Meeks, Sheppard, Leo & Pillsbury LLP
570 Lexington Avenue, 24th Floor
New York, New York 10022
RE: The tariff classification and country of origin of a water softener control unit
Dear Ms. Abraham:
In your letter dated September 30, 2022, on behalf of your client, Computime North America, Inc., you requested a tariff classification and country of origin ruling.
The item under consideration is described as the control unit for a water softener. The basic function of the control unit is to monitor the water hardness through connection to sensors in the water softener assembly, and, once the hardness is measured, and based on the desired hardness settings, the program instructs the peripheral devices in the softener unit to release the necessary materials or chemicals into the water to maintain the target hardness levels.
As you suggested in your letter, the applicable subheading for the water softener control unit will be 9032.89.6085, Harmonized Tariff Schedule of the United States (HTSUS), which provides for "Automatic regulating or controlling instruments and apparatus; parts and accessories thereof: Other instruments and apparatus: Other: Other: Other." The general rate of duty will be 1.7% ad valorem.
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 water softener control unit, the processing in Mexico involves the assembly of 66 components and materials from China, Malaysia, Taiwan, the Philippines, Thailand, India, the United Kingdom, and the United States. The components are assembled in the following stages: 1) an automated Surface Mount Technology (SMT) process involving 42 components; and 2) a two stage Manual Integration (MI) process involving 28 components, including product programming, with 18 components, in the first MI stage, including the SMT subassembly and programming, and 10 components in the second MI stage. The SMT is performed using a specialized automated assembly process. The first MI stage involves manual insertion of numerous parts to the PCBA, wave soldering, and testing. The second MI stage involves functional testing, conformal coating, casing assembly and final functional testing.
The programming allows the control unit to monitor the hardness and control the peripheral devices in the softener unit to release the necessary materials or chemicals into the water to maintain the target hardness levels. Prior to the programming step, the water softener control unit cannot operate. The programming source code is burned/loaded into the integrated circuit (IC) through the programming equipment. The PCBA is connected through several layers designed to make connections to specific components based on the function of the product. The programming equipment is custom designed in each particular case so that the programming equipment makes contact with specific pins of the IC's then uploads the program.
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 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 9032.89, HTSUS. The tariff shift requirement in Part 102.20 for the control unit at issue states:
A change to subheading 9032.89 from any other heading.
As the non-originating input materials from China, Malaysia, Taiwan, Philippines, Thailand, India, and the United Kingdom are all classified outside of heading 9032 (Chapters 32, 38, 39, 80, 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 water softener control unit for marking purposes is Mexico.
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 assembly and manufacturing of the 66 different components, along with the programming, transforms them into functional water hardness monitoring control units. As such, the water softener control unit is considered a product of Mexico and is 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]
Steven A. Mack
National Commodity Specialist Division