OT:RR:CTF:VS H315295 JMV
Jeremy R. Page
Page-Fura PC
939 W. North Avenue, Suite 750
Chicago, IL 60642
RE: Country of origin of an Automotive Headrests; Section 301 trade remedy; Marking
Dear Mr. Page:
This is in response to your request, dated October 3, 2020, filed on behalf of your client Yanfeng Seating Mexico S.A. de C.V. (“YFS”). In your letter, you request a binding ruling on the applicability of Section 301 trade remedies and country of origin marking for three different automotive headrests.
FACTS:
The products at issue are three different automotive headrests: an L-shaped headrest, an L-shaped wire headrest and a folding headrest, under two different sourcing scenarios. All three headrests will be produced in Mexico from parts of Mexican and Chinese origin.
L-shaped Automotive Headrest
The first headrest that is a subject of this ruling request is an L-shaped headrest that will be placed on the rear deck of the back seat in a motor vehicle. Three components are involved in the production of the L-shaped headrest: a basic support frame of Chinese origin, shaped foam “stuffing” of Mexican origin, and either leather of Mexican origin or PVC of Chinese origin. The production first entails cutting to shape and sewing the leather or PVC, depending on customer needs, which will function as the headrest cover. The cover will be stuffed with the “formed-to-shape” foam of Mexican origin to create the head support and the support frame will be inserted into the head support to produce the final product.
L-Shaped Automotive Wire Headrest
This second headrest is a variant of the first L-shaped headrest. The L-shaped automotive wire headrest has the same outward appearance as the L-shaped headrest noted above and is produced through the same production steps and sourcing patterns. However, the L-shaped automotive wire headrest incorporates an additional wire of Mexican origin to create additional stability for the overall headrest assembly. The wire will be joined with the frame of Chinese origin before they are assembled to the head support to form the finished headrest assembly.
Folding Automotive Headrest – Sourcing Scenario 1
YFS is also proposing to produce an automotive back seat folding headrest under two different sourcing patterns. Although the sourcing of components may differ, the production of the headrest in each scenario involves the same discrete operations.
First, a toothed plate assembly is produced by arc welding a toothed plate axis of Mexican origin and a toothed plate of Chinese origin together. Then, the second subassembly, the core plate welding subassembly, is created by combining 19 additional parts to the tooth plate assembly. All but one (a Chinese pawl) of these additional 19 parts are sourced from Mexico. The first step in the production of the core plate welding subassembly is the riveting of the bracket right subassembly to the pawl. Once joined, that bracket subassembly is then joined with the pawl axis, toothed plant spring, E-ring and rotate spring to form a complete subassembly. From here, that subassembly is combined with the tooth plate assembly, tube-connect, left bracket, CC bar and washer, all of which are clamped into place through a specially designed fixture before they are arc welded to produce the final core plate welding subassembly.
The core plate welding subassembly is then arc welded with two hooked rods of Chinese origin to form the complete core part welding assembly. Then, the core part welding assembly will be joined with a front cover, a rear cover, a screw, a release pin and a button assembly, all of Mexican origin, to produce the core part assembly.
Finally, once the core assembly has been produced, it will be combined with a bracket, and a headrest produced from either Chinese origin PVC or Mexican origin leather, which is cut and sewn in Mexico, and foam produced and formed to shape in Mexico. With that final assembly complete, the finished Folding Headrest identified by YFS as Part Number 84913926 is complete.
Folding Automotive Headrest – Sourcing Option 2
As an alternative to the above sourcing pattern, YFS is also contemplating a slight variation in which the initial toothed plate assembly discussed above would be produced in China from a toothed plate axis and a toothed plate of Chinese origin. That assembly would then still be further assembled in Mexico with the same 19 components noted above under the same production processes to produce the core plate welding subassembly discussed above. However, while the overall production would remain the same, 17 of those additional 19 components would instead be sourced from China. However, the remaining steps involving all onward production in Mexico and the sourcing of all remaining components as discussed under the first folding headrest scenario will be followed to produce the finished folding headrest.
As an automotive headrest, these products are properly classified under subheading 9401.90.10, of the Harmonized Tariff Schedule of the United States (“HTSUS”). For the L-Shaped Headrests, the only non-originating component is the bracket, which is classified under subheading 8302.30, HTSUS as a form of vehicle mounting. Similarly, for the folding headrest under scenario 1, the only non-originating components are the toothed plate, the pawl, and rod, all of which are again considered mounting elements under subheading 8302.30, HTSUS. For the folding headrests under scenario 2, seven parts will be classified under subheading 9401.90.10, HTSUS: the CC bar, pawl axis, two mech stops, washer, bumper stop, and e ring. Additionally, five parts will be classified under subheading 8302.30, HTSUS and eight will be classified under chapter 73, HTSUS.
ISSUE:
What is the country of origin of the automotive headrests for purposes of applying Section 301 trade remedies?
What is the country of origin of the automotive headrests for marking purposes?
LAW AND ANALYSIS:
Section 301 Duties
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 7.5% 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), HTSUS. Among the subheadings listed in U.S. Note 20(s) of Subchapter III, Chapter 99, HTSUS, is 9401.90.10, 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). In deciding whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 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. Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982), aff’d 702 F.2d 1022 (Fed. Cir. 1983).
The Court of International Trade has also applied the “essence test” to determine whether the identity of an article is changed through assembly or processing. For example, in Uniroyal, Inc. v. United States, 3 C.I.T. 220, 225 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983), the court held that imported shoe uppers added to an outer sole in the United States were the “very essence of the finished shoe” and thus were not substantially transformed into a product of the United States. Further, the court described the upper as a substantially complete shoe and the manufacturing process taking place in the U.S. required only a small fraction of the time and cost involved in producing the upper.
The Court of International Trade more recently interpreted the meaning of “substantial transformation” in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016). Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All of 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 Generation II 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., 3 C.I.T. at 226, 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, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
Similarly, when processing consists primarily of assembly, CBP is hesitant to find that a substantial transformation occurred. In HQ H290528, dated February 21, 2018, CBP considered whether aluminum panels, which were used as an architectural finish, were substantially transformed by processing in the United States. The panels consisted of three main parts imported from Italy: the casing, core and mounting brackets. In the United States, workers cut some of the cores to size; drilled holes into the casing and core; and extruded, machined, bent, and cut-to-size the mounting blades. Workers then inserted the core into the casing and secured the mounting blades to the panel. CBP found that the U.S processing of the panels was minimal and did not alter the character of the casing and core. CBP noted that the pre-importation processing was significantly more complicated than the post-importation processing, which essentially consisted of some cutting and assembling of parts. See also National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992) (finding no substantial transformation occurred because components had been cold-formed or hot-forged “into their final shape before importation”, and that “the form of the components remained the same” after the assembly and heat-treatment processes performed in the United States) and HQ H302252, dated February 27, 2019 (CBP determined that the U.S.-origin steel tube was not substantially transformed after undergoing assembly operations in Mexico, which “involve[d] welding a flange to the bottom of the tube, powder coating the tube and flange, and soldering a steel cap on the end of the tube”).
In some instances, however, CBP has found that a substantial transformation occurred when the processing involved consisted largely of assembly. 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 of the operations that occur within that country, including any subassembly processes that take place in that country. For example, in Headquarters Ruling Letter (“HQ”) W563456, dated July 31, 2006, CBP held that certain office chairs assembled in the U.S. were products of the United States for purposes of U.S. government procurement. The office chairs were assembled from 70 domestic and foreign components. The imported components alone were insufficient to create the finished chairs and substantial additional work and materials were added to the imported components in the United States to produce the finished chairs. In finding that the imported parts were substantially transformed in the United States, CBP stated that the components lost their individual identities when they became part of the chair as a result of the U.S. assembly operations and combination with U.S. components. Notably, CBP mentioned that the majority of components were of U.S. origin.
CBP applied the standard from Uniroyal in H299701, dated November 23, 2018 when CBP considered the country of origin of a brace designed for the treatment of posterior tibial tendon dysfunction (“PTTD”), or adult acquired flat foot. The Airlift PTTD Brace was created in Mexico from a form assembly, a spring loaded valve, a hand bulb, tubing, a pneumatic coupler, an elbow, resin polyether, colorant, foam, polyurethane laminate, and polyurethane film from various countries, and an aircell from Mexico. In Mexico, the producer created the tubing used to inflate the aircell, cut the laminate polyurethane to size and shape for the aircell, filled the aircell with foam, and sewed it closed. The producer then connected the tubing into the aircell using a coupler and plastic elbow, after which the aircell was sewn into the Airlift. CBP found that this processing permanently attached the various parts to each other so that they lost their individual identities and become part of the completed Airlift. CBP also noted that the aircell imparted the essence of the brace as it was the part that supported the ankle to treat PTTD or provided arch support to prevent or reduce adult onset flat foot.
More recently, in H314637, CBP considered whether the welding together of the various parts of Mexican, U.S. and Chinese origin to create an automotive rear seat frame substantially transformed the Chinese parts in Mexico. CBP noted that the welding did not otherwise alter the shape of the various parts involved, but also noted that the Chinese origin components alone were insufficient to create the automotive rear seat frame and the majority of the components were of Mexican origin. The welding of Chinese components to components of Mexican and U.S. origin made them an integral part of the rear seat frame. Therefore, although the processing consisted of assembly alone, CBP found that the individual components of Chinese origin lost their identity when assembled with components of mostly Mexican origin and Chinese components were substantially transformed by the processing in Mexico to create the automotive seat frame.
L-Shaped Headrest and L-Shaped Wire Headrest
Similar to the case in Uniroyal and in H299701, we find the formed-to-shape foam “stuffing” and PVC or Leather cover of Mexican origin to constitute a substantially complete headrest. The leather is produced in Mexico and is then cut and sewn to shape in Mexico and stuffed with formed foam, which also originates in Mexico. Even when the headrest is made of PVC from China, as opposed to Mexican leather, the cutting to shape and sewing of the PVC substantially transforms it into a product of Mexico. See HQ 562156, dated July 5, 2001 (finding that coated leather was substantially transformed by cutting to shape to form handbag components and assembling the components into the finished article), and New York Ruling Letter (“NY”) N064195, dated June 12, 2009, (finding that woven fabrics that were cut to size and shape in China to fit unfinished upholstered sofa and chair frames underwent a substantial transformation). While the frame from China provides structure, the PVC or leather cover and foam form the part of the headrest that provides the padding and support for the head of a seated passenger. Therefore, the frame of Chinese origin is substantially transformed by its assembly into the headrest in Mexico and Section 301 duties do not apply.
Folding Automotive Headrest Production Scenario 1
We find the processing here to be similar to that in H314637. Although the processing consists of assembly alone, we find that the individual components of Chinese origin lose their identity when assembled with components of mostly Mexican origin. Therefore, the Chinese components are substantially transformed by the processing in Mexico to create the folding automotive headrest, and the country of origin of the folding headrest under production scenario 1 is Mexico for purposes of Section 301.
Folding Automotive Headrest Production Scenario 2
Under scenario 2, the vast majority of parts that form the folding mechanism will be of Chinese origin and the assembly by welding is not particularly complex. However, the production of the PVC or leather cover and foam, which provide padding and support for the head of a seated passenger, is also significant. Therefore, we find that the last substantial transformation occurs in Mexico where the assembly of the folding mechanism and the production of the headrest support (PVC or leather cover and foam) occurs. The country of origin of the folding headrest under production scenario 2 is Mexico for purposes of Section 301.
Marking
Section 304(a) of the Tariff Act of 1930, as amended (19 U.S.C. § 1304(a)), provides that, unless excepted, every article of foreign origin imported into the United States “shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article.” Congressional intent in enacting 19 U.S.C. § 1304 was “that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302 (1940); American Burtonizing Co. v. United States, 13 Ct. Cust. 652, 654 (Ct. Cust. App. 1926).
