CLA-2-90:OT:RR:NC:N1:105
Ralph Sheppard Meeks, Sheppard, Leo & Pillsbury LLP 570 Lexington Ave., 24th floor New York, NY 10022
RE: The tariff classification and origin of a thermostat, base control module and Wi-Fi module
Dear Mr. Sheppard:
In your letter dated July 6, 2023, on behalf of your client, Computime North America, Inc., you requested a tariff classification and origin ruling.
The first item under consideration is described as a wall mounted programmable smart wireless thermostat. The basic function of the thermostat system is to monitor temperature through temperature sensors in the unit and to control the on/off function of heating or air conditioning units based on the temperature targets programmed by the user. The thermostat is programmed at the home or business site by the user and can be remotely monitored by the user through a home Wi-Fi-enabled connection. The thermostat measures 99 mm wide by 99 mm high by 28 mm deep and has a temperature range of 32 degrees Fahrenheit to 99 degrees Fahrenheit.
The second item under consideration is described as a wireless thermostat base control module. The device is designed for electrical control of package terminal air conditioners, fan coil units, water source heat pump systems, hybrid source heat pumps and unitary AC/Furnaces. The control module contains numerous connectors, relays, terminals, contacts, switches, etc. The device measures 40 mm high by 120 mm wide by 23 mm deep.
The third item under consideration is described as a Wi-Fi smart thermostat system module. The device is designed to connect the thermostat system with the Habitat HomeLink Mobile App. The device allows the user to view the temperature, set points, and operation data on a mobile device. The user can also change the set points, operating modes, and schedule from anywhere with an internet connection. The device measures 93 mm wide by 99 mm high by 25 mm deep.
As you suggested in your letter, the applicable subheading for the wall mounted smart thermostat when imported separately, as well as when imported with the wireless thermostat base control module, will be 9032.10.0030, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Automatic regulating or controlling instruments and apparatus; parts and accessories thereof: Thermostats: For air conditioning, refrigeration or heating systems: Designed for all mounting.” The general rate of duty will be 1.7% ad valorem.
In your letter, you suggest the applicable subheading for the wireless thermostat base control module when imported separately to be 9032.90.6120, HTSUS, which provides for “Automatic regulating or controlling instruments and apparatus; parts and accessories thereof: Parts and accessories: Other: Of thermostats.” We disagree. The device performs an electrical control function which is specifically provided for elsewhere in the tariff. Accordingly, the applicable subheading for the wireless thermostat base control module will be 8537.10.9170, HTSUS, which provides for “Boards, panels, consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of chapter 90, and numerical control apparatus, other than switching apparatus of heading 8517: For a voltage not exceeding 1,000 V: Other: Other: Other: Other.” The general rate of duty will be 2.7% ad valorem.
In your letter, you further suggest the applicable subheading for the Wi-Fi smart thermostat system module to be 9032.90.6120, HTSUS, which provides for “Automatic regulating or controlling instruments and apparatus; parts and accessories thereof: Parts and accessories: Other: Of thermostats.” We disagree. The device is designed to enable Wi-Fi connectivity and transfer data wirelessly. This functionality is specifically provided for elsewhere in the tariff. Accordingly, the applicable subheading for the Wi-Fi smart thermostat system module will be 8517.62.0090, HTSUS, which provides for “Telephone sets, including smartphones and other telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528; parts thereof: Other apparatus for transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network): Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus: Other.” The general rate of duty is free.
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.
Regarding the country of origin of the three devices. The assembly in Mexico will involve both surface mount technology (SMT) and manual assembly of numerous components and materials from Mexico, China, Switzerland, Taiwan, Japan, Thailand, Malaysia, the Philippines, South Korea and the U.S. The manual process includes soldering, placing of components, testing, connecting of wires, screwing items into place, and pressing of labels. These processes are followed by packaging.
For the thermostat, a total of approximately 223 components are assembled in the following stages: 1) an automated SMT process involving 173 components; and 2) a multi-stage Manual Integration (MI) process involving 50 components, including product programming. The thermostat is typically packaged and sold with the base control module.
