OT:RR:CTF:FTM H301813 YAG
Center Director, Industrial & Manufacturing Materials CEE
U.S. Customs and Border Protection
Office of Field Operations
Port of San Francisco
555 Battery St., RM#417
San Francisco, CA 94111
Attn: Mr. Charles Ho, Import Specialist, Validation and Compliance 059
Re: Country of Origin; Substantial Transformation; Solar Cells; Solar Panels; Applicability of Section 201 Safeguard Measures
Dear Center Director:
This is in reference to the internal advice request, dated November 9, 2018, filed on behalf of Merlin Solar Technologies (“Merlin”), regarding the country of origin and the applicability of Section 201 of the Trade Act of 1974, as amended (19 U.S.C. § 2252) (“Section 201 safeguard measures”) measures with respect to the importation of certain Crystalline Silicon Photovoltaic (“CSPV”) solar modules, assembled in India from solar cells produced in Taiwan.
Merlin purchases CSPV cells produced by a company in Taiwan. These solar cells undergo substantial manufacturing processes in Taiwan, and already have a positive-negative, or P/N junction, but lack the metallization and conductor patterns that collect and forward the electricity that is generated by the cell. The Taiwanese solar cells are then shipped to a contract manufacturer in India, Waaree Inc. (“Waaree”). In India, Waaree further processes the solar cells by attaching Merlin’s proprietary metalized grid to the front of the solar cell and a copper mesh to the back. Waaree then assembles solar cells into finished solar modules and panels. Merlin has prepared and submitted for our review a summary document that details the manufacturing process performed by Waaree in India to complete the solar cells and then assemble the solar cells into modules or panels.
Whether the CSPV products at issue fall within the scope of the Section 201 safeguard measures and are consequently subject to increased duties.
LAW AND ANALYSIS:
Effective January 23, 2018, Presidential Proclamation 9693 imposed safeguard measures on imports of CSPV cells and certain products incorporating CSPV cells in the form of additional tariffs or tariff rate quotas for a period of three years. Products classified under subheading 8541.40, HTSUS, unless specifically excluded, are subject to the additional duties. See Note 18 to Chapter 99 and subheadings 9903.45.21 through 9903.45.25, HTSUS.
According to Note 18(g) to Chapter 99, “modules” within the meaning of subheading 9903.45.25, HTSUS, include, inter alia, products of subheading 8541.40.60 of the permanent HTSUS consisting of “a joined group of CSPV cells…capable of generating electricity.” See Note 18 to Chapter 99 and subheadings 9903.45.21 through 9903.45.25, HTSUS. Regarding the latter criterion, CSPV cells are defined in Note 18(c) as “crystalline silicon photovoltaic cells of a thickness equal to or greater than 20 micrometers…having a p/n junction.”
Subheading 9903.45.25, HTSUS, applies to modules which are “the product or originating good of a country other than a country described in note 18(b).” Note 18(b) in turn provides that “for the purposes of this note and the application of subheadings 9903.45.21 through 9903.45.25,” certain enumerated “developing countries that are members of the World Trade Organization shall not be subject to the rates of duty…?provided for therein.” As stated above, the solar modules at issue are assembled in India, which is included in the list of countries exempt from the rates of duty appertaining to subheading 9903.45.25, HTSUS. However, the solar cells which are contained in the solar modules are produced in Taiwan. Therefore, we must determine whether the production steps undertaken in India render the modules “products” of India, in which case they would not fall within the scope of the subheading.
In cases involving Section 201 safeguard measures, CBP has consistently applied a traditional “substantial transformation” analysis for purposes of interpreting “product of.” See Headquarters Ruling Letter (“HQ”) 563205, dated June 28, 2006; HQ 563211, dated April 26, 2005; and HQ 734479, dated January 29, 1993; see also Belcrest Linens v. United States, 6 C.I.T. 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 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”). Consequently, for purposes of the Section 201 safeguard, solar cells and solar panels are “products of” the country in which they were last substantially transformed.
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.” Energizer at 1322. 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 HQ H095409, dated September 29, 2010, CBP found that turning bare glass tubes into functional solar panels in the United States constituted making a product with a new name, character, and use such that a substantial transformation had occurred. Key to CBP’s finding that a substantial transformation had taken place in HQ H095409 was the complex manufacturing process of the solar cells themselves. This process—which involved depositing thin films of chemicals on the inside of glass tubes—took five of the six and a half days it took to manufacture the finished solar panels.
In HQ H261693, dated September 16, 2015, solar panels were manufactured in Korea and Poland from solar cells (product of Malaysia or Korea), glass (China), frames (China/Belgium), junction box, cable, and connector (China/Czech Republic), back sheets (China/Germany), EVA (Korea/Japan), and interconnect ribbons. In addition to considering the country of origin of all of the components and the duration of the assembly process, CBP stated that the most important aspect of the case was the fact that the solar cells were produced in Malaysia or Korea and not in the countries where the solar panels were put together. Therefore, CBP found that assembling solar cells into finished solar panels did not result in a product with a new name, character, and use. CBP opined that solar cells imparted the essential character of the solar panels. Accordingly, where Malaysian solar cells were used, the country of origin was Malaysia, and in the scenario where Korean solar cells were used, the country of origin was Korea.
In HQ H298653, dated November 19, 2018, solar panels were assembled in China using both Chinese and non-Chinese components. However, the polycrystalline solar cells, which constituted the very essence of the solar panels, were entirely manufactured in Germany. CBP determined that solar cells did not lose their identity and became an integral part of the solar panels when they were combined with other components during the processing in China. The end-use of the solar cells and other components was pre-determined before the components were imported into China, and the solar cells (and other components) remained solar cells during processing in China. Therefore, CBP found that the country of origin of solar panels was Germany.
The reasoning and results in the above referenced decisions and judicial precedent are directly applicable to this case. In this case, solar cells are manufactured in Taiwan and shipped to India for further processing, which includes attaching the metalized grid to the front of the solar cell and a copper mesh to the back. The solar cells have already undergone the substantial processing prior to being shipped to India, including the process known as “doping,” in which phosphorous is diffused into a thin layer of the wafer surface to create a negatively charged phosphosilicate layer terminating in a positive-negative, or P/N junction. This is a critical partition in the functioning of a solar cell. After the P/N junction is created, the cells can optimally gather photons and produce electricity. The essential characteristic of the solar cell is to convert sunlight into electricity, and it can do so when the P/N junction is put in place. The addition of the gridlines and circuitry allows the solar cell to collect and forward the electricity; however, it does not result in the article with the new “name, character and use” since the end-use of the solar cells is pre-determined when these cells leave Taiwan. In other words, solar cells remain intact in India and do not lose their identity as a result of the subsequent gridding process. Therefore, solar cells are the products of Taiwan. Furthermore, in line with our decisions in HQ H095409, HQ H261693, and HQ H298653, solar cells impart the essential character of the solar panels and assembling solar cells into finished solar panels does not result in a product with a new name, character, and use. Accordingly, as the solar cells are not substantially transformed in India, the solar cells remain the products of Taiwan, and therefore, the solar panels at issue are also the products of Taiwan.
Based on the information submitted in this case, the country of origin of solar cells and solar panels at issue is Taiwan. Thus, the finished solar panels are subject to Section 201 safeguard measures.
Sixty days from the date of the decision, the Office of Trade, Regulations, and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (“CROSS”) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution.
Please do not hesitate to contact us at (202) 325-0042 if you have any questions or concerns.
Tom P. Beris, Acting Chief
Food, Textiles and Marking Branch