OT:RR:CTF:VS H315297 JMV
Jeremy R. Page
Page-Fura PC
939 W. North Avenue, Suite 750
Chicago, IL 60642
RE: Country of origin of an Automotive Manual Cushion Frame; Section 301 trade remedy; USMCA Marking
Dear Mr. Page:
This is in response to your request, dated October 19, 2020, filed on behalf of your client Yanfeng Seating Mexico S.A. de C.V. (“YFS”). In your letter, you request a binding ruling on the applicability of Section 301 trade remedies and country of origin marking for an automotive manual cushion frame.
FACTS:
The product at issue is an automotive manual cushion frame produced from 42 to 46 components under five different sourcing scenarios. In each scenario, assembly will take place in Mexico from components of Mexican and Chinese origin. The assembly operations for the subject manual cushion frames under each scenario are largely the same:
Production Scenario one
Under the first production scenario, YFS will source all 46 components from Mexico, except for a Chinese origin pump (part number 3021904), which will be used for adjusting the seat. In this scenario, YFS will create four main subassemblies: a left- and right-hand bracket, a linkage subassembly, and a cross tube subassembly.
The two side brackets will be produced by joining the following components from Mexico: a stamped side bracket, a bushing, a stamped linkage and a flat rivet. Bushings are assembled to the linkage through a riveting process to provide continuous lubrication to the joint. Once combined, that assembly is placed in a riveting machine where the flat rivet is plugged to the slot hole of the linkage and the stamped side bracket. YFS will also weld the components to create a single assembly at nine individual weld points.
YFS will then create the linkage subassembly, which will be used to support user seat adjustment. The linkage assembly will be produced from an assignment tube, a toothed linkage, and a stamped linkage bracket, all of which will be sourced from Mexico. To produce the linkage subassembly, bushings will be assembled to a non-welding slot hole of the linkage. A pin-shaped fixture is applied to ensure the accurate assembly position of the toothed-linkage. Slot holes found in the linkage and the center of the tube are used to maintain the profile of the whole assembly during the nine-step welding process.
The final subassembly, the cross-tube subassembly will create additional structural integrity for the finished automotive manual cushion frame. The cross-tube subassembly will be produced by welding four components of Mexican origin: a stamped washer, a cross tube, a stamped linkage, and a seat tilt recliner rotary assembly. First, the washer is joined to the linkage and the linkage and tube are positioned in a specially designed fixture to prepare them for the assembly process. Slot holes of the linkage and center of the tube are used to maintain those items’ profile. The seat tilt recliner rotary assembly is joined; then, the tube and linkage are welded together.
After any required painting and quality control processes, these four subassemblies will be combined through an assembly operation with seven additional components of Mexican origin to produce the external skeleton for the cushion frame. These additional components are a plastic bushing bearing, a plastic bushing, a spring clip, a collar headed screw, a flanged locknut, a stamped cover plate and a self-locking screw. The linkage subassembly will be welded to the rear extrusion hole of each side bracket subassembly with the combined structure locked by a clip assembled at the edge of the extrusion hole. Then, these subassemblies will be joined with a rivet plugged into the front slot hole of the side bracket subassemblies and cross tube subassembly.
Finally, YFS will produce the cushion frame skeleton subassembly from 22 components of Mexican origin and the aforementioned pump of Chinese origin. The additional components of Mexican origin include a stamped cushion pan that will form the foundation for the cushion and eventual frame use; the spring mat seat that will create the support/”bounce” of the seat; the two stamped tracks, which will mount the finished frame in the motor vehicle; a stamped riser mount, towel bar and bracket track mounting that will create further structural integrity/framing for the finished assembly; and various fasteners and fastening components in the form of screws, nuts, springs, and bushings.
To create the cushion frame skeleton assembly, the two stamped tracks are positioned and assembled to the unlock lever mechanism, the towel bar and tube. The cushion frame skeleton subassembly is then assembled to the track assembly with four mounting screws to permit structural adjustment. The cushion pan and spring mat seat are then joined into the growing assembly, as well as the stamped riser mount and bracket track mounting through an arc welding process. Finally, a torsional spring is inserted into the tube forming part of the linkage subassembly to create the necessary resistance. The final frame will then be adjusted to the required design position before the pump is joined to the final automotive manual cushion assembly.
Production Scenario Two
Under the second production scenario proposed by YFS, all the component sourcing and production operations will be the same as scenario one, except YFS will also source the seat tilt recliner rotary assembly that is incorporated into the cross tube subassembly from China as well as the pump.
Production Scenario Three
With the third proposed production scenario, a slight variation in the sourcing and production operations is being proposed. Once again, as in scenario one and two above, the pump incorporated into the cushion frame skeleton subassembly will again be sourced from China. In addition, YFS will source the complete linkage subassembly, which will include a Chinese origin assignment tube, toothed linkage, and stamped linkage bracket as well. Finally, YFS will also source the stamped washer, cross-tube, and stamped linkage as its own subassembly from China before it is integrated with the seat tilt recliner rotary assembly of Mexican origin through the welding process to form the cross tube subassembly at YFS's operations in Mexico. All other assembly, higher level assembly and final assembly operations will still occur in Mexico. Because of the change in sourcing, the number of components required for production in Mexico will decrease from 46 to 42.
Production Scenario Four
For the fourth proposed production scenario, YFS will again source the same 46 components referenced in scenarios one and two above. In this fourth scenario, the parts that will be sourced from China are the pump incorporated into the cushion frame skeleton subassembly, and the stamped side brackets that each form part of the side bracket subassemblies. The remaining 43 components will be sourced from Mexico and all the riveting, welding, and further assembly required to produce the complete manual cushion frame will remain in Mexico.
Production Scenario Five
Finally, under the last production scenario, YFS will source the two stamped side brackets referenced in scenario four from China but will source the pump from Mexico. YFS will also source the toothed linkage that forms part of the linkage subassembly from China as well. This again will result in a bill of materials comprised of 46 components, with 43 of Mexican origin.
The automotive manual cushion frame is classified under subheading 9401.90.10, Harmonized Tariff Schedule of the United States (“HTSUS”). Additionally, in the second scenario, the seat tilt recliner rotary assembly from China and eighteen other parts from Mexico will also be classified under 9401.90.10, HTSUS.
ISSUE:
What is the country of origin of the automotive manual cushion frame in each of the five scenarios for purposes of applying Section 301 trade remedies?
What is the country of origin of the automotive manual cushion frame for marking purposes?
LAW AND ANALYSIS:
Section 301 Duties
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 7.5% 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(s), HTSUS. Among the subheadings listed in U.S. Note 20(s) of Subchapter III, Chapter 99, HTSUS, is 9401.90.10, 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. 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).
Similarly, when processing consists primarily of assembly, CBP closely examines what that assembly entails. In Headquarters Ruling Letter (“HQ”) H290528, dated February 21, 2018, CBP considered whether aluminum panels, which were used as an architectural finish, were substantially transformed by processing in the United States. The panels consisted of three main parts imported from Italy: the casing, core, and mounting brackets. In the United States, workers cut some of the cores to size; drilled holes into the casing and core; and extruded, machined, bent, and cut-to-size the mounting blades. Workers then inserted the core into the casing and secured the mounting blades to the panel. CBP found that the U.S processing of the panels was minimal and did not alter the character of the casing and core. CBP noted that the pre-importation processing was significantly more complicated than the post-importation processing, which essentially consisted of some cutting and assembling of parts.
On the other hand, CBP has found that a substantial transformation may occur when the processing involved consists largely of assembly in combination with domestic materials. 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 the operations that occur within that country, including any subassembly processes that take place in that country. For example, in HQ W563456, dated July 31, 2006, CBP held that certain office chairs assembled in the U.S. were products of the United States for purposes of U.S. government procurement. The office chairs were assembled from 70 domestic and foreign components. However, the imported components alone were insufficient to create the finished chairs and substantial additional work and materials were added to the imported components in the United States to produce the finished chairs. In finding that the imported parts were substantially transformed in the United States, CBP stated that the components lost their individual identities when they became part of the chair as a result of the U.S. assembly operations and combination with U.S. components. Notably, CBP mentioned that the majority of components were of U.S. origin.
More recently, in HQ H314637, dated March 2, 2021, CBP considered the welding of various parts of Mexican, U.S. and Chinese origin to create an automotive rear seat frame in Mexico. CBP noted that the welding did not otherwise alter the shape of the various parts involved, but also noted that the non-Mexican origin components alone were insufficient to create the automotive rear seat frame and most of the components were of Mexican origin. The welding of the non-Mexican components to the components of Mexican origin made them an integral part of the rear seat frame. Therefore, although the processing consisted of assembly alone, CBP found that the imported components lost their identity when assembled with components of mostly Mexican origin and there was a substantial transformation by the processing in Mexico to create the automotive seat frame. See also HQ H315296, dated July 30, 2021 (finding that production in Mexico resulted in a substantial transformation because the Chinese origin components alone were insufficient to create the automotive seat back frame and most of the components were of Mexican origin).
Similarly, in all scenarios currently under consideration, while the assembly of the various components of Chinese origin will not not alter the shape of the components, the Chinese origin components alone will be insufficient to create the automotive manual cushion frame and a majority of the components in each scenario will be of Mexican origin. When combined with the Mexican components, the Chinese components will lose their individual identities and become an integral part of automotive manual cushion frame. Therefore, we find that the relatively minor Chinese components will be substantially transformed by the processing in Mexico and the country of origin of the automotive manual cushion frame in all production scenarios will be Mexico for purposes of Section 301 remedies.
Marking
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).
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. See 19 C.F.R. § 102.11. 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;
The good is produced exclusively from domestic materials; or
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.
. . .
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the automotive manual cushion frames are neither wholly obtained or produced or produced exclusively from “domestic” (Mexican, in this case) materials. Because the analysis of sections 102.11(a)(1) and 102.11(a)(2) does not yield a country of origin determination, we look to section 102.11(a)(3). “Foreign material” is defined in section 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 automotive manual cushion frames of subheading 9401.90.10, HTSUS, is “[a] change to subheading 9401.90 from any other heading, except from subheading 9403.90.”
Under the first purposed scenario, the only component of foreign origin is the pump, which is classified under 8414.20, HTSUS. In the third scenario, the parts of foreign origin are the pump, and the linkage assembly classified under 8302.30, HTSUS of Chinese origin. Under the fourth scenario, the pump, and the left- and right-side brackets classified under 8302.30, HTSUS will be of Chinese origin. Under scenario five, the three Chinese origin components – the two side brackets and the toothed link – are classified under 8302.30, HTSUS. Accordingly, the automotive manual cushion frame meets the tariff shift rule and has a country of origin in Mexico for marking purposes under the first, third, fourth and fifth scenarios.
The foreign material in the second scenario, is the pump, classified under 8414.20, HTSUS and the seat tilt recliner rotary assembly, classified under 9401.90, HTSUS. As the seat tilt recliner rotary assembly is also classified under heading 9401, HTSUS, the tariff shift requirement of section 102.11(a)(3) is not met. Since an analysis of 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)(1) provides as follows:
(b) 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, or . . .
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. 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:
The nature of each material, such as its bulk, quantity, weight or value; and
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, you assert, and we agree, that no single item imparts the automotive manual cushion frame with its essential character. None of these parts individually contribute significantly to the purpose of an automotive manual cushion frame. Therefore, 19 C.F.R. § 102.11(b) cannot be used to determine the country of origin of the automotive manual cushion frame.
The country of origin of the automotive manual cushion frame cannot be determined by application of 19 C.F.R. § 102.11(c), as the automotive manual cushion frames are not specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture, or composite good pursuant to General Rule of Interpretation 3. Accordingly, we next consider section 102.11(d) of the hierarchical rules, which provides:
Where the country of origin of a good cannot be determined under paragraph (a), (b), or (c) of this section, the country of origin of the good shall be determined as follows:
(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good;
(2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts; or
(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
19 C.F.R. § 102.11(d).
“Minor processing” is defined in 19 C.F.R. § 102.1(m) as including, in part, the mere dilution with water or another substance, cleaning, application of preservative or decorative coatings, trimming, filing, or cutting off small amounts of excess materials, unloading, reloading, putting up in measured doses, packing, repacking, packaging, repackaging, testing, marking, sorting, or grading, ornamental or finishing operations incidental to textile good production, repairs and alterations, washing laundering, or sterilizing. “Simply assembly” is defined in section 102.1(o) as “the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing.
Based on the facts provided, we find that the operations performed in Mexico constitute more than “minor processing” and exceed a “simple assembly.” Therefore, subparagraphs (1) and (2) of 19 C.F.R. § 102.11(d) are inapplicable. Consequently, by application of 19 C.F.R. § 102.11(d)(3), the country of origin of the automotive manual cushion frame is the last country in which the goods underwent production. The term “production,” as defined in 19 C.F.R. § 102.1(n), includes manufacturing, processing, and assembling a good. The operations performed in Mexico constitute production. Accordingly, we find that the country of origin of the automotive manual cushion frame is Mexico for marking purposes.
HOLDING:
The country of origin of the automotive manual cushion frames for the purposes of both marking and Section 301 will be Mexico in all five scenarios.
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