OT:RR:CTF:VS H312437 RSD
Ms. Julie Turvold
Windings Inc.
208 N. Valley Street
New Ulm, Minnesota 56073
RE: USMCA Eligibility; Stator Assembly; Country of Origin; Marking; 19 U.S.C. § 1304; Trade Remedy Section 301 Duties
Dear Ms. Turvold:
This is in response to your ruling request, filed on June 21, 2020, on behalf of Windings Inc. (“importer”) requesting a binding ruling regarding the eligibility for preferential tariff treatment under the United States-Mexico-Canada Agreement (“USMCA”), for stator assemblies, their country of origin for purposes of marking under 19 U.S.C. 1304, and applicability of Section 301 trade remedy duties.
FACTS:
The product under consideration is a stator assembly, specifically a 4-pole type stator assembly presently being processed in Mexico and imported into the United States. However, you indicate that it is currently exported to the United States as a Chinese product, which is assembled in Mexico. The stator assembly will be used as a part of an electric auxiliary hydraulic pump motor for the Boeing 737 aircraft. The finished stator assembly consists of an elaborate electric stator stack and other materials that originate in the USMCA territory with one exception. Near the end of the assembly process, a Chinese origin metal housing is installed on the stator assembly to provide protection to the electric stator. You claim that this housing is a simple external component that only serves as support and to protect the mechanism and its internal components. Thus, you contend that the housing is not an essential part of an electric motor. Instead, you maintain that the essential element of the product is the U.S.-origin laminated stack, which is currently classified under heading 8503, Harmonized Tariff Schedule of the United States (HTSUS), and is sourced from Dix-Mex S.A. of C.V. You have provided the following parts list used to make the stator assembly:
.
You indicate that the following steps are involved in the assembly of the stator assemblies:
Stack/core washing and cleaning.
End lam bonding to stack/core.
Stack/core Internal Diameter machining.
Stack/core Outer Diameter precision machining
Stack/core hole drilling precision machining.
Stack/core visual and mechanical inspection.
Prepare and install dielectric protection insulation into stack/core.
Prepare, wind, and insert coil bundles into stack/core.
Prepare and install insulation coil retainers into stack/core.
Prepare and install sleeving over magnet wire leads.
Cut coil winding leads.
Install phase insulators into coil end bundles.
Top and bottom lace winding.
Pre-form coil winding with hydraulic press.
Top and bottom second lace winding.
Form coil winding with hydraulic press.
Stator visual, mechanical, and electrical Inspection before varnishing.
Stator preparation/masking for varnishing.
Stator varnishing (Vacuum + drain + cure).
Stator sand and wipe out after varnishing.
Stator visual, mechanical, and electrical Inspection after varnishing.
Housing installation onto stator (this process is very simple).
Stator/housing assembly visual, mechanical, and electrical final inspection.
Export to USA.
ISSUES:
Whether the stator assemblies are eligible for preferential tariff treatment under the USMCA when they are imported from Mexico into the United States.
What is the country of origin for marking purposes of the stator assemblies that are assembled in Mexico?
What is the country of origin of the stator assemblies for purposes of applying Section 301 trade remedy duties?
LAW AND ANALYSIS:
Eligibility for USMCA
The United States-Mexico-Canada Agreement (“USMCA”) was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). General Note (GN) 11 of the HTSUS implements the USMCA. GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a "good originating in the territory of a USMCA country" only if—
1) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
2) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
3) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
…
Since the stator assemblies contain non-originating materials, they are not considered goods wholly obtained or produced entirely in a USMCA country under GN 11(b)(i) and GN 11(b)(ii). Thus, we must next determine whether the lower bearing assemblies qualify under GN 11(b)(iii).
The National Commodity Specialist Division has determined that the applicable subheading for the stator assemblies is 8503.00.65, HTSUS, which provides for:
Parts suitable for use solely or principally with the machines
of heading 8501 or 8502:
The applicable rule of origin for merchandise under heading 8503 HTSUS, is in GN 11(o), HTSUS, which provides, in relevant part:
A change to heading 8503 from any other heading.
According to the list of the parts used in making the stator assemblies and the tariff classifications for those parts that you have submitted, there is one part which is nonoriginating, the housing which is classified in heading 8503, HTSUS, prior to the production of the stator assembly. Consequently, there is a material used to make the stator assemblies that does not undergo a change in tariff classification, and the applicable tariff shift rule set forth in GN 11(o)/ Rule 3 to Chapter 85, HTSUS is not satisfied.
Although the stator assembly does not meet the applicable tariff shift rule, the good may still qualify for the tariff preference provided it satisfies the requirements of GN 11(b)(iv). This rule provides that:
(b) For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a "good originating in the territory of a USMCA country" only if--
(iv) except for a good provided for in any of chapters 61 through 63—
(A) the good is produced entirely in the territory of one or more USMCA countries;
(B) one or more of the nonoriginating materials provided for as parts under the tariff schedule and used in the production of the good do not satisfy the requirements set forth in this note because—
(1) both the good and its materials are classified under the same subheading or under the same heading that is not further subdivided into subheadings; or
(2) the good was imported into the territory of a USMCA country in unassembled form or disassembled form but was classified as an assembled good pursuant to general rule of interpretation 2(a) of the tariff schedule, and
(C) the regional value content of the good, determined in accordance with subdivision (c) of this note, is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used, and such good satisfies all other applicable provisions of this note.
If the good meets all the requirements in GN 11(b)(iv), including the regional value content (RVC) thresholds, then it would qualify as originating and would be eligible for preference even though the merchandise is not wholly obtained/produced and does not meet the “regular” tariff shift rule in GN 11(o). GN 11(b)(iv) was intended to address a scenario where the regular tariff shift rule cannot be met because the nonoriginating material is classified as a “part” in the same provision as the good. This provision appears to apply in this case because the stator assembly is classified in heading 8503.00, HTSUS, and the housing is a part of the stator assembly, which is also classified in heading 8503.00, HTSUS, and the heading 8503, HTSUS, is not further divided into subheadings. Accordingly, to see if the stator assemblies qualify as a USMCA originating good, it is necessary to determine if the RVC requirement has been satisfied.
GN 11(c), HTSUS, provides the methods for calculating RVC for purposes of the USMCA. The information provided is based on the price that you paid for the stator assemblies from your supplier. Thus, it appears that you will be utilizing the transaction value method in your calculations, which means that the RVC must be greater than 60 percent. The transaction value method is set forth in GN 11(c)(ii), HTSUS, which provides as follows:
RVC= ((TV-VNM)/TV) X 100 where RVC means the regional value content of the good, expressed as a percentage; TV means the transaction value of the good adjusted to exclude any costs incurred in the international shipment of the good; and VNM means the value of non-originating materials, including materials of undetermined origin, used by the producer in the production of the good.
You provided a costed bill of materials and indicate that the importer pays a price of ${ } to their supplier for their assembly of the stator assembly part (#20762). This price would include materials supplied, labor and any overhead involved in making the product. The only non-originating housing would be the stator housing. You also state that the price that the importer paid for the housing (#21252) ordered from another supplier and provided to the supplier of the stator assembly, was a total of ${ } per part, which includes: ${ } plus a tariff fee of ${ } per piece.
Based on these figures, the RVC of the stator assemblies is { } percent, which meets the RVC rule of requirements of GN 11(b)(iv)(C) calculated under the transaction value method. Accordingly, the stator assembly classified under heading 8503.00, HTSUS, will qualify as a USMCA originating good based on the costs that you have provided and would be eligible for the tariff preference under the USMCA.
Country of Origin Marking
The marking statute, Section 304(a), Tariff Act of 1930, as amended (19 U.S.C. § 1304(a)), 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 manner as to indicate to an 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 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.
Pursuant to section 102.0, interim regulations, related to the marking rules, tariff-rate quotas, and other USMCA provisions, published in the Federal Register on July 6, 2021 (86 FR 35566), the rules set forth in §§ 102.1 through 102.18 and 102.20 determine the country of origin for marking purposes with respect to goods imported from Canada and Mexico. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes, with the exception of textile goods which are subject to the provisions of 19 C.F.R. § 102.21. Applied in sequential order, the required hierarchy establishes that:
The country of origin of a good is the country in which:
(a)(1) The good is wholly obtained or produced;
(a)(2) The good is produced exclusively from domestic materials; or
(a)(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied.
As the subject merchandise is not wholly obtained or produced in a single country, 19 CFR 102.11(a)(1) is inapplicable.
As the subject merchandise is not produced exclusively from domestic materials, 19 CFR 102.11(a)(2) is inapplicable. Accordingly, we will examine whether Rule (a)(3) applies.
Section 102.20 sets forth specific rules by tariff classification. The pertinent tariff shift rule for heading 8503 is:
A change to heading 8503 from any other heading.
The subject merchandise incorporates the housing of Chinese origin which is classified in heading 8503, HTSUS. Accordingly, in this instance the tariff shift requirement of section 102.11(a)(3) is not met.
