CLA-2 OT:RR:NC:N2:201
Michelle M. Klein
MTD Consumer Group Inc.
5903 Grafton Road
Valley City, OH 44280
RE: The country of origin of utility vehicles
Dear Ms. Klein:
This is in response to your letter dated February 5, 2020, requesting a ruling on the origin of imported Utility Vehicles.
The item under consideration has been identified as the MTD Cub Cadet, a 4-wheeled, utility vehicle powered by a 546cc spark-ignition internal combustion engine. The vehicle is equipped with two (2) bucket seats and an open rear cargo bed with a 500lb payload capacity. The vehicle measures 118 inches by 61.75 inches by 76.75 inches, and weighs approximately 1,456lbs.
You state these vehicles will be imported to the United States from Vietnam after assembly in Vietnam as part of a knock down operation. You request that the vehicles should be classifiable under subheadings 8703.21.0150, Harmonized Tariff Schedule of the United States (“HTSUS”).
This office disagrees.
Classification of goods in the HTSUS is governed by the General Rules of Interpretation (GRIs). GRI 1. states “ ... classification shall be determined according to the terms of the headings ... .” Heading 8704.31 provides for, “Motor vehicles for the transport of goods: Other, with spark-ignition internal combustion piston engine: G.V.W. not exceeding 5 metric tons”.
The Explanatory Notes (ENs) to the Harmonized Commodity Description and Coding System, which represent the official interpretation of the tariff at the international level, facilitate classification under the HTSUS by offering guidance in understanding the scope of the headings and the GRIs. The ENs to 87.04 state in part:
The following features are indicative of the design characteristics generally applicable to the vehicles which fall in this heading:
Presence of bench-type seats without safety equipment (e.g., safety seat belts or anchor points and fittings for installing safety seat belts) or passenger amenities in the rear area behind the area for the driver and front passengers. Such seats are normally fold-away or collapsible to allow full use of the rear floor (van-type vehicles) or a separate platform (pick-up vehicles) for the transport of goods;
Presence of a separate cabin for the driver and passengers and a separate open platform with side panels and a drop-down tailgate (pick-up vehicles);
Absence of rear windows along the two side panels; presence of sliding, swing-out or lift-up door or doors, without windows, on the side panels or in the rear for loading and unloading goods (van-type vehicles);
Presence of a permanent panel or barrier between the area for the driver and front passengers and the rear area;
Absence of comfort features and interior finish and fittings in the cargo bed area which are associated with the passenger areas of vehicles (e.g., floor carpeting, ventilation, interior lighting, ashtrays).
General Note 3. (h) (vi) to the HTSUS states “ ... a reference to “headings” encompasses subheadings indented thereunder.”
The applicable classification subheading for the Cub Cadet Brand utility vehicle will be 8704.31.0020, HTSUS, which provides for “Motor vehicles for the transport of goods: Other, with spark-ignition internal combustion piston engine: G.V.W. not exceeding 5 metric tons: G.V.W. not exceeding 2.5 metric tons”. The general rate of duty will be 25% ad valorem.
As for the country of origin of the subject utility vehicle, based on the information provided, all the components and subassemblies of this vehicle are of Chinese origin. The components and subassemblies will then be shipped to Vietnam for final assembly.
You provided an illustration of the knock downed components. The final vehicle assembly will take place in Vietnam where you claim that the operation will result in a new and different article of commerce.
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 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. The regulations implementing the requirements and exception to 19 U.S.C. § 1304 are set forth in Part 134, U.S. Customs and Border Protection Regulations (19 C.F.R. Part 134).
19 C.F.R. § 134.1(b) provides 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.
When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character, or use, different from that possessed by the articles 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 determining 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. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 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. 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. Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982), aff’d 702 F. 2d 1022 (Fed. Cir. 1983).
In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, U.S. Customs and Border Protection (“CBP”) considers the totality of the circumstances and makes such determinations on a case-by-case basis. 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, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade (“CIT”) interpreted the meaning of “substantial transformation.” 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 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 utilized in determining whether a substantial transformation has occurred and noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. at 226, 542 F. Supp. at 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).
In HQ H118435, the U.S. was determined to be the country of origin for purposes of U.S. Government procurement for a line of electric golf and recreational vehicles. In that case, the chassis, plastic body parts, and various miscellaneous pieces of plastic trim were imported into the U.S. from China and assembled with U.S.-origin battery packs, motors, electronics, wiring assemblies, seats, and chargers. The vehicles were composed of approximately 53 to 62 components, of which between 12 and 17 were of U.S. origin. HQ H118435 held that none of the imported parts could function as an electric vehicle on their own and needed to be assembled with other necessary U.S. components. Additionally, it was held that given the complexity and duration of the U.S. manufacturing process, the operations were more than mere assembly. It was determined that a substantial transformation occurred, and further, the critical components to making an electric vehicle – battery pack, motor, electronics, wiring assemblies, and charger – were of U.S.-origin.
In HQ H302821, CBP found that components and subassemblies made in China and assembled into a passenger vehicle in Sweden had a pre-determined end-use and did not undergo a change in use due to the assembly process. Accordingly, CBP found that the articles imported were not substantially transformed as a result of the assembly operations performed in Sweden.
In the instant case, all the components and subassemblies are manufactured in China. The subassemblies and other components from China will then be assembled into the utility vehicle in Vietnam. In this case, the complex assembly process occurs when producing the subassemblies in China. With respect to the final assembly, we find the manufacturing processes of the subassemblies in Vietnam do not rise to the level of complex processes necessary for a substantial transformation to occur. Further, the components and subassemblies from China have a pre-determined end-use and do not undergo a change in use due to the assembly process in Vietnam. Accordingly, we find that based on the information provided, the subassemblies and the foreign parts that are imported to Vietnam are not substantially transformed as a result of the assembly operations performed in Vietnam.
Based on the facts presented, it is the opinion of this office that the country of origin of the subject utility vehicles is China for marking and origin purposes.
Being that the utility vehicle has been determined to be from China, products of China classified under subheading 8704.31.0020, HTSUS, unless specifically excluded, are subject to the additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.01, in addition to subheading 8704.31.0020, HTSUS, listed above. See U.S. Note 20 to Subchapter III, Chapter 99, HTSUS.
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 Section 301 trade remedy, 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.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 CFR Part 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 Matthew Sullivan at (646) 733-3013.
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division