OT:RR:CTF:VS H303449 EE
David R. Hamill
Arent Fox LLP
1717 K St NW
Washington, DC 20006
RE: Electrically Powered Steering Belt Drive Gears; Country of Origin Marking; Section 301 Measures
Dear Mr. Hamill:
This is in response to your correspondence, dated April 5, 2019, on behalf of your client, ZF Active Safety and Electronics US LLC, a subsidiary of ZF North America, Inc. (“ZF”), in which you request a ruling concerning the country of origin of certain electrically powered steering belt drive gears (“EPS Gear(s)”) for purposes of the application of the Section 301 trade remedy measures.
FACTS:
The EPS Gear covered by this ruling request is a type of electric power steering system (“EPS System”). EPS Systems enable control of vehicle handling by transferring steering inputs from the driver on the steering wheel, to the direction of the vehicle’s tires. EPS Systems are generally comprised of various major components, including a steering gear rack, steering pinion, ball screw, electric motor, wire harness, and other components depending on the type of EPS System. Such components need to be precisely assembled together to function as an integrated unit that controls the direction of the vehicle.
The type of EPS System at issue is for incorporation into a range of vehicles, from C-segment passenger vehicles to full size trucks. You claim that it is classified under subheading 8708.94.50, Harmonized Tariff Schedule of the United States (“HTSUS”), and utilizes belt drive electrically powered steering technology. In order to achieve its underlying purpose of controlling the vehicle’s direction, the EPS Gear receives driver input from the steering wheel through the steering pinion and shaft components, facilitates rotation of the steering wheel through an electric power pack (“EPP”), belt subassembly, and pulley subassembly, and then transfers the directional input from the steering wheel to the front wheels of the vehicle through the ball screw comprised of a steering gear rack and ball nut.
Additionally, complementing the EPS Gear’s core function are various technological features, supporting carbon dioxide reduction, fuel economy, and automated driving. For example, the EPP is designed with high accuracy control capabilities through programmed software for analyzing inputs such as ignition status, speed, and steering angle from the Intelligent Parking Assist (“IPA”) sensor assembly, which signals the EPP to provide directional assistance to turn the vehicle wheels in a closed loop system, when such technological feature is activated.
You state that without a functioning EPP, the EPS Gear will still manually operate to control the direction of the vehicle through the ball screw, pinion components, shaft components, and other major components.
EPS Gear Material Components
You state that the EPS Gears at issue will be comprised of 46 types of components (70 total components) from 10 different countries of origin: Canada, China, Germany, the United Kingdom, Hungary, Indonesia, South Korea, Mexico, Taiwan, and the United States. The majority of components that will comprise the EPS Gear are from the United States (e.g., IPA sensor assembly, drive belt, pulley assembly, rack liner, lower pinion bearing, input shaft bearing etc.). The components from China (e.g., EPP), followed by the components from Germany (e.g., ball screw, upper pinion bearing, and vent pill), account for the largest material costs. Most of these components will be imported from their respective countries into Mexico for assembly of the EPS Gears as described below.
You provided an example of an EPS Gear that is manufactured by ZF; a bill of materials; and a diagram of major components and subassemblies. You also provided the following 46 types of materials and components that will comprise the EPS steering device listed vertically in order of when they are used in the assembly process:
Outboard housing - Korea
Mounting bushing
Yoke liner
EPP (radial ECU) - China
Pinion housing - Korea
Yoke bearing O-ring
Rack liner (bushing)
Pinion housing bolt
Yoke spring
Dowel pins
Harness
Yoke plug
Travel restrictor/soft stop
Finger ring
Horizontal socket assembly
EPP O-ring
IPA sensor assembly – U.S.
Water shield
Ball screw (rack and ball nut) - Germany
V-clip (hold down clip)
Small bellow clamp
Spanner nut
THC/harness bolts
Tie rod hex nut
Pulley screws
Transducer housing cover (“THC”)
Large bellow clamp
Pulley assembly – U.S.
Pinion nut
Vent pill
Press in place seal (“PiP”)
Pinion plug
Bellow
Belt tension flange bolt
THC O-ring
Plug yoke cover
Drive belt – U.S.
Input shaft bearing
Bar code
Lower pinion bearing
Input shaft seal
Black max
Upper pinion bearing
Pinion plug O-ring
Lithium grease
Yoke body (yoke bearing)
You provided the following description of the major components and subassemblies in the EPS Gear:
• The EPP from China provides the power to facilitate the steering in combination with the U.S. drive belt. It also works in combination with the U.S. IPA sensor assembly and U.K.-developed software to provide technological features such as automated driving. The EPP can be used on other similar steering gears by reflashing the software.
• The German ball screw component is a major component that functions by transferring the rotational energy of the EPP via the belt to the lateral movement of the steering rack which is connected to the wheels via linkage. The ball screw is composed of a rack (a threaded shaft) and ball nut (a nut that has ball bearings that run between its threads and the threads of the rack). The ball nut, which is installed in the pulley assembly, receives rotational motion from the EPP, via the drive belt, and converts the rotational motion into linear motion of the rack.
• The Korean pinion housing, also referred to as the “main housing,” is fabricated out of metal and holds the rack of the ball screw, the pinion screw and shaft, and ball nut, pulley, and drive belt. The pinion housing is a cylinder shaped component that has a body opening on one end, where the pinion gear and shaft are inserted to be engaged with the rack threads. On the other end of the pinion housing, there is an opening where the ball nut, pulley, and drive belt are housed and sealed with the outboard housing component that the EPP is connected to. The rack is inserted into the pinion housing so that the ends of the rack extend out a certain distance on either side of the housing.
• The Korean outboard housing (“OBH”) connects to the pinion housing. This component connects the EPP to the pinion housing and contains (along with the pinion housing) the pulley assembly, the drive belt, spanner nut, and the ball nut.
• The U.S. pulley assembly is a pulley with teeth that is installed over the ball nut. The pulley assembly is driven by a drive belt that is powered by the EPP. The pulley screw components keep the pulley assembly connected in place to the ball nut.
• Other components are the following: bushings, O-ring, lower and upper pinion bearings, travel restrictors, transducer housing cover, input seal shaft, input shaft bearing, pinion nut, and wire harness.
EPS Gear Assembly Process
The EPS Gears will be assembled in Mexico in 27 operation stations requiring at least 166 steps, 20 technicians, and over 50 specialized tools and equipment, including customized machinery and automated technologies.
Some of the 166 assembly steps are as follows:
• The EPP, dowel pins, bushing (liner rack), and OBH are assembled together.
• The rack and ball nut is installed into the OBH and the spanner nut is installed over the rack and ball nut.
• The pulley is installed over the rack and ball nut.
• The drive belt, PiP seal, and belt tension flange bolt are assembled together.
• The lower pinion bearing, upper pinion bearing, and pinion housing are assembled together.
• The soft stop, pinion housing, travel restrictor, and urethane round head mounting bushing are assembled together.
• The pinion housing bolt and pinion housing assembly are assembled together.
• The IPA and sensor assembly are assembled together.
• The THC, input shaft, wire harness, and harness bolts are assembled together.
ISSUE:
What is the country of origin of the EPS Gear(s) imported from Mexico for purposes of the Section 301 trade remedy for goods under subheading 8708.94.50, 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...
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, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97. If the manufacturing or combining process is a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 C.I.T. 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, U.S. Customs and Border Protection (“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 “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 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 Headquarters Ruling Letter (“HQ”) H282391, dated March 16, 2017, CBP found that imported components that were used to manufacture a certain gearmotor were substantially transformed as a result of the assembly operations performed in the United States. The gearmotor was composed of 131 unique parts of various origins including Brazil, China, France, Germany, and the United States, among other countries, which were used to first assemble the gear box and motor subassemblies, and then to assemble the complete gearmotor. The assembly process involved at least 27 steps which took approximately two hours. CBP found that the foreign components lost their individual identities and became an integral part of a new article, the gearmotor, possessing a new name, character and use.
In HQ H155115, dated May 24, 2011, CBP found that assembly in the United States of an imported glider, and other imported and U.S.-origin parts constituted a substantial transformation into the electrical vehicle, an article with a new name, character, and use. The electrical vehicle was composed of 31 components, of which 14 were of U.S.-origin. The assembly process in the United States was complex and time-consuming and involved a significant U.S. contribution in both parts and labor. Based upon these facts, CBP found that the country of origin of the electric vehicle was the United States.
In the instant case, 70 components from various countries will be assembled in Mexico to create the EPS Gear. The assembly process will move through 27 operation stations requiring at least 166 assembly steps by 20 skilled technicians utilizing over 50 specialized tools and equipment. Even though the Chinese origin EPP is the most expensive component of the EPS Gear, without a functioning EPP, the EPS Gear will still manually operate without driver assistance to control the direction of the vehicle through the ball screw, pinion components, shaft components, and other major components. Under the described assembly process, the foreign components lose their individual identities and become an integral part of a new article, the EPS Gear, possessing a new name, character and use. Based upon the information before us, we find that the components that are used to manufacture the EPS Gear are substantially transformed as a result of the assembly operations performed in Mexico, and that the country of origin of the EPS Gears is Mexico.
HOLDING:
The country of origin of the EPS Gears, for purposes of the application of the Section 301 trade remedy measures, is Mexico. As such, Section 301 measures will not apply.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch