Barnes, Richardson & Colburn
303 East Wacker Drive Suite 305
Chicago, IL 60091
RE: The marking and country of origin of modems and gateways from Mexico.
Dear Mr. Friedman:
In your letter dated October 30, 2018, you requested a marking and country of origin determination ruling on behalf of your client, Zoom Telephonics Inc.
The items under consideration are referred to as cable modems and cable modems with a Wi-Fi gateway. The products are designed to permit a local computer, network, smartphone, smart television, or other device to connect to the internet. The specific models of cable modem to be imported are: MB7220, MB7420, MB7621, and MB8600. The specific models of cable modems with Wi-Fi gateway are MG7310, MG7315, MG7540, MG7550, MG7700, and MT7711. All of the models will be imported completely assembled and packed for retail sale. All of the models are produced in Mexico in a manner that is materially identical to the representative examples discussed below.
The first representative example is model MB8600, which is a DOCSIS 3.1 modem optimized to deliver connectivity at speeds of up to approximately 1 Gbps. The MB8600 supports Ethernet port bonding and Active Queue Management to facilitate fast connections for applications such as video conferencing and online gaming. The MB8600 is compatible with U.S. cable systems including Comcast XFINITY, Comcast Business, and Cox.
The MB8600 consists of the following components:
59870F Board assembly, no case, with boot loader program but no cable modem program
23338-1 Case, T338, ABS/PC, Left Side, Medium Case, Grey
23338-4 Case, T338, ABS/PC, Lens, Medium Case, Grey
23338-6 Case, T338, ABS/PC, Stand, Medium Case, Grey
23338-8 Case, T338, ABS/PC, Rear, MB8600, Grey
23338-10 Case, T338, ABS/PC, Right Side including Light Pipe, Medium Case, Grey
23338-3 Case, T338, ABS/PC, Top, Grey
36399-7 Label, Panel, Rear Case, MB8600, Grey
36399-11 Label Panel, Rear Case MB8600 TO Cover Ports
30025-4 Feet, Rubber, T338, Medium Case
24114-TW5 Screw, for T338 Medium Case
24114-TW4 Screw, for T338 Medium Case
24114-TW19 Screw, for T338 Medium Case
36419-1 Label, Bottom Case Compliance
The second representative example is model MG7315. This model is also a DOCSIS 3.1 cable modem. It differs from the first model in that it includes a wireless Wi-Fi router allowing the modem to connect wirelessly to properly configured devices including computers, printers, mobile phones, smart televisions, and other devices.
The MG7315 consists of the following components:
59860F Board assembly, no case, with boot loader program but no cable modem program
23339-13 Case, T319-YQ-2, ABS/PC, Left Side with Light Pipe, Large Case, Grey
23339-8 Case, T319-YQ-2, ABS/PC, Lens, Large Case, Grey
23339-6 Case, T319-YQ-2, ABS/PC, Stand, Large Case, Grey
23339-14 Case, T319-YQ-2, ABS/PC, Rear, MG7315 Grey
23339-2 Case, T319-YQ-2, ABS/PC, Right Side, Large Case, Grey
23339-3 Case, T319-YQ-2, ABS/PC, Top, Large Case, Grey
36399-6 Label, Panel, Rear Case, MG7315, Grey
30025-2 Feet, Rubber, T319, Large Case
24114-TW6 Screw, for T338 Medium Case
24114-TW20 Screw, for T338 Medium Case
36401-1 Label, Bottom Case Compliance
For purposes of this ruling request, you state that all the materials are to be products of China. The bulk-packed board assemblies will be shipped in separate boxes from the remainder of the components including the case components, feet, screws, and labels. These components are also bulk-packed and may arrive in Mexico via separate conveyances and on separate days from the board assemblies. After receipt in Mexico, the board assemblies will be loaded with cable modem firmware, and assembled with all the other components.
Once the Chinese origin components are received in Mexico. The following assembly process will take place:
1. All materials will be inspected to ensure quality.
2. The printed circuit board assembly (PCBA) board will be programmed. A programmer will use a PC to download the cable modem operating firmware (including, if necessary, the Wi-Fi gateway firmware) into memory on the system board.
3. The PCBA will then be assembled into its case. The case consists of six plastic components that are assembled together by press fitting and then secured with 6 screws.
4. After the case is assembled around the board, a worker places adhesive rubber feet on the bottom. The feet ensure that the cable modem sits securely on a shelf or other surface.
5. Adhesive labels are then affixed to the cable modems. These labels are specific to individual cable modems and identify the unit by serial number and MAC address.
6. After assembly, the device is scanned to load the correct serial number and MAC address along with the necessary cable modem certificates. Without proper addressing and certificates, the cable modems will not operate. In addition, in the case of cable modems with wireless capabilities, Wi-Fi network names and keys are scanned.
