OT:RR:CTF:VS H327665 RRB

Center Director
Machinery Center of Excellence and Expertise
U.S. Customs and Border Protection
109 Shiloh Drive, Suite 300
Laredo, TX 78045

Attn: Erika De Leon; Supervisory Import Specialist
Gilbert Vega, Import Specialist

RE: Application for Further Review of Protest No. 3801-22-107986; Tariff Classification and Country of Origin of Cover Assemblies for a Backhoe Loader; Section 301 Measures

Dear Port Director:

This is in response to the Application for Further Review (“AFR”) of Protest No. 3801-22-107986, timely filed on April 27, 2022, by Page-Fura, P.C., on behalf of CNH Industrial America LLC (“Protestant” or “CNH”). This decision concerns U.S. Customs and Border Protection’s (“CBP”) classification, under the Harmonized Tariff Schedule of the United States (“HTSUS”), and the country of origin of cover assemblies for a backhoe loader.

FACTS:

The protested merchandise consists of cover assemblies for a backhoe loader. A backhoe loader is a form of construction equipment that is used in excavation projects. A backhoe loader is comprised of the following: a cab within which the operator sits and where all controls necessary for the operation of the backhoe loader are found; an articulated arm at one end to which is attached a digging bucket or backhoe; and a shovel/bucket attachment at the other end for use in moving and/or lifting construction or excavation debris.

After importation, the cover assemblies are installed on the left and right interior sides of the cab’s windshield. The left-hand cover assembly at issue is identified as Part Number 47955642 and the right-hand cover-assembly at issue is identified as Part Number 48147488. The Protestant states that the principal function and design of the cover assemblies is as a support element.

The cover assemblies are manufactured for the Protestant by an unrelated third- party seller in Canada. The third-party seller imports various components used to manufacture the cover assemblies in Canada. The left-hand cover assembly consists of a plastic inside support pillar manufactured in the United States through an injection mold process, a speaker assembly sourced from China, a coat hook sourced from Germany, and other minor components. The right-hand cover assembly consists of a plastic inside support pillar manufactured in the United States through an injection mold process, a speaker assembly sourced from China, a fastener sourced from China, and other minor components. According to the bill of materials for the left-hand and right- hand cover assemblies, the inside support pillars constitute the greatest total cost among all of the components comprising the cover assemblies.

In support of its protest submission, the Protestant provided a diagram of what it describes as an assembly process in Canada that is “not particularly complex.” According to this diagram, the assembly process for the right-hand cover assembly begins with a worker aligning and inserting the Chinese speaker assembly into a pre-cut hole in the injection-molded plastic cover that was manufactured in the United States. Four screws are then used to secure the speaker assembly along with a speaker grill to the underlying cover, thus, completing the assembly process for the right-hand cover assembly. The assembly process for the left-hand cover assembly is identical but requires an additional step of inserting a coat hook into a pre-cut hole in the cover assembly and securing it into place using fasteners.

The protested merchandise consists of one entry that was entered at the Port of Detroit (“Port”) on December 19, 2021, under subheading 8518.29.80, HTSUS, as “Microphones and stands therefor; loudspeakers, whether or not mounted in their enclosures; headphones and earphones, whether or not combined with a microphone, and sets consisting of a microphone and one or more loudspeakers; audio-frequency electric amplifiers; electric sound amplifier sets; parts thereof: Loudspeakers, whether or not mounted in their enclosures: Other: Other,” with a country of origin of Canada. On January 19, 2022, your office issued a proposed Notice of Action (“CBP Form 28”) to the Protestant on the entry at issue, requesting verification of the country of origin of the subject merchandise. In the Protestant’s initial response to the CBP Form 28, which was dated January 25, 2022, they stated that the merchandise was mistakenly entered under subheading 8518.29.80, HTSUS, and that the correct classification is subheading 8518.21.00, HTSUS, which provides for “Microphones and stands therefor; loudspeakers, whether or not mounted in their enclosures; headphones and earphones,

