OT:RR:CTF:VS H306336 JW
Maureen E. Thorson
Wiley Rein LLP
1776 K Street NW
Washington, DC 20006
RE: Reconsideration of NY N306161; Country of Origin of Battery Packs; Section 301 Trade Remedy
Dear Ms. Thorson:
This is in response to your request for reconsideration of New York Ruling Letter (“NY”) N306161 issued on October 4, 2019. Your request for consideration, dated October 30, 2019, is filed on behalf of your client Inventus Power (“Inventus”). Your request includes a copy of Inventus’s original ruling request dated September 9, 2019. In addition to your written submission, U.S. Customs and Border Protection (“CBP”) personnel met with you and Inventus on December 10, 2019. During the meeting Inventus provided additional written information and you followed up with an email dated December 12, 2019.
You request the revocation of NY N306161, which found that Inventus’s medical battery packs may be marked as made in Mexico; however, the country of origin for the battery packs for Section 301 purposes was China. You argue that it should be “replaced with a determination that Inventus’s medical battery packs originate, for Section 301 purposes, in the country where final assembly operations take place, or otherwise in the country in which the PCBAs, and particularly the main board assembly, are produced through surface mounting operations.” See Request for Reconsideration at 3-4.
We reviewed your request for reconsideration and determined that New York Ruling Letter N306161 (“NY N306161”) is correct for the reasons set forth herein.
The items at issue are battery packs for mobile medical carts (“items at issue” or “battery packs”). Inventus’s original ruling request states that “[t]hese battery packs incorporate a main board assembly, a communications board assembly, wiring/wiring harnesses, fasteners, plastic housing components and, depending on the configuration of the pack, 48, 56, or 64 lithium-ion cells.” Attachment A at 1. In addition it appears that there are screws and washers, a communications cable and a plastic separator.
The main board assembly is sourced from China. It is a printed circuit board assembly (“PCBA”) created by mounting individual electronic components onto a raw printed circuit board through the use of surface mounting technology. The communications board assembly is also sourced from China. The communications board assembly consists of two data connector components and about 10 electronic components, all mounted onto a printed circuit board. The surface mounting operations for the main board assembly and communication board assembly are done in China; however Inventus notes that they anticipate re-sourcing the main board assembly and communications board assembly, inclusive of the surface mounting operations, to another country, and in all likelihood the country for sourcing the assemblies will be the same non-China country.
The lithium-ion cells, nickel contact strips and thermistors/tape are also sourced from China. The brass terminals, wiring/wiring harnesses, fasteners, insulating paper, and housing components are sourced from Mexico or the United States. The screws and washers are sourced from Mexico or the United States. The communications cable and the plastic separator are sourced from Mexico.
For ease of reference, a chart of where the components within the items at issue are sourced is provided below:
China
Mexico or the United States
main board assembly
(includes surface mounting operations)
brass terminals
communications board assembly
(includes surface mounting operations)
wiring/wiring harnesses
lithium-ion cells
fasteners (includes screws and washers)
nickel contact strips
insulating paper
thermistors/tape
housing components
(includes a top housing and a bottom housing)
plastic separator
screws and washers
communications cable
Once the main board assembly and the communications board assembly are created in China, they are sent to Mexico. In Mexico, brass terminals are mounted, with screws, washers and nuts, into the top housing of the battery pack. The communications board assembly is then screwed into the underside of the top housing. This process takes about two minutes.
The main board assembly is then installed into the top housing with screws and washers and a communications cable is attached to link the communications module on the communications board assembly with the main board assembly. This process takes about two minutes.
The lithium-ion cells are then connected to each other and the finished battery packs contain either 48, 56, or 64 cells. Washers are then attached to the lithium-ion cells and the lithium-ion cells are then connected using nickel contact strips. There is also further insulating paper separating groups of lithium-ion cells. Wiring/wiring harnesses are then attached to the full groups of lithium-ion cells and the connection points are sealed with tape. Thermistors are then installed along the wiring/wiring harnesses. This process takes about twenty minutes. It is also noted that these operations are performed by workers that have soldering experience.
