OT:RR:CTF:VS H304419 RSD
John P. Fonder, Esq.
Christensen, Fonder & Dardi
33 South Sixth Street, Suite 4540
Minneapolis, MN 55402
RE: Revocation of HQ H303773, HQ H303816, and NY N299944; Incandescent string lights; Generalized System of Preferences (GSP)
Dear Mr. Fonder:
This is in response to your letters, dated June 26, 2019, and November 12, 2019, on behalf of the Willis Electric Co. Ltd. (Willis) of Taiwan, requesting reconsideration of Headquarters Ruling Letter (HQ) H303773, dated June 13, 2019, with respect to U.S. Customs and Border Protection’s (CBP) determination of whether incandescent string lights imported directly from Cambodia qualified for preferential duty treatment under the Generalized System of Preferences (GSP). A meeting was held on October 29, 2019, with you, a co-counsel, an executive from Willis, and members of my staff to discuss your request for reconsideration. We have also received a number of samples of three different types of string lights and other alternative products that use lights bulbs that are similar to the light bulbs used in the string lights. This letter also concerns the following rulings:
In HQ H303816, dated June 14, 2019, the string light sets at issue were found not to be products of the Philippines because the bulbs of the light sets were not substantially transformed in the Philippines and retained their origin. Furthermore, in NY N299944, dated August 24, 2018, CBP determined that light sets assembled in Cambodia using Chinese and U.S. components, including lamp husks/bases made from imported polypropylene pellets, did not result in a substantial transformation.
We have reconsidered these rulings and now believe that they are incorrect. For the reasons that follow, we hereby revoke HQ H303773, HQ H303816, and NY N299944.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. §1625(c)(1)), as amended by section 623 of Title VI, a notice proposing to revoke HQ H30773, H303816, and NY N299944 was published on September 18, 2024, in Volume 58, No. 37 of the Customs Bulletin. No comments were received in response to the proposed action.
FACTS:
In your reconsideration request, you state that the facts set forth in HQ H303773 are basically correct with one omission. HQ H303773 concerned five items: (1) 150-count Incandescent Steady-on Miniature Christmas Net Lights – Clear (#779320); (2) 150-count Incandescent Steady-on Miniature Christmas Net Lights – Multicolor (#779319); (3) 300-count Incandescent Steady-on Miniature Christmas Icicle Light String – Clear (#3752); (4) 25-count Incandescent Steady-on C9 Christmas Light String – Clear (#99506); and, (5) 25-count Incandescent Steady-on C9 Christmas Light String – Ceramic Multicolor (#99505). The production process for all of the string lights is substantially similar and incorporates components from Cambodia and China. After assembly, Underwriters Laboratories (UL) labels from the United States are attached to each string light.
The production process for the various string lights begins in Cambodia with inserting Chinese-origin polypropylene pellets into an injection molding machine to produce lamp bases, lamp holders, and wire clips by melting the polypropylene and forming the components. After the lamp base and lamp holder components are produced, Chinese-origin bulbs are inserted into them. The insulated copper wire, which is obtained from both China (20%) and Cambodia (80%), is cut to length, peeled as necessary, and brass terminals, imported from China on spools, are attached at the ends of the wire. The light bulbs in lamp bases and lamp holders are assembled with the processed insulated wire to create incomplete string lights. Insulated copper wire is cut, peeled as necessary, and brass terminals are attached to the ends to create plug wires. Plugs, which are obtained from both China (40%) and Cambodia (60%), are attached to the plug wires. The wires undergo twisting. The plug wires are connected to incomplete string lights. The wires are combined to form the icicle light string or linked with wire clips and PVC wire (which is sourced from China (20%) and Cambodia (80%)) to form net strings. The completed string lights are tested, inspected, labeled with UL labels and caution labels, and packaged in Cambodian-origin packaging materials with a Cambodian produced instruction manual and a packet of replacement parts (spare fuse, spare bulbs, plastic bag) imported from China.
The C9 string lights differ slightly in their production. After the lamp bases and lamp holders are produced in Cambodia, the insulated copper wire undergoes wire cutting, peeling and connection to the plug. The lamp holder contains the terminal, which is assembled inside the lamp holder and then connected to the insulated copper wire. The C9 bulbs are screwed into the lamp holders on the string light. The string light is packaged using a plastic bulb holder (produced in Cambodia). The string light is tested, labeled and packaged.
You claim that the facts as stated in HQ H303773 fail to sufficiently indicate the production processes that occur in one country, Cambodia.
HQ H303816 and NY N299944 discussed similar assembly processes, including making lamp husks/lamp bases from polypropylene pellets.
