OT:RR:NC:N2:220
Lynlee Brown
Ernst & Young LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92122
RE: The country of origin of a control unit and the applicability of certain trade remedies under Section 301
Dear Ms. Brown:
In your letter dated April 8, 2022, you requested a country of origin ruling on behalf of your client, Xin Point North America Inc.
The merchandise under consideration is identified as the Heating, Ventilation, and Air Conditioning (HVAC) Control Unit, which is described as an electrical panel having switches, knobs, indicators, etc. that is installed in the center console of a vehicle to control and adjust the internal cabin temperature and fan speeds. The Control Unit consists of a printed circuit board assembly (PCBA), molded plastic parts, and switch operators/knobs.
In your request, you provide two scenarios for the production of the Control Unit. In both scenarios, you state that the PCBA is manufactured in Malaysia by soldering electronic components, such as resistors, capacitors, diodes, transistors, encoders, etc. onto a bare PCB. Likewise, for both scenarios you state that the various plastic components, such as the bezel, the trim, the frame, the actuators, the switch covers, etc. are manufactured in China while the control knobs are manufactured in Thailand.
The assembly of the Control Unit for the first scenario occurs in Mexico and involves the manual insertion and fitting of the various components onto the PCBA, frame, and bezel. The switch covers and actuators are assembled, and the knobs and caps are attached to the encoders. The Control Unit is electrically tested, inspected, and packaged for export.
The marking statute, 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 U.S. 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 U.S. the English name of the country of origin of the article.
The "country of origin" is defined, in pertinent part, in 19 CFR 134.1(b) as
[T]he 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; however, for a good of a NAFTA or USMCA country, the marking rules set forth in part 102 of this chapter (hereinafter referred to as the part 102 Rules) will determine the country of origin.
Regarding the first scenario, pursuant to section 102.0, interim regulations, related to the marking rules, tariff-rate quotas, and other USMCA provisions, published in the Federal Register on July 6, 2021 (86 FR 35566), the rules set forth in §§ 102.1 through 102.18 and 102.20 determine the country of origin for marking purposes with respect to goods imported from Canada and Mexico. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes, with the exception of textile goods which are subject to the provisions of 19 C.F.R. § 102.21. See 19 C.F.R. § 102.11.
Applied in sequential order, 19 CFR Part 102.11(a) provides for:
The country of origin of a good is the country in which:
The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in Part 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
The Control Unit 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 Control Unit, and paragraph (a)(3) must be applied next to determine the origin of the finished article. The Control Unit is classified under subheading 8537.10, Harmonized Tariff Schedule of the United States (HTSUS). The tariff shift requirement in Part 102.20 for the Control Unit at issue states:
A change to heading 8537 from any other heading.
The PCBA from Malaysia does not meet the tariff shift. As a result, Part 102.11(a) does not apply.
Section 102.11(b) states, in relevant part:
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 [(“GRI”)] 3, where the country of origin cannot be determined under paragraph (a) of this section:
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….
In determining the “essential character” of the finished good, Section 102.18(b)(1) provides, in relevant part:
(b) (1) For purposes of identifying the material that imparts the essential character to a good under Part 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 Part 102.20 specific rule or other requirements applicable to the good …
(ii) Materials that may be considered include materials produced by the producer of the good and incorporated in the good. For example, if a producer of a good purchases raw materials and converts those raw materials into a component that is incorporated in the good, that component is a material that may be considered for purposes of identifying the materials that impart the essential character to the good, provided that the component is classified in a tariff provision from which a change in tariff classification is not allowed under the specific rule…
The PCBA from Malaysia is the single component classified in a tariff provision from which a change in tariff classification is not allowed. Further, it is the opinion of this office that the PCBA provides for the essential character of the Control Unit, where the assembly operations conducted in Mexico are not sufficiently complex so as to transform the PCBA as a result. Accordingly, the country of origin of the Control Unit in the first scenario is Malaysia.
For the second scenario, the assembly of the Control Unit occurs in China and involves the manual insertion and fitting of the various components onto the PCBA, frame, and bezel. The switch covers and actuators are assembled, and the knobs and caps are attached to the encoders. The Control Unit is electrically tested, inspected, and packaged for export. In our view, the assembly of the Control unit in China is not complex and the individual components are not substantially transformed as a result of inserting, fitting, etc. As stated previously, it is our view that the PCBA imparts the essential character of the finished Control Unit. Based on the foregoing, the country of origin of the Control Unit in the second scenario is Malaysia.
Regarding the applicability of Section 301 trade remedies to the Control Unit described in both scenarios, CBP relies on the substantial transformation analysis when determining the country of origin for purposes of applying Section 301 trade remedies. The courts have held that a substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing. United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940); National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F. 2d 1201 (Fed. Cir. 1993); Anheuser Busch Brewing Association v. The United States, 207 U.S. 556 (1908) and Uniroyal Inc. v. United States, 542 F. Supp. 1026 (1982). However, if the manufacturing or combining process is merely a minor one that leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026, 1029 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983) (Uniroyal). Substantial transformation determinations are based on the totality of the evidence. See Headquarters Ruling (HQ) W968434, date January 17, 2007, citing Ferrostaal Metals Corp. v. United States, 11 CIT 470, 478, 664 F. Supp. 535, 541 (1987).
It is the view of this office that the work performed in Malaysia produces a PCBA of Malaysian origin. Further, we are of the opinion that the PCBA imparts the essence of the finished good, and the assembly operations conducted in Mexico or China do not substantially transform the PCBA as a result of inserting it into a plastic frame or attaching buttons to the switch actuators. The assembly work, as described, is not complex so as to produce a new and different article. As such, the Control Unit described in both scenarios are not subject to the additional duties applicable to products of China under Section 301 of the Trade Act of 1974, as amended, upon importation into the United States.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs and Border Protection field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
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 Karl Moosbrugger at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division