OT:RR:CTF:VS H022169 GG
Mr. Lawrence M. Friedman &
Ms. Nicole A. Kehoskie
Barnes, Richardson & Colburn
1420 New York Avenue, 7th Floor
Washington, DC 20005
RE: U.S. Government Procurement; Final Determination; country of origin of electric mini-trucks; substantial transformation; 19 CFR Part 177
Dear Mr. Friedman & Ms. Kehoskie:
This is in response to your letter dated December 20, 2007, requesting a final determination on behalf of Global Electric Motorcars (“GEM”) pursuant to subpart B of Part 177, Customs and Border Protection (“CBP”) Regulations (19 C.F.R. § 177.21 et seq.). Under these regulations, which implement Title III of the Trade Agreements Act of 1979, as amended (codified at 19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations on whether an article is or would be a product of a designated country or instrumentality for the purpose of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government.
This final determination concerns the country of origin of electric mini-trucks. We note that GEM is a party-at-interest within the meaning of 19 C.F.R. § 177.22(d)(1) and is entitled to request this final determination.
FACTS:
GEMS imports a mini-truck glider from India. The glider consists of a frame, finished cab, axles, and wheels in one unit. The glider – so called because it can be rolled much like a dolly or scooter – does not include the normal critical components of an internal-combustion vehicle such as an engine, transmission, drive shaft, exhaust system, fuel system, or rear axle differential. It also does not have the critical components of an electric vehicle including the motor, battery pack, differential, or electronics necessary to control the electric vehicle. The brake assembly included with the glider will be removed and replaced with another after importation. The truck bed will be imported separate from the glider and installed after importation and upfitting as an electric vehicle.
The glider is claimed to be non-functional and not intended for sale to retail motor vehicle purchasers in its imported state. Once in the United States, GEM manufactures an electric mini-truck from the glider and various other assemblies. GEM will fit the complete mini-truck with an electric motor to create an energy efficient, zero emissions mini-truck for sale to certain U.S. government agencies.
As noted above, the glider is imported from India. According to GEM’s December 20, 2007 request, the glider is assembled with approximately 87 different component parts, 68 of which are of U.S. origin. In response to a request from this office of a more detailed breakdown of the components, GEM submitted a costed bill of materials with country of origin for elective drive conversion components. This indicates that U.S. components amount to approximately 51% of the total component cost. The U.S. assembly process will require eight work stations, details of which are as follows:
Station 0 – The glider is unloaded, the wheels and tires are removed and the glider is put on the conveyor for assembly.
Station 1 – The rear axle and brake assembly shipped with the glider are removed and replaced with one that is compatible with the electric function of the truck. The replacement gear box and axles are of U.S. origin, while the replacement brakes are of Indian origin. The motor of Canadian origin is attached onto the rear axle/gear box/differential assembly of U.S. origin; the controller and charger of Canadian origin are also attached to the glider.
Station 2 – The wiring harnesses of U.S. origin are integrated.
Station 3 – The battery tray, batteries and cable of U.S. origin are assembled and incorporated.
Station 4 – The electronic driver information display of U.S. origin is incorporated.
Station 5 – The optional electric cab heater is installed.
Station 6 – The wheels and tires are reinstalled.
Station 7 – The fully assembled electric mini-truck is test run.
Station 8 – The electric mini-truck is unloaded and inspected for precision of assembly and operation.
Quality control will occur at each of the eight work stations and at two more off-line stations.
ISSUE:
What is the country of origin of the electric mini-truck for purposes of U.S. Government procurement?
LAW AND ANALYSIS:
Pursuant to Subpart B of Part 177, 19 C.F.R. § 177.21 et seq., which implements Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. § 2511 et seq.), CBP issues country of origin advisory rulings and final determinations on whether an article is or would be a product of a designated country or instrumentality for the purposes of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government.
Under the rule of origin set forth under 19 U.S.C. § 2518(4)(B):
An article is a product of a country or instrumentality only if (i) it is wholly the growth, product, or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.
See also, 19 C.F.R. § 177.22(a).
In rendering advisory rulings and final determinations for purposes of U.S. Government procurement, CBP applies the provisions of subpart B of Part 177 consistent with the Federal Procurement Regulations. See 19 CFR § 177.21. In this regard, CBP recognizes that the Federal Procurement Regulations restrict the U.S. Government’s purchase of products to U.S.-made or designated country end products for acquisitions subject to the TAA. See 48 CFR § 25.403(c)(1). The Federal Procurement Regulations define “U.S.-made end product” as:
…an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.
48 CFR § 25.003.
Therefore, the question presented in this final determination is whether, as a result of the operations performed in the United States, the glider is substantially transformed into a product of the United States.
In determining whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 6 Ct. Int’l Trade 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). If the manufacturing or combining process is a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred. Uniroyal Inc. v. United States, 3 Ct. Int’l Trade 220, 542 F. Supp. 1026 (1982). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D. 80-111, C.S.D. 85-25, and C.S.D. 90-97.
In order to determine whether a substantial transformation occurs when components of various origins are assembled to form completed articles, CBP considers the totality of the circumstances and makes such decisions on a case-by-case basis. The country of origin of the article’s components, the extent of the processing that occurs within a given country, and whether such processing renders a product with a new name, character, or use are primary considerations in such cases. Additionally, facts such as resources expended on product design and development, extent and nature of post-assembly inspection procedures, and worker skill required during the actual manufacturing process will be considered when analyzing whether a substantial transformation has occurred; however, no one such factor is determinative.
You assert that the electric motor (Canada), batteries (United States), charger (Canada), gear box (United States) and brakes (India) of the electric mini-truck form the heart of the mini-truck, and are all installed in the United States, changing the identity of the imported glider from a body into a self-propelled truck. These components allegedly provide the power source to the truck and enable it to carry out its intended use. Accordingly, it is argued, the U.S. components added and the assembly and testing performed in the U.S. are substantial.
GEM cites to several Headquarters rulings (“HQ”) to support its analysis. Specifically, it refers to HQ 558919, dated March 20, 1995; HQ 559887, dated October 3, 1996; and HQ 562502, dated November 8, 2002. We find HQ 558919 to be most analogous to the situation before us. There, CBP held that an extruder subassembly manufactured in England was substantially transformed in the United States when it was wired and combined with U.S. components (motor, electrical controls and extruder screw) to create a vertical extruder. In reaching that decision, CBP emphasized that the imported extruder subassembly and the U.S. components each had important attributes that were functionally necessary to the operation of the vertical extruder. Although HQ 558919 may be distinguished because the components that were assembled with the imported extruder subassembly were exclusively of U.S. origin, the two cases are similar to the extent that the imported articles (extruder subassembly and glider) and certain of the other components with which the imported articles are combined are “functionally necessary” to the operation of the finished product. In GEM’s situation, the glider could not be used as an electric mini-truck on its own, but requires assembly with other, crucial components.
We also take note of HQ 731076, dated November 1, 1988, which addressed country of origin marking requirements for an automobile assembled in Taiwan with components from Japan, the United States, and Taiwan. The U.S. components consisted of an oxygen sensor, a catalytic converter and two roll over valves. The Taiwanese components included trim pad assemblies, head linings, front and rear seats, glass, instrument panels, arm rests, support rod, leaf springs, heat protectors, carpet, brake pipes, fuel pipes, cable harnesses, battery cables, axle assemblies, tension rods, battery and tires. Associated materials such as glue, paint and coating were also procured in Taiwan. All other components were of Japanese origin. CBP held that the automobile components lost their separate identities and consequently were substantially transformed when they were assembled into vehicles in Taiwan. As a result, the country of origin of the imported automobiles for marking purposes was Taiwan, which precluded the various components from having to be separately marked with their original countries of origin. Customs indicated that it considered the manufacture of an automobile much more than a mere assembly operation and also considered it persuasive that the Taiwanese input to the final product contributed 38% of its value and took 33 hours to accomplish.
Based upon the totality of the circumstances and consistent with the CPB rulings cited above, we find that the imported mini-truck glider is substantially transformed as a result of the assembly operations performed in the United States to produce an electric mini-truck. Under the described assembly process, the imported glider loses its individual identity and becomes an integral part of a new article possessing a new name, character and use. Further, we note a substantial number of the components added to the imported glider are of U.S. origin. Therefore, based upon the specific facts, the country of origin of the electric mini-truck for purposes of U.S. Government procurement is the United States.
HOLDING:
The imported mini-truck gliders are substantially transformed when they are assembled in the United States with other imported and domestic components. As a result, the country of origin of the electric mini-trucks for purposes of U.S. Government procurement is the United States.
Notice of this final determination will be given in the Federal Register as required by 19 C.F.R. § 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 C.F.R. § 177.31, that CBP reexamine the matter anew and issue a new final determination. Any party-at-interest may, within 30 days after publication of the Federal Register notice referenced above, seek judicial review of this final determination before the Court of International Trade.
Sincerely,
Sandra L. Bell,
Executive Director
Office of International Trade