CLA-2 OT:RR:CTF:TCM H259326 RSD
Michael K. Tomenga, Esq.
Neville Peterson, LLP
1400 16th Street, N.W., Suite 350
Washington, D.C. 20036
RE: Country of Origin of Marking of the Exoskeleton Assistive Walking Device; Imported Components; Substantial Transformation; 19 C.F.R. 134.35
Dear Mr. Tomenga:
This is in response to your letter dated October 14, 2014, submitted on behalf of your client, Ekso Bionics, Inc. (“Ekso”) requesting a ruling concerning the country of origin marking requirements of the exoskeleton assistive walking device. Specifically, you request a ruling on whether three imported components used in the production of the exoskeleton will be required to be marked with their country of origin. Your request contained product information regarding the exoskeleton.
FACTS:
According to your letter, the exoskeleton is a powered bionic suit or external skeleton that aids in walking and moving a person having lower extremity paralysis or weakness. The combination of motors and sensors assists the user with balance and body positioning.
You indicate that there are hundreds of parts contained in the exoskeleton, and Ekso has verified that all of these parts, except for three, are sourced from manufacturers in the United States. Although no evidence has been presented to establish the U.S. origin of the components of the exoskeleton, for the purposes of this ruling, we will assume that all of the parts of the exoskeleton except for the three you identify are of U.S. origin. The three non-U.S. origin parts are heat shields or diffusers, Velcro foot bindings or straps, and a battery charger/AC adapter part. These non-U.S. molded parts are of Chinese origin. You indicate that the total cost of the three Chinese-origin parts constitutes less than one tenth of one percent of the total manufacturing cost of the exoskeleton.
You provided a list of the subassemblies in the exoskeleton and the number of parts in each of the subassemblies. There are 15 individual major subassemblies:
A Torso Frame including a control panel assembly, which involves assembly of 17 parts;
Hip 1.2 Abduction, which involves assembly of 34 parts excluding fasteners;
Unconfigured Unit, which involves programming a board, and assembly of 5 parts and integration with 4 other subassemblies;
Knee Assemblies (2 each), which involves loading joint board software, and assembly of 76 parts excluding fasteners and integration with other subassemblies;
Hip Assemblies (2 each), which involves loading joint board software, and assembly of 35 parts excluding fasteners and integration with 5 subassemblies;
Leg Assemblies (2 each), which involves assembly of 85 parts, excluding fasteners and integration with 9 subassemblies;
Don/Doff Link Assembly, which involves assembly of 29 parts, excluding fasteners;
Upper Shank Assembly, which involves assembly of 18 parts, excluding fasteners;
Knee Motors (2 each), which involves assembly of 32 parts, excluding fasteners;
Hip Motors (2 each), which involves assembly of 28 parts, excluding fasteners;
User Interface Controller Assembly, which involves assembly of 14 parts, excluding fasteners;
Foot Plates (2 each), which involves assembly of 14 parts, excluding fasteners;
Ankle Assemblies (2 each), which involves assembly of 72 parts, excluding fasteners;
Shank Brace, which involves assembly of 22 parts, excluding fasteners; and
Foot Sensors (2 each), which involves assembly of 28 parts, excluding fasteners.
Duplicates of eight of the 15 subassemblies will be used (as noted above) in the manufacture of each exoskeleton, which results in a total of 23 subassemblies. The major subassembly manufacturing processes includes board programming, software loading, and subassembly testing. After Ekso completes the production of the subassemblies, it assembles the 23 major subassemblies into a complete Exoskelton.
The Chinese origin heat shields/diffusers and foot bindings are non-mechanical and non-electrical parts used in four of the 23 major subassemblies. The plastic heat shield/diffusers attach to the leg assemblies and hip assemblies to contribute to the user’s comfort during use by directing heat from the knee and hip motors away from the user, and to prevent the user from coming into contact with uncomfortably warm parts of the exoskeleton.
To complete the bindings/strap assembly, the Chinese origin plastic foot binding plate and rubber pads must be completed by assembly with a U.S.-origin strap along with other parts for the right and left foot respectively. The plastic plate and pad portion of the binding/strap assembly allow the user to position and secure the exoskeleton to his or her body. The complete binding/strap assembly is unable to perform its positioning and securing function until further manufacture with the U.S.-origin foot sensor assembly to produce the foot plate binding assembly (comprised of analog sensors, a Vibram sole, among other parts).
The third Chinese origin component of the exoskelton is a battery charger, which is an alternating current (“AC”) adapter. The battery charger converts alternating current to direct current at the voltage appropriate for the exoskeleton. It will not function with the exoskeleton unless a further U.S.-origin component, a “second charger” is used, to form the battery charger assembly. The Chinese origin charger brick (first charger) is connected to the second charger which contains a circuit board with connection pins to interface with the exoskeleton battery storage circuit to control the charging process. The second charger is manufactured in the United States using U.S.-parts. The first charger and the second charger together form the complete battery charger assembly.
You state that the parts imported from China are designed to be used exclusively in the manufacture of Ekso’s exoskeleton. The imported parts will not be resold after importation to other parties.
ISSUE:
Whether the imported components of the exoskeleton will be substantially transformed when they are used in the manufacture of the completed device in the U.S.
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 imported into the United States 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 United States, the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. § 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlander & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).
Part 134, U.S. Customs and Border Protection (CBP) Regulations (19 C.F.R. § 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 134.1(b), CBP Regulations (19 C.F.R. § 134.1(b)), defines “country of origin” as:
[T]he 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 [the marking regulations]…
A substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing. A substantial transformation will not result from a minor manufacturing or combining process that leaves the identity of the article intact. See United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (1940). 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).
Where it is determined that substantial transformation has occurred, the imported components are excepted from marking pursuant to 19 C.F.R. §134.35(a), which provides as follows:
(a) Articles other than goods of a NAFTA country. An article used in the United States in manufacture which results in an article having a name, character, or use differing from that of the imported article, will be within the principle of the decision in the case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98). Under this principle, the manufacturer or processor in the United States who converts or combines the imported article into the different article will be considered the "ultimate purchaser" of the imported article within the contemplation of section 304(a), Tariff Act of 1930, as amended (19 U.S.C. 1304(a)), and the article shall be excepted from marking. The outermost containers of the imported articles shall be marked in accord with this part.
When imported components remain intact upon assembly and do not undergo any change in their physical dimensions or otherwise lose their identity, no substantial transformation occurs. See e.g., Headquarters Ruling (HQ) H035441, dated September 11, 2008 (lap band device), and HQ 734214, dated November 18, 1991 (fishing rods). In these cases, the country of origin of the merchandise was the place where the components were made and not the place where the simple assembly took place.
Where the assembly is complex and meaningful, a substantial transformation of the imported components will result. For example in HQ H156919, dated July 26, 2011, we considered the assembly of a BREEZ patient transport chair. The assembly involved a large number of components, namely, 481 components in the U.S. into 26 subassemblies, which were then assembled with the remaining components into the finished patient transport chair. We ruled that under the described assembly process, the foreign components lost their individual identities and became an integral part of the article, the patient transport chair, possessing a new name, character and use, and that the country of origin for procurement purposes was the U.S.
Similarly, two of the three imported parts, the heat diffusers/shields and foot straps/bindings will be permanently attached to the finished device. When these parts are attached to the exoskeleton, they will lose their separate identities and become subsumed into the finished exoskeleton. While these parts will help the finished device perform its intended functions, they nevertheless are fairly minor components of the finished exoskeleton. Thus, as a result of the production process, we find that the heat diffusers/shields and foot straps/bindings undergo a change in name, character and use, and that these two parts will be substantially transformed when they are used in the manufacture of the finished exoskeleton.
In contrast, we note that the third imported component, the Chinese made battery charger is not permanently attached to the finished device. In order to charge the exoskelton’s battery, the Chinese A/C adapter must be connected to a second U.S. made battery charger component in the exoskelton. Once the exoskeleton’s battery is charged, the two battery chargers will be separated, and the Chinese battery charger is detached. The Chinese battery charger is essentially packaged with the rest of the exoskeleton.
CBP does not usually consider a simple packaging operation to result in a substantial transformation of an article. See HQ 559287 dated December 16, 1995. Nonetheless, in Uniden America Corporation v. United States, 120. Supp. 2d. 1091, (Ct. Int’l Trade 2000), the Court of International of Trade (CIT) considered the assembly of a cordless telephone and the installation of their detachable A/C (alternating current) adapters. The cordless telephones had three main detachable components, of 275 separate parts, that were assembled together in the Philippines. One of the three components, the A/C adapter, was imported into the Philippines from China. The court held that a substantial transformation occurred because each component had a different name from the phone that emerged, and the A/C adapter had a different purpose than the cordless phone. The court found that a new character emerged because “the A/C adapter neither characterize[d] nor define[d] the phone in question.” The Court also believed the A/C adapter had a different character because of the “essence test” which the Court used to determine if there was a change in character. In applying an “essence test”, the CIT found that the “[t]he essence of the telephone is housed in the base and the handset. The court noted that consumers do not buy the article because of the specific function of the A/C adapter, but rather because of what the complete handset and base provide: communication over telephone wire. Thus, the court found that the detachable A/C adapter was substantially transformed when it was included with the cordless telephones. The court noted that the substantial transformation test is to be applied to the product as a whole and not to each of its detachable components. Consequently, the court found that the A/C adapter was a part of the cordless phone and that it had a new character, use, and name.
CBP has applied the CIT’s analysis in Uniden to determine whether other minor components when combined with a larger and a more complex system would lose their separate identities to become part of that larger system. In HQ H100055 dated May 28, 2010, we ruled on the country of origin of a lift unit for an overhead patient lift system. Among the issues that we considered was whether a battery charger, when inserted into the hand control unit inside the lift unit, was substantially transformed. Relying on the Uniden decision, we noted that the substantial transformation test should be applied to the product as a whole and not to each of the parts. We determined that the lift unit conveyed the essential character to the system and because the detachable hand control and the battery charger were parts of that system, they were substantially transformed when attached to the lift unit. Thus, we held that the country of origin of the hand control unit and battery charger when packaged with the lift unit was Sweden. See also HQ H089762 dated June 2, 2010, (a stylus and stylus holder from China included with a hand-held mobile computer were not required to be marked with their own origins); and HQ H112725, dated October 6, 2010, (inclusion of a battery charger did not alter the essential character of the Adflo™ respiration system which was designed to provide respiratory protection in a welding environment).
The facts of HQ H112725 are similar to this case with respect to the imported battery charger included with the exoskeleton. Although the battery charger is detachable and not permanently affixed to the exoskeleton, it is nevertheless a fairly minor component when compared to the complexity of the entire device. Thus, we conclude that the analysis used in HQ H112725 should be applied to the country of origin marking requirements of the Chinese origin battery charger supplied with the exoskeleton.
Furthermore, consumers are unlikely to make a decision to purchase the exoskelton based on the function of the AC adapter/battery charger. Rather, they will buy the Exoskelton as an aid for a person who has lower extremity paralysis or weakness to walk and to move more easily. Accordingly, we conclude that the essence of the article would be based upon the actual exoskelton device and not the battery charger. Thus, we find that the battery charger will lose its separate identity and become a part of the finished exoskeleton when it is included with the finished device to be sold in the United States. Therefore, we find that the three imported components of the exoskeleton, the heat shields or diffusers, the Velcro foot bindings or straps, and the Chinese origin battery charger will be substantially transformed, and in accordance with 19 C.F.R. 134.35, they will be excepted from the individual country of origin marking requirements of 19 U.S.C. 1304.
HOLDING:
The three imported Chinese origin components, the heat shields or diffusers, the Velcro foot bindings or straps, and the battery charger, for the Ekso exoskeleton walking assistance device will be substantially transformed as result of the processing done in the United States. As such, per 19 CFR 134.35(a), the U.S. manufacturer will be considered the ultimate purchaser of the imported components. Accordingly, the imported components may be excepted from the marking requirements of 19 U.S.C. §1304, but the outermost containers must be marked at the time of importation.
A copy of this ruling letter should be attached to the entry documents filed
at the time the goods are entered. If the documents have been filed without a
copy, this ruling should be brought to the attention of the CBP officer handling the
transaction.
Sincerely,
Ieva O’Rourke,
Chief, Tariff Classification
and Marking Branch