OT:RR:CTF:FTM H303177 TJS
Ms. Marilyn-Joy Cerny
Sandler, Travis & Rosenberg, P.A.
24 Smith Street
Pawling, NY 12564
RE: Country of Origin; Air Purifiers; Substantial Transformation
Dear Ms. Cerny:
This is in response to your request for a binding ruling, dated February 28, 2019, and submitted on behalf of your client, Sunbeam Products, Inc. (“Sunbeam”), concerning the country of origin of certain air purifiers identified as the Holmes® True HEPA Allergen Remover (Model No. HAP8650) under two proposed manufacturing scenarios. It is your position that the country of origin for marking and duty purposes is Indonesia. Our ruling is set forth below.
FACTS:
The subject air purifier, the Holmes® True HEPA Allergen Remover (Model No. HAP8650), is an electromechanical device that utilizes a fan, a carbon pre-filter, and three high-efficiency particulate air (“HEPA”)-type filters to help remove allergens from the air. According to your submission, the air purifier removes 99.97% of airborne allergens and pollutants such as household dust (including dust mites), pet dander, smoke, mold spores, ragweed pollen, tree pollen, and grass pollen, and is effective in reducing odors. The air purifier uses a Holmes® HAPF60CS Carbon Pre-Filter (the “carbon pre-filter”) that can be removed and cleaned, and three Holmes® HAPF600T True HEPA Console Air Purifier Filters (the “HEPA filters”), which should be replaced every 3 to 4 months, as indicated by a filter monitor light that alerts users when they should be replaced. This particular model, the Holmes® True HEPA Allergen Remover (Model No. HAP8650), is called a “console” and measures approximately 21 inches high, 23 inches wide, and 10 inches long, and is recommended for use in large rooms measuring up to 310 square feet.
According to your submission, Sunbeam is considering changing its sourcing and production of the imported air purifiers and requests a country of origin determination for both marking and duty purposes on two manufacturing scenarios. The two proposed scenarios are as follows:
Manufacturing Scenario 1: Components Manufactured in Mexico, China and Indonesia with Assembly Operations and Plastic Components Injection-Molded in Indonesia
The carbon pre-filters and HEPA filters that are used in the subject air purifiers will be manufactured in Mexico using Mexican components. Following manufacture, these filters are packaged in bulk and shipped to Indonesia for assembly into the completed air purifiers.
The following components will be manufactured in China: small electrical parts (e.g., capacitators, switches); power cord/wiring; housing magnets; rubber parts (including feet, rings); metal brackets, grill, tube clip/fastener; printed circuit board (“PCB”); plastic fan blade; motor; and 3M tape. Packaging materials, including interior boxes, gift boxes, master cartons, and foam packaging materials will also be manufactured in China. These Chinese-origin materials will be shipped in bulk to Indonesia for assembly into the finished air purifiers and for use in the packaging.
Most of the plastic parts including the housing components, control panels, switch covers, switch boxes, handles, and brackets will be injection-molded in Indonesia using plastic resin originating in Indonesia. The following components will also be manufactured in Indonesia: silicone parts, including the nylon fastening ribbon, insulation, and various washers; metal components, including fasteners (screws and nuts), locking mechanisms, lead-free solder wire and terminal caps; and packaging components such as printed stickers, labels, registration cards, product manuals, foam packaging, and plastic bags are also manufactured in Indonesia. According to your submission, each air purifier unit incorporates more than 50 screws and nuts.
In addition to the manufacture of the above components, the Indonesian operations involve both the subassembly of certain components and final assembly into the completed air purifiers. You state that nearly every step in the process requires an inspection and recording of that inspection. The overall production process will involve over 50 production workers and supervisors and it takes approximately 60 minutes to assemble the more that 150 electrical and non-electrical components to complete each air purifier. Attachment 3 to your submission provides a detailed description and photos of the distinct production processes that would be performed in the assembly and packaging of each air purifier. The Indonesian operations include: (1) the manufacture of the above components; (2) the Pre-Steps; (3) Steps 1-19; (4) Subassembly of “small parts”; and, (5) further working of parts originating in either Indonesia or China. The 2 Pre-Steps involve labelling the gift box (“GB”). Steps 1-19 cover the final assembly, testing, and packaging, as follows:
Install motor to motor bracket
Install motor bracket to air drum
Install fan blade to motor
Install micro switch, capacitor to bracket
Clipping wiring cap
Install the front grill, motor wind drum to the front shell
Clipping wiring cap
Internal test & polarity test
Internal test & polarity test
Combine front & rear housing
Performance testing
Install filter & stick label
Clean the product
Overall checking of appearance
Stamp date code on plug & paste 3M tape
Put plastic bag on product
Seal GB bottom, place down foam & add IB and registration card
Put in GB, add foam, add IB and registration card & put filter sponge
Seal the GB, put GB and unit into carton & put onto the pallet
The subassembly of small parts includes:
Install the grill to the front door
Install upper and bottom lock, front net magnets to the front door
Install bracket frame & metal frame to the door
Fix PCB to the switch box
Assemble the control panel to the front housing
Assemble lamp to front housing
Lock control panel and front shell
Lock plastic foot of back shell
Lock plastic foot of front shell
Install doors on front shells
Assemble rear handle, power cord to rear housing
The further processing of certain parts include:
Separate wires
Pipe cutting
Bend micro switch actuators
Weld micro switch leads
Heat shrinkable tube setting and blow molding
Manufacturing Scenario 2: Components Manufactured in Mexico, China and Indonesia with Assembly Operations in Indonesia and Plastic Components Injection-Molded in China
Manufacturing Scenario 2 is identical to Scenario 1 except that the plastic components used in each air purifier would be injection-molded in China rather than in Indonesia. As indicated above, the plastic components include the housing components, control panels, switch covers, switch boxes, handles, and brackets.
ISSUE:
What is the country of origin marking of the Holmes® True HEPA Allergen Remover (Model No. HAP8650) under the proposed manufacturing scenarios discussed above?
LAW AND ANALYSIS:
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 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 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. Friedlaender & Co. Inc., 27 C.C.P.A. 297, 302, C.A.D. 104 (1940).
The country of origin marking requirements and the exceptions of 19 U.S.C. § 1304 are set forth in Part 134, Customs Regulations (19 C.F.R. Part 134). Section 134.1(b), Customs Regulations (19 C.F.R. § 134.1(b)), defines “country of origin” 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 the marking laws and regulations. A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, and use which differs from the original material subjected to the process. United States v. Gibson Thomsen Co., 27 C.C.P.A. 267, C.A.D. 98 (1940); Texas Instruments, Inc. v. United States, 681 F.2d 778, 782 (1982).
In determining whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of the operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 6 CIT 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 that leaves the identity of the imported article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983). 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, or use are primary considerations in such cases. No one factor is determinative.
Manufacturing Scenario 1:
In this scenario, the Mexican filters and components from China, including the fan, motor, and electronic components, are shipped to Indonesia to be assembled with the Indonesian plastic components into the finished air purifiers. In addition to final assembly, the Indonesian operations include the subassembly of “small parts”, further processing of certain parts, and the manufacture of the majority of plastic components including the housing components, control panels, switch covers, switch boxes, handles, and brackets.
It is your position that the subject air purifiers are products of Indonesia for both country of origin marking and duty purposes because Indonesia is the country where the most components are manufactured and where many subassembly steps and final assembly occurs, as well as where many packaging materials are manufactured. You further argue that the assembly operations in Indonesia substantially transform the components originating in Mexico and China. In support of your assertion, you cite to Headquarters Ruling Letter (“HQ”) 557331, dated September 9, 1993; HQ 962528, dated February 18, 2000; New York Ruling letter (“NY”) N227976, dated August 22, 2012; and NY N301616, dated December 4, 2018.
HQ 557331 concerned the eligibility of a coffeemaker imported from Mexico for duty-free treatment under the Generalized System of Preferences (“GSP”). In that ruling, plastic pellets of U.S. origin were sent to Mexico to be molded into coffeemaker components, which were then assembled with other U.S. origin materials to create the finished coffeemakers. CBP determined that the plastic coffeemaker components underwent a double substantial transformation in Mexico—first, as a result of the thermal injection, and second, from the assembly operations. Citing Texas Instruments, 681 F.2d 778, CBP noted that if the entire processing operation performed in a single beneficiary developing country was significant, and the intermediate and final articles were distinct articles of commerce, then the GSP’s double substantial transformation requirement would be satisfied. CBP further noted that this is the case even though the processing required to convert the intermediate article into the final product is relatively simple and by itself, would not be considered a substantial transformation. Therefore, CBP held that although the assembly operations, which included welding, screwing, and force fitting, were not exceedingly complex, they were also not the type of simple or minimal “pass-through” operations that should be disqualified from receiving GSP benefits.
HQ 962528 was another GSP ruling wherein CBP considered whether an assembly operation in Thailand substantially transformed certain foreign components into a power failure light. In that case, the power failure light was assembled in Thailand from various Thai and foreign origin components including a PCB assembled in Thailand. CBP found that the process of assembling various components into a PCB resulted in a substantial transformation of the imported components. Moreover, CBP found that the assembly of the PCB with a bulb holder assembly, a plug blade assembly, and an upper and lower housing assembly to make the finished power failure light substantially transformed the PCB.
You also cite NY N227976. However, this ruling was modified by HQ H298653, dated November 19, 2018, with respect to the substantial transformation analysis and country of origin determination. These rulings concerned solar panels which were assembled in China from polycrystalline solar cells manufactured in Germany, front sheets manufactured in Japan, and other Chinese-origin components. In HQ H298653, CBP determined that the German-origin solar cells, which constituted the very essence of the solar panels, were not substantially transformed into the solar panels by the processes that took place in China. In particular, CBP found that the solar cells did not lose their identity and become an integral part of the solar panels when they were combined with other components during the processing in China. The end-use of the solar cells and other components was pre-determined before the components were imported into China, and the solar cells remained solar cells during processing in China. As such, the country of origin of the solar panels was Germany.
NY N301616 addressed the country of origin of string light sets consisting of Chinese-origin light bulbs and electric wires that were assembled with Cambodian-origin components into the finished products in Cambodia. The assembly processes in Cambodia consisted of: using Chinese plastic granules to form the lamp holders and lamp husks; connecting the light bulbs and making the lamp in a finished lamp assembly machine; cutting wires; assembling the lamp socket, plug and connector; connecting all the components to make the light string; cutting and peeling the wire and clamping it to the terminal(s); and testing and packaging. CBP held that the assembly operations performed in Cambodia substantially transformed the Chinese originating components/materials into Cambodian products, noting that the Cambodian assembly 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.
We find that the assembly operations in Indonesia under Manufacturing Scenario 1, which consist of injection-molding the plastic parts, installing major components and subassemblies, testing, and packaging, are sufficiently complex and meaningful as to substantially transform the non-originating components. The operations in Indonesia are similar to those in HQ 557331 and NY N301616, where the plastic-molding and assembly occurred in a single country. Under this scenario, most of the plastic components, which originate in Indonesia, are assembled together to form the housing and exterior elements during the subassembly stage. The plastic components are an integral part of the finished device’s character and use because they form the structure and appearance of the device. Without the housing and exterior elements, the imported components would not be identifiable or usable as a household air purifying device. The character of the finished air purifier differs from that of the imported materials. Although several important components will originate in China, we find that these components lose their individual identities and become an integral part of a new article when assembled with the Indonesian components and Mexican filters in Indonesia. Therefore, the country of origin under Manufacturing Scenario 1 is Indonesia.
Manufacturing Scenario 2:
In this scenario, the main plastic components, including the housing, control panel, switch covers/boxes, handles, and brackets, are injection-molded in China and then shipped to Indonesia for assembly with the other Chinese-origin parts and Mexican filters. The only components manufactured in Indonesia would be packaging materials and parts ancillary to assembly, such as screws, washers, and wiring caps. The question is whether the assembly operations in Indonesia are complex and meaningful enough to substantially transform the imported components.
You argue that the plastic components that primarily make up the housing and exterior elements of the air purifier undergo a change in name, character, and use. You assert that like HQ 557331, discussed above, this scenario involves molded plastic components that are assembled into a household appliance and, therefore, CBP must hold that the molded plastic components that would be made in China are substantially transformed by the assembly operations in Indonesia. In HQ 557331, the plastic molding and assembly operations both occurred in Mexico. Therefore, that ruling is comparable to Manufacturing Scenario 1, where the plastic molding occurs in the same country as assembly, rather than Manufacturing Scenario 2, where the plastic molding occurs in China and the assembly operations occur in Indonesia.
You further contend that the essence of the air purifier is the fan and filter function. We agree that the fan and filters are important elements of the air purifier, but we find that the filters’ assembly into the console with the fan does not confer country of origin. Inserting the filters into the console does not physically alter the console. Additionally, the user is instructed to periodically clean the carbon pre-filter and replace the HEPA filters. Because the devices are designed for the easy removal and replacement of the filters, we find that inserting the filters into the console during the Indonesian operations is not a complex process.
We find that Manufacturing Scenario 2 is similar to Uniden America Corporation v. United States, 24 CIT 1191, 120 F. Supp. 2d 1091 (2000), in which the Court of International Trade defined the term “character” as “one of the essentials of structure, form, materials, or function that together make up and usually distinguish the individual.” Uniden, 24 CIT at 1195, 120 F. Supp. 2d at 1096 (citing National Hand Tool Corp. v. United States, 16 CIT 308, 311 (1992)). In Uniden (concerning whether the assembly of cordless telephones and the installation of their detachable A/C (alternating current) adapters constituted instances of substantial transformation), the Court of International Trade applied the “essence test” and found that “[t]he essence of the telephone is housed in the base and the handset. Consumers do not buy the article because of the specific function of the A/C adapter, but rather because of what the completed handset and base provide: communication over telephone wires.” Id. at 1096.
In addition, CBP has held that whether an assembly process is sufficiently complex to rise to the level of substantial transformation is determined upon consideration of all of the operations that occur within that country, including any subassembly processes that take place in that country. For example, in HQ H303529, dated June 6, 2019, the subject merchandise was an incomplete postage meter, which functioned as a specialized printer in a mail handling system. While one of the major subassemblies was made in Malaysia, the remaining subassemblies were made in China, and the final assembly process of connecting the subassemblies also occurred in China. CBP found that the assembly process that occurred in China was sufficiently extensive and complex as to substantially transform the components into a product of China. In doing so, CBP noted that the question of the complexity of the assembly process which occurred in China was not limited to an examination of the assembly of the various subassemblies to one another, but included an examination of all the assembly processes involved in China in the production of the incomplete postage meter. See Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (2016) (“case law…indicates that a determination of substantial transformation must be based on a totality of factors”) (citing National Hand Tool Corp. v. United States, 16 CIT 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993) and Ran-Paige Co. v. United States, 35 Fed. Cl. 117, 121 (1996)).
Similarly, in HQ H304126, dated February 13, 2020, CBP determined that the country of origin of a centrifugal dishwasher pump was Serbia because the assembly process in Serbia amounted to a substantial transformation. The majority of the discrete parts were sourced from China and then shipped to Serbia to be manufactured into subassemblies (the rotor subassembly and the stator subassembly), and then combined to form the finished centrifugal dishwasher pump. The assembly process involved magnetization of the rotor, pneumatic pressing of multiple components, ultraviolet glue curing, and induction soldering. CBP held that the assembly was complex and thereby the discrete parts were substantially transformed when combined to form a finished centrifugal pump in Serbia.
In our discussion of Manufacturing Scenario 1, we noted that the plastic components are integral to the character and use of the air purifier because they form the structure and appearance of the device. When the plastic components are assembled with the other Chinese-origin parts, they form a whole console. The console, comprised of the fan, motor, electronic components, housing, and exterior elements, is by itself a complete device, identifiable as the Holmes® True HEPA Allergen Remover (Model No. HAP8650) with or without the filters inserted. It is convenient to the consumer to purchase the filters included with the console, but the console alone provides the fundamental structure, appearance, and capacity to operate that distinguishes the final product as a household air purifying device, particularly the Holmes® True HEPA Allergen Remover (Model No. HAP8650). While the console’s primary parts (the plastic components, fan, motor, and electronic components) under Manufacturing Scenario 2 would be manufactured in China, we note that the overall production process in Indonesia would involve over 50 production workers and supervisors, and it would take approximately 60 minutes to assemble the more than 150 electrical and non-electrical components to complete each air purifier. As a result of the operations in Indonesia, the components imported from China will undergo a change in character or use. Therefore, the country of origin under Manufacturing Scenario 2 is Indonesia.
HOLDING:
Based on the facts provided, the country of origin of the HEPA® Allergen Remover (Model No. HAP8650) under Manufacturing Scenario 1 is Indonesia. The country of origin of the merchandise manufactured under Manufacturing Scenario 2 will also be Indonesia. The column one general rate of duty is free.
Sincerely,
Yuliya A. Gulis, Chief
Food, Textiles and Marking Branch