Because section 102.11(a) has not produced a country of origin determination, we turn to section 102.11(b) of the regulations. Section 102.11(b) provides:
Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good,
When determining the essential character of a good under 19 C.F.R. § 102.11, 19 C.F.R. § 102.18(b)(1) provides that only domestic and foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the § 102.20 specific rule or other requirements applicable to the good shall be taken into consideration. In this case, there are two materials used in the production of the stator assemblies that do not undergo the applicable tariff shift of the 19 C.F.R § 102.20. The two materials are the Parker HSD Stator Stack of United States origin and the Housing Assembly Parker HSD of Chinese origin.
Section 102.18(b)(2), Customs Regulations (19 C.F.R. § 102.18(b)(2)), provides: For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under § 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following: (i) The nature of each material, such as its bulk, quantity, weight, or value; and (ii) The role of each material in relation to the use of the good.
Of the parts that do not undergo the applicable tariff shift requirement, we find that the stator stack is the item, which contributes the main function of the finished stator assembly, which is to provide a magnetic field that drives the rotor of the electric motor. In contrast, the other material in the stator assembly that does not undergo the applicable tariff shift, the housing assembly, merely acts to hold the other internal components of the stator assembly together and to serve as protection for those internal components. Therefore, in accordance with 19 C.F.R. § 102.18(b)(2)(ii), we find that the country of the origin of the stator assembly under 19 C.F.R. § 102.11 for the purposes of the marking requirements of 19 U.S.C. § 1304 would be the United States, the country where the stator stack is produced. Since the country of origin for marking purposes will be the United States, they will be excepted from country of origin marking requirements of 19 U.S.C. § 1304. Please note that if you wish to mark the stator assemblies or the packaging containing these stator assemblies to indicate that they are “Made in the USA,” the marking must comply with the requirements of the Federal Trade Commission (“FTC”). We suggest that you direct any questions on this issue to the FTC.
Section 301 Trade Remedy Duties
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). See Section XXII, Chapter 99, Subchapter III, U.S. Note 20(r), HTSUS. The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(s)(i), HTSUS.
When determining the country of origin for purposes of applying 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. This determination is based on the totality of the evidence. See Texas Instruments, Inc. v. United States, 681 F.2d 778 (CCPA 1982). In deciding 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. See Belcrest Linens v. United States, 6 CIT 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. Factors which may be relevant in this evaluation may include the nature of the operation (including the number of components assembled), the number of different operations involved, and whether a significant period of time, skill, detail, and quality control are necessary for the assembly operation. 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. See Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983).
In HQ H313371, dated March 30, 2021, we explained that it is generally CBP’s position that the country of origin of an electric motor will be determined by where the two most essential components of an electric motor, the rotor, and the stator, are made. Furthermore, in turn, the country of origin of the stator and rotor will often be based upon the country where the cores of these components are made. We explained that in each of the four scenarios that were presented, there were notable components produced in several different countries, but the most essential components of the stator-rotor assemblies were still the stator cores and the rotor cores. We found that the production process involved in making the stator-rotor assemblies for the motors did not result in a substantial transformation of the various components and subassemblies. Consequently, the country of origin of the stator-rotor assemblies for use in the electric motors was determined by where the stator cores and the rotor cores were produced.
In this case, various components from the United States, Canada, Mexico, and China are further processed and put together to make the finished stator assemblies in Mexico. The only component used in the production of the stator assembly that is of Chinese origin is the housing assembly. We note that the housing assembly only holds together and protects the functioning components of the stator assembly. Thus, we find that the housing assembly is not a significant enough component of the finished stator assembly which would control its country of origin. Rather, upon consideration, we conclude that the U.S. origin Parker stator stack is the dominant component of the stator assembly because it contributes to the main function of the finished stator assembly by providing the magnetic field that drives a rotor allowing the electric motor in which it will be installed to function as intended. Thus, we find that the Parker stator stack imparts the essence to the finished product. Since the stator stack is of U.S. origin, we hold that the country of origin of the stator assembly unit for Section 301 trade-remedy duties is the United States. Therefore, the Section 301 trade remedy duties are not applicable to the stator assemblies.
HOLDING:
Based on the information presented, the stator assemblies are USMCA originating, and thus they are eligible for preferential tariff treatment under the U.S.-Mexico-Canada Agreement. As a product of the United States, the stator assemblies are not subject to the country of origin marking requirements of 19 U.S.C. 1304, and Section 301 trade remedy measures will not apply.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all the information furnished in connection with the ruling letter by [CBP] field office to the transaction to which it is purported to relate is ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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,
Monika R. Brenner, Chief
Valuation and Special Programs Branch