OT:RR:NC:N1:103
MacKensie Sugama
Trade Pacific PLLC
700 Pennsylvania Ave. SE, Suite 500 Washington, DC 20003
RE: The country of origin of a hydraulic excavator
Dear Ms. Sugama:
In your letter dated December 27, 2023, you requested a country of origin ruling on a hydraulic excavator which was submitted on behalf of your client, PT SANY Indonesia Machinery.
The merchandise under consideration is referred to as the SY35 series of crawler hydraulic excavators. The SY35 series is a line of excavators propelled by a tracked undercarriage and features a revolving superstructure with a mechanical boom and arm. They will be imported into the United States without a primary attachment but will be equipped with a bulldozer blade attached to the undercarriage. The SY35 series of excavators will be assembled in Indonesia using components sourced from China, Indonesia, and Japan.
Prior to final assembly, key structural parts are manufactured in Indonesia, which you have identified as the boom, arm, lower frame, and upper frame. All of the key structural parts and their subcomponents will be formed either at SANY’s facility or at the facility of a domestic producer using materials wholly obtained in Indonesia. The upper frame is described as the structural foundation used to support the boom, arm, engine, cab, hydraulic system, and control system. The upper frame will sit atop the lower frame, which will contain the crawler tracks and drive motor. The manufacturing process entails transforming metal panels, tubes, angle irons, plates, and other structural shapes into intermediate component parts that are later combined to form the lower and upper arm subassemblies. The upper frame assembly is created by joining multiple intermediate components including mounting plate assemblies, cross beams, cover plates, rotary platforms, etc. For the lower frame assembly, the process involves welding and combining various beam assemblies, mounts, track beams, x-frames, walking frames, travel frames, and more.
The boom and arm are components of the mechanism that will control the attachment of the excavator. In Indonesia, robotic welding stations join moveable arm ear plates, dynamic arm forks, and a moving arm group to create the boom assembly. Using a similar process, robotic welding stations join bucket bar ear plates and bucket bars to create the arm assembly, which is subsequently drilled and press fitted with sleeves. Both assemblies go through roughing and finishing operations that include grinding, machining, and painting. Besides the main structural parts, the deflection head assembly, counterweight, and bulldozer blade are also sourced domestically in Indonesia.
The hydraulic excavator also incorporates foreign components from Japan, including the engine, rotary reducer, and traveling reducer. A portion of the components are also sourced from China and include the driver’s cab, wheel assembly, sprocket assembly, rubber tracks, and various oil cylinders.
The final assembly process starts with installing a rotary motor assembly, deflection head assembly, and multiple valve assemblies into the upper frame. This process consists largely of positioning the assemblies, securing them in place, and making the necessary connections. The assembly process continues with mounting the engine assembly, battery, oil tank, counterweight assembly, cab assembly, and cylinder assemblies. Workers also complete numerous electrical connections, route various hoses, and install piping throughout the frame. Components are also installed into the lower frame, including the support wheel assembly, slewing bearing assembly, walking motor assembly, and the rubber tracks. Afterwards, the boom arm assembly and bucket arm assembly are hoisted into place, secured, and connected to hydraulic cylinders. Each excavator will be inspected and tested before various covers, panels, and decals are affixed to the body.
With regard to your request for the appropriate country of origin of the hydraulic excavator, 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.
As stated in HQ 735009, dated July 30, 1993, “The country of origin is the country where the article last underwent a ‘substantial transformation,’ that is, processing which results in a change in the article’s name, character, or use.” In addition, the court has held that “A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, and use that differs from the original material subjected to the processing.” 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 Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade interpreted the meaning of “substantial transformation” as used in the Trade Agreements Act of 1979 (“TAA”) for purposes of government procurement. In Energizer, the court reviewed the “name, character and use” test in determining whether a substantial transformation had occurred in determining the origin of a flashlight, and reviewed various court decisions involving substantial transformation determinations. The court noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. 220, 226, 542 F. Supp. 1026, 1031, aff’d, 702 F.2d 1022 (Fed. Cir. 1983), 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, 310, aff’d 989 F.2d 1201 (Fed. Cir. 1993). Furthermore, courts have 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.
Although the final assembly process that occurs in Indonesia requires numerous foreign inputs, significant manufacturing operations also occur in Indonesia. 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. Based upon your description of the manufacturing operations, the sum of the operations and processing performed in Indonesia results in a substantial transformation. All of the major structural components, including the boom, arm, upper frame, and lower frame, are completely manufactured in Indonesia. These components serve as critical components of the propelling base, the structural frame, and the mechanical arm of the finished machine. Thus, based on the totality of the circumstances, the country of origin of the SY35 series of crawler hydraulic excavators will be Indonesia.
The holding set forth above applies only to the specific factual situation and merchandise description as identified in the ruling request. This position is clearly set forth in Title 19, Code of Federal Regulations (CFR), Section 177.9(b)(1). This section states that a ruling letter is issued on the assumption that all of the information furnished in the ruling letter, whether directly, by reference, or by implication, is accurate and complete in every material respect. In the event that the facts are modified in any way, or if the goods do not conform to these facts at time of importation, you should bring this to the attention of U.S. Customs and Border Protection (CBP) and submit a request for a new ruling in accordance with 19 CFR 177.2. Additionally, we note that the material facts described in the foregoing ruling may be subject to periodic verification by CBP.
This ruling is being issued under the provisions of Part 177 of the Customs and Border Protection 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, please contact National Import Specialist Paul Huang at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division