OT:RR:CTF:VS H304910 JMV
Heather Jacobson, Esq.
999 Third Ave.
Suite 2525
Seattle, WA 98104
RE: Country of Origin of Vehicle Lamps; Section 301 Trade Remedy; 9903.88.03, HTSUS
Dear Ms. Jacobson:
This is in response to your letter dated December 21, 2018, on behalf of Grakon LLC (“Grakon”). In your letter, you request a ruling pursuant to 19 C.F.R. Part 177 regarding the country of origin of Vehicle Lamps.
FACTS:
Grakon is a U.S. corporation with its principal place of business located in Seattle, WA. Grakon is a U.S. importer of the merchandise that is the subject of this request, and as such is authorized to file the instant request under the provisions of 19 C.F.R. § 177.24.
The products at issue are three similar Light Emitting Diode (“LED”) lamps, identified as Parts 2082-003, 4289-001, and 2000-007, designed for incorporation into motor vehicles. Grakon submits that the manufacturing scenarios reviewed herein result in a substantial transformation of the articles in Mexico, and that the resulting finished lamps would therefore originate in Mexico for purposes of Section 301 tariffs. Alternatively, Grakon submits that the country of origin of the finished lamps for purposes of application of Section 301 tariffs is the country in which the LEDs are manufactured.
Grakon states that each lamp model is designed for incorporation into a passenger vehicle of heading 8703, Harmonized Tariff Schedule of the United States (“HTSUS”) and that all three parts are classifiable under 8512.20.20, HTSUS, which provides for electrical lighting equipment for vehicles of subheading 8701.20 or heading 8702, 8703, 8704, 8705 or 8711.
Part 2082-003: Door Dome Lamp
Part 2082-003 is a dome lamp designed to be installed on the inside door of the vehicle. It consists of the following components:
1. Injection molded plastic back cover;
2. Injection molded plastic terminal support piece, to hold the Printed Circuit Board Assembly (“PCBA”);
3. Injection molded, plastic transparent dome lamp lens;
4. Injection molded plastic dome lamp reflector;
5. Brass dome lamp terminal; and
6. PCBA, including LED lights.
You state that the PCBA constitutes 72.38% of the value of the component materials, including packaging. When Chinese overhead and assembly labor costs are included, the PCBA makes up 57.52% of the value of the fully assembled lamp.
The PCBA will be manufactured in Mexico using LEDs manufactured in Japan and other components sourced in Mexico or elsewhere. The transparent plastic dome lamp lens will be manufactured in Mexico or in China. All other components will be purchased from manufacturers in China, where the lamp will be assembled. In China, the brass lamp terminal will be soldered to the PCBA. The remaining components will then be assembled together by hand through use of connectors on the components; no screws or other external fasteners will be required. Inspection and testing will be conducted, then the finished part will be packaged for shipment and sale.
Part 4289-001: LED Dome Lamp
Part 4289-001 is an LED Dome Lamp designed for installation in the back of a heavy-duty truck, to provide lighting in the sleeping area. Part 4289-001 is approximately 1.5 feet in length, and includes two separate lighting options: a direct LED dome light that shines concentrated light on a specific area, and two light pipes that diffuse LED light throughout the space. These two light sources may be used independently or in conjunction with one another.
The dome light consists of an LED PCBA, and each of the light pipes is also connected to its own LED PCBA, for a total of three separate LED PCBAs within the product. The components of Part 4289-001 include:
1. Injection molded, transparent plastic dome lens;
2. Injection molded, transparent plastic side lens;
3. Injection molded plastic housing;
4. Injection molded plastic light pipes;
5. Screws for assembly of light pipes to housing;
6. The dome light PCBA, attached to an injection molded plastic back cover;
7. The light pipe PCBAs, assembled within a plastic housing;
8. Speed clips, which hold the multiple wire harnesses in a secure position;
9. Pillar clips, which mount and hold the lamp assembly to the vehicle headliner; and
10. Wiring and related connectors and electronics to connect the light pipe PCBAs to the dome PCBA so all three can connect to the vehicle electronics via one connector.
The three PCBAs together constitute 56.5% of the total cost of materials for Part 4289-001. The three PCBAs make up 42.97% of the value of the completed lamp when Chinese labor and overhead is included. The PCBA will be manufactured in Mexico using LEDs manufactured in Japan and other components sourced in Mexico or elsewhere. The transparent plastic side lens will be manufactured in Mexico or in China. The speed clips and pillar clips will be purchased from manufacturers in the United States. All other components will be purchased from manufacturers in China. Part 4289-001 will be assembled in China. The component parts will be assembled with screws or other connectors, without the need for adhesive or further processing. Inspection and testing are conducted, then the finished part is packaged for shipment and sale.