2 whether or not combined with a microphone, and sets consisting of a microphone and one or more loudspeakers; audio-frequency electric amplifiers; electric sound amplifier sets; parts thereof: Loudspeakers, whether or not mounted in their enclosures: Single loudspeakers, mounted in their enclosures.” Also in their response, dated January 25, 2022, the Protestant stated that the speakers are imported from China and the “enclosure portion” is made in Canada, but “due to a mistake of fact, [the seller] typed country of origin Canada on the commercial invoice.” Based upon the Protestant’s January 25, 2022, response to the CBP Form 28, your office rate advanced the subject entry. Accordingly, the subject entry was liquidated on February 4, 2022, under subheading 8518.21.00, HTSUS, with a country of origin of China. As a product of China, the protested merchandise was subject to an additional 7.5 percent ad valorem duty under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”), imposed by subheading 9903.88.15, HTSUS.

On February 15, 2022, the Protestant submitted a revised response to the CBP Form 28. In the revised response, they explained that “upon further investigation and research data with [their] supplier-manufacturer,” they believe that the merchandise should be classified under subheading 8431.49.90, HTSUS, as “Parts suitable for use solely or principally with the machinery of headings 8425 to 8430: Of machinery of heading 8426, 8429 or 8430: Other: Other,” with a country of origin of Canada. In support, they provided the cost breakdown for each of the components, the country of manufacture of each component, the value of materials, the cost to produce the left- hand and right-hand cover assemblies and the percentage of each cover assembly that is Chinese content

The Protestant filed this Protest and AFR on April 27, 2022, asserting that the cover assemblies for a backhoe loader are properly classified under subheading 8431.49.90, HTSUS, as “Parts suitable for use solely or principally with the machinery of headings 8425 to 8430: Other: Other”; that the country of origin of the protested merchandise is either Canada or the United States; and that therefore, the merchandise is not subject to Section 301 duties.

ISSUES:

(1) What is the proper classification of the cover assemblies for a backhoe loader?

(2) What is the country of origin of the cover assemblies for a backhoe loader for purposes of Section 301 trade measures?

LAW AND ANALYSIS:

We note that this matter is protestable under 19 U.S.C. § 1514(a) as a decision on classification and relating to the liquidation or reliquidation of an entry. The protest was timely filed within 180 days of liquidation. See 19 U.S.C. § 1514(c)(3). Further Review of Protest Number 3801-22-107986 was properly accorded to the Protestant pursuant to 19 C.F.R. § 174.24(b) because the decision against which the protest was

3 filed is alleged to involve questions of law or fact which have not been decided on by CBP or by the Customs courts.

Tariff Classification

Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). 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 may then be applied. Under GRI 6, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to GRIs 1 through 5.

GRI 3(a) and (b) provide as follows:

When, by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

The 2021 HTSUS provisions under consideration are as follows:

8429 Self-propelled bulldozers, angledozers, graders, levelers, scrapers, mechanical shovels, excavators, shovel loaders, tamping machines and road rollers:

Mechanical shovels, excavators and shovel loaders:

8429.52 Machinery with a 360° revolving superstructure:

8429.52.10 Backhoes, shovels, clamshells and draglines…

8431 Parts suitable for use solely or principally with the machinery of headings 8425 to

4 8430:

Of machinery of heading 8426, 8429 or 8430:

8431.49 Other:

8431.49.90 Other:

8518 Microphones and stands therefor; loudspeakers, whether or not mounted in their enclosures; headphones and earphones, whether or not combined with a microphone, and sets consisting of a microphone and one or more loudspeakers; audio-frequency electric amplifiers; electric sound amplifier sets; parts thereof:

Loudspeakers, whether or not mounted in their enclosures:

8518.21.00 Single loudspeakers, mounted in their enclosures…

8518.29 Other:

8518.29.80 Other…

**** Note 2 to section XVI, HTSUS, provides, in pertinent part, as follows:

Subject to note 1 to this section, note 1 to chapter 84 and to note 1 to chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545, 8546 or 8547) are to be classified according to the following rules:

(a) Parts which are goods included in any of the headings of chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings;

(b) Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517….

