OT:RR:CTF:VS H314180 AP
Michael Gamble
Managing Consultant
Expeditors Tradewin, LLC
1015 Third Avenue
Seattle, WA 98104
RE: Combination refrigerator and freezer unit; Country of origin determination for purposes of Section 301 remedies
Dear Mr. Gamble:
This is in response to your September 4, 2020 ruling request, on behalf of Dometic North America (“Dometic”), regarding the country of origin of a combination refrigerator and freezer unit (model number DM2672) for purposes of application of subheading 9903.88.03, Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for “… articles the product of China, as provided for in U.S. note 20(a) to this subchapter and as provided for in the subheadings enumerated in U.S. note 20(b) [to this subchapter]” and that applies an additional 25 percent ad valorem rate of duty.
FACTS:
The merchandise at issue is a finished combination refrigeration and freezer unit, which Dometic states is classifiable under subheading 8418.10.00, HTSUS. The unit is assembled in Mexico from components manufactured in Mexico, the United States, China, Poland, Indonesia, Sweden, and Taiwan. There are over 190 component parts in each combination refrigerator and freezer unit.
Under scenario 1, approximately 46 percent of the component parts have Mexican origin, approximately 44 percent have Chinese origin, approximately 8 percent have U.S. origin, and the remaining originate from Poland, Indonesia, Taiwan and Sweden. The foamed cabinet assembly, the gas valve burner assembly, the power/control module assembly power, and the wire shelving are manufactured in Mexico. The foamed cooling unit assembly, the integrated control wiring assembly, the fin pack assembly, the door assemblies, the bottom plastic shelves, the control interface display and bezel, and the light-emitting diode (“LED”) light/switch assembly are manufactured in China. The drain hose, the drip tray, the secondary burner housings/plate, the handle assemblies, the middle plastic shelves and the crisper bins and covers are manufactured in the U.S. The heater assembly is manufactured in Poland, the thermistor assembly in Sweden, the baffle assembly in Indonesia, and the hardware components in Taiwan.
Under scenario 2, approximately 69 percent of the component parts have Mexican origin, approximately 29 percent have Chinese origin, 0.07 percent have U.S. origin, and the remaining originate from Poland, Indonesia, Taiwan and Sweden. The foamed cabinet assembly, the gas valve burner assembly, the power/control module assembly power, the wire shelving, the integrated control wiring assembly, the fin pack assembly, the door assemblies, the plastic shelving, the control interface display and bezel, the drain hose, the drip tray, the secondary burner housings/plate, the handle assemblies, the plastic shelving, and the crisper bins and covers are manufactured in Mexico. The foamed cooling unit assembly and the LED light/switch assembly are manufactured in China. The heater assembly is manufactured in Poland, the thermistor assembly in Sweden, the baffle assembly in Indonesia, and the hardware components in Taiwan.
Below are images of the individual subassemblies and components of the unit:
The integrated control wiring sub-assembly interconnects the control interface display to the power control module after subsequent wiring and assembly steps in Mexico. The fin pack sub-assembly will transfer heat from the fresh food compartment to the cooling unit once they are assembled together in Mexico. The door sub-assemblies are the exterior refrigerator and freezer doors that seal and provide access to the inner compartments after they are attached to the cabinet assembly in Mexico.
The components involved in the foamed cabinet sub-assembly include a refrigerator liner thermo-formed in Mexico with Mexican-origin plastic, a freezer box manufactured in Mexico from U.S.-origin aluminum sheet and U.S. injection-molded plastic, a front frame welded and painted in Mexico from Chinese-origin metal, flat aluminized chipboard of U.S.-origin bent into the jacket in Mexico, and an insulation foam mixture of Mexican-origin chemicals.
The components involved in the gas valve burner sub-assembly include a valve of Italian origin, an ignition electrode assembly of Chinese origin, brackets and a mounting of U.S. origin, a jet assembly of French origin, a burner tube of Chinese origin, and fasteners of various origins. The gas valve burner assembly is the secondary heat source for the cooling unit. It delivers gas to the burner system to create an open flame.
The components involved in the power control module sub-assembly include a power control module of Mexican or Canadian origin, brackets of U.S. origin, and power cord and wiring assemblies of Chinese origin. The power control module assembly is the main control system for the unit. It has 12V DC and 120V AC power connection inputs.
The foamed cooling unit sub-assembly is filled with R717 refrigerant, hydrogen gas, and sodium chromate in China. It is not functional as a cooling element without the subsequent addition of controls, heat sources, and other complimentary components that are assembled with it in Mexico as part of the finished unit.
The LED light sub-assembly is a small light that turns on when the refrigerator door is opened. The finished unit could function without the LED light sub-assembly.
The heater sub-assembly is the primary heat source for the cooling unit. The baffle sub-assembly controls the rate of heat escaping from the heat exhaust tube. The thermistor sub-assembly is a monitoring device to measure the temperature of the fresh compartment and delivers data to the refrigerator temperature controls.
In Mexico, the thermistor wire, display wire sub-assembly, and drain hose are threaded through their respective holes in the cabinet sub-assembly, and putty is used to seal the holes. The assembler in Mexico installs the fin pack sub-assembly to the back of the cabinet and applies mastic. The mastic seals between and adheres the fin pack to the fresh food cabinet liner to prevent air leaks in the finished unit.
The Mexican assembler places the cooling unit subassembly into a cavity in the foamed cabinet subassembly and screws it into place. Aluminum tape is applied to the cooling unit to create a moisture barrier seal. The display wire subassembly ends are routed through and around the cooling unit. The heater sub-assembly is installed on the cooling unit, and the side and back heat shields are connected and secured to the flute on the cooling unit. Units with factory installed fans have a thermal switch secured to the fin pack for connection to the fan wiring and a fan bracket screwed to the back of the cabinet frame.
The power control module sub-assembly and gas valve burner assembly are secured to the back of the unit. The gas valve burner sub-assembly attaches to the boiler tube section of the cooling unit with complementary wiring connections. There are a series of additional wiring connections between the control module and the LED light, display, thermistor, heater, fan, gas valve burner, and thermal switch.
Screws are inserted into holes in the freezer liner and fin pack to connect them to the evaporator coil of the cooling unit assembly. Connection of the freezer liner to the evaporator section of the cooling unit permits absorption of heat in the air inside the freezer compartment to the evaporator coil of the cooling unit. Connection of the fin pack in the fresh food compartment to the evaporator section of the cooling unit permits absorption of heat in the air inside the fresh food compartment to the evaporator coil of the cooling unit. The insulation around the cooling unit and the immediate contact of the evaporator coil to the freezer liner and the fin pack of the fresh food compartment prevents the potential warm air condensation between the cabinet and the cooling unit.
The baffle assembly is inserted into the exhaust tube of the cooling unit. The thermistor wire, LED light, and drip tray are attached to the interior liner of the refrigerator. The drip tray catches condensation water from the fin pack assembly and directs it to the drain hose assembly.
The cabinet runners are secured to the bottom of the cabinet with screws. The cabinet runners are supports for the cabinet and operate as mounting legs. The bezel, which is the mount for the control interface assembly, is screwed to the frame and the display control module is snapped in place after the proper wiring is connected. Hinges are secured to the frame with screws and the refrigerator door sub-assemblies are attached to the hinges with hinge pins and other hardware. Wire shelving, plastic shelving, and crisper bins are assembled with plugs and clips, and are inserted into the interior compartments and the door interiors.
After the unit is tested, painted and cleaned, it is packaged for shipment to the U.S. Below is an image of the finished combination refrigerator and freezer unit:
ISSUE:
What is the country of origin of the subject combination refrigerator and freezer unit for purposes of application of the Section 301 trade remedy under the two scenarios?
LAW AND ANALYSIS:
The United States Trade Representative has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to its authority under Section 301(b) of the Trade Act of 1974 (“Section 301”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(b) and (f), HTSUS.
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, 681 F.2d 778 (1982). In order to determine whether a substantial transformation has occurred, U.S. Customs and Border Protection (“CBP”) considers the totality of the circumstances and makes such determinations on a case-by-case basis. CBP has stated that a new and different article of commerce is an article that has undergone a change in commercial designation or identity, fundamental character, or commercial use. A determinative issue is the extent of the operations performed and whether the materials lose their identity and become an integral part of the new article. This determination is based on the totality of the evidence. See Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade interpreted the meaning of “substantial transformation.” Energizer Battery 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 court reviewed the “name, character and use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc. v. United States, 3 CIT 220, 226, 542 F. Supp. 1026, 1031 (1982), 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 Battery at 1318. The court also noted that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.” Energizer Battery at 1319, citing as an example, Nat’l Hand Tool Corp., 16 CIT at 311-12. Furthermore, courts have considered the nature of the assembly, i.e., whether it is a simple assembly or more complex, such that individual parts lose their separate identities and become integral parts of a new article.
In reaching its decision in Energizer Battery, 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. 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. The court held that China was the country of origin of the finished Generation II flashlights.
In New York Ruling Letter (“NY”) N309293, dated Feb. 25, 2020, refrigeration units were produced by combining components manufactured in Thailand with cooling components from Thailand and China. All assembly processes were completed in Thailand. The cooling unit was produced in Thailand. The rear plate pre-assembly was formed by attaching Chinese made metal to baffles. The rear plate pre-assembly and the air duct pre-assembly were then subjected to a sealing process. The final assembly in Thailand began by connecting the rear inner liner to the front inner liner. The lead wire assemblies were connected to the electrical components. The middle insulation pieces were attached to the inner liners. The suction pipe and Thailand condenser with a condenser pipe were connected to both sides of the side plate using aluminum tape. The suction pipe assembly was then inserted and connected to the inner liner. The side plate, the inner liner, the suction pipe, the front partition and bottom plate were connected to each other. The rear plate was covered for the urethane injection process and the cabinet was formed using a urethane injection process. The heater, fuse, defrost sensor and the Chinese evaporator were connected to form an assembly for the defrost system. The evaporator assembly was inserted and welded into the inner liner. The compressor assembly was formed by connecting a Chinese compressor to a spring base, a sleeve, a temperature coefficient, and an overload protector and afterwards installed. The cooling system pipes formed in Thailand were welded onto the unit, vacuumed, and filled with gas. The final step involved attaching the door with a gasket. It was determined the country of origin of the refrigerating units was Thailand.
In NY N307836, dated Dec. 17, 2019, refrigerating units were produced by combining Thailand manufactured components with cooling components from China, and all assembly processes were completed in Thailand. In Taiwan, a high impact polystyrene sheet was formed into a door liner and an inner liner using heating and vacuum processes. The side plate was manufactured using a punching and cold rolled forming machine and once formed, the slide plate was attached to a Thailand manufactured condenser using aluminum tape. The metal door shell was formed using a punching and cold forming machine. In the final assembly, the lead wire assemblies were arranged and connected to the electrical components and the pipe assemblies that incorporate the condenser and the suction pipes were secured to both sides of the side plate using aluminum tape. The suction pipe assembly was also connected to the inner liner by lacing the pipe through holes in the inner liner. The side plate, the inner liner, the front partition and the bottom plate were attached to each other using screws. The cabinet was then covered by a rear plate and the cabinet, along with the door, were subjected to a urethane forming process. The compressor of Chinese origin was combined with other components to become a compressor assembly and the compressor assembly was secured to each unit. An evaporator from Thailand was combined with other components to become an evaporator assembly and the evaporator assembly was secured to each unit. Various pipes were welded into the cooling system and the door with a gasket assembly was secured to the cabinet. CBP concluded that the processes in Thailand created a new and different article of commerce, as the structural and cooling components were subjected to complex operations resulting in the individual parts losing their separate identities to become a new article, a complete refrigerating unit, whose country of origin would be Thailand.
In NY N305178, dated July 25, 2019, refrigerating and freezing appliances were produced from Chinese components and components and subassemblies manufactured in Thailand. The production of each cooling unit began by processing raw materials from Thailand or China into specifically configured pipes, an inner liner, insulation, a bottom plate pre-assembly, a rear plate pre-assembly, and the air duct pre-assembly. The assembly continued by forming the cabinet using urethane and forming machines, covering the rear plate assembly, arranging the lead wire assembly, and connecting the inner liners to each other and sections of insulation. The condenser assembly, the evaporator assembly, the compressor assembly, and the door assembly, were assembled and installed. The charged refrigerant gas pipe and other cooling system piping were welded to the unit. CBP determined that the production processes in Thailand created a new and different article of commerce, as the components and subassemblies were subject to complex operations resulting in the individual parts and subassemblies losing their separate identities to become a new article, a complete refrigerating or freezing unit whose country of origin would be Thailand.
As in the rulings above, the central components of the refrigerating process are the condenser, compressor, expansion device and the evaporator, and the cooling unit of the refrigerator is not complete without the subsequent addition of controls, heat sources, and other complimentary components that are assembled with it in the country of assembly. However, under both scenarios in the instant matter, the foamed cooling unit sub-assembly is filled with R717 refrigerant, hydrogen gas, and sodium chromate in China, and is complete before the assembly operations in Mexico.
Under scenario 1, the significant structural and cooling components of the refrigerating and freezer combination unit are manufactured in China. Namely, the foamed cooling unit assembly, the integrated control wiring assembly, the fin pack assembly, the door assemblies, the plastic shelving, the control interface display and bezel, and the LED light/switch assembly, are manufactured in China. Together, these assemblies contribute to the overall function and purpose of the refrigerating and freezer unit. Based on these facts, we conclude that the country of origin of the refrigerating and freezer combination unit under scenario 1 is China.
Under scenario 2, instead of manufacture in China, the integrated control wiring assembly, fin pack assembly, door assemblies, control interface display and bezel will now be manufactured in Mexico. Additionally, the drain hose, drip tray, the secondary burner housings/plate, the handle assemblies, the plastic shelving, and the crisper bins and covers will not be manufactured in the United States, but will be manufactured in Mexico. While the plastic shelving and the crisper bins and covers allow for the storage of the food, these are not essential to the cooling function of the refrigerator; therefore, it is not as relevant where these articles are made. While the foamed cooling unit assembly will still be manufactured in China, changing the manufacture of some of the articles that assist with the cooling and overall function of the refrigerator to Mexico will shift some of the essential characteristics of the refrigerator to Mexico. For example, the fin pack allows heat to be absorbed in the food compartment and transfers the heat to the cooling unit. The control interface display enables the control of the various settings for the refrigerator, and allows it to maintain a certain temperature. The manufacture of the door assembly in Mexico completes the cooling storage area and the unit becomes entirely recognizable as a refrigerator. Accordingly, we find that the country of origin of the refrigerating and freezer combination unit under scenario 2 is Mexico.
HOLDING:
The country of origin of the subject combination refrigerator and freezer unit model number DM2672 for purposes of Section 301 remedies is China under scenario 1 and Mexico under scenario 2.
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 [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