OT:RR:CTF:VS H330647 AP
John Donohue, Counsel
Neville Peterson L.L.P.
Two Logan Square
100 N. 18th Street, Suite 333
Philadelphia, PA 19103
RE: Fully Electric Passenger Vehicles; Origin; Section 301
Dear Mr. Donohue:
This is in response to your ruling request, dated March 1, 2023, on behalf of [X] (“requester”), regarding the country of origin of certain electric passenger vehicles manufactured in [X] (“Country A”) from globally sourced components, for purposes of Section 301 measures. A meeting with counsel and the importer was held on June 6, 2023.
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 italics 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:
According to the information provided, the merchandise at issue consists of certain fully electric passenger vehicles of heading 8703, Harmonized Tariff Schedule of the United States (“HTSUS”), which will be imported into the United States after assembly in Country A. You state that the electric drive unit, battery pack, and body shell will be manufactured in China. The body shell consists of the body sides, doors, rear shelf, hood and tail gate, “A” panel, “C” panel (front and rear wings), and roof. These body shell components will be assembled and painted in China before being transported to Country A for final production. You note that the producer will not fit any sub-assemblies or powertrains into the painted bodies in China. Instead, all parts, including the battery and electric drive unit, will be sent in bulk quantities (not interconnected or installed into the body shell) to be further assembled into subassemblies, and subsequently into the finished vehicles, in Country A. The bumpers, wheels and tires, seats, 12v battery, some of the vehicle glass, and fluids/fuels will be sourced in Country A.
The full vehicle assembly, including the powertrain, will be completed at the importer’s facility in Country A. The manufacturing process in Country A will require [X] (more than 60) workstations, details of which will include but will not be limited to:
Removal of doors from painted body and glazing; primary seal to doors and assembly of external doors finisher; latches and mirrors assembly; door glasses fitting; doors harness routing and modules fitting; speakers and door closing finisher assembly;
Retractor and tailgate weatherstrip assembly; tailgate harness connection to the main harness; instrument panel fitting; anti-lock brake system subassembly and assembly;
Center console subassembly; underbody assemblies (e.g., braking systems);
Headlamp fitting; fluid fill; seats row fitting; steering wheels; 12v battery fit; door fitting; windshield washer reservoir filling;
Rear knuckle subassembly; damper assembly, assembly of rear electric drive unit; rear suspension assembly; main harness and coupling;
Motor dropped onto the front subframe; mounting of front comer assembly and suspension system parts fixing;
Connection of upper and lower body; rear axle and coupling; vehicle configuration; calibration and testing.
Although you requested confidential treatment on these manufacturing steps, this information is essential for understanding assembly operations in Country A and determining the country of origin of the finished vehicles. Accordingly, it falls outside the scope of the protection afforded under 19 C.F.R. § 177.2(b)(7).
Lastly, you provided the following information on the breakdown of component values by country: China – 75% (with the electric battery as the most important contributor),
Country A – 15%, and rest of the world – 10%.
ISSUE:
What is the origin of the electric passenger vehicles for purposes of Section 301 trade remedies?
LAW AND ANALYSIS:
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty 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) are 8703.21.01-8703.90.01, 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, 681 F.2d 778 (C.C.P.A. 1982). The substantial transformation 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 deciding whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of the operations performed and whether the parts lose their identity and become an integral part of the new article. See 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. If the manufacturing or combining process is a minor one, which leaves the identity of the article intact, a substantial transformation has not occurred. See Uniroyal, Inc. v. United States, 3 CIT 220 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983) (holding that imported shoe uppers added to an outer sole in the United States were the “very essence of the finished shoe” and were not substantially transformed into a product of the United States).
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (CIT 2016), Energizer imported a partially assembled lens head, with four of the five light emitting diodes (“LEDs”) pre-attached and pre-cut wires soldered to the head printed circuit board (“PCB”). The partially assembled lens head and remaining components were then assembled into a flashlight. The U.S. assembly involved assembling, screwing, connecting and soldering approximately 50 components, many of which were simple attaching mechanisms. The court concluded that “[n]one of these factors suggest an assembly process that is complex.” Id. at 1324. The court explained that the assembly operations constituted a “fitting together of parts” and that the components were “imported with a pre-determined end-use and arrive[d] ready for assembly” and the process was “not sufficiently complex to give rise to a substantial transformation.” Energizer Battery at 1324-25, 1326. 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.” 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 United States).
In Headquarters Ruling Letter (“HQ”) H118435, dated October 13, 2010, U.S. Customs and Border Protection (“CBP”) found that Chinese-origin chassis, plastic body parts and pieces of plastic trim were substantially transformed when they were assembled with U.S.-origin battery packs, motors, electronics, wiring assemblies, seats, and chargers in the United States to produce electric golf and recreational vehicles. The imported parts lost their individual identities and became integral parts of a new article possessing a new name, character and use. CBP also considered the complexity and duration of the U.S. assembly operations. The vehicles were composed of approximately 53 and 62 inputs, of which between 12 and 17 inputs were of U.S. origin. CBP determined that the country of origin of the electric vehicles for purposes of U.S. Government procurement was the United States.
In HQ H155115, dated May 24, 2011, the assembly in the United States of an imported glider and other imported and U.S.-origin parts constituted a substantial transformation into the electric vehicle, an article with a new name, character, and use. The electric vehicle was composed of 31 components, of which 14 were of U.S.-origin. The assembly process in the United States was complex and time-consuming and involved a significant U.S. contribution in both parts and labor. CBP determined that the country of origin of the electric vehicles for purposes of U.S. Government procurement was the United States.
In HQ H022169, dated May 2, 2008, CBP held that the mini-truck glider from India was substantially transformed when assembled in the United States with approximately 87 different components, 68 of which were of U.S. origin, to produce an electric mini-truck. The glider consisted of a frame, finished cab, axles, and wheels in one unit. The glider did not include critical components such as an engine, transmission, drive shaft, exhaust system, fuel system, rear axle differential, motor, battery pack, differential, or electronics necessary to control the electric vehicle. CBP found that the imported glider lost its individual identity and became an integral part of a new article possessing a new name, character and use. Accordingly, CBP determined that the country of origin of the electric mini-truck for purposes of U.S. Government procurement was the United States.
Similarly, in the instant matter, the body shell, battery pack, and electric drive unit imported from China cannot operate as an electric vehicle and will need to be assembled in Country A with other necessary components and assemblies of non-Chinese origin such as the anti-lock braking system subassembly and assembly, center console subassembly and underbody assemblies, rear knuckle subassembly, and rear and front damper subassembly. The body shell, without powertrain and subassemblies, cannot independently function as an electric vehicle. Applying the name, character and use test to the instant merchandise, we find a change in name from body shell and bulk components into a passenger vehicle as a result of the assembly operation in Country A, which involves more than 60 workstations. We also find a change in character and use. The Chinese metal body shell, battery pack, and electric drive unit lose their individual functions and identities as component parts shipped in bulk and become an integral part of the passenger vehicle with a new character and use. In sum, the assembly of the body shell and the other components in Country A constitutes a substantial transformation resulting in an article with a new name, character, and use.
This case is distinguishable from HQ H302821, dated July 26, 2021, in which we held that the assembly of Volvo vehicles in Sweden as part of a “knockdown operation” did not result in a substantial transformation. Unlike in that case, where major subassemblies were produced in China before being sent to