The joined group of lithium-ion cells is then inserted into the bottom housing, a plastic separator is placed on top of the lithium-ion cells, and the wiring harness connected to the lithium-ion cells is fed through gaps in the plastic separator. The wiring harness is then connected with the main board assembly and the top housing, which already has the communications board assembly and main board assembly installed, is screwed to the bottom housing, which already has the lithium-ion cells and plastic separator installed. This process takes about two minutes.
Finally the battery pack is subjected to electrical testing. This process takes about three minutes.
Your request for reconsideration does not appear to dispute the finding in NY N306161 that the battery packs may be marked as made in Mexico. The dispute centers on whether China should be the country of origin for the battery packs for Section 301 purposes. Specifically, the request argues that the country of origin for the battery packs for Section 301 purposes should be in the country where (a) final assembly operations take place; or (b) the PCBAs, and particularly the main board assembly, are produced through surface mounting operations. See Request for Reconsideration at 3-4. There is no dispute that when determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. See e.g., Request for Reconsideration at 2-3; Attachment A at 1; NY N306161 at 3; and Headquarters Ruling (“HQ”) H303279 at 3.
Inventus argues that “[g]iven the complexity of the assembly processes performed in Mexico . . . the country of origin of the battery packs at issue here, under the substantial transformation test, is Mexico.” Attachment A at 10. However, we disagree that the assembly processes performed in Mexico result in a substantial transformation of these components sourced from China.
The test for determining whether a substantial transformation has occurred 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); see also Belcrest Linens v. United States, 741 F.2d 1368, 1372 (Fed. Cir. 1984). 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).
First, we find that the components sourced from China do not undergo a change in name when they are assembled into a battery pack in Mexico. The name of each article, as imported, remains the same as that article in the completed battery pack. See e.g., National Hand Tool, 16 C.I.T. at 311. As the constitutive components imported from China do not lose their individual names as a result of the post importation assembly in Mexico, no name change has occurred.
Turning to character, we find that there is no change in character as a result of the assembly operations in Mexico. For courts to find a change in character, there often needs to be a substantial alteration in the characteristics of the articles or components. See e.g., National Hand Tool, 16 C.I.T. at 311. Courts have not found a change in character when the “form of the components remained the same.” Id. In other cases, courts have looked to the “essence” of a completed article to determine whether an imported article has undergone a change in character as a result of post importation processing. Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (2016) (citing Uniden America Corp. v. United States, 120 F. Supp. 2d 1091, 1095-1098 (2000) and Uniroyal, Inc. v. United States, 3 C.I.T. 220 aff’d, 702 F.2d 1022 (Fed. Cir. 1983)). Here, the components sourced from China (i.e., either the lithium-ion cells according to NY N306161, or the main board assembly according to Inventus) impart the “essence” of the finished battery packs. The assembly operations in Mexico do not change the shape or material composition of any component sourced from China. The components sourced from China are simply held together as an aggregate product after the assembly operations in Mexico; hence we find that there is no change in character as a result of the assembly operations in Mexico.
In addition, we find that the components sourced from China do not undergo a change in use as a result of the assembly operations in Mexico. In looking at whether there is a change in use, courts have found that a change in use has occurred when the end use of the imported product was no longer interchangeable with the end use of the product after post importation processing; in contrast, when the end use was predetermined at the time of importation, courts have generally not found a change in use. Energizer Battery, 190 F. Supp. 3d at 1319 (citing Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535, 540-41 (1987); National Hand Tool, 16 C.I.T. at 311-12; Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121-22 (1996); Uniroyal, 3 C.I.T. at 226). “When articles are imported in prefabricated form with a pre-determined use, the assembly of those articles into the final product, without more, may not rise to the level of substantial transformation.” Id. (citing Uniroyal, 3 C.I.T. at 226). All of the components sourced from China have a predetermined end use as parts and components of a battery pack at the time of importation. For example, it is undisputed that the main board assembly that is sourced from China is imported in a prefabricated form with a pre-determined end use. See Tab A of Inventus’s Meeting Materials at 2 (“a custom-designed PCBA that Inventus produces in-house”). In addition, while Inventus notes that the lithium-ion cells sourced from China may be “used to produce products as disparate as single-cell power sources for flashlights or to complex back-up power systems,” the question is not whether the imported components could be used to make other products, but rather the proper query is “whether the components have a predetermined end-use at the time of importation.” See e.g., Energizer Battery, 190 F. Supp. 3d at 1323. Here, there does not appear to be any dispute from Inventus that at the time of importation these lithium-ion cells are intended to be incorporated into a battery pack. As Inventus’s imported components have a pre-determined end-use as parts and components of a battery pack at the time of importation; we find that the components sourced from China do not undergo a change in use due to the assembly process in Mexico.
Finally, we also find that the assembly operations in Mexico are not sufficiently complex as to constitute a substantial transformation. Inventus argues that the “complex, multi-step operations in Mexico that result in the finished battery” is performed by skilled workers with soldering experience. Attachment A at 10. Hence, Inventus concludes that given the complexity of the assembly process, the country of origin of the battery packs at issue, under the substantial transformation test, is Mexico. We disagree. While Inventus asserts that the assembly operations in Mexico require skilled workers with soldering experience, Inventus fails to discuss or provide any evidence as to the level of training or experience required by the workers.
Moreover, in describing the assembly process Inventus uses the words “mounted,” “screwed,” “installed,” “attached,” “connected,” “sealed,” “inserted,” “placed,” “fed,” and “test[ed]” and notes that this assembly process in Mexico takes about 30 minutes per battery pack. Id. at 2-3; Request for Reconsideration at 1. These factors do not suggest an assembly process that is complex, rather the assembly process in Mexico appears to be no more than the mere assembly of the components sourced from China (each imported with a predetermined end use) with components, as noted supra, from Mexico or the United States. In further support, we note that the assembly process described here, while taking slightly more time, is relatively similar to the assembly process described in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1325 (2016). Energizer Battery concerned the government procurement provisions of the Trade Agreements Act of 1979, but the court in looking at the concept of substantial transformation, looked to judicial interpretations of identical language in cases involving country of origin marking, duty drawback, transshipment, voluntary restraint agreements, and the generalized system of preferences. Id. at 1313, 1316. Energizer Battery found plaintiff’s post importation processing was not sufficiently complex as to constitute substantial transformation. Id. at 1323. In doing so, the court noted, “the nature of the assembly is broadly described as assembling, screwing, connecting and soldering approximately fifty components, many of which are simple attaching mechanisms. None of these factors suggest an assembly process that is complex.” Id. at 1324. Similarly here, with respect to the assembly process in Mexico, we do not find that there is anything to suggest that the assembly process is complex and find that the assembly operations in Mexico do not constitute a substantial transformation.
As discussed above, we find that the assembly processes performed in Mexico do not result in a substantial transformation of the components sourced from China. However, Inventus further argues that “to the extent that CBP deems the assembly operations performed in Mexico insufficiently complex to substantially transform non-Mexican components, Inventus believes that the country of origin should be the country in which the main board assembly is produced.” Attachment A at 10.
In the instant case, Inventus currently sources the main board assembly from China. Inventus notes that it may source the main assembly board (and also the communications board assembly) from an alternate country (i.e., a country other than China). Nonetheless, we agree with NY N306161 that “the battery cells, which store and provide power, impart the essence of the finished battery packs.” Id. at 3. We further find that even if the main assembly board is later sourced from a country other than China, the battery cells are not substantially transformed by the addition of this main assembly board sourced from a country other than China (or the assembly operations in Mexico as described above).
