OT:RR:CTF:VS H320695 AP
J. Michael Taylor, Esq.
Patrick J. Togni, Esq.
King & Spalding L.L.P.
1700 Pennsylvania Ave, N.W. Suite 200
Washington, D.C. 20006-4707
RE: Country of origin; Electronic Cigarette Cartomizer; Section 301 Trade Remedies
Dear Mr. Taylor and Mr. Togni:
This is in response to your September 15, 2021 request for a binding ruling, on behalf of [X] (the “importer”), regarding the country of origin of certain electronic cigarette cartomizer (“cartomizer”) for purposes of Section 301 trade remedies under two proposed scenarios.
The importer has asked that certain information submitted in connection with this ruling be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R.
§ 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets in this ruling or in the attachments to the ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
The subject electronic cigarette cartomizer will be comprised of the following components: e-liquid from [X] (“Country A”) (in the future, the e-liquid may be sourced from [X] (“Country B”)), plastic cartomizer holder tap manufactured in Country B through a plastic injection molding process using Chinese-origin resin, silicone pieces from Country B using resin from Country B (or from China in the case of an extreme weather event or plant disaster using resin from China), plastic cartomizer tube from Country B using resin from Country A (or from China in the case of an extreme weather event or plant disaster using resin from Country A), plastic heater top cover from Country B (or from China in the case of an extreme weather event or plant disaster using resin from Country A), plastic heater holder from Country B (or from China in the case of an extreme weather event or plant disaster using resin from Country A), ceramic resistance heating element (also known as a heater component or heating element) from Country B (scenario 1) or from China (scenario 2), metal thimbles from China, and metal cartomizer bottom cover from China. The heating element will consist of the following input materials: electronic slurry, ceramic matrix, and nickel wire. The electronic slurry and nickel wire together are the most expensive materials of the final cartomizer according to the bills of materials. The individual components will create subassemblies in Country B, and the final assembly will take place in Country B.
The cartomizer tube from Country B and a piece of silicone from Country B will form the cartomizer’s storage module, which stores the e-liquid and delivers it to the heater module.
The cartomizer holder tap from Country B along with a piece of silicone from Country B, the cartomizer tube from Country B, the heater top cover from Country B, the heater holder from Country B, and bottom cover from China will form the puffing module, which allows to transmit vapor atomized by the heater module to the user’s mouth through the central air pipe.
Silicone pieces from Country B, the heater top cover from Country B, the ceramic resistance heating element from Country B (scenario 1) or from China (scenario 2), the heater holder from Country B, and the thimbles from China will form the heater module, which allows for the atomization of the e-liquid transported by the storage module after the finished cartomizer is placed into a separate power unit vaping device with a battery.
Under scenario 1, the heating element will be manufactured in Country B. All aspects of the manufacture of the heating element will occur in Country B except for the ceramic matrix produced in China. In Country B, dry mix will be combined with water to create an electronic slurry. The electronic slurry will be screen printed onto the surface of the ceramic matrix. Heating wires will be inserted through the electronic slurry into preformed holes in the ceramic matrix. The electronic slurry will be bonded with the ceramic matrix and nickel wires. Anchor wires will be applied to the block surface.
Under scenario 2, the heating element will be manufactured in China and imported into Country B to be incorporated into the heater subassembly and the cartomizer full assembly.
In Country B, under both scenarios, the heating element with two nickel wires will be assembled with silicone and the nickel wires will be cut to length. The thimbles will be installed into the heater holder hole and silicone will be connected to the heater holder. The heater top cover will be assembled with the heating element. The parts will be combined and aligned, and the thimbles will be punched into place. A drop of e-liquid will be applied to prime the ceramic and prevent dry-out. After adding more silicone, the heater subassembly will be complete.
The filling portion of the assembly process in Country B will involve loading the cartomizer tube into a feeding mechanism, injecting e-liquid into the cartomizer tube, pressing the heater subassembly into the cartomizer tube, assembling the cartomizer bottom cover to the heater subassembly, combining the cartomizer holder tap with the silicone, and pushing the cartomizer holder tap with silicone onto the cartomizer tube. The final step will be the packaging of the finished cartomizer in Country B.
The importer asserts that the country of origin under both scenarios is Country B because the heating element is not the essence of the final cartomizer but is only one part of the final heater module/subassembly, which will be further manufactured with the other components in Country B. According to the importer, the manufacturing process in Country B is complex, involving the manufacture of components into subassemblies and then the cartomizer final assembly whereby the components purportedly lose their individual identities while becoming a new and distinct article of commerce with a new name, character, and use.
ISSUE:
What is the country of origin for the cartomizer under the two scenarios presented?
LAW AND ANALYSIS:
The U.S. Trade Representative (“USTR”) 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. The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(f), Harmonized Tariff Schedule of the United States (“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. Texas Instruments, Inc. v. United States, 69 CCPA 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 determining whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the components 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, and the essence of the article is considered. See Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983).
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (CIT 2016), the court interpreted the meaning of “substantial transformation” as used in the Trade Agreements Act of 1979 for purposes of government procurement. All the components of the flashlight were of Chinese origin, except for a white light-emitting diode and a hydrogen getter. The components were imported into the U.S. where they were assembled into the finished flashlight. The court noted, citing Uniroyal 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, 190 F. Supp. 3d 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.” Id. at 1319, citing Nat’l Hand Tool (hand tool components intended to be incorporated in a finished hand tool were cold-formed or hot-forged into their final shape prior to their importation into the U.S.). The court held that assembly operations consisting of assembling, screwing, and connecting major components into subassemblies and a complete engine constitute a “fitting together of parts and … its components … imported with a pre-determined end-use and … ready for assembly” and would not result in a substantial transformation. Energizer Battery, 190 F. Supp. 3d at 1324-25.
In Headquarters Ruling Letter (“HQ”) H314961, dated Apr. 22, 2021, we found that the Chinese heater module/subassembly was the essence of the same electronic cigarette cartomizer, and provided it with its character and function, and that the country of origin of the heater subassembly would be the country of origin of the final cartomizer. All the components of the cartomizer in HQ H314961 were of Chinese origin except for the U.S. e-liquid.
In HQ H305552, dated Mar. 31, 2020, various components were imported into China in a prefabricated form with a predetermined use. These parts were then assembled into a toner cartridge through a process that consisted primarily of simple attachment. The final assembly of the toner cartridge did not affect a substantial transformation because like the shoe upper in Uniroyal, the toner imparted the essence of the toner cartridge. The origin of the cartridge was the country of origin of the toner for purposes of Section 301 trade remedies.
As we explained in HQ H314961, the heater module “heats the e-liquid to produce vapor after the cartomizer is placed in the battery-powered vape” and just like the shoe uppers in Uniroyal, it is “the most important component of the cartomizer and imparts its essence.” However, here, the heater component manufactured in Country B (scenario 1) or in China (scenario 2) must first be combined with the silicone pieces from Country B, the heater top cover from Country B, the heater holder from Country B, and the thimbles from China, to form the heater module in Country B. While the assembly process is not exceedingly complex, as a heating element, which is unable to function on its own, the heater component from Country B (scenario 1) or China (scenario 2) is transformed in Country B, especially considering that it is assembled with the other components mostly from Country B, into a heater module/subassembly, which enables the atomization of the e-liquid and provides the final cartomizer with its character and use. In combination with the other components from Country B, under both scenarios, the origin of the cartomizer for purposes of Section 301 will be Country B, which is other than China, and Section 301 measures will not apply.
However, in the event of an extreme weather event or plant disaster, the heater component from Country B (scenario 1) or China (scenario 2) may be combined in Country B with components sourced mostly from China (silicone pieces from China using resin from China, heater top cover from China, heater holder from China, and thimbles from China). In that situation, considering that most components to make the heater module will be from China, we find that as in HQ H305552, the final assembly of the cartomizer in Country B will not result in a substantial transformation as it is not that complex. Because the heater subassembly imparts the essence of the cartomizer, when combined with the other less important pieces from Country B, we find that the origin will be China, and Section 301 measures will apply.
HOLDING:
The country of origin of the cartomizer in scenarios 1 and 2 for purposes of Section 301 trade remedies is Country B (other than China), and Section 301 measures will not apply.
If in the event of an extreme weather event or plant disaster in the future, the majority of the heater module components are sourced from China, then for purposes of Section 301 trade remedies, the origin of the cartomizer will be China, and Section 301 measures will apply.
Please note that 19 C.F.R. § 177.9(b)(1) provides that each “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 Customs Service 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