OT:RR:CTF:VS H303140 EE
Derik L. Fausett
KeyTronicEMS
4424 N. Sullivan Rd.
Spokane Valley, WA 99216
RE: Actuator assembly; Country of Origin Marking; Section 301 Measures
Dear Mr. Fausett:
This is in response to your correspondence, dated March 3, 2019, in which you request a ruling concerning the country of origin of a certain actuator assembly imported into the United States from Mexico. Your request, submitted as an electronic ruling request on January 29, 2019, was forwarded to this office from the National Commodity Specialist Division for review. Our ruling is set forth below.
FACTS:
Key Tronic Juarez, a maquiladora located in Juarez, Mexico, manufactures the actuator assembly #9300-3050 for the Taco Zone Sentry valve. Key Tronic Corporation imports the actuator assembly into the United States, and subsequently sells it to TACO Comfort Solutions for final assembly, consumer packaging, and distribution. You state that the Taco Zone Sentry valves can be used in a wide variety of applications, specifically in heating systems and in chilled water systems where condensation is present. It is primarily used in baseboard, fan coils, radiators, convectors, air handlers, heat pumps and radiant applications.
The subject actuator assembly is classified under 8501.10.40, Harmonized Tariff Schedule of the United States (“HTSUS”), and consists of a plastic enclosure, a control printed circuit board assembly (PCBA), and an electric motor. The actuator is used to remotely operate valves by the application of electricity to the electric motor. The valve is not included in the assembly.
You submitted a bill of materials and photographs of the assembly process of the actuator assembly.
ISSUE:
What is the country of origin of the actuator assembly imported from Mexico for purposes of marking and for purposes of application of the Section 301 measures for goods under subheading 8501.10.40, HTSUS?
LAW AND ANALYSIS:
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 United States 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, U.S. 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 to determine the country of origin for purposes of marking.
19 C.F.R. § 102.11 sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. 19 C.F.R. § 102.11(a) provides that 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 § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
As previously noted, because the actuator assembly is processed in Mexico from non-originating materials, it is neither wholly obtained or produced (19 C.F.R. § 102.11(a)(1)), nor produced exclusively from domestic materials (19 C.F.R. § 102.11(a)(2)). Accordingly, 19 C.F.R. § 102.11(a)(3) is the applicable rule that must next be applied to determine the origin of the actuator assembly for marking purposes. “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.” In order to determine whether Mexico is the country of origin, we must look at those materials whose country of origin is other than Mexico. As previously noted, the actuator assembly is classified under subheading 8501.10.40, HTSUS. Pursuant to 19 C.F.R. § 102.20(n), the applicable tariff shift rule is as follows:
A change to heading 8501 from any other heading.
Since the electric motor from China is classified under heading 8501, HTSUS, the tariff shift rule is not satisfied. Because 19 C.F.R. § 102.11(a)(1)-(3) is not determinative of origin, the analysis continues to 19 C.F.R. § 102.11(b) which provides in pertinent 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 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…
When determining the essential character of a good under 19 C.F.R. § 102.11, 19 C.F.R. § 102.18(b) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration. In deciding among these materials, consideration is given to various factors, including the nature of the material such as its bulk, quantity, weight, or value, and the role of each material in relation to the use of the good. Based upon the above factors, we find that the electric motor is the single material that imparts the essential character to the actuator assembly. Therefore, the country of origin for purposes of marking of the actuator assembly is China.
The United States Trade Representative (“USTR”) 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”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(b), HTSUS. Among the subheadings listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, is 8501.10.40, HTSUS.
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)”. Therefore, when determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. See Headquarters Ruling Letter (“HQ”) 563205, dated June 28, 2006. See also HQ H301619, dated November 6, 2018.
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.” Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All of the components of the Generation II flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States where they were assembled into the finished Generation II flashlight.
The court reviewed the “name, character and use” test utilized in determining whether a substantial transformation has occurred and noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. at 226, 542 F. Supp. at 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.” Energizer at 1318. 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.” Energizer at 1319, citing as an example, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 310, aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
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 the instant case, a plastic enclosure, a PCBA and an electric motor from China are assembled into the actuator assembly in Mexico. The PCBA is assembled via a surface mount soldering method and it performs voltage and control functions for the motor. The Chinese origin electric motor is mounted within the plastic cover/housing along with the PCBA. The final assembly steps for the actuator involve testing and packaging for export to the US. The electric motor from China, which is a key component of the actuator assembly, has a pre-determined end-use and does not undergo a change in use due to the assembly process in Mexico. Based on the information provided, we find that the electric motor in China is not substantially transformed as a result of the assembly operations performed in Mexico.
As the assembly of the Chinese motor into an actuator assembly in Mexico does not result in a substantial transformation of the Chinese motor, the actuator assembly remains a product of China. Products of China classified under subheading 8501.10.40, HTSUS, unless specifically excluded, are subject to the additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.01, in addition to subheading 8501.10.40, HTSUS, listed above.
HOLDING:
The country of origin of the actuator assembly for purposes of marking and for purposes of the application of subheading 9903.88.01, HTSUS, is China.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch