric storage batteries, and subheading 8507.90, HTSUS, which provides for parts of electric storage batteries.
The courts have construed the nature of “parts” under the HTSUS and two distinct though not inconsistent tests have resulted. See Bauerhin Techs. Ltd. P’ship. v. United States (“Bauerhin”), 110 F. 3d 774 (Fed. Cir. 1997). The first, articulated in United States v. Willoughby Camera Stores, Inc. (“Willoughby Camera”), 21 C.C.P.A. 322, 324 (1933), requires a determination of whether the imported item is an “integral, constituent, or component part, without which the article to which it is to be joined, could not function as such article.” Bauerhin, 110 F.3d at 778 (quoting Willoughby Camera, 21 C.C.P.A. 322 at 324). The second, set forth in United States v. Pompeo (“Pompeo”), 43 C.C.P.A. 9, 14 (1955), states that an “imported item dedicated solely for use with another article is a ‘part’ of that article within the meaning of the HTSUS.” Id. at 779 (citing Pompeo, 43 C.C.P.A. 9 at 13.) Under either line of cases, an imported item is not a part if it is “a separate and distinct commercial entity.” Id.
The rechargeable lithium-ion cells satisfy the Willoughby Camera test because they are integral to the BMS. The purpose of the BMS is to act as a power source for certain electrical equipment. The BMS stores and provides high voltage power through its lithium-ion cells. Without the lithium-ion cells, the BMS could not function as a power source. As such, the lithium-ion cells are parts of electric storage batteries.
Under Note 2(b) to Section XVI, parts which are suitable for use solely or principally with a particular kind of machine are to be classified with the machines of that kind. Since the lithium-ion cells are suitable for use solely or principally with the BMS, they are classified as parts of machines of the same kind as the BMS. Therefore, the lithium-ion cells are classified as parts of electric storage batteries under subheading 8507.90, HTSUS. See also HQ 963870 (rechargeable lead-acid cells were classified as parts of lead acid batteries under subheading 8507.90, HTSUS).
General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12 (a)(i), HTSUS, provides, in pertinent part, that:
Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) 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 "CA" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
Accordingly, the BMS will be eligible for the “Special” “CA” rate of duty provided: it is deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS, and it qualifies to be marked as a product of Canada under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 C.F.R. § 102).
A. NAFTA ELIGIBILITY: GENERAL NOTE 12, HTSUS
General Note 12(b), HTSUS, provides, in pertinent part, as follows:
For the purposes of this note, goods imported into the Customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if—
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
they have been transformed in the territory of Canada, Mexico and/or the United States so that—
(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Because the BMS includes non-originating lithium-ion cells from China and South Korea, General Note 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the requisite tariff shift (or other applicable requirement) prescribed under General Note 12(b)(ii), HTSUS. The applicable rule for subheading 8507.80, HTSUS, specifically provides:
A change to subheading 8507.10 through 8507.80 from any other heading, except from tariff items 8548.10.05 or 8548.10.15; or
A change to subheading 8507.10 through 8507.80 from subheading 8507.90, whether or not there is also a change from any other heading, except from tariff items 8548.10.05 or 8548.10.15, provided there is a regional value content of not less than:
60 percent where the transaction value method is used, or
50 percent where the net cost method is used.
Since the finished BMS and the lithium-ion cells are both classified under heading 8507, HTSUS, GN 12(t)/85(13)(A), HTSUS, does not apply. Thus, we must proceed to GN 12(t)/85(13)(B), HTSUS. GN 12(t)/85(13)(B), HTSUS, requires that non-originating materials undergo a change in tariff classification and further requires that the good satisfy an applicable regional value content (RVC) requirement. The non-originating lithium-ion cells in the BMS are classified under subheading 8507.90, HTSUS. Thus, they satisfy the required tariff shift because the BMS, once completely assembled, is classified under subheading 8507.80, HTSUS.
In order to determine if the BMS will receive NAFTA preferential treatment, we must calculate the RVC. Although you have not specifically requested either calculation method, you have only provided enough information to utilize the net cost method.
General Note 12(c)(ii), HTSUS, provides the formula for calculating RVC using the net cost method. GN 12(c)(ii), HTSUS, provides as follows:
Regional value content: Except as provided in subdivision (c)(iv) of this note, the regional value content of a good shall be calculated, at the choice of the exporter or producer of such good, on the basis of either the transaction value method set out in subdivision (c)(i) or the net cost method set out in subdivision (c)(ii).
(ii) Net cost method. The regional value content of a good may be calculated on the basis of the following net cost method:
NC - VNM
RVC = ------------------------ X 100
where RVC is the regional value content, expressed as a percentage; NC is the net cost of the good; and VNM is the value of non-originating materials used by the producer in the production of the good. See also 19 C.F.R. Part 181, Appendix, Part III, Sec. 6(3).
The methods of calculating the net cost of a good are set forth in 19 CFR Part 181, Appendix, Part III, Sec. 6 (11). Subsection (11) provides three methods from which the producer of a good may choose to calculate the net cost. The options are:
calculating the total cost incurred with respect to all goods produced by that producer, subtracting any excluded costs that are included in the total cost, and reasonably allocating, in accordance with Schedule VII, the remainder to the good;
calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating, in accordance with Schedule VII, that total cost to the good, and subtracting any excluded costs that are included in the amount allocated to that good; or
reasonably allocating, in accordance with Schedule VII, each cost that forms part of the total cost incurred with respect to the good so that the aggregate of those costs does not include any excluded costs. 19 CFR Part 181, Appendix, Part III, Sec. 6 (11).
“Excluded costs” as used in section 6 (11) is defined in Part I, section 2 (1), and means “sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs.” Each of these aspects of “excluded costs” are further defined in section 2 (1).
The calculation of net cost initially requires the proper calculation of the total cost. Subsection (12) of section 6 addresses “total cost” and states that “[t]otal cost … consists of the costs referred to in section 2 (6), and is calculated in accordance with that subsection.” In this case, CBP was provided with cost information involved in the manufacturing of the 10Ah BMS. Based upon the information contained in your submission, we note that the formula under the net cost method of determining regional value content is:
NC [XXXX] – VNM [XXXX]
RVC = ---------------------------------------- X 100
Performing the required calculation renders a result of [XX]%, a RVC in excess of that required under Part B of GN 12(t)/85(13), HTSUS. Therefore, based upon the information before us, the imported BMS would satisfy the applicable NAFTA rule of origin. However, this calculation would be subject to appropriate review upon importation into the United States based upon the final appraised value of the merchandise.
B. NAFTA ELIGIBILITY: COUNTRY OF ORIGIN MARKING
General Note 12(a)(ii), HTSUS, establishes that NAFTA-originating goods must also qualify to be marked as goods of Canada under the NAFTA Marking Rules before preferential treatment is granted. In this regard, section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), requires that, unless excepted, every article of foreign origin (or its container) imported into the U.S. 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 manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. §1304 are set forth in Part 134, CBP Regulations (19 C.F.R. Part 134).
Title19 C.F.R. §134.1(b) defines “country of origin” as:
The country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j) provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) defines a “good of a NAFTA country” as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.
Part 102 of the CBP Regulations sets forth the NAFTA Marking Rules. Section 102.11 sets forth the required hierarchy for determining country of origin for marking purposes:
The following rules shall apply for purposes of determining the country of origin of imported goods other than textile and apparel products covered by § 102.21.
(a) The country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;(2) 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.
Under 19 C.F.R. § 102.11(a)(3), any non-originating BMS components must satisfy the tariff change, or tariff shifting requirements of 19 C.F.R. § 102.20. The finished BMS is classified under subheading 8507.80, HTSUS. Under 19 C.F.R. § 102.20, a product of subheading 8507.80, HTSUS, can be marked as a product of Canada so long as any foreign material incorporated into it undergoes “a change to subheading 8507.10 through 8507.80 from any other subheading, including another subheading within that group.” (emphasis added).
Therefore, in order for the BMS to be labeled as a product of Canada, the non-originating lithium-ion cells must be classified in a subheading other than 8507.80, HTSUS. Since the non-originating lithium cells are classified under heading 8507.90, HTSUS, the BMS satisfies the tariff shift rules for subheading 8507.80, HTSUS. Therefore, Canada is the BMS’ country of origin for NAFTA marking purposes.
By application of GRI 1, the completed BMS is classified under heading 8507, HTSUS, and specifically provided for under subheading 8507.80.80, HTSUS, which provides for “Electric storage batteries …; other storage batteries: other ….” The column one, general rate of duty is 3.4% ad valorem.
By application of GRI 1, the lithium-ion cells are classified under heading 8507, HTSUS, as electric storage batteries. By application of GRI 6, GRI 1 and Note 2(b) to Section XVI, HTSUS, the lithium-ion cells specifically provided for under subheading 8507.90.80, HTSUS, which provides for “Electric storage batteries …; parts thereof; parts: other ….” The column one, general rate of duty is 3.4% ad valorem.
Based upon the specific facts considered in this case, the imported BMS would satisfy the NAFTA rule of origin set forth in Part B of General Note 12(t)/85(13), HTSUS. However, please be advised that the calculation set forth above would be subject to review upon importation into the United States based upon the final appraised value of the merchandise. Moreover, the country of origin of the imported BMS under the NAFTA Marking Rules will be Canada. Based upon the facts in your submission, the 10Ah BMS is eligible for preferential treatment under NAFTA as a product of Canada.
A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy, this ruling letter should be brought to the attention of CBP.
Monika R. Brenner
Chief, Valuation & Special Programs Branch