CLA-2 OT:RR:CTF:FTM H301619 GaK
Mr. Kevin Turner
47660 Halyard Dr.
Plymouth, MI 48170
RE: Modification of NY N299096; country of origin of electric motors from Mexico; 2018 Section 301 trade remedy; 9903.88.01, HTSUS
Dear Mr. Turner:
On September 13, 2018, U.S. Customs and Border Protection (“CBP”) issued Headquarters Ruling Letter (“HQ”) H300226 to Johnson Electric, modifying New York Ruling Letter (“NY”) N299096, dated July 25, 2018. The ruling also addressed the applicability of the substantial transformation test to determine the country of origin.
It has come to our attention that the ruling contained an error with regard to its articulation of the scope of the applicability of the substantial transformation test. This ruling serves to modify HQ H300226 with regard to this matter. As this modification decision is being issued within 60 days of the issuance of HQ H300226, pursuant to 19 U.S.C. § 1625 (c)(1) and 19 CFR 177.12 (b), this modification is effective immediately. The remainder of HQ H300226 is not affected by this action.
In NY N299096, the product was described as a “Direct Current Electric Motor 1999-1020656EP, which is described as a brushed electric motor with a peak output power of 5.793 Watts…[T]he electric motor is intended to be used with electric door locks[.]”
The product consisted of three components: the stator or rear housing, the rotor or armature assembly, and the end cap assembly. All three components are classified under heading 8503, HTSUS, which provides for “[p]arts suitable for use solely or principally with the machines of heading 8501 or 8502.” The components of Chinese origin are imported into Mexico and assembled into a finished product.
The ruling request in response to which NY N299096 was issued, sought a country of origin determination. Subsequent additional information provided by the inquirer revealed that the inquiry was for purposes of determining the country of origin for purposes of application of subheading 9903.88.01, HTSUS, which provides for “[a]rticles the product of China, as provided for in U.S. note 20(a) to this subchapter and as provided for in the subheadings enumerated in U.S. note 20(b) [to this subchapter]” and applies an additional 25 percent ad valorem rate of duty in addition to the column one general rate of duty in the applicable subheading.
What is the country of origin of the electric motors imported from Mexico for purposes of marking and for purposes of application of the 2018 Section 301 trade remedy for goods under subheading 9903.88.01, HTSUS?
LAW AND ANALYSIS:
Section 304 of the 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 U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such a manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article. The regulations implementing the requirements and exception to 19 U.S.C. § 1304 are set forth in Part 134, Customs and Border Protection Regulations (19 C.F.R. Part 134).
19 C.F.R. § 134.1(b) provides as follows:
“Country of origin” means 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 the meaning of this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Since Mexico is a NAFTA country, the NAFTA Marking Rules must be applied in this case to determine the country of origin for purposes of marking.
Part 102, Customs and Border Protection Regulations (19 C.F.R. Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. 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;
(a)(2) The good is produced exclusively from domestic materials; or
(a)(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in Section 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 imported electric motor is neither wholly obtained nor produced exclusively from “domestic” (Mexican, in this case) materials. 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 19 C.F.R. § 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 applicable rule for subheading 8501.10.40, HTSUS, in section 102.20 requires:
[a] change to heading 8501 from any other heading.
The foreign components of the electric motor are classified under heading 8503, HTSUS, and meet the tariff shift requirement. Therefore, the country of origin, for purposes of marking, of the electric motor is Mexico.
NY N299096 applied 19 C.F.R. § 102.11(d)(2) to conclude that the country of origin of the electric motor under the 102 rules was not Mexico but China because the electric motor was produced by simple assembly. However, 19 C.F.R. § 102.11(d) cannot be applied if the origin can be determined under 102.11 paragraphs (a), (b) or (c). In this case, a determination can be made by the application of paragraph (a)(3).
Effective July 6, 2018, the Office of the United States Trade Representative imposed an additional tariff on certain products of China classified in the subheadings enumerated in Section XXII, Chapter 99, Subchapter III U.S. Note 20(b), HTSUS. For additional information, see “Notice of Action and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation” (June 20, 2018, 83 F.R. 28710). Products of China that are classified in the subheadings enumerated in U.S. Note 20(b), HTSUS, referenced in subheading 9903.88.01, HTSUS, shall continue to be subject to antidumping, countervailing, or other duties, fees and charges that apply to such products. Products of China classifiable in subheading 8501.10.40, HTSUS, are subject to the additional tariff under subheading 9903.88.01, HTSUS.
When determining the country of origin for purposes of applying current trade remedies under Section 301, Section 232, and Section 201, the substantial transformation analysis is applicable. In accordance with 19 C.F.R. § 102.0, the 102 marking rules are applicable for the limited purposes of: “country of origin marking; determining the rate of duty and staging category applicable to originating textile and apparel products as set out in Section 2 (Tariff Elimination) of Annex 300–B (Textile and Apparel Goods); and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2 (Tariff Elimination).” See also HQ 563205, dated June 28, 2006; see also Belcrest Linens v. United States, 741 F.2d 1368, 1370-71 (Fed. Cir. 1984) (finding that “the term ‘product of’ at the least includes manufactured articles of such country or area” and that substantial transformation “is essentially the test used…in determining whether an article is a manufacture of a given country”). As stated above, the 102 rules do however continue to be applicable for purposes of country of origin marking of NAFTA goods, as defined in 19 C.F.R. § 134.1.
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade (“CIT”) interpreted the meaning of the term “substantial transformation” as used in the Trade Agreements Act of 1979 (“TAA”) for purposes of government procurement. Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight, under the TAA. All of the components of the Generation II flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States where they were assembled into the finished Generation II flashlight.
The court reviewed the “name, character and use” test in determining whether a substantial transformation had occurred, and reviewed various court decisions involving substantial transformation determinations. The court noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. 220, 226, 542 F. Supp. 1026, 1031, 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 at 1318. In addition, the court noted that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.” Energizer at 1319, citing as an example, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 310, aff’d 989 F.2d 1201 (Fed. Cir. 1993). Furthermore, courts have considered the nature of the assembly, i.e., whether it is a simple assembly or more complex, such that individual parts lose their separate identities and become integral parts of a new article.
In reaching its decision in Energizer, the court expressed the question as one of whether the imported components retained their names after they were assembled into the finished Generation II flashlights. The court found “[t]he constitutive components of the Generation II flashlight do not lose their individual names as a result [of] the post-importation assembly.” The court also found that the components had a pre-determined end-use as parts and components of a Generation II flashlight at the time of importation and did not undergo a change in use due to the post-importation assembly process. Finally, the court did not find the assembly process to be sufficiently complex as to constitute a substantial transformation. Thus, the court found that Energizer’s imported components did not undergo a change in name, character, or use as a result of the post-importation assembly of the components into a finished Generation II flashlight. The court determined that China, the source of all but two components, was the correct country of origin of the finished Generation II flashlights under the government procurement provisions of the TAA.
In this case, the foreign subassemblies are imported into Mexico where they will be assembled into the electric motor. The foreign subassemblies had a pre-determined end-use and did not undergo a change in use due to the assembly process in Mexico. Based on the information provided, the production process performed in Mexico is mere simple assembly and the foreign subassemblies are not substantially transformed.
As the assembly of the Chinese parts into a motor in Mexico does not result in a substantial transformation of the Chinese parts, the motor remains a product of China. Products of China classified under subheading 8501.10.40, HTSUS, unless specifically excluded, are subject to the additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.01, in addition to subheading 8501.10.40, HTSUS, listed above.
The country of origin of the electric motor for purposes of marking is Mexico. The country of origin of the electric motor for purposes of the application of subheading 9903.88.01, is China.
EFFECT ON OTHER RULINGS:
NY N299096, dated July 25, 2018, is hereby MODIFIED.
Myles B. Harmon, Director
Commercial and Trade Facilitation Division