OT:RR:CTF:VS H314638 JMV
Jeremy R. Page
Page-Fura PC
939 W. North Avenue, Suite 750
Chicago, IL 60642
RE: Country of origin of a Motor Assembly; Section 301 trade remedy; Marking
Dear Mr. Page:
This is in response to your request, dated October 4, 2020, filed on behalf of your client Adient Yanfeng Seating Mechanism Co., Ltd. (“AYSM”). In your letter, you request a binding ruling on the applicability of Section 301 trade remedies and country of origin marking for a motor assembly.
FACTS:
The product at issue is a motor assembly produced under five manufacturing scenarios where different variations of the motor components are assembled in the countries identified. The assembly operations of the subject motors under each scenario are largely the same:
The commutator is pressed onto the rotor core with a machine press;
The rotor is wound with insulated winding wire (winding machine);
The rotor assembly is further worked by welding commutator hooks;
The rotor assembly is turned and balanced;
The bearing, retainer disk, and bearing bracket are machine-pressed onto the stator;
The stator assembly is magnetized;
The rotor assembly is inserted into the stator assembly;
The brush card is attached;
The rear cover (containing the second bearing) and front cover are attached and riveted; and
The electric motor is tested.
Scenario 1
In this scenario, the motor assembly would take place in Vietnam from the following components:
A stator of Vietnamese origin;
A rotor produced in Vietnam from a rotor core assembly of Vietnamese origin, a commutator of Chinese origin, and an enameled wire of Chinese origin; and
The ball bearings, brush card, and all other remaining components of Chinese origin.
In Vietnam, a machine press is used to fix the commutator onto the rotor shaft. The wire is wound around the rotor core and then the assembly of the remaining components, as described above, produces a functional electric motor.
Scenario 2
In this scenario, the motor assembly would take place in Vietnam from the following components:
A complete rotor assembly of Chinese origin
A stator assembly of Vietnamese origin
The ball bearings, brush card, and all other remaining components of Chinese origin.
In Vietnam, the rotor assembly is combined with the stator assembly. In this scenario, the rotor is wire wound in China prior to export to Vietnam. Then, assembly of the remaining components, as described above, produces a functional electric motor.
Scenario 3
In this scenario, the motor assembly would take place in Mexico from the following components:
A rotor core assembly of Vietnamese origin, the commutator of Chinese origin, and enameled wire of Mexican origin.
A stator assembly of Vietnamese origin
The ball bearings, brush card, and all other remaining components of Chinese origin.
In Mexico, a machine press is used to fix the commutator onto the rotor shaft. The rotor subassembly is wound with the wire and then the assembly of the remaining components, as described above, produces a functional electric motor.
Scenario 4
In this scenario, the motor assembly would take place in Mexico from the following components:
A rotor core assembly of Vietnamese origin, the commutator of Chinese origin, and enameled wire of Chinese origin.
A stator assembly of Vietnamese origin
The ball bearings, brush card, and all other remaining components of Chinese origin.
In Mexico, a machine press is used to fix the commutator onto the rotor shaft. The rotor subassembly is then wound with the wire and then the assembly of the remaining components, as described above, produces a functional electric motor.
Scenario 5
In this scenario, the motor assembly would take place in Mexico from the following components:
A rotor assembly of Chinese origin
A stator assembly of Chinese origin
The ball bearings, brush card, etc. (all remaining components) are of Chinese origin.
In Mexico, the rotor assembly is combined with the stator assembly. In this scenario, the rotor is wire wound in China prior to export to Mexico. The assembly of the remaining components, as described above, produces a functional electric motor.
The motor assembly is classified under subheading 8501.10.60 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The components involved and their corresponding subheadings under the HTSUS are as follows:
Rotor Core Assembly
8503.00
Commutator
8503.00
Enameled Wire
8505.11
Stator Assembly
8503.00
Disk
8503.00 or 7326.90
Ball Bearing
8482.10
Bracket
8503.00 or 7326.90
Brush Card Assembly
8503.00
Cover Bearing
8482.10
Front Cover
8503.00
Worm
7326.90
ISSUE:
What is the country of origin of the motor assembly in each of the five scenarios for the purposes of applying Section 301 trade remedies?
What is the country of origin of the motor assembly for marking purposes in scenarios 1 and 2?
What is the country of origin of the motor assembly for marking purposes under scenarios 3-5?
LAW AND ANALYSIS:
Section 301 Duties and Marking in Scenarios 1 and 2
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25% 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”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(d), HTSUS. Among the subheadings listed in U.S. Note 20(d) of Subchapter III, Chapter 99, HTSUS, is 8501.10.60, HTSUS. When determining the country of origin for purposes of applying trade remedies under Section 301, the substantial transformation analysis is applicable.
Section 304(a) of the 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 the 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.” United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302 (1940); American Burtonizing Co. v. United States, 13 Ct. Cust. 652, 654 (Ct. Cust. App. 1926).
Part 134, Customs Regulations (19 C.F.R. Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. § 1304. Section 134.1(b), Customs Regulations (19 C.F.R. § 134.1(b)), defines “country of origin” as the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of the marking laws and regulations. Therefore, for both marking and Section 301 trade remedy purposes, substantial transformation is the test for determining country of origin.
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). 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. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 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. Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982), aff’d 702 F.2d 1022 (Fed. Cir. 1983).
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. v. United States, 16 C.I.T. 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
The Court of International Trade has also looked at the essence 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.
In addition, CBP has held that whether an assembly process is sufficiently complex to rise to the level of substantial transformation is determined upon consideration of all of the operations that occur within that country, including any subassembly processes that take place in that country. For example, in HQ H303529, dated June 6, 2019, the subject merchandise was an incomplete postage meter, which functioned as a specialized printer in a mail handling system. While one of the major subassemblies was made in Malaysia, the remaining subassemblies were made in China, and the final assembly process of connecting the subassemblies also occurred in China. CBP found that the assembly process that occurred in China was sufficiently extensive and complex as to substantially transform the components into a product of China. In doing so, CBP noted that the question of the complexity of the assembly process which occurred in China was not limited to an examination of the assembly of the various subassemblies to one another but included an examination of all the assembly processes involved in China in the production of the incomplete postage meter. See Energizer Battery, Inc., 190 F. Supp. 3d at 1318 (“case law…indicates that a determination of substantial transformation must be based on a totality of factors”) (citing National Hand Tool Corp.,16 C.I.T. at 312, and Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121 (1996)).
Similarly, in HQ H303866, dated February 13, 2020, we examined the production of an automobile windshield washer pump and found the assembly process to be complex. In that ruling, approximately half of the discrete parts from foreign countries were shipped to Mexico and were combined with components from Mexico into subassemblies, including the stator, rotor, and end cap. These subassemblies were then combined to form the motor assembly, which was then assembled into the finished windshield washer pump. We noted that the assembly process was complex and found that the discrete parts were substantially transformed when they were combined to form a finished centrifugal pump in Mexico.
Conversely, in NY N305251, CBP considered an assembly process for stepper motors that is similar to the assembly process in this case. The assembly process in NY N305251 included “machining the stator and rotor, painting, winding of the wire, affixing the shaft, and bearing onto the rotor, soldering the wire onto the connector board, [and] screwing the housing and endcaps together, etc.” CBP determined that the rotor and stator assemblies constituted the essential character of the electric motor, and the assembly operations were not complex enough to transform the rotor and stator into new articles of commerce.
Here, the act of pressing the Chinese-origin commutator and bearing onto the Vietnamese-origin rotor core’s shaft, balancing, welding contact tabs, and winding with wire is also not exceedingly complex, and as previously determined in NY N305251, the stator and the rotor impart the essential character of the motor. Examining the entire process in scenario 1, we note that the rotor and stator are produced in Vietnam. Vietnam is also where all other parts of Chinese origin are assembled to the rotor and stator. Therefore, we find that the Chinese parts are substantially transformed by their assembly in Vietnam with the stator and the rotor of Vietnamese origin. The country of origin of the motor assembly in scenario 1 for purposes of marking and Section 301 is Vietnam.
In scenarios 3 and 4, the assembly process is similar to scenario 1, but it takes place in Mexico. Again, it is not exceedingly complex compared to the processes used to produce the rotor and stator assemblies in Vietnam. Therefore, we find the country of origin of the motor assembly to be Vietnam for purposes of Section 301 measures and the section 301 measures do not apply in scenarios 3 and 4.
As stated, the stator and the rotor impart the essential character of the motor, but in Scenario 2, the rotor assembly is manufactured in China while the stator is manufactured in Vietnam. However, the stator is arguably the more fundamental component of a motor. The stator consists of the frame, the core, and the windings, which are more complex than the rotor windings. The stator serves as the stationary base of the rotor and plays a crucial role in producing the physical rotation of the rotor. The stator produces the magnetic field, and the rotor interacts with that field. Furthermore, even if the rotor and stator are considered to be viewed equally important, the assembly in scenario 2, although not exceedingly complex, occurs in Vietnam, which is the last country of production prior to importation into the United States. Therefore, we find the electric motor described in Scenario 2 to be a product of Vietnam for purposes of marking and Section 301 measures.
In scenario 5, all of the parts are of Chinese origin and are not substantially transformed by the assembly operations in Mexico. As mentioned, the rotor and stator are the principal components of an electric motor and the basic assembly of these components, as described, does not effect a change in each. As such, the electric motor described in scenario five is subject to the Section 301 measures.
Marking in Scenarios 3, 4, and 5
As assembly takes place in Mexico in scenarios 3, 4, and 5, the marking rules set forth in 19 CFR Part 102 apply. To allow for a more seamless transition period, at this time, CBP continues to utilize the marking rules set forth in 19 CFR Part 102, with the exception of 19 CFR § 102.19, for purposes of country of origin marking with respect to goods from Canada and Mexico. Section 102.11(a)(3) provides that the country of origin of a good is the country in which:
Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
“Foreign material” is defined in § 102.1(e) as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” The applicable tariff shift requirement in section 102.20 for the assembled electric motors of heading 8501, HTSUS, is “A change to heading 8501 from any other heading.”
As none of the motor components are classified in heading 8501, HTSUS, the assembly of the various components in Mexico meets the requisite tariff shift and the country of origin for marking purposes in scenarios 3-5 is Mexico.
HOLDING:
The country of origin of the motor assembly for the purposes of the application of subheading 9903.88.02, HTSUS, is Vietnam for scenarios 1, 2, 3, and 4, but is China in scenario 5. Therefore, the Section 301 measures apply only in scenario 5.
In scenarios 1 and 2, the motor assembly should be marked as a product of Vietnam. In scenarios 3, 4, and 5, the motor assembly should be marked as a product of Mexico.
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