ISSUE:
Whether the incandescent string lights are eligible for duty-free treatment under the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles grown, produced, or manufactured in a designated beneficiary developing country (BDC), which are imported directly into the customs territory of the United States from a BDC, may receive duty-free treatment if the sum of (1) the cost or value of materials produced in the BDC, plus (2) the direct costs of the processing operations performed in the BDC, is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the United States. See 19 U.S.C. § 2463(a)(2)(A).
As stated in General Note 4, Harmonized Tariff Schedule of the United States (HTSUS), Cambodia is a designated BDC. In addition, at the time HQ H303773 was issued, items 1, 2, and 3 were classifiable under subheading 9405.40.84, HTSUS. Items 4 and 5 were classifiable under subheading 9405.30.00, HTSUS. We note that the classification of these articles has changed, but the new subheadings still remain eligible for GSP, although at this time, Congress has not renewed the GSP. Nonetheless, for purposes of discussing the other requirements of the GSP, articles classified under these subheadings are eligible for duty-free treatment under the GSP provided that they are a “product of” Cambodia, are “imported directly” and satisfy the 35 percent value-content requirement.
The cost or value of materials which are imported into the BDC to be used in the production of the article, as in this case, may be included in the 35 percent value-content computation only if the imported materials undergo a double substantial transformation in the BDC. That is, the non-Cambodian components must be substantially transformed in Cambodia into a new and different intermediate article of commerce, which is then used in Cambodia in the production of the final imported article – the incandescent string lights. See Section 10.177(a), CBP Regulations (19 CFR 10.177(a)), and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff’d, 890 F.2d 1150 (Fed. Cir. 1989).
The test for determining whether a substantial transformation has occurred 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 CCPA 152, 681 F.2d 778 (1982). In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade (CIT) interpreted the meaning of the term “substantial transformation” as used in the Trade Agreements Act of 1979 (TAA) for purposes of government procurement. Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight, under the TAA. All 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 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 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983) (imported shoe uppers added to an outer sole in the United States were the “very essence of the finished shoe” and the character of the product remained unchanged and did not undergo substantial transformation in the United States) 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 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). 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 the Energizer case, 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 because 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 HQ H303773, CBP pointed out that the glass tubes made into bulbs in China retained their Chinese origin based on HQ 557796, dated June 3, 1994, which determined that the Chinese assembly of bulbs made in Macau did not result in a substantial transformation. Upon further consideration, we believe HQ 557796 can be distinguished from the facts in this case because in HQ 557796, none of the components assembled in China were made there, and only assembly processes took place. This is similar to the findings in HQ H304093, dated June 13, 2019, where all of the major components were imported and assembled in the Philippines, including pre-made Chinese lamp husks/holders, and no substantial transformation occurred in the Philippines. See also NY N300781, dated September 28, 2018; and HQ 734182, dated February 17, 1993 (Taiwanese components assembled in China into light strings was not a substantial transformation).
However, where the lamp husks/holders are made in the country where the string lights are assembled, a substantial transformation has been found. In NY N301616, dated December 4, 2018, Chinese plastic granules were made into lamp holders/lamp husks in Cambodia, the Chinese incandescent light bulbs were connected to the lamp holders/lamp husks, wires were cut to length, and the lamp socket, plug and connector were assembled, and all components (lamp, lamp husks, wires, copper contacts/terminals) were assembled to make a finished light string. In that decision, CBP found that the assembly in Cambodia of the individual components to produce the finished string light sets created a new and different article of commerce with a distinct character and use that was not inherent in the components imported into Cambodia and the light string was considered a product of Cambodia. On the other hand, NY N299944 considered similar facts where the lamp husks/holders were made in Cambodia and the assembly of the string lights also occurred there, but no substantial transformation into a product of Cambodia was found.
After reviewing the samples of the string lights, we are of the view that while the light bulbs are a significant component of the string lights, important work is performed in forming the lamp bases and sockets, by using polypropylene pellets and injection molding them in the beneficiary country. Therefore, more processes beyond those in Energizer are performed, such that the string lights may be considered a “product of” Cambodia. This decision follows those determinations made in HQ H304093, NY N300781, and HQ 734182.
Therefore, we find that the country of origin of the finished string lights is Cambodia, and the string light sets may be eligible for preferential tariff treatment under the GSP, provided the 35 percent value content requirement is satisfied. We note, however, that the bulbs may not be counted towards the 35 percent value content requirement, as they will not undergo a double substantial transformation in Cambodia.
HOLDING:
Based on information available, we find that the country of origin of the string light sets is Cambodia. Therefore, the string light sets directly exported from Cambodia to the United States may be eligible for the preferential tariff treatment under the GSP, provided the 35 percent value content requirement is satisfied.
EFFECT ON OTHER RULINGS:
HQ H303733, HQ H303816, and NY N299944 are hereby revoked.
In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Sincerely,
Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division