Note 2(a) to section XVI states that parts which are goods included in any of the headings of chapter 84 or 85 are to be classified in their respective headings. Here, the cover assemblies were liquidated in subheading 8518.21.00, HTSUS, as “[s]ingle loudspeakers, mounted in their enclosures.” While the protested merchandise does include a single speaker, the term “speaker” only describes a portion of the cover

5 assembly, and not the entire article. Thus, the cover assembly could only be classified under heading 8518, HTSUS, as a composite good by application of GRI 3(b). Before determining whether the protested merchandise was properly classified in subheading 8518.21.00, HTSUS, as a composite good under GRI 3, we must first determine whether they are more specifically classified elsewhere under GRI 1.

There is no dispute that the backhoe loaders upon which the protested merchandise are later installed are classified pursuant to GRI 1 in heading 8429, HTSUS, which provides for “[s]elf-propelled bulldozers, angledozers, graders, levelers, scrapers, mechanical shovels, excavators, shovel loaders, tamping machines and road rollers.” See Headquarters Ruling Letter (“HQ”) 955502, dated March 31, 1994. Thus, it is necessary to determine whether the subject cover assemblies are considered “parts” for purposes of tariff classification. A “part” is defined as an article that is “an integral, constituent component [of another article], necessary to the completion of the article with which it is used, and which enables that article to function in the matter for which it was designed, without which the article to which the [part] is joined could not function.” See HQ H007677, dated December 22, 2008.

The cover assemblies are imported as finished injection molded components with a pre-installed speaker. They are designed to be installed into the cab of a backhoe loader, and they are suitable for use solely with a backhoe loader to provide necessary structural and aesthetic support to the overall machine. Based on the functions of the cover assemblies in providing structural support to the backhoe loader, we find that they are integral constituent components of the backhoe loader and are in fact “parts.” Consequently, they are properly classified in subheading 8431.49.90, HTSUS, in accordance with note 2(b) to section XVI.

Country of Origin

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”). See Section XXII, Chapter 99, Subchapter III, U.S. Note 20(r), HTSUS. The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(s)(i), HTSUS. Among the subheadings listed in U.S. Note 20(s)(i) of Subchapter III, Chapter 99, HTSUS, is subheading 8518.21.00, HTSUS.

The USTR has also determined that an additional ad valorem duty of 25% will be imposed on certain Chinese imports pursuant to its authority under Section 301 measures. See Section XXII, Chapter 99, Subchapter III, U.S. Note 20(a), HTSUS. 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 subheading 8431.49.90, HTSUS.

6 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, 681 F.2d 778 (CCPA 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. See 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, and the essence of the article is considered. See Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983).

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 (CIT 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

7 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.

Here, the Protestant admits that assembly of the component parts of the cover assemblies in Canada, which includes aligning and inserting the speaker assembly into a pre-cut hole in an injection-molded plastic cover that is already in its final form, and securing the components with screws, is “not particularly complex.” We agree. Accordingly, the cover assemblies are not substantially transformed by their assembly in Canada. Instead, we look to the component that imparts the essence of the finished cover assembly that is designed to be installed into the cab of the backhoe loader. Here, the very essence of the cover assemblies is the plastic inside support pillar, which imparts the functionality of the cover assemblies in providing structural and aesthetic support elements as a part within the cab of a backhoe loader. While the finished cover assemblies happen to also include a speaker component and other fasteners, those components are secondary to the purpose of the overall cover assemblies in relation to the backhoe loader. Accordingly, the country of origin of the cover assemblies for a backhoe loader is based on the plastic inside support pillar, which is manufactured in the United States. Therefore, Section 301 duties do not apply.

HOLDING:

By application of GRIs 1 and 6, the cover assemblies for a backhoe loader are classified in heading 8431, HTSUS, and specifically in subheading 8431.49.90, HTSUS (2021), which provides for “Parts suitable for use solely or principally with the machinery of headings 8425 to 8430: Of machinery of heading 8426, 8429 or 8430: Other: Other.” The column one, general rate of duty at the time of entry is Free.

Based on the information provided, the country of origin of the cover assemblies for a backhoe loader is the United States.

You are instructed to GRANT the Protest.

You are instructed to notify the protestant of this decision no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. 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 CBP website at https://www.cbp.gov and other methods of public distribution.

Sincerely,

for Yuliya A. Gulis, Director
Commercial Trade and Facilitation

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