MAR-2-84:OT:RR:NC:N2:206
Satoshi Iwakata
Toshiba America Energy Systems
3735 Glen Lakes Drive, Suite 200
Charlotte, NC 28208
RE: The country of origin marking of a runner assembly.
Dear Mr. Iwakata:
In your letter, dated October 09, 2019, you requested a country of origin marking determination on a runner assembly.
The merchandise under consideration is a Runner Assembly (runner), which is a part of a Francis type hydro-turbine. The runner assembly consists of the following sub components: band, crown, cone, and blades. You state that the rough machined runner castings sub components will be procured from a Chinese foundry, where they are welded and roughly machined, and then imported into Canada (in the first scenario) or Japan (in the second scenario) for further processing and manufacturing, which includes inspection, final machining, and balancing.
Section 134.1(b) of the regulations, defines "country of origin" as the country of manufacture, production, or growth of any article of foreign origin entering the U.S. 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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Since Canada is a NAFTA country, the NAFTA Marking Rules will determine the country of origin of the runner for the scenario, where the finishing operations were performed in Canada.
Part 102 of the regulations, sets forth the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 of the regulations, sets forth the required hierarchy for determining country of origin for marking purposes. 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 imported runner 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.”
This office has concurred with your proposed classification of the runner in subheading 8410.90.0000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Hydraulic turbines, water wheels and regulators therefor; parts thereof; Parts, including regulators.” The applicable rule for subheading 8410.90, HTSUS, in section 102.20 requires, “A change to subheading 8410.90 from any other heading.” From the descriptive literature and diagrams you submitted, it appears that the unfinished runner imported from China to Canada is classified in heading 8410.90, HTSUS. As a result, the tariff shift requirement is not met, and the country of origin cannot be determined under Section 102.11(a)(1), (2), and (3).
Section 102.11(b) states, “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.
Section 102.18 (b) (1): For purposes of identifying the material that imparts the essential character to the good under section 102.11, the only materials that shall be taken into consideration are those [domestic or foreign materials] that are classified in a tariff provision from which a change in tariff classification is not allowed under the section 102.20 specific rule or other requirements applicable to the good. As we earlier determined, the unfinished runner is classified in subheading 8410.90, HTSUS. It is the single component, which is not allowed under the section 102.20 specific rule. Therefore, the country of origin of the entire assembly will be the country of origin of the unfinished runner. Thus, the country of origin of the finished runner assembly will be China for marking purposes.
Nevertheless, when determining the country of origin for purposes of applying current trade remedies under Section 301, Section 232, and Section 201, a substantial transformation analysis is applicable. In accordance with 19 C.F.R. § 102.0, the 102 marking rules are applicable for the limited purposes of: “country of origin marking; determining the rate of duty and staging category applicable to originating textile and apparel products as set out in Section 2 (Tariff Elimination) of Annex 300–B (Textile and Apparel Goods); and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2 (Tariff Elimination).” See also HQ 563205, dated June 28, 2006; see also Belcrest Linens v. United States, 741 F.2d 1368, 1370-71 (Fed. Cir. 1984) (finding that “the term ‘product of’ at the least includes manufactured articles of such country or area” and that substantial transformation “is essentially the test used…in determining whether an article is a manufacture of a given country”). As stated above, the 102 rules do however continue to be applicable for purposes of country of origin marking of NAFTA goods, as defined in 19 C.F.R. § 134.1.
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade (“CIT”) interpreted the meaning of the term “substantial transformation” as used in the Trade Agreements Act of 1979 (“TAA”) for purposes of government procurement. Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight, under the TAA. All of the components of the Generation II flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States where they were assembled into the finished Generation II flashlight. The court reviewed the “name, character and use” test in determining whether a substantial transformation had occurred, 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.
In the present case, the processes in Canada do not cause a change in the name, character, or use. Although necessary operations are performed in Canada in order for the runner to operate as designed, the runner does not undergo any physical change. As a result, the unfinished runner is not substantially transformed in Canada.
Since Japan is a non-NAFTA country, this analysis will also determine the country of origin for the second scenario performed in Japan, where the manufacturing steps are identical to the first scenario.
Based on the analysis above, the country of origin of the Runner Assembly for marking and tariff purposes will be China for both the first and second scenarios.
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, please contact National Import Specialist Liana Alvarez at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division