CLA-2-84:OT:RR:NC:N1:102
Nada E. Gender
Sumitomo Machinery Corporation of America, Inc.
4200 Holland Blvd.
Chesapeake, Virginia 23323
RE: The tariff classification and country of origin of a sub-assembly used in a speed reducer, and USMCA
Dear Ms. Gender:
In your letter dated February 17, 2021, you requested a tariff classification of a subassembly used with a speed reducer. Descriptive information was provided with your request.
The item under consideration is the Output H-Subassembly, the output portion of the Cyclo 6000 Reducer Unit. The Cyclo 6000 Reducer Unit is a speed reducer designed to be used in different applications. The Output H-Subassembly primarily consists of an H-casing, a collar, an oil seal housing, ball bearings, seals and a slow speed shaft that is flanged and features pins. The Output H-Subassembly is designed to mate with the input reduction section of the Cyclo 6000 Reducer Unit, which is not part of this ruling. The input reduction section, primarily consists of Cyclo Discs, a ring gear housing with pins and rollers, an offset bearing, and a reducer input shaft. The gear reduction process achieved by the Cyclo 6000 Reducer starts when the reducer input shaft receives power from either a motor, a belt, or sheave. The reducer input shaft then turns an offset bearing and cyclo discs that are positioned to rotate against the pins and rollers of the ring gear housing. The slow speed shaft then rotates, as its pins are mated to the cyclo discs.
The applicable subheading for the Output H-Subassembly will be 8483.90.5090, Harmonized Tariff Schedule of the United States (HTSUS), which provides for Transmission shafts (including camshafts and crankshafts) and cranks; bearing housings, housed bearings and plain shaft bearings; gears and gearing; ball or roller screws; gear boxes and other speed changers, including torque converters; flywheels and pulleys, including pulley blocks; clutches and shaft couplings (including universal joints); parts thereof: Toothed wheels, chain sprockets and other transmission elements presented separately; parts: Parts of gearing, gear boxes and other speed changers: Other. The rate of duty is 2.5 percent ad valorem.
In regard to the country of origin of the Output H-Subassembly, it is explained that this assembly will undergo final assembly in Mexico. The slow speed shaft and the raw H-casing are from China. The remaining components of the Ouput H-Subassembly are from Japan.
The assembly process in Mexico begins by subjecting the H-casing to machining processes. The H-casing is a cast iron enclosure for the non-rotating and rotating parts of the Output H-Subassembly, and is a mount for the input reduction section. The machining of the H-casing is completed by a CNC milling machine, and involves drilling bores, threading holes, and smoothing the face. The machining is completed to certain tolerances related to concentricity, parallelism, flatness, cylindricity and perpendicularity.
The process continues with the assembly of the low speed shaft, which begins with two bearings being press-fitted or shrink-fitted onto the low speed shaft relative to the inner race of the bearings. A spacer and bearings are then installed. During these processes, a cam key is installed and output seals are pressed on the oil seal housing. The gasket is then placed on the casing by the oil seal housing. Grease is applied as needed.
During the final assembly of the Output H-Subassembly, the machined H-casing is heated and the top bearing ring of the slow speed shaft is removed. Then the slow speed shaft is aligned and bolted onto the H-casing. The retaining ring is afterwards reinstalled and a gasket is then installed and bonded. Afterwards, two oil seals are installed into the oil housing. An oil gauge mechanism and collar are then installed. The completed Output H-Subassembly undergoes testing.
With regard to your request for the appropriate country of origin of the Output H-Subassembly, 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”.
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 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.
Here, the H-casing, which is the essence of the Output H-Subassembly, is of Chinese origin. The assembly processes that occur in Mexico involve processes such as heating, connecting and press fitting components to each other and the H-casing. Headquarters ruling H303864, December 26, 2019, discusses the assembly of a pump assembly and explains that processes such as press fitting components to each other is simple assembly. As such, we believe the H-casing is not subjected to any further operations other than simple assembly. The Output H-Subassembly is not “substantially transformed” by the assembly operations that occur in Mexico.
It is recognized that the Chinese H-casing is machined in Mexico. However, in HQ ruling 561744, dated July 20, 2000, CBP determined that machining operations, such as a smoothing and drilling holes, are not a substantial transformation. The machining that will be performed in Mexico does not change the shape, character or predetermined use of the H-casing, as it is intended for use as a H-casing of an Output H-Subassembly and is imported in dimensions that are close to their finished form. The H-casing is not transformed in Mexico into a new and different article of commerce with a name, character, and use distinct from the article exported. Therefore, for purposes of 301 trade remedies, the country of origin of the Output H-Subassembly is China at the time of importation into the United States.
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8483.90.5090, HTSUS, unless specifically excluded, are subject to an additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.03, in addition to subheading 8483.90.5090, HTSUS, listed above.
In regards to marking, Section 304, 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 the ultimate purchaser in the United States the English name of the country of origin of the article. 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. CBP continues to utilize the marking rules in 19 C.F.R. Part 102, with the exception of 19 C.F.R. § 102.19, for purposes of country of origin marking with respect to goods of Mexico and Canada. Title 19, C.F.R. § 102.11(a) provides 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 § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied. “Foreign material” is defined in Section 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.”
The Output H-Subassembly is neither “wholly obtained or produced” nor “produced exclusively from domestic materials.” Therefore, paragraphs (a)(1) and (a)(2) cannot be used to determine the country of origin of the Output H-Subassembly, and paragraph (a)(3) must be applied next to determine the origin of the finished article. The tariff shift requirement in Section 102.20 for the Output H-Subassembly at issue states:
A change to subheading 8483.90 from any other heading The Output H-Subassembly is made up of foreign components, including the H-casing and the shaft. However, in considering that the tariff shift can only occur from any other heading, the tariff shift rule is not met, as the H-casing and shaft are classified within heading 8483.
Since an analysis of section 102.11(a) (3) has not produced a country of origin determination, we turn to section 102.11(b) of the regulations. Section 102.11(b)(1) provides as follows:
(b) 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, or . . .
The rule of interpretation set forth in 19 C.F.R. § 102.18(b)(2) states that for the purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under § 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:
(i) The nature of each material, such as its bulk, quantity, weight or value; and
(ii) The role of each material in relation to the use of the good.
Based on its role, the H-casing is the material that imparts the essential character of the Output H-Assembly, as it is an enclosure for the non-rotating and rotating parts of the Output H-Subassembly, and is a mount for the input reduction section. The country of origin of the H-casing is China. As the country of origin of the single material that imparts the essential character is China, the country of origin of the Output H-Subassembly for marking purposes is China. You have also requested for consideration under the USMCA trade agreement. General Note (GN) 11 of the HTSUS implements the USMCA, and GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA.
GN 11(b) states: For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a "good originating in the territory of a USMCA country" only if
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o));
Since the Output H-Subassembly contains non-originating materials, they are not considered goods wholly obtained or produced entirely in a USMCA country under GN 11(b)(i) and GN 11(b)(ii). We must next determine whether the Output H-Subassembly qualifies under GN 11(b)(iii). The applicable change in tariff classification under subdivision (o) for goods of subheading 8483.90 is a change to subheadings 8483.40 through 8483.90 from any other subheading, including another subheading within that group. In noting the tariff shift can occur from any other subheading, the non-originating material of the Output H-Subassembly meets the requisite tariff shift rule. Accordingly, the Output H-Subassembly qualifies as a USMCA originating good.
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
Duty rates are provided for your convenience and are subject to change. 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