OT:RR:CTF:VS H312859 AP
Mr. Jorge L. Garcia
Parker & Company
8101 San Gabriel
Laredo, TX 78045
RE: Unassembled dog pens and extension kits; USMCA; Country of Origin; Section 301
Dear Mr. Garcia:
This is in response to your July 31, 2020 ruling request, on behalf of Clearly Love Pets LLC (“importer”), concerning the eligibility of certain unassembled dog pens and extension kits for duty-free treatment under the United States-Mexico-Canada Agreement (“USMCA”) and their country of origin for purposes of Section 301 trade remedies.
The total costs of the dog pen and extension kit components submitted in connection with this ruling request will be treated as confidential pursuant to 19 C.F.R. § 177.2(b)(7). The information contained within brackets and the bills of materials forwarded to our office will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
The goods at issue are unassembled Lucidium dog pens (small, medium, large) and extension kits. Each dog pen consists of acrylic walls, aluminum tubes and plastic connectors, and comes in four colors, three sizes, and two heights. The acrylic sheets forming the acrylic door and wall panels will be cut in Mexico by computer numerical control (“CNC”) machine from U.S.-originating acrylic. The door of the dog pen will be pre-assembled in Mexico and will be packaged together with the other components and exported to the U.S. as an unassembled pen. The wall panels, tubes, connectors, and hardware will remain unassembled until they are received by the U.S. consumer. Based on the information in your submission, the National Commodity Specialist Division (“NCSD”) determined that by application of General Rules of Interpretation (“GRIs”) 1, 2(a), and 6, the unassembled dog pen would be classifiable in subheading 3924.90.5650, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”).
The individual component parts of the pen are:
Components: Origin: HTSUS: Total Cost:
Door assembly:
Door latch assembly (2 sets) China 8301 $[ ]
Die cast hinges (2 pcs) China 8302 $[ ]
Stainless steel hinge nut plate (2 pcs) China 8301 $[ ]
Plastic corner connector (2 pcs) China 3926 $[ ]
Plastic wall connector (2 pcs) China 3926 $[ ]
Plastic lock sleeve China 3926 $[ ]
Plastic pivot-moving China 3926 $[ ]
Plastic catch-moving China 3926 $[ ]
Plastic pivot-fixed China 3926 $[ ]
Plastic catch-fixed China 3926 $[ ]
Stainless steel gusset China 7326 $[ ]
Stainless steel panel screw set (4 pcs) China 7318 $[ ]
Stainless hinge screws (8 pcs) Taiwan 7318 $[ ]
Stainless steel hinge lock nuts (4 pcs) Taiwan 7318 $[ ]
Plated steel pivot screw Taiwan 7318 $[ ]
Aluminum swing tube Taiwan 7608 $[ ]
Aluminum hinge tube Taiwan 7608 $[ ]
Aluminum cross tube (15 pcs) Taiwan 7608 $[ ]
Aluminum wall tube (4 pcs) Taiwan 7608 $[ ]
Aluminum corner tubes (3 pcs) Taiwan 7608 $[ ]
Structural adhesive Mexico 3506 $[ ]
Foam spacer USA/Mexico 3921 $[ ]
Acrylic door panels USA/Mexico 3920 $[ ]
Plastic film logo sticker USA/Mexico 3919 $[ ]
Plastic door spacer USA/Mexico 3920 $[ ]
Plastic polybag USA/Mexico 3923 $[ ]
Total cost: $[ ]
The remaining components of the pen:
Aluminum corner tube (3 pcs) Taiwan 7608 $[ ]
Bagged stainless steel panel screw set China 7318 $[ ]
Bagged plastic connectors (1 bag) China 3926 $[ ]
Bagged plastic connectors, 4 corners (1 bag) China 3926 $[ ]
Bagged plastic connectors, 4 walls (1 bag) China 3926 $[ ]
Polybag China 3923 $[ ]
Steel hex key (Allen key) USA/Mexico 8204 $[ ]
Cardboard shipping carton USA/Mexico 4819 $[ ]
Cardboard acrylic box USA/Mexico 4819 $[ ]
Cardboard corner protectors (4 pcs) USA/Mexico 4823 $[ ]
Cardboard tube wrap (2 pcs) USA/Mexico 4819 $[ ]
Cardboard filler USA/Mexico 4823 $[ ]
Expanded polystyrene block USA/Mexico 3926 $[ ]
Acrylic wall panels (7 pcs) USA/Mexico 3920 $[ ]
Printed user guide USA/Mexico 4911 $[ ]
Wooden pallet Mexico $[ ]
Total Cost: $[ ]
The extension kit consists of aluminum tubes, acrylic wall panels, and plastic connectors allowing for the expansion of the pen by two feet in one direction. No parts will be pre-assembled. The extension kit will be packaged and sold separately from the dog pen and will be imported unassembled from Mexico. The NCSD determined that by application of GRIs 1, 2(a), and 6, the unassembled extension kits would be classifiable in subheading 3926.90.9985, HTSUSA.
The extension kits consist of the following component parts:
Components: Origin: HTSUS: Total Cost:
27” kit:
Acrylic wall panels (2 pcs) USA 3920 $[ ]
Aluminum wall tube (2 pcs) Taiwan 7608 $[ ]
Aluminum cross tube (4 pcs) Taiwan 7608 $[ ]
Plastic wall connector (4 pcs) China 3926 $[ ]
Stainless steel panel screw (9 pcs) China 7318 $[ ]
Stainless steel panel nut (9 pcs) China 7318 $[ ]
Steel hex key China 8204 $[ ]
Total Cost: $[ ]
36” kit:
Acrylic wall panels (2 pcs) USA 3920 $[ ]
Aluminum wall tube (2 pcs) Taiwan 7608 $[ ]
Aluminum cross tube (4 pcs) Taiwan 7608 $[ ]
Plastic wall connector (4 pcs) China 3926 $[ ]
Stainless steel panel screw (9 pcs) China 7318 $[ ]
Stainless steel panel nut (9 pcs) China 7318 $[ ]
Steel hex key China 8204 $[ ]
Total Cost: $[ ]
ISSUES:
Whether the unassembled pen and extension kits containing non-USMCA originating components will be eligible for preferential tariff treatment under USMCA when they are imported from Mexico into the U.S.
What is the country of origin for the pen and the extension kit for the purposes of Section 301 remedies?
LAW AND ANALYSIS:
USMCA Preferential Treatment
The 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 states, in relevant part:
… (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-
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
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
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.
…
(c) [Format adjusted for alignment.]
Regional value content. -- Except as provided in subdivision (c)(v) of this note, the regional value content of a good shall be calculated, at the choice of the importer, exporter or producer of such good, on the basis of— (A) the transaction value method set out in subdivision (c)(ii) or (B) the net cost method set out in subdivision (c)(iii).
Transaction value method. --- An importer, exporter or producer of a good may calculate the regional value content of the good on the basis of the following transaction value method: 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 nonoriginating materials, including materials of undetermined origin, used by the producer in the production of the good….
The merchandise imported into the United States will qualify for preferential tariff treatment under USMCA if it meets one of the origin criteria enumerated in GN 11(b). You state that while the acrylic sheets forming the acrylic door and wall panels will be cut in Mexico from U.S.-originating acrylic, only the door of the dog pen will be pre-assembled in Mexico. The rest of the components of the unassembled pen and expansion kits, mostly from China and Taiwan, will be imported from Mexico into the U.S. packaged separately. Therefore, the unassembled dog pens and extension kits are not goods “wholly obtained or produced entirely” in Mexico pursuant to GN 11(b)(i) or “produced entirely” in Mexico “exclusively” from originating materials pursuant to GN 11(b)(ii).
It should be further noted that the pens and extension kits are not “a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials” under GN 11(b)(iii) because they do not satisfy “all applicable requirements.” Under GN 11(l)(xvi), “production” means “growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing or assembling a good” or “the farming of aquatic organisms through aquaculture,” and does not include packaging. Thus, the nonoriginating materials packaged as part of the kits in Mexico will not satisfy “all applicable requirements” of GN 11.
Next, GN 11(b)(iv) provides exceptions to the tariff shift rule under GN 11(b)(iii). Since the pen and extensions containing nonoriginating materials are imported into the U.S. unassembled and are classified as assembled goods pursuant to GRI 2(a), HTSUS, they may qualify as USMCA-originating goods pursuant to GN 11(b)(iv)(B)(2) and (C) if the regional value content (“RVC”) of the pen and the extensions calculated under GN 11(c)(i)-(ii) is not less than 60 percent if the transaction value is used. Based on the formula RVC = ((TV-VNM)/TV) X 100 in GN 11(c)(ii), HTSUS, and the documentation submitted by the importer, the RVC of each the dog pens and the extension kits are not less than 60 percent. Accordingly, the dog pens and extension kits will qualify as USMCA-originating goods.
Country of Origin for Purposes of Section 301 Remedies
The U.S. Trade Representative (“USTR”) has determined that an additional ad valorem duty of 7.5 percent 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. Among the subheadings listed in U.S. Note 20(s)(i) of Subchapter III, Chapter 99 are 3924.90.56 and 3926.90.99.
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. 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). 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 Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d per curiam, 989 F.2d 1201 (Fed. Cir. 1993), the court determined that certain hand tool components used to make flex sockets, speeder handles, and flex handles were not substantially transformed within the U.S. The components were cold-formed or hot-forged into their final shape prior to importation, with the exception of speeder handle bars, which were reshaped by a power press after importation, and the grips of the flex handles, which were knurled in the U.S. After entry, the imported items were heat treated to strengthen the components, sand-blasted to clean the components, and electroplated to better enable the components to resist rust and corrosion. The court noted that the processing which occurred within the U.S. did not alter the name of the imported components, the character of the parts remained substantially unchanged upon the completion of such processing, and the intended use of the articles was predetermined at the time of importation.
In Headquarters Ruling Letter (“HQ”) 734737, dated Dec. 17, 1992, foreign-made drawer slides were imported into the U.S. in bulk. After importation, the drawer slides were sold to distributors or manufacturers of unassembled furniture kits who packaged the slides in retail boxes containing other furniture components of U.S. origin. The cost of the drawer slides was not de minimis. The drawer slides sold as part of a furniture kit had to be individually marked to indicate their country of origin at the time of importation.
The individual components of the dog pen are manufactured in China, Taiwan, Mexico, and the U.S. while the individual components of the extension kits are manufactured in the U.S., Taiwan, and China. The steel hex key (Allen key) originates in the U.S. or Mexico. The U.S. acrylic for the walls of the dog pen and the extension kits and for the door of the dog pen will be cut in Mexico. Only the acrylic door will be produced in Mexico. The substantial transformation of the remaining components of the dog pens and the extension kits occurs when they are produced in China and Taiwan. Just like the hand tool components in Nat’l Hand Tool Corp., the components of the dog pens and the extension kits have a predetermined use and their character and use remain unchanged after their assembly by the final U.S. purchaser. The assembly after purchase in the U.S. is a relatively simple combining operation that does not change the name, character, or use of the individual components of the dog pens and the extension kits. See Texas Instruments; Belcrest Linens; Uniroyal, supra.
HQ 734737, supra (citing Treasury Decision 91-7), noted that “if the materials or components are not substantially transformed as a result of their inclusion in a set or mixed or composite goods, then, subject to the usual exceptions, each item must be individually marked to indicate its own country of origin.” In HQ 734737, the cost of the drawer slides was not de minimis and the slides imported as parts of kits had to be marked to indicate their country of origin. Screws were not subject to marking because their value was de minimis. Here, the door produced in Mexico and the wall panels will not require marking because they are made of U.S. acrylic. The pens and extensions’ loose tubes of Taiwanese origin will have to be marked “Made in Taiwan.” The screws, nuts, steel hex key, and plates are insignificant parts of the dog pens and extensions, and as such they are not subject to marking. The cost of the pens and extensions’ Chinese connectors is de minimis and as a result, the connectors will not need to be marked.
Therefore, the countries of origin of the instant dog pens and extensions will be U.S. and Taiwan.
HOLDING:
Based on the information provided, the unassembled Lucidium dog pens and extension kits will be eligible for preferential tariff treatment under USMCA when imported into the U.S. from Mexico. The countries of origin of the dog pens and extensions for purposes of
Section 301 remedies will be U.S. and Taiwan.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the 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 ruling letter by a [CBP] field office to the transaction to which it is purported to relate is 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