7. Next, a label is printed that includes the scanned items together with standard information including the model number and compliance statements for the product. The label is then attached to the bottom of the unit.
8. The cased unit is the then attached to a special device known as a Cable Modem Termination System ("CMTS"). The CMTS allows for high-speed data transmission through coaxial cables using the DOCSIS standard. The CMTS emulates an internet service provider and allows the assembler to connect to the board. The CMTS is connected to a local server via an Ethernet cable.
9. With the firmware, MAC address, and cable modem certificates loaded, the cable modems are tested to confirm that they meet DOCSIS standards. This consists of separate upstream and downstream testing on two different CMTS. The tests are performed at several frequencies to ensure compliance.
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 U.S. 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, 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; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Since Mexico is a NAFTA country, the NAFTA Marking Rules must be applied in this case for purposes of determining the country of origin for purposes of marking.
Part 102, Customs and Border Protection Regulations (19 C.F.R. Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. See 19 C.F.R. 102.11. 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 modems are neither wholly obtained nor produced exclusively from "domestic" (Mexican, in this case) 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." The applicable rule for subheading 8517.62.0010, HTSUS, in section 102.20 requires:
[a] change to other units of automatic data processing machines of subheading 8517.62 through 8517.69 from any other good of subheading 8517.62 through 8517.69 or from any other subheading, except from subheading 8504.90 or from heading 8473 or subheading 8517.70 when the change is the result of simple assembly
The foreign components of both modems are classified under subheading 8517.70, HTSUS, and meet the tariff shift requirement. Therefore, the country of origin, for purposes of marking, of the electric motor is Mexico.
Effective July 6, 2018, the Office of the United States Trade Representative imposed an additional tariff on certain products of China classified in the subheadings enumerated in Section XXII, Chapter 99, Subchapter III U.S. Note 20(b), HTSUS. For additional information see "Notice of Action and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation" (June 20, 2018, 83 F.R. 28710). Products of China that are classified in the subheadings enumerated in U.S. Note 20(g), HTSUS, referenced in subheading 9903.88.04, HTSUS, shall continue to be subject to antidumping, countervailing, or other duties, fees and charges that apply to such products. Products of China classifiable in subheading 8517.62.0010, HTSUS, are subject to the additional tariff under subheading 9903.88.04, HTSUS.
When considering a product that may be subject to antidumping, countervailing, or other safeguard measures, the substantial transformation analysis is applied to determine the country of origin. See 19 C.F.R. 102.0; 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"). 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)." The 102 marking 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 "substantial transformation" as used in the Trade Agreements Act of 1979 ("TAA") for purposes of government procurement.
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." 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." 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 reaching its decision in Energizer, the court expressed the question as one of whether the imported components retained their names after they were assembled into the finished Generation II flashlights. The court found "[t]he constitutive components of the Generation II flashlight do not lose their individual names as a result [of] the post-importation assembly." The court also found that the components had a pre-determined end-use as parts and components of a Generation II flashlight at the time of importation and did not undergo a change in use due to the post-importation assembly process. Finally, the court did not find the assembly process to be sufficiently complex as to constitute a substantial transformation. Thus, the court found that Energizer's imported components did not undergo a change in name, character, or use as a result of the post-importation assembly of the components into a finished Generation II flashlight. The court determined that China, the source of all but two components, was the correct country of origin of the finished Generation II flashlights under the government procurement provisions of the TAA.
In this case, the foreign subassemblies are imported into Mexico where they will be assembled into cable modems. The foreign components (PCBA, housing/case, rubber feet, labels) all had a pre-determined end-use and did not undergo a change in use due to the assembly process in Mexico. Based on the information provided, the production process performed in Mexico does not result in a substantially transformation of the Chinese components.
As the assembly of the Chinese components in Mexico does not result in a substantial transformation of the Chinese parts, the modems remain a product of China. Products of China classified under subheading 8517.62.0010, HTSUS, unless specifically excluded, are subject to the additional 10 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.04, in addition to subheading 851762.0010, HTSUS, listed above.
The country of origin of both models of modem (model's MB8600 and MG7315) for purposes of marking is Mexico. The country of origin for both models of modem (model's MB8600 and MG7315) for purposes of the application of subheading 9903.88.04, is China.
This ruling is being issued under the provisions of Part 181 of the Customs Regulations (19 C.F.R. 181).
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 Steven Pollichino at email@example.com.
Should you wish to request an administrative review of this ruling, submit a copy of this ruling and all relevant facts and arguments within 30 days of the date of this letter, to the Director, Commercial Rulings Division, Headquarters, U.S. Customs and Border Protection, Regulations & Rulings, 90 K Street N.E. - 10th floor, Washington, DC 20229-1177.
Steven A. Mack
National Commodity Specialist Division