To allow for a more seamless transition period, at this time, CBP continues to utilize the marking rules set forth in 19 C.F.R. Part 102, with the exception of 19 C.F.R. § 102.19, for purposes of country of origin marking with respect to goods from Canada and Mexico. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes, with the exception of textile goods which are subject to the provisions of 19 C.F.R. § 102.21. 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;
The good is produced exclusively from domestic materials; or
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.
. . .
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the automotive headrests are neither wholly obtained or produced or 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 section 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 tariff shift requirement in section 102.20 for the automotive headrests of subheading 9401.90.10, HTSUS, is “[a] change to subheading 9401.90 from any other heading, except from subheading 9403.90.” For the L-Shaped headrest, the L-shaped wire headrest, and the folding headrest under scenario 1, none of the foreign components are classified in subheading 9401.90 or 9403.90, HTSUS. Therefore, the assembly of the various components in Mexico meets the requisite tariff shift and the country of origin for marking purposes is Mexico for the L-Shaped headrest, the L-shaped wire headrest, and the folding headrest under scenario 1.
For the folding headrest under scenario 2, since seven components of foreign origin (the CC bar, pawl axis, two mech stops, washer, bumper stop, and e ring) are also classified under heading 9401, HTSUS, the tariff shift requirement of section 102.11(a)(3) is not met. Since an analysis of section 102.11(a) has not produced a country of origin determination, we turn to section 102.11(b) of the regulations. Section 102.11(b)(1) provides as follows:
(b) 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 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, or . . .
When determining the essential character of a good under 19 C.F.R. § 102.11, 19 C.F.R. § 102.18(b)(1) provides that only domestic and 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 shall be taken into consideration. In this case, the materials that do not undergo the applicable tariff shift are the CC bar, pawl axis, two mech stops, washer, bumper stop, and e ring. All of these parts are of Chinese origin.
Section 102.18(b)(2), Customs Regulations (19 C.F.R. § 102.18(b)(2)), provides:
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:
The nature of each material, such as its bulk, quantity, weight or value; and
The role of each material in relation to the use of the good.
Of the parts that do not undergo the applicable tariff shift requirement, we find that no single item imparts the automotive rear seat frame with its essential character. None of these parts individually contribute significantly to the purpose of the folding automotive headrest. Therefore, 19 C.F.R. § 102.11(b) cannot be used to determine the country of origin of the automotive seat frames.
The country of origin of the folding automotive headrest cannot be determined by application of 19 C.F.R. § 102.11(c), as the folding automotive headrest is not specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture, or composite good pursuant to General Rule of Interpretation 3. Accordingly, we next consider section 102.11(d) of the hierarchical rules, which provides:
Where the country of origin of a good cannot be determined under paragraph (a), (b), or (c) of this section, the country of origin of the good shall be determined as follows:
(1) If the good was produced only as a result 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 of the good is the country of origin of those parts; or
(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.
19 C.F.R. § 102.11(d).
“Minor processing” is defined in 19 C.F.R. § 102.1(m) as including, in part, the mere dilution with water or another substance, cleaning, application of preservative or decorative coatings, trimming, filing, or cutting off small amounts of excess materials, unloading, reloading, putting up in measured doses, packing, repacking, packaging, repackaging, testing, marking, sorting, or grading, ornamental or finishing operations incidental to textile good production, repairs and alterations, washing laundering, or sterilizing. “Simply assembly” is defined in section 102.1(o) as “the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing.
Based on the facts provided, we find that the operations performed in Mexico constitute more than “minor processing” and exceed a “simple assembly,” as defined in 19 C.F.R. 102.1(o). Therefore, subparagraphs (1) and (2) of 19 C.F.R. § 102.11(d) are inapplicable. Consequently, by application of 19 C.F.R. § 102.11(d)(3), the country of origin of the folding automotive headrest is the last country in which the goods underwent production. The term “production,” as defined in 19 C.F.R. § 102.1(n), includes manufacturing, processing, and assembling a good. The operations performed in Mexico constitute production. Accordingly, we find that the country of origin of the folding automotive headrest is Mexico for marking purposes.
HOLDING:
The country of origin of the automotive headrests for the purposes of both marking and the application of Section 301 measures will be Mexico.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch