OT:RR:CTF:VS H312745 RSD
Mr. Kertis Heidt
102-30488 Great Northern Ave
Abbotsford, BC V2T 6Y6
RE: USMCA Eligibility; Country of Origin Marking under 19 U.S.C. 1304, and Applicability of Section 301 Trade Remedy Duties to a Lower Bearing Assembly
Dear Mr. Kertis:
This is in response to your request dated July 4, 2020, on behalf of Diamond Equipment for a ruling concerning the country of origin of machines known as lower bearing assemblies for the purposes of country of origin marking, and the applicability of Section 301 trade remedy duties. In addition, in an email sent on July 30, 2020, you indicated that Diamond Equipment is also interested in finding out whether the products under consideration would be eligible for preferential tariff treatment under the U.S.-Mexico-Canada Agreement ("USMCA").
The products under review are lower bearing assemblies for sand and gravel washing machines. There are five specific lower bearing assemblies under review. They have been assigned the model numbers: TA08285, TA08286, TA08287, TA08288, and TA13479. The bearing assemblies are only used on machines that wash sand and gravel in a tub of water. The lower bearing assemblies incorporate a mounting base that is specifically designed to mount to the end wall of the tub, and the stub shaft is specifically designed to attach to the auger shaft within the tub. Furthermore, each bearing assembly supports the auger shaft at the lower end of
the machine and allows it to turn. The spinning auger shaft agitates and conveys the cleaned sand or gravel out of the bed of water, and thereby separates the sand or gravel from the dirty water.
The top end of the auger shaft is directly powered by a motor which drives a large reduction gear reducer via a belt drive. The gear reducer is then coupled to the auger shaft on one end, while the bearing assembly supports the auger on the opposite end of the shaft.
According to the information submitted, the lower bearing assemblies consist of the following major components: stub shaft (China), mounting ring (China), bearing and adapter sleeve (China), bearing housing (China), slinger (U.S.), wear sleeve (China), donut seal (China); gaskets (Canada), oil seal (Taiwan), and clamp plate (Canada). You have indicated that the only difference between the five assemblies listed is the size of their stub shaft, mounting base, bearing, and bearing housing. There are different sizes of machines to wash sand and gravel. Larger machines have larger capacity for washing larger gravel sizes. The larger machines have larger auger shafts, and therefore require a larger stub shaft for the bearing assembly, and they also have a larger bearing to handle the larger loading. All the lower bearing assemblies are produced using the same procedure. Independent of the size of each component, they are sourced through the same vendors.
You have also submitted a bill of materials showing the parts with their classifications in the Harmonized Tariff Schedule of the United States (HTSUS) that are used in the production of the lower bearing assemblies:
Part Number Description HS Code
TB06123 Stub Shaft 8474.90.00
TB06127 Mounting Ring 8474.90.00
TB06128 Bearing Housing 8483.30.00
TD09090 Gasket 4016.93.99
TD09109 Gasket 4016.93.99
TD09115 Clamp Plate 8474.90.00
TD09116 Oil Seal 4016.93.50
TD09575 Gasket 4016.93.99
TD09876 Slinger 4016.99.90
TD12896 Bearing 8482.10.90
TD12899 Bearing Sleeve Assembly 8482.90.21
TD26461 Donut Seal 4016.93.19
TD30877 Wear sleeve - stainless steel 8474.90.00
TD32751 Gasket 4016.93.99
GREASE EP2 grease 3403.99.00
2X2 SKID BO2' x 2' Skid Box
Hardware Plow, Carriage, Cap bolts 7318.15.00
You explain that several of the significant parts used to make the lower bearing assemblies are first manufactured in China before they are further processed in Canada. In China, the mounting ring, bearing housing, and stub shaft are cast at a foundry out of ductile iron. All parts are then machined to specification. The donut seal is made from injection molded rubber. The stainless wear and bearing adaptor sleeves are machined to specification from a stainless-steel pipe.
In Canada, the Chinese components are inspected, cleaned, and painted, and not further manufactured in Canada. Next, all components, including the components from the U.S., Taiwan, and Canada are assembled resulting in a complete lower bearing assembly. As stated above, each item number (TA08285, TA08286, TA08287, TA08288, and TA13479) is manufactured using the same procedure. The bill of materials that you have submitted also shows that 83.6 percent of the costs of the parts for the lower bearing assemblies are attributable to China, while 14.5 percent and 1.9 percent of the costs of the parts for the lower bearing assemblies can be ascribed to Canada and Taiwan.
Whether the Lower Bearing Assemblies qualify for duty-free treatment under the U.S.-Mexico-Canada Agreement?
What is the country of origin of the Lower Bearing Assemblies for country of origin marking purposes under 19 U.S.C. 1304?
Whether the Lower Bearing Assemblies are subject to Section 301 Trade Remedy Duties?
LAW AND ANALYSIS:
Eligibility for USMCA Duty-free Treatment
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)). General Note (GN) 11 of the Harmonize Tariff Schedule of the United States (HTSUS) implements the USMCA. 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-
i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries.
(ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
(iii) 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 lower bearing assemblies contain nonoriginating materials, they are not considered goods wholly obtained or produced entirely in a USMCA country under GN 11(b)(i) and GN 11(b)(ii). Thus, we must next determine whether the lower bearing assemblies qualify under GN 11(b)(iii).
The National Commodity Specialist Division has determined that the applicable subheading for the Lower Bearing Assemblies, as described above, is 8474.90.00, Harmonized Tariff Schedule of the United States (HTSUS), which provides for:
Machinery for sorting, screening, separating, washing, crushing, grinding, mixing, or kneading earth, stone, ores, or other mineral substances, in solid (including powder or paste) form, machinery for agglome rating, shaping or molding solid mineral fuels, ceramic paste, unhardened cements, plastering materials or other mineral products in powder or paste form; machines for forming foundry molds of sand; parts thereof:
The applicable rule of origin for merchandise under subheading 8474.90, HTSUS, is in GN 11(o), HTSUS, which provides, in relevant part:
223. (A) A change to subheading 8474.90 from any other heading; or
(B) No change in tariff classification to a good of subheading
8474.90, 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.
According to the list of the parts used in making the lower bearing assemblies and the tariff classifications for those parts that you have submitted, there are several nonoriginating parts, including the stub shaft, the mounting ring, bearing house and the wear sleeve, which are classified in subheading 8474.90 prior to the production of the lower bearing assembly. Consequently, several of the parts used to make the lower bearing assemblies do not undergo a change tariff classification, and the applicable tariff shift rule set forth in GN 11(o) 223(A) is not satisfied.
Additionally, the costed bill of materials for the lower bearing assemblies you have submitted also includes the total costs of the originating and nonoriginating components used to produce these assemblies. This information regarding the cost of the materials indicates that almost 84 percent of the material costs are attributable to China. Accordingly, the regional value content of the lower bearing assemblies does not meet the specified requirements set forth in GN 11(o)/223(B) of the 60 percent using the transaction value method or the 50 percent using the net cost method. Therefore, based on the information you have provided, the lower bearing assemblies do not qualify for the preferential tariff treatment under the U.S.-Mexico-Canada Agreement.
Country of Origin Marking
The marking statute, Section 304, 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 United States 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 a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134 of the U.S. Customs and Border Protection ("CBP") Regulations (19 C.F.R. Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.
To provide a more seamless transition to the USMCA for Canadian and Mexican traders, at this time, CBP continues to utilize the marking rules in 19 C.F.R. Part 102, except for 19 C.F.R. 102.19, for purposes of country of origin marking with respect to goods of those countries.
Title 19, C.F.R. 102.11(a) provides that the country of origin of a good is the country in which:
The good is wholly obtained or produced;
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.
Because sections 102.11(a)(1) and 102.11(a)(2) do 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 heading 8474.90, HTSUS, in section 102.20 requires, "A change to subheading 8474.90 from any other heading, except from heading 8501 when resulting in simple assembly." We note that some of the components used to make the lower bearing assemblies are classified in subheading 8474.90, and therefore, the tariff shift rule is not.
Since the country of origin determination cannot be determined by applying section 102.11(a), the analysis continues with section 102.11(b), which instructs us to examine the "essential character" of the Lower Bearing Assemblies to determine their country of origin.
Section 102.11(b) states, in relevant part:
Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation [("GRI")] 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good ....
In determining the "essential character" of the finished good, section 102.18(b)(1) provides, in relevant part:
(b) (1) For purposes of identifying the material that imparts the essential character to a good under 102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the 102.20 specific rule or other requirements applicable to the good ... (ii) Materials that may be considered include materials produced by the producer of the good and incorporated in the good. For example, if a producer of a good purchases raw materials and converts those raw materials into a component that is incorporated in the good, that component is a material that may be considered for purposes of identifying the materials that impart the essential character to the good, provided that the component is classified in a tariff provision from which a change in tariff classification is not allowed under the specific rule or other requirements applicable to the good; ...
(2) For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:
(i) The nature of each material, such as its bulk, quantity, weight, or value; and
ii) The role of each material in relation to the use of the good.
In reviewing the components listed in the bill of materials that you have submitted, we note that there are several parts used in making the lower bearing assemblies including the stub shaft, the mounting ring, the clamp plate, and wear sleeve, that are classified in the same subheading of 8474.90, HTSUS as the finished lower bearing assemblies are made in China. Thus, there is more than one material used in making the lower bearing assemblies that do not undergo the applicable change in tariff classification rule. Furthermore, we have also considered the bulk, quantity, weight, value, and use of the materials used in making the lower bearing assemblies, to see if there is a single material that imparts the essential character to the lower bearing assemblies. Based upon our review, we are unable to conclude that there is a single material that imparts the essential character to the finished lower bearing assemblies. Accordingly, the country of origin of the lower bearing assemblies cannot be determined by finding a single material that imparts an essential character under section 102.11(b).
The analysis continues and Section 102.11(c) must be looked at next. This rule relates to sets, mixtures or composite goods and would thus be inapplicable to the subject lower bearing assemblies.
Section 102.11(d) is next in the rules of origin hierarchy. These rules state that the country of origin of a NAFTA good shall be determined as follows:
(1) If the good was produced only because of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good.
(2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin is the country of origin of those parts.
(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
The lower bearing assemblies are not produced as a result of minor processing as described in 19 C.F.R. 102.1(m). Furthermore, the lower bearing assemblies are not produced through a simple assembly because the assembly to make them involves the fitting together of more than five parts (see 19 C.F.R. 102.1(o)). Therefore, neither sections 102.11(d)(1) and (2) apply in this instance. Consequently, the country of origin will be determined according to Section 102.11 (d)(3) as the last country in which the good underwent production. As the last production process to put together the various components of the lower bearing assemblies into the finished product occurs in Canada, in accordance with 19 C.F.R. 102(d)(3), the five lower bearing assemblies will be considered products of Canada for the country of origin marking requirements of 19 U.S.C. 1304.
Section 301 Trade Remedy Duties
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(b), HTSUS. Among the subheadings listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, is 8474.90.00.
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 the 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.).
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the CIT interpreted the meaning of "substantial transformation." Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All the components of the flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States and assembled into the finished flashlight. The Energizer court reviewed the "name, character and use" test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc. v. United States, 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. 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 Nat'l Hand Tool Corp., 16 CIT at 311-12. Courts have also 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 considered whether the imported components retained their names after they were assembled into the finished 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 predetermined 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. The court determined that the imported components did not undergo a change in name, character, or use as a result of their post-importation assembly into a finished Generation II flashlight. Virtually all the components of the military flashlight, for
including the most important component, the LED, were of Chinese origin. Thus, the court determined that China was the correct country of origin of the finished flashlights purposes of government procurement.
In several rulings, U.S. Customs and Border Protection ("CBP") has held that whether an assembly process is sufficiently complex to rise to the level of substantial transformation is determined upon consideration of all the operations that occur within that country, including any subassembly processes that take place in that country. For example, in Headquarters Ruling Letter ("HQ") H303866, dated February 13, 2020, CBP examined the production of an automobile windshield washer pump. In that ruling, approximately half of the discrete parts from foreign countries were shipped to Mexico to be combined with components from Mexico into subassemblies. These subassemblies and the plastic pump components were then combined to form the finished centrifugal windshield washer pump. The assembly process was complex and involved soldering, fusing, machining, plastic injection molding, and crimping. Most importantly, both the rotor and stator were produced in Mexico, and were then used in the assembly of the pumps. CBP found that the extent of the operations in Mexico resulted in a finished centrifugal pump as a product of Mexico.
