OT:RR:CTF:FTM H331104 BJK
Ms. Suzanne Kane
Akin Gump Strauss Hauer & Feld LLP
2001 K Street NW
Washington, D.C. 20006
RE: Country of Origin of High Field High-Temperature Superconducting Tape
Dear Ms. Kane:
This is in response to your request, on behalf of Commonwealth Fusion Systems LLC, (“CFS” or “Requestor”) dated March 8, 2023, for a binding ruling regarding the country of origin of a high field high-temperature superconducting tape (“HTS tape”). The request is a resubmission of previous ruling requests that pertained to the HTS tape subject to this ruling and that were returned for additional information.
This request was forwarded by the National Commodity Specialist Division to our office for a response. In arriving at our determination set forth below, we considered the information submitted in the ruling request and additional information submitted via e-mail. You have asked that certain information submitted in connection with this ruling be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained in the attachments to the ruling request will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
CFS describes the HTS tape as consisting of thin-rolled, nickel alloy-based strips that perform a key role in high field high-temperature superconducting magnets, which are in turn integrated into a fusion reactor. At cryogenic temperatures, the HTS tape gives the high-temperature superconducting magnets their magnetic properties, allowing a fusion reactor to be significantly smaller than devices based on other magnet technologies.
Requestor indicates that the HTS tape consists of several layers: a copper layer, a Hastelloy C276 (“Hastelloy”) layer, a rare-earth barium copper oxide (“ReBCO”) layer, a silver layer, and a buffer stack of magnesium oxide. Of these materials, Requestor explains that the Hastelloy layer constitutes the greatest material by weight and thickness and that this layer is critical for the production and use of the HTS tape.
The Hastelloy layer acts as a substrate, which Requestor states is the only substrate suitable for use in high field HTS tape because a weaker base material would not sustain itself and would rip itself apart when used in a high field high-temperature superconducting magnet. Requestor contends that the Hastelloy layer and its tungsten threshold enables crystal formation and the proper orientation of the subsequent layers added in Japan or an unidentified third country. Further, CFS notes that the Hastelloy layer provides the strength, thickness, stiffness, magnetic permeability, and room temperature electrical conductivity that is required for the final application in high-temperature superconducting magnets.
With respect to the HTS tape’s components, only the ReBCO layer enables the HTS tape to perform at cryogenic temperatures. The ReBCO layer contains cryogenic superconductive properties that Requestor explains as zero electrical resistivity at certain cryogenic temperatures. According to Requestor, the addition of the ReBCO layer enables the HTS tape be used in magnets at different temperatures. While the Hastelloy layer is produced in the United States, the ReBCO layer, as well as the silver layer and magnesium oxide buffer stack, are produced and added to the Hastelloy layer in Japan or an unidentified third country.
Requestor outlines the following manufacturing steps involved in the production of the HTS tape, including the country in which each step occurs:
First, scrap Hastelloy of U.S. origin is melted into large batches of bulk Hastelloy in the United States. Large melts of bulk Hastelloy are poured and the bulk Hastelloy undergoes a multicycle rolling and annealing process through which it is rolled into coils of industry standard dimensions in the United States. Through testing and screening, the bulk Hastelloy is qualified for use in high field HTS tape in the United States. Finally, in the United States, the Hastelloy is slit into narrow strips, before being exported to Japan or an unidentified third country for further processing.
In Japan or an unidentified third country, a thin layer of magnesium oxide ceramic is deposited on the Hastelloy base layer. It is then coated with a second layer of a ceramic, which contains ReBCO. The product is then sealed with a super-thin layer of silver to prevent contamination of the ReBCO layer. The now-coated product is inserted into an oven containing oxygen. In the oven, the product undergoes an oxygenation process that gives the product, specifically the ReBCO layer, the capacity to function as a superconductor at cryogenic temperatures. Still within Japan or an unidentified third country, the now oxidized product undergoes finishing steps, including additional slitting and the application of a thin silver layer and thin copper layer. The product, as finished in Japan or an unidentified third country, is then exported back to the United States, where it is commercially available as high field HTS tape.
ISSUE:
What is the country of origin of the HTS tape?
LAW AND ANALYSIS:
The marking statute, 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 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 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 markings on the imported goods the country of which the good is the product. The evident purpose is to mark the goods so that at the time of purchaser 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 C.A.D. 104 (1940).
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. Section 134.1(b), CBP Regulations (19 C.F.R. § 134.1(b)), defines “country of origin” as “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 [the marking regulations]. . . .” A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, or use which differs from the original material subjected to the process. United States v. Gibson Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940); Texas Instruments v. United States, 681 F.2d 778, 782 (1982).
In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, 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 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, extent and nature of post-assembly inspection and testing procedures, and the degree of skill required during the actual manufacturing process may be relevant when determining whether a substantial transformation has occurred. No one factor is determinative.
In National Hand Tool Corp. v. United States, 16 C.I.T. 308, 311 (1992), the Court of International Trade (“CIT”) defined “character” for purposes of substantial transformation as “one of the essentials of structure, form, materials, or function that together make up and usually distinguish the individual.” The CIT in Nat’l Hand Tool considered whether imported articles from Taiwan to be used as hand tools were substantially transformed by the heat treatment processing in the United States, such as to render the articles changed in character. In its decision, the Court explained that heat treatment processing in the United States did not substantially change the character of the articles, as upon importation the use of the imported articles was “predetermined.” Nat’l Hand Tool at 311. Specifically, the CIT found that the heat treatment processing in the United States conformed the articles to industry standards, but that the imported articles from Taiwan remained the same character pre- and post-heat treatment.
Conversely, in Ferrostaal Metals Corp. v. United States, 11 C.I.T. 470, 480 (1987), the CIT held that Japanese cold-rolled steel sheet was substantially transformed by continuous hot-dip galvanizing operation in New Zealand, such as to make New Zealand the country of origin for marking purposes. The CIT disagreed with the Defendant’s arguments that the continuous hot-dip galvanizing process was a mere “finishing” operation, because the continuous hot-dip galvanizing process changed the character of the cold-rolled steel sheet by significantly altering the mechanical properties and chemical composition of the steel sheet. See Ferrostaal Metals Corp. at 477. Indeed, the Court reasoned that the hot-dip galvanizing process substantially changed the end-use of the product because cold-rolled steel sheet could not be used in the same applications as hot-dipped galvanized steel. Id. As concluded by the Court, “such a change in the utility of the product is indicative of a substantial transformation.” Id. (citing Midwood Industries, Inc. v. United States, 64 Cust. Ct. 499, C.D. 4026, 313 F. Supp. 951, appeal dismissed, 57 CCPA 141 (1970)).
CBP applies the standard established in Nat’l Hand Tool Corp. and Ferrostaal Metals Corp. to conduct its substantial transformation analysis in its rulings. In Headquarters Ruling Letter (HQ) H313087, dated May 27, 2021, CBP considered the country of origin for Section 301 purposes of finished golf clubs assembled in Mexico using a Chinese shaft, a Chinese grip, and a driver head finished in Mexico from raw Chinese castings. Similar to Nat’l Hand Tool Corp., the importer in HQ H313087 contended that the raw Chinese castings of the club head were substantially transformed by the heat treatment operations in Mexico, as well as being assembled in Mexico with a Chinese shaft and grip to form a finished club. CBP found that the character of the golf club was not substantially changed by the assembly and finishing operations in Mexico because the “character” remained substantially unchanged and its intended use as a golf club was predetermined at the time of its importation in Mexico. Thus, the country of origin for Section 301 purposes was China, not Mexico.
In HQ 562803, dated September 30, 2004, CBP considered the country of origin for marking purposes of flexible magnets. In HQ 562803, CBP reviewed whether imported flat sheets/rolls of magnetized rubber material from China were substantially transformed in the United States by processing operations that include designing, cutting, shaping, silk screening, and printing, which result in the creation of promotional magnets. Applying Ferrostaal Metals Corp., CBP found that while the annealing and galvanizing processing operations in New Zealand in Ferrostaal Metals Corp. resulted in a product changed in character by significant alteration of the mechanical properties and chemical composition of the Japanese cold-rolled steel sheet, and in HQ 562803 the mechanical properties and chemical composition of the imported Chinese magnet material were not altered, and therefore the character was unchanged by the cutting and printing operations in the United States. Thus, for purposes of marking, the cut and printed magnets in the United States were not substantially transformed and were required to be marked with the country of origin of China.
Requestor argues that the United States is the country of origin of the HTS tape. Requestor contends that the processing steps that occur in Japan or unidentified third country do not amount to substantial transformation of the HTS tape, that the United States is the country in which the HTS tape acquires its predetermined use, and that finding the United States the country of origin of the HTS tape is consistent with court and CBP decisions.
Here, there are two sets of processing operations. The first occurs in the United States where the substrate base Hastelloy layer is created. Secondly, in Japan or an unidentified third country, prior to finishing, additional layers are added to the Hastelloy layer, including a ReBCO layer to give the HTS tape its superconductive properties. While CFS contends that the processing in Japan or an unidentified third country is a mere coating or finishing operation, we note that the addition of the magnesium oxide layer, silver layer, copper layer, and the ReBCO layer goes beyond mere coating or finishing.
The processing in Japan or a third country is significant because additional layers are deposited on the Hastelloy base and these layers, particularly the ReBCO layer, change the mechanical properties and chemical composition of the article. Indeed, the additional layers deposited on the Hastelloy base change the name, character, and use of the article from Hastelloy substrate to HTS tape. Like in Ferrostaal Metals Corp., where the continuous hot-dip galvanizing process changed the character of the cold-rolled steel sheet by significantly altering the mechanical properties and chemical composition of the steel sheet, here the depositing of additional layers, including the ReBCO layer, onto the Hastelloy base in Japan or an unidentified third country substantially change the character of the article and its applications thereafter.
The production of HTS tape in Japan or unidentified third country adds a key component, the ReBCO layer, that enables the HTS tape to be used in high-temperature superconducting magnets at cryogenic temperatures. Moreover, it is in Japan or an unidentified third country where a magnesium oxide layer is added, which serves as a buffer between the Hastelloy and ReBCO layer, as well as a silver layer to seal in the ReBCO layer to prevent contamination. Lastly, it is in Japan or an unidentified third country where a copper layer is added as protection for the ReBCO layer when the HTS tape is soldered together and this copper layer serves as a failsafe to discharge electrical currents if the ReBCO layer suddenly loses its function as a superconductor. What emerges from these significant production operations is an article substantially transformed in name, character, and use from the Hastelloy substrate base produced in the United States to HTS tape produced in Japan or an unidentified third country.
CFS suggests that it is in the United States where the Hastelloy is produced that the product obtains its predetermined use, and therefore the United States is the country of origin of the HTS tape. CFS cites to Nat’l Hand Tool, HQ H313087, and HQ 562803, as support for its contention that the Hastelloy production in the United States is where the product obtained its predetermined use. We disagree. In Nat’l Hand Tool, the CIT found that the finishing operations, namely the heat treatment in the United States to conform the articles to industry standards, did not substantially transform the articles in name, character, or use. Id. at 311. As discussed above, the Hastelloy substrate base that is produced in the United States is substantially transformed in Japan or an unidentified third country by the depositing of additional layers, particularly the ReBCO layer, such that the finished article is different in name, character, and use from mere Hastelloy substrate to HTS tape with superconductive capabilities at cryogenic temperatures.
In HQ H313087 and HQ H562803, CBP found that the articles were not substantially transformed by the assembly operations or cutting operations, and that the use of the articles remained unchanged. Here, the processing operations that occur in Japan or an unidentified third country substantially transform the Hastelloy in name, character, and use by the addition of ReBCO, magnesium oxide, silver and copper layers, to become HTS tape with different end-use applications, namely super-conduction at cryogenic temperatures. Thus, contrary to CFS’s argument, the HTS tape does not obtain its predetermined use in the United States, where the Hastelloy was produced. Instead, the Hastelloy substrate is substantially transformed by the production operations occurring in Japan or an unidentified third country, resulting in a change in name, character, and use.
As a new article, with different end-use applications, emerges from the processing operations in Japan or an unidentified third country, we find that the U.S. produced Hastelloy layer is substantially transformed and the country of origin for marking purposes is Japan or an unidentified third country.
HOLDING:
Based on the information provided, the country of origin of the HTS tape is Japan or an unidentified third country.
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 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 ruling letter by a CBP field office to the transaction to which it is purported to relate is 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 the goods are 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.
Sincerely,
Sarah Kafka, Chief Food, Textiles, and Marking Branch