As noted above, there does not appear to be any dispute that for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. See supra. Inventus’s arguments appear to focus on whether the main board assembly is the “essence” of the item at issue. The “essence test” has generally been used by courts to determine in some instances whether there has been a change in character. Uniden Am. Corp., 120 F. Supp. 2d at 1096 (citation omitted). In applying the “essence” test to this case, the question is whether the main board assembly or whether the lithium-ion cells impart the essential character of the battery pack. See e.g., id. “The term ‘character’ is defined as ‘one of the essentials of structure, form, materials, or function that together make up and usually distinguish the individual.’” Id. (citation omitted).
Inventus asserts that the country where the main board assembly is produced should be the country of origin for Section 301 purposes because the main board assembly is integral to the functioning of the battery pack and provides five functions that are critical to the operation and overall safety of the battery packs. The five functions include: (1) safety monitoring functions, (2) charge control, (3) cell balancing, (4) fuel gauging, and (5) communication. Inventus further notes that “in the absence of the main PCBA, the battery pack would not be able to function as intended.” Request for Reconsideration at 2. To support the assertion that the main board assembly should dictate the origin of the finished good Inventus points to the following CBP decisions: NY N305104, NY N304425, NY N303008 and HQ H287548. In contrast, Inventus states that the battery packs at issue here are substantially more complex than the products considered in HQ H563045, HQ H561806, and HQ H704711 where CBP concluded that the battery cells provide the “essence” of the finished article.
We disagree with Inventus and agree with NY N306161 that the lithium-ion cells (and not the main board assembly) constitute the “essence” of the finished article, i.e., the battery packs. While it may be that the main board assembly is integral to the functioning of the battery pack and absent the main board assembly, the battery pack would not function as intended, the same can be said of the lithium-ion cells (and possibly most of the other components that make up the finished article as well). In addition, even though the battery packs here may be more complex than the products considered in HQ H563045, HQ H561806, and HQ H704711, they are nonetheless advertised in Inventus’s marketing materials as a “battery” to “power[] your mobile medical cart.” See Attachment 1 to Attachment A. As noted in Inventus’s marketing materials, the additional functions provided by the main board assembly are merely an “added benefit.” Id. The lithium-ion cells are not substantially transformed simply by putting them together in a plastic case or adding a main board assembly to provide “added benefit[s]”. The battery pack is used to power a medical cart and this power is stored and provided by the lithium-ion cells that are sourced from China. See e.g., Attachment A at 7 (“the individual cells in the battery packs are used to generate energy. . . .”). Hence, we find that the lithium-ion cells constitute the “essence” of the finished article and neither the assembly operations in Mexico, nor the potential addition of a main assembly board sourced from a country other than China, results in substantial transformation.
In addition, Inventus points to NY N305104, NY N304425, NY N303008 and HQ H287548 to support its assertion that the main board assembly should dictate the country of origin of the battery pack. However, we find that all of these decisions are distinguishable from the instant case for the reasons provided below. Even though these four decisions cited by Inventus involved PCBAs, as a threshold matter, unlike the prior three decisions cited in the paragraph above, none of these decisions involved battery packs or PCBAs for battery packs.
NY N305104 involved motor controllers and found that “the Control and Power PCBAs impart the essence of the finished controller.” Id. at 3. The motor controllers were for use in off road vehicles and fully programmable with varying motor configurations. The functionality of the Control and Power PCBAs is not clear as it was not discussed in depth in NY N305104; hence, other than the presence of a PCBA with unknown functionality, it is not clear to us how NY N305104 supports Inventus’s assertion that the country where the main board assembly is produced should be the country of origin for Section 301 purposes.
NY N304425 involved contactless reader modules. The reader modules were described as secure payment card readers. This decision found that the main PCBA was the essential component of the finished module as it was programmed to perform the function of scanning payment cards and communicating with the host controller. In contrast, here the battery pack is used to power a mobile medical cart and this power comes from the lithium-ion cells, not the main board assembly.
NY N303008 involved cellular telephones running on an operating system with capabilities such as cellular telephone and texting capability, ability to install and interact with applications, and a camera function. The PCBA here was found to impart the essential character to the cellular telephones. The PCBAs held the operating system software and seemingly also had at least the Bluetooth, Wi-Fi, GPS, and cellular telephone functions. The current case is distinguishable because the cellular phone in NY N303008 appears to contain a number of distinct functions and the PCBA appears to influence many if not all of these functions. In contrast, the battery packs at issue appear to only have one distinct function, which is to power the mobile medical cart, and this power comes from the lithium-ion cells, not the main board assembly. The main board assembly of these battery packs merely augment that one distinct function.
HQ H287548 involved, inter alia, monochrome laser printers. This decision found that the main PCB assembly and firmware was the essential character of the printer. The decision found that the main PCB assembly is the motherboard of the printers, communicates with the PC, houses the memory in the printer, forms the image printed on the page, includes key functional circuits, including mechanical control and printing data processing. Further, the decision noted that the firmware itself provides the control program for the printers and enables the main PCB assembly to control all printer functions. Again, this case is distinguishable from the case at hand because the printer appears to have more distinct parts that are involved in different stages of the printing process than the battery pack at issue. Compare e.g., HQ H287548 at 2-3 and Attachment A at 5. Moreover, the main PCB assembly and firmware in the printer appear to control a number of the distinct parts that are needed within the stages of printing. In contrast, as noted above, in this case the main board assembly only augments one distinct part of the item at issue: the lithium-ion cells.
Finally, in an email from Inventus to CBP dated December 12, 2019 as a follow up to CBP’s meeting with Inventus on December 10, 2019, Inventus cites HQ H170315. HQ H170315 involved satellite telephones with a number of manufacturing scenarios. Specifically, Inventus points to scenarios III, IV and V. For scenario III, Inventus notes that in finding Singapore to be the country of origin, “CBP found that ‘in this scenario, no one country’s operations dominate the manufacturing operations of the telephones. The boards assembled in Malaysia are important to the function of the phone, as is the U.K. software. But the assembly in Singapore completed the phone.’” Inventus email dated December 12, 2019. For scenarios IV and V, Inventus notes that “[f]or similar reasons, CBP came to the same conclusion with respect to Scenarios IV and V in the ruling, in which one of the two PCBAs was assembled/programming in Malaysia, the other was assembled/programmed in Singapore, and final assembly took place in Singapore.” Id. Hence, Inventus argues that the lithium-ion cells and the main board assembly in the instant case are analogous to the application board and transceiver board in HQ H170315, and it follows that if the “PCBA for the U1Life battery pack is made in Mexico and final assembly takes place there, then Mexico would be the country of origin, even if the cells are from China.” Id. We disagree. In contrast to HQ H170315 scenarios III, IV and V where the country of final assembly was found to be the country of origin because components and manufacturing operations of different countries were found to be equally important, as discussed above, we find that the lithium-ion cells (and not the main board assembly) constitute the “essence” of the finished article. The finished article here is a “battery” to “power[] your mobile medical cart.” See Attachment 1 to Attachment A. This power is stored and provided by the lithium-ion cells that are sourced from China. See e.g., Attachment A at 7 (“the individual cells in the battery packs are used to generate energy. . . .”). As noted in Inventus’s marketing materials, the main board assembly only provides “added benefit[s].” Attachment 1 to Attachment A.
Accordingly, we agree with NY N306161 that “the battery cells, which store and provide power, impart the essence of the finished battery packs.” Id. at 3. We further find that even if the main assembly board is later sourced from a country other than China, the battery cells are not substantially transformed by the addition of this main assembly board sourced from a country other than China (or the assembly operations in Mexico).
We affirm NY N306161. We find that NY N306161 correctly applied the substantial transformation test to determine that the country of origin for the items at issue for Section 301 purposes was China. Id. at 3. We further agree with NY N306161 that “[p]ursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8507.60.0020, HTSUS, unless specifically excluded, are subject to an additional 15 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.15, in addition to subheading 8507.60.0020, HTSUS, listed above.” Id. at 3.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch