CLA-2-85:OT:RR:NC:N1:102
Ms. Maureen Thorson
Wiley Rein LLP
1776 K Street NW
Washington, D.C. 20006
RE: The country of origin and application of Section 301 remedies of battery packs
Dear Mr. Thorson:
In your letter dated September 9, 2019 you requested a country of origin ruling on behalf of your client, Inventus Power.
The items under consideration are rectangular shaped battery packs used with mobile medical carts.
Each battery pack includes a communications board assembly, wiring, a wiring harness, fasteners, a plastic housing, lithium-ion cells and a main board assembly that runs software and coordinates and monitors the electric flow between lithium-ion cells and the medical cart. The lithium-ion cells store
and provide power to the medical cart.
In your request, you describe the manufacturing process for the subject battery packs and suggest the country of origin is Mexico for the battery packs. Furthermore, you suggest that the battery packs are not subject to the application of the Section 301 measures for products of China because the Chinese components undergo a substantial transformation as a result of the assembly process performed in Mexico that is discussed hereafter.
The manufacturing process of each battery pack consists of 48, 56 or 64 lithium-ion battery cells depending on the configuration of the battery pack, a main board assembly and a communication board assembly from China being combined with various other components in Mexico.
The production of each battery pack begins in China by affixing more than 700 individual electronic components to a raw printed circuit board, creating the main board assembly. Afterwards, two data connector components and approximately 10 electronic components are mounted onto a printed circuit board to produce the communication board assembly. The communication board assembly and the main board assembly are then sent to Mexico. You mention that at this time the main board and communication board assemblies are sourced from China, but in the future these items could be sourced from an alternate country.
In Mexico, brass terminals, which are of Mexican or U.S. origin, are screwed into the plastic housing of the battery pack. The communications board assembly is then screwed onto the underside of the top housing. Subsequently, the main board assembly is screwed into the top housing and then a communications cable that links the communciations board assembly with the main board assembly is attached.
The battery cells, which are of Chinese origin, are then connected to each other. The process continues with paper insulating washers and Chinese origin nickel contact strips being attached to the cells. The insulating paper washers are also used to separate groups of cells. The Mexican produced wires and wiring harnesss are then soldered to the full group of cells. The wire connection points are sealed with insulation tape and Chinese originating thermistors are then installed with the wires and wiring harnesses. Afterwards, the connected battery cells are inserted into the Mexican originating bottom housing and a Mexican originating separator is then laid on top of the battery cells. The wiring harness is then connected to the main board assembly and the top housing is screwed to the bottom housing. Each battery pack undergoes testing.
With regard to your request for the appropriate country of origin of the battery pack, 19 C.F.R. § 134.1(b) provides in pertinent part as follows: Country of origin means 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 this part; Since Mexico is a NAFTA country, the NAFTA Marking Rules must be applied in determining the country of origin of the subject battery pack for marking purposes. Part 102, Customs and Border Protection Regulations (19 C.F.R. Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. 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; (a)(2) The good is produced exclusively from domestic materials; or (a)(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in Section 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 battery pack is neither wholly obtained nor produced exclusively from “domestic” 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 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.”
In this case, the battery packs are classified under subheading 8507.60.0020, Harmonized Tariff Schedule of the United States (HTSUS). The applicable rule for subheading 8507.60.0020, HTSUS, in section 102.20 requires:
A change to subheading 8507.10 through 8507.80 from any other subheading, including another subheading within that group, except for a change to subheading 8507.80 from subheading 8507.50 or 8507.60.
In this instance, the foreign materials, which are imported into Mexico from China and the U.S., are all classified from any other subheading, including another subheading within that group. Since the battery packs are classified under subheading 8507.60.00, HTSUS, and the foreign materials undergo an applicable change in tariff classification as set out in 19 C.F.R. § 102.20, the battery packs in question qualify to be marked as a good of Mexico. Nonetheless, while the NAFTA marking rules contained in 19 C.F.R. Part 102 will determine the country of origin for marking purposes, the substantial transformation test will determine the country of origin for purposes of the Section 301 measures. See, e.g., Headquarters Ruling Letter (“HQ”) H301619, dated November 6, 2018. The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character and 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). This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, all factors such as the components used to create the product and the manufacturing processes that these components undergo are considered in order to determine whether a product with a new name, character and use has been produced. No one factor is decisive, and assembly operations that are minimal will generally not result in a substantial transformation. In our view, the battery cells, which store and provide power, impart the essence of the finished battery packs. The battery cells are not substantially changed by the addition of the Chinese, Mexican or U.S materials. Furthermore, the assembly operations performed in Mexico do not render a new and different article. Therefore, since the battery cells are of Chinese origin and no substantial transformation takes place, the country of origin of the battery packs for the purpose of Section 301 measures is China.
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8507.60.0020, HTSUS, unless specifically excluded, are subject to an additional 15 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.15, in addition to subheading 8507.60.0020, HTSUS, listed above.
The HTSUS is subject to periodic amendment so you should exercise reasonable care in monitoring the status of goods covered by the Note cited above and the applicable Chapter 99 subheading.
For background information regarding the trade remedy initiated pursuant to Section 301 of the Trade Act of 1974, you may refer to the relevant parts of the USTR and CBP websites, which are available at https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions and https://www.cbp.gov/trade/remedies/301-certain-products-china, respectively.
The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at https://hts.usitc.gov/current.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Sandra Martinez at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division