OT:RR:CTF:VS H329104 AP
Center Director
Electronics Center of Excellence and Expertise
U.S. Customs and Border Protection
301 East Ocean Blvd., Suite 600
Long Beach, CA 90802
RE: UKFTA Eligibility; Country of Origin; Section 301 Trade Remedy; SE Cables
Dear Center Director:
This is in response to your December 28, 2022 request and supplemental information submitted on March 17, 2023, seeking internal advice regarding the eligibility of certain Service Entry ("SE") cables imported by Imperium Cables LLC ("importer") for preferential tariff treatment under the United States-Korea Free Trade Agreement ("UKFTA") and their country of origin for purposes of Section 301 remedies. We held an in-person meeting with importer's counsel on February 8, 2023.
The importer has requested that certain information submitted in connection with this internal advice request 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 and all attachments to this internal advice request, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision.
FACTS:
The instant cables are SE cables constructed with AA-800 series aluminum alloy, compact stranded conductors. The cross-linked polyethylene insulation for the outside of the SE cables is rated for a maximum operation temperature of 90C in wet and dry locations. The SE cables' nominal diameters range from 0.588 to 1.95 inches; the weight per 1,000 feet varies from 128 to 1,454; and the ampacity varies from 45 to 230 under 90C conditions.
The importer imported the SE cables from a manufacturer located in South Korea. The Korean manufacturer sourced aluminum rod or rebar wire from China to make the SE cables. The aluminum rod/wire is classified in subheading 7604.29,[1] Harmonized Tariff Schedule of the United States ("HTSUS") and the finished SE cables are classified in subheading 8544.49.90, HTSUS.[2]
In Korea, the 9.5 mm rough aluminum rod or rebar wire (electrical purpose) was drawn to the specified diameter of wire. The aluminum rod/rebar wire was then stranded into a uniform and circular round, and/or compacted conductor (basically, compacting individual wires in a certain shape) by a series of stranding machines. A layer of a thermoplastic (thermoset) compound (like cross-linked polyethylene) was extruded over the stranded bare conductors. The insulated conductor was then placed into a steaming chamber for 10-12 hours for heat treatment. After this treatment was completed, the insulated core conductor was wound onto a processing bobbin for lay-up manufacturing. An interim quality control sparking test was performed on the insulated cores to check for damages and defects on the insulation. After this testing, multiple insulated cores were twisted together and assembled into a unit cable. A layer of sunlight resistant, flame retardant and heavy metal free polyvinyl chloride ("PVC") was extruded over the assembled unit cable to form a jacket for the assembly. Additional testing to comply to industry standards was performed. The final SE cables were inspected for defects, packaged, and shipped to the United States.
According to the submitted bill of materials, the aluminum rod/rebar wire from China was the only nonoriginating material and its total value was $[X]. The total value of the Korean-originating material was $[X]. The labor cost in Korea was $[X]. The manufacturing process involved specialized equipment including cable forming machines, extrusion machines, disc armoring machines, furnaces, rewinding machines, stranding machines, and electromagnetic stirrers with a total estimated cost of approximately $[X] million. In addition to the machines used to produce the SE cables, additional machines performed tests needed to comply to industry standards.
The importer declared Korea as the country of origin. On December 20, 2021, U.S. Customs and Border Protection ("CBP") issued a Notice of Action (CBP Form 29) changing the country of origin of the SE cables for purposes of Section 301 duties from Korea to China.
The importer disagrees and argues that the fact pattern here and in New York Rulings ("NY") N321726, dated Oct. 13, 2021, and NY N322411, dated Nov. 12, 2021, are "nearly identical," and that similar to the aluminum ingots from Australia in those two decisions, the aluminum wire from China in this situation is substantially transformed into a new and different product in Korea enabling it to safely conduct electricity in a commercial setting, and that, therefore, the origin for purposes of Section 301 should be Korea. The importer also asserts that the SE cables qualify as originating under the UKFTA.
ISSUES:
1. Whether the SE cables imported into the United States from Korea are eligible for preferential treatment under the UKFTA.
2. What is the origin of the SE cables for purposes of Section 301?
LAW AND ANALYSIS:
1. UKFTA Eligibility
The requirements for eligibility for preferential tariff treatment under the UKFTA are set forth in General Note ("GN") 33 of the HTSUS (19 U.S.C. 1202). GN 33 provides in pertinent part:
(b) For the purposes of this note, subject to the provisions of subdivisions (c), (d), (n) and (o) thereof, a good imported into the customs territory of the United States is eligible for treatment as an originating good of a UKFTA country under the terms of this note if-
i) the good is wholly obtained or produced entirely in the territory of Korea or of the United States, or both;
ii) the good is produced entirely in the territory of Korea or of the United States, or both, and-
A) each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (o) of this note; or
B) the good otherwise satisfies any applicable regional value-content or other requirements set forth in such subdivision (o); and satisfies all other applicable requirements of this note and of applicable regulations; or
iii) the good is produced entirely in the territory of Korea or of the United States, or both, exclusively from materials described in subdivisions (i) or (ii), above.
Per GN 33(c)(ii)(C)(3), a "nonoriginating good or nonoriginating material" is "a good or material, as the case may be, that does not qualify as originating under this note."
GN 33(o)/chapter 85, HTSUS states, in relevant part:
92. (A) A change to subheadings 8544.30 through 8544.49 from any other heading; or (B) A change to subheadings 8544.30 through 8544.49 from any other subheading, provided that there is also a regional value content of not less than:
(1) 35 percent under the build-up method, or (2) 45 percent under the build-down method.
We must determine whether the nonoriginating material undergoes the appropriate tariff shift prescribed under GN 33(o)/chapter 85/rule 92(A), HTSUS. The aluminum rod/wire from China classifiable in subheading 7604.29, HTSUS, is the nonoriginating material. As the nonoriginating aluminum rod/wire is classifiable in a heading other than 8544, HTSUS, the rule of a change to subheading 8544.49, HTSUS "from any other heading" is satisfied. Therefore, the SE cables qualify for preferential tariff treatment under the UKFTA under GN 33(b)(ii)(A) because they are produced entirely in Korea and the nonoriginating aluminum wire undergoes the tariff shift under GN 33(o)/chapter 85/rule 92(A), HTSUS.
2. Origin for Purposes of Section 301 Trade Remedy
The United States Trade Representative ("USTR") has determined that an additional ad valorem duty of 25 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"). The
Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(b), HTSUS. Among the subheadings listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, is 8544.49.90, 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 (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, 6 CIT 204 (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.
Drawing alone does not substantially transform wire rod in coils into wire. In Superior Wire v. United States, 669 F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989), wire rod in coils from Spain was shipped to Canada where it was drawn into finished wire, which was imported into the United States. The tensile strength of the final product was increased by approximately 30 to 40 percent as the rod was reduced in cross-sectional area by about 30 percent and was elongated. The final product was substantially stronger. Wire rod had few uses except for making wire. The end use of the wire rod was generally known before the rolling stage. The drawing operation in Canada did not result in a substantial transformation because the chemical content of the rod and the cooling processes used in its manufacture determined the properties and uses of the wire rod. The wire rod originating from Spain dictated the final form of the finished wire.
In line with this decision, in NY N318824, dated Apr. 21, 2021 and NY N318134, dated Mar. 25, 2021, CBP determined that the countries of origin of finished stranded insulated wires made from bare aluminum wire of Australian or Indian origin and subjected to conductor stranding and insulation in Korea, were the countries where the wire was sourced (Australia and India) for marking purposes. The reason was because the original wire determined the character and use of the finished stranded insulated wire.
However, the importer alleges that its operations are akin to those in NY 321726 and NY N322411, supra. Unlike NY N321726 and NY N322411, where Australian aluminum ingots were first melted, alloyed, casted, and rolled into rods, here, the process starts with rods; therefore, these two decisions are not applicable. Nonetheless, the articles under consideration here undergo a more extensive manufacturing process than in NY N318824 and NY N318134. Specifically, before undergoing a similar stranding and encapsulation process to transform the wire rod into stranded insulated wire, the rod/wire is drawn, and then subsequently, the manufactured stranded insulated wire in the present case is twisted together with other stranded insulated wires and encapsulated to create a SE cable that has multiple conductors. Thus, these two decisions are also not completely on point in the present case.
While the processes of drawing, stranding, and encapsulating alone do not result in a substantial transformation, CBP has found that a combination of operations may constitute a substantial transformation. For instance, in Headquarters Ruling Letter ("HQ") 556301, dated May 4, 1992, copper wire was subjected to drawing, stranding, annealing, and encapsulating with polypropylene to form an insulated wire strand, which was then bundled with other insulated wire strands and further encapsulated with PVC to form cordage. HQ 556301 determined that these operations resulted in a substantial transformation. Also, in HQ 562581, dated Feb. 13, 2003, CBP considered reels containing between six and 14 untwisted copper strands arranged into specific geometric orientations and twist lengths ("lay length") based on the specifications of the end use application, after which they were fed into a compaction die to set the diameter and specified lengths of the product, the size of which - containing up to 104 individual copper wires - determined the electrical current carrying capacity and physical strength needed for the final wire products. After this process, the strands were sent to the bow for further rotating and twisting, followed by insulation with either PVC or XLPE. HQ 562581 determined that the process performed in Honduras resulted in a substantial transformation.
Here, the manufacturing process in Korea involved a combination of wire drawing, conductor stranding, insulation extrusion, insulation crosslinking, laying-up, and outer sheath extrusion. The Chinese 9.5 mm rough aluminum rod or rebar wire is first drawn to the specified diameter of wire. The drawn wire is then stranded into a conductor, cased in a layer of thermoplastic compound, and insulated to become insulated stranded wire. Multiple insulated stranded wires are then twisted together and assembled into a unit cable, and a layer of PVC is extruded over the assembled unit cable to form a jacket for the assembly. There is a change of name from aluminum rod/rebar wire to SE cable. The processes in Korea together as described bring a sufficient change in character and use of the wire to result in its substantial transformation. Specifically, the aluminum wire imported into Korea is transformed into a SE cable, which is used by power companies to supply electricity to businesses and residences. Further the drawing, stranding, and encapsulation to create a stranded insulated wire in addition to the subsequent twisting and encapsulation of multiple insulated stranded wires performed in Korea, add the complete electrical properties needed for the final product to function as a SE cable. The final SE cable has multiple electrical conductors, and uses thermoset compound and PVC insulation that have different chemical properties and temperature ratings in various environments. After undergoing the above-mentioned manufacturing processes in Korea, the final SE cable can be used in new commercial settings under the relevant standards and specifications. Thus, the country of origin of the final SE cables for purposes of Section 301 trade remedies is Korea.
HOLDING:
The SE cables are eligible for preferential treatment under the UKFTA when imported into the United States from Korea. The country of origin of the SE cables for purposes of Section 301 trade remedies is Korea and no Section 301 duties apply.
This decision should be mailed by your office to the importer, through the importer's counsel, no later than 60 days from the date of this letter. On that date, Regulations and Rulings, Office of Trade, will make the decision available to CBP personnel and the public at www.cbp.gov, by means of the Freedom of Information Act and other methods of public distribution.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch
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[1] Subheading 7604.29, HTSUS (2021), provides for: "Aluminum bars, rods and profiles: Of aluminum alloys: Other." The special duty rate for merchandise eligible under the UKFTA is free.
[2] Subheading 8544.49.90, HTSUS (2021) provides for: "Insulated (including enameled or anodized) wire, cable
(including coaxial cable) and other insulated electric conductors, whether or not fitted with connectors; optical fiber cables, made up of individually sheathed fibers, whether or not assembled with electric conductors or fitted with connectors: Other electric conductors, for a voltage not exceeding 1,000 V: Other: Other: Other." The special duty rate for merchandise eligible under the UKFTA is free.