For the Thermostat Base Control Module, a total of approximately 103 components are assembled in the following stages: 1) an automated SMT process involving 84 components; and 2) a multi-stage MI process involving 19 components, including product programming.
For the Wi-Fi Smart Thermostat System Module, a total of approximately 87 components are assembled in the following stages: 1) an automated SMT process involving 57 components; and 2) a multi-stage MI process involving 30 components, including product programming.
The functionality of the thermostat, base control unit and Wi-Fi module is imparted by the China-developed computer program, which is installed and tested during the MI stage of the assembly process. The programming of the thermostat, base control unit and Wi-Fi module during the manufacturing process enables the units to function as a thermostat system. In addition to functional programming, which controls the monitoring and control of the sensors and heating or cooling units, the programming also allows the thermostat to display messages in English and other languages.
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 19 CFR 134.1(b) as “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; 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.” 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 that the country of origin of a good is the country in which: (1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or (3) 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 wall mounted smart thermostat, the wireless thermostat base control module and the Wi-Fi smart thermostat system module are 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 items, and paragraph (a)(3) must be applied next to determine the origin of the finished article. The wall mounted smart thermostat when imported by itself or together with the wireless thermostat base control module is classified under subheading 9032.10, HTSUS. The tariff shift requirement in Part 102.20 for the thermostat at issue states: A change to subheading 9032.10 through 9032.89 from any other subheading, including another subheading within that group.
As the non-originating input materials from China, Switzerland, Taiwan, Japan, Thailand, Malaysia, the Philippines, and South Korea are all classified outside of heading 9032 (Chapters 38, 39, and 85) and undergo substantial processing in Mexico to turn it into an article of heading 9032, the tariff shift requirement of section 102.11(a)(3) is met. Accordingly, the country of origin of the wall mounted smart thermostat when imported separately, as well as when imported with the wireless thermostat base control module, for marking purposes is Mexico.
The Wi-Fi smart thermostat system module is classified under subheading 8517.62, HTSUS. The tariff shift requirement in Part 102.20 for the Wi-Fi smart thermostat system module at issue states: A change to a good of any of subheadings 8517.62 through 8517.70 from any other good within that subheading or any other subheading, including another subheading within that group.
As the non-originating input materials from China, Taiwan, Japan, and Malaysia are all classified outside of heading 8517 (Chapters 38, 39, and 85 most notably heading 8504, 8532, 8533, 8534, 8541, 8542 and 8548) and undergo substantial processing in Mexico to turn it into an article of heading 8517, the tariff shift requirement of section 102.11(a)(3) is met. Accordingly, the country of origin of the Wi-Fi smart thermostat system module for marking purposes is Mexico.
Regarding the country of origin of the wireless thermostat base control module, we will be unable to provide a determination as the item will require a regional value content analysis which is only performed by the Regulations and Rulings Valuation Branch and not the National Commodity Specialist Division. If you would like a country of origin for the wireless thermostat base control module, you can submit a request directly to the Valuation Branch via email to [email protected]. In the request, please provide as much information as possible including any additional cost information you have.
The United States Trade Representative has determined that an additional ad valorem duty of 25% will be imposed on certain Chinese imports pursuant to its authority under Section 301(b) of the Trade Act of 1974 (Section 301 measures). 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 will occur is whether an article emerges from a process with a new name, character, or 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). To determine whether a substantial transformation has occurred, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. CBP has stated that a new and different article of commerce is an article that has undergone a change in commercial designation or identity, fundamental character, or commercial use. Regarding the applicability of Section 301 trade remedies, in our view, the foreign components are substantially transformed into a new and different article of commerce by the manufacturing process performed in Mexico. The manual assembly, the Surface Mount Technology manufacturing of the numerous different components, along with the programming, transforms them into a functional thermostat, wireless thermostat base control module and Wi-Fi smart thermostat system module. As such, the wall mounted smart thermostat, the wireless thermostat base control module and the Wi-Fi smart thermostat system module are considered products of Mexico and are not subject to additional duties 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 [CBP] 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 Jason Christie at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division