By contrast, assembly operations that are minimal or simple, and incorporate components with a pre-determined end-use, will generally not result in a substantial transformation. In HQ H303864, Dec. 26, 2019, the assembly of a Chinese motor with an impeller, a seal, and a plastic housing to form a finished pump assembly in Mexico did not result in a substantial transformation because the assembly involved press fitting the parts into each other. Similarly, in HQ H302821, dated July 26, 2019, the assembly of five subassemblies and other components from China with a pre-determined end-use into passenger vehicles in Sweden was not complex and the individual components did not undergo a change in use. Also, in HQ H301619, dated Nov. 6, 2018, a stator or rear housing, a rotor or armature assembly, and an end cap assembly manufactured in China and assembled into an electric motor in Mexico had a pre-determined end-use as parts and components of the electric motor and the production process in Mexico was a simple assembly. In addition, in New York Ruling Letter ("NY") N126155, dated Oct. 29, 2010, a marine thrust assembly serving as a mechanical coupling between a boat's propeller and a boat's engine was assembled in Germany from Swedish and German components. The components were first painted, and then dried, cleaned, and assembled. The Swedish components effected the mechanical coupling within the completed trust assembly and were visible upon examination of the final assembly. The operations performed in Germany required limited assembly operations and the Swedish components did not lose their identity as a result of the operations performed.
In HQ H303529, dated June 6, 2019, the subject merchandise was an incomplete postage meter, which functioned as a specialized printer in a mail handling system. While one of the major subassemblies was made in Malaysia, the remaining subassemblies were made in China, and the final assembly process of connecting the subassemblies also occurred in China. CBP found that the assembly process that occurred in China was sufficiently extensive and complex as to substantially transform the components into a product of China. In doing so, CBP noted that the question of the complexity of the assembly process which occurred in China was not limited to an
examination of the assembly of the various subassemblies to one another but included an examination of all the assembly processes involved in China in the production of the incomplete postage meter.
In the instant matter, we note that the most significant components used in making the lower bearing assemblies, including the stub shaft, mounting ring, bearing and adapter sleeve, bearing housing, wear sleeve, and the donut seal are manufactured in China through casting and machining operations of the metal parts and injection molding of the rubber item. These Chinese manufactured components provide the essential characteristics of the finished lower bearing assemblies. We also recognize that when they are imported into Canada, these Chinese components have a pre-determined use in the production of the lower bearing assemblies because they cannot be used for any other purpose other than for making the lower bearing assemblies. In addition, there is no further manufacturing of these Chinese origin components in Canada. Rather, these components keep their same basic shape and form throughout the processing performed in Canada. Basically, the processing that is performed in Canada is the assembly of the Chinese components with some components from the United States, Taiwan, and Canada to make the finished lower bearing assemblies. In addition to assembling the components, the other work performed in Canada to make the lower bearing assemblies consists of inspecting, cleaning, and painting the Chinese manufactured components. Upon consideration, we find that the assembly of the components and the other work performed in Canada is not sufficiently "complex and meaningful" to result in a change in the name, character, and use of the Chinese and the other non-Canadian components of the lower bearing assemblies. Accordingly, we find that the processing performed in Canada does not result in a substantial transformation of the Chinese manufactured components and the other components from Canada, the United States and Taiwan. Instead, we find that the most important work to make the lower bearing assemblies is performed in China, where the most significant components were manufactured. Therefore, we find that the country of origin of the lower bearing assemblies is China for purposes of applying trade remedies under Section 301.
Based on the information presented, the five lower bearing assemblies under consideration are not eligible for preferential tariff treatment under the U.S.-Mexico-Canada Agreement. The country of origin of the lower bearing assemblies for purposes of country of origin marking under 19 U.S.C. 1304 is Canada. The country of origin of the lower bearing assemblies for application of subheading 9903.88.02, HTSUS, is China and Section 301 trade remedy measures will apply to the lower bearing assemblies.
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 letter by [CBP] field office to the transaction to which it is purported to relate is
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
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.
Monika R. Brenner, Chief
Valuation and Special Programs Branch