Part 2000-007: Exterior Marker Lamp
Part 2000-007 is an exterior marker lamp for a vehicle. It consists of the following components:
1. Injection molded, plastic transparent lamp lens;
2. Washers;
3. LED wire harness assembly;
4. EVA foam gasket;
5. Rubber gasket;
6. Injection molded, chromed plastic housing;
7. Screws;
8. Washers; and
9. Epoxy.
Grakon states that the LED assembly is the second highest value component, comprising 21.5% of the total materials cost. The LED assembly of Part 2000-007 represents 15.34% of the value of the final product, which includes Chinese overhead and labor. The PCBA will be manufactured in Mexico using LEDs manufactured in the United States and other components sourced in Mexico or elsewhere. Then, the PCBA with LEDs will be assembled with the wire harness in Mexico. The transparent plastic lens will be manufactured in Mexico or in China. All other components will be purchased from manufacturers in China.
Part 2000-007 will be assembled in China. First, the LED wire harness electronics are encased in epoxy potting material prior to assembly with the rest of the components. The components are then assembled together using screws or self-connecting components. Inspection and testing are conducted, then the finished part is packaged for shipment and sale.
PCBA Manufacturing in Mexico
You state that in all manufacturing scenarios, the PCBAs for each vehicle lamp at issue will be assembled in Mexico. PCBA production in Mexico includes assembling the LEDs into the PCBA so that, once assembled, each finished PCBA will be a complete light source with fully integrated LEDs and circuitry. The PCBAs incorporated into 2082-003 and 4289-001 are manufactured using a process called Surface Mount Technology (“SMT”) while the PCBAs incorporated into 2000-007 are manufactured using an older process known as Wave Soldering.
SMT is a method of manufacturing PCBAs whereby components are soldered to the surface of the PCB rather than placed into holes on the PCB. The PCBs used in this process are manufactured in “panels” of multiple PCBs connected together. Here, each panel results in 6 identical PCBAs. Plastic mechanical holders or connectors are added to the PCBA, which allow the PCBA to be connected with other interfacing components or wire harnesses in the finished product. In some cases, terminals, that provide the electrical interface to the vehicle wire harness, are hand soldered onto the PCBA at this stage of the manufacturing process. This step may also occur during the final assembly process; connection of the vehicle wire harness might also use snap-on connectors rather than soldering.
For the 2000-007 Wave Soldering is used and individual components of the PCBA are manually placed onto the PCB by humans, and each individual part has a metal lead that goes through a hole. The PCB panels are then placed panel by panel into a wave solder machine, which sends a “wave” of solder across the entire panel. As the solder flows across the panel, it flows into the holes containing the leads, which secures the components to the boards and creates the electrical connections. In this case, the PCBA consists principally of four LEDs and two resistors. Upon completion of the steps described below, each finished PCBA is a complete light source with fully integrated LEDs and circuitry.
ISSUE:
What is the country of origin of the subject vehicle lamps for Section 301 purposes?
LAW AND ANALYSIS:
When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation will occur 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 C.C.P.A. 151 (1982). This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
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. 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 may be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
Substantial transformation, including the “name, character and use” test, was at issue in National Hand Tool Corp. v. United States. Therein, the Court of International Trade determined that certain mechanics’ tools did not undergo substantial transformation in the United States, and therefore, were not exempt from the marking requirements set forth in 19 U.S.C. § 1304. The court found that there was no change in name because each article as imported had the same name in the completed tool. The court also found that there was no change in character because the articles, which were either hot-forged or cold-formed into its final shape in Taiwan, remained the same after heat treatment, electroplating, and assembly in the United States. The court further determined that the use of the imported articles was predetermined at the time of entry – noting that each component was intended to be incorporated in a particular finished mechanics’ hand tool, except for one exhibit. Lastly, the court rejected the Plaintiff’s claim that the value added in the United States was relatively significant to the operation in Taiwan so that that substantial transformation should be found, noting that such a finding could lead to inconsistent marking requirements for importers who perform exactly the same processes on imported merchandise, but sell at different prices. Id.
The Court of International Trade more recently interpreted the meaning of “substantial transformation” in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016). 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 flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States and assembled into the finished Generation II flashlight. The Energizer court reviewed the “name, character and use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc., 3 C.I.T. at 226, 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.
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 predetermined 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. Virtually all of the components of the military Generation II flashlight, including the most important component, the LED, were of Chinese origin. Thus, the court determined that China was the correct country of origin of the finished Generation II flashlights for purposes of government procurement.
The Court of International Trade has also looked at the essential character of an article to determine whether its identity has been substantially transformed through assembly or processing. For example, in Uniroyal, Inc. v. United States, 3 C.I.T. at 225, the court held that imported shoe uppers added to an outer sole in the United States were the “very essence of the finished shoe” and thus the character of the product remained unchanged and did not undergo substantial transformation in the United States. Similarly, in National Juice Products Association v. United States, 10 C.I.T. 48, 61, 628 F. Supp. 978, 991 (1986), the court held that imported orange juice concentrate “imparts the essential character” to the completed orange juice and thus was not substantially transformed into a product of the United States.
CBP has often found that the origin of a light source to be a significant factor in determining the country of origin of a product. For example, in Headquarters Ruling Letter (“HQ”) H017620, dated February 5, 2008, CBP determined that the various imported components (individual parts and subassemblies) were substantially transformed because of the operations performed in the United States to produce both the lens head subassembly and the finished flashlight. In support of this conclusion, CBP noted that the U.S. origin LED imparted the essential character to the lens head subassembly and flashlight as it generated the primary light of the flashlight. See also HQ H215657, dated April 29, 2013, (referring to the LED as the “most important component” of the flashlight). However, CBP has also found the manufacture of components onto a PCBA is a substantial transformation.
In C.S.D. 85-25, 19 Cust. Bull. 844 (1985), CBP held that for purposes of the Generalized System of Preferences (“GSP”), the assembly of a large number of fabricated components onto a printed circuit board in a process involving a considerable amount of time and skill resulted in a substantial transformation. In that case, in excess of 50 discrete fabricated components (such as resistors, capacitors, diodes, integrated circuits, sockets, and connectors) were assembled onto a PCB. CBP determined that the assembly of the PCBA involved a very large number of components and a significant number of different operations, required a relatively significant period of time, skill attention to detail, and quality control.
In HQ H114395, dated May 18, 2011, CBP considered the country of origin of a digital light processing projector for the purposes of U.S. government procurement to be where the PCBA main board and the light source were assembled. The projector used LEDs from Taiwan as its light source for projecting photos and videos from mobile devices onto any surface. CBP considered origin of the projector under two manufacturing scenarios. In both scenarios, parts from Japan, China, Korea, Thailand, Taiwan and the United States were assembled to create the light engine and PCBA main board. In the first scenario, the light engine and PCBA main board were assembled in China and in the second scenario, the light engine and PCBA main board were assembled in Taiwan. In both scenarios, final assembly occurred in Taiwan. CBP determined that the light engine and the PCBA main board were the essence of the projector and their production was the last substantial transformation. Therefore, the country where the light engine module and PCBA main board module were assembled and programmed was the country of origin, meaning China in the first scenario and Thailand in the second.
In accordance with C.S.D. 85-25 and HQ H114395, for all three vehicle lamps currently under consideration, the assembly of the Japanese origin LEDs and the Mexican origin PCBAs in Mexico results in a substantial transformation. We find that the SMT and Wave Soldering processes incorporate a large number of discrete components parts onto a printed circuit board, which is a sufficiently “complex and meaningful” operation, so as to result in a substantial transformation of the parts making up the printed circuit board assembly. Here, the LEDs are one of the discrete components that are incorporated into the PCBA. Therefore, the assembly in Mexico results in a substantial transformation.
The assembly processing in China, which consists of assembling components together with screws, connectors, and soldering, is insufficient to amount to a substantial transformation of the PCBA with LED lights. While the plastic lenses and reflector contribute to the car lamps ability to diffuse the light in accordance with customer expectations, as in HQ H114395, the PCBA is already a complete light source with a fully integrated LED and circuitry. Consistent with the finding in Energizer, these processes are minor and do not change the shape or material composition of the component parts. The parts still retain their names once assembly is complete. For example, the lens is still the lens and the gasket is still the gasket. Therefore, we find that the country of origin of the LED vehicle lamps is Mexico, where the PCBA with LED lights is manufactured, and Section 301 measures do not apply.
HOLDING:
The country of origin of the vehicle lamps, for purposes of the application of subheading 9903.88.03, HTSUS, is Mexico. As the merchandise will be a product of the Mexico, Section 301 measures do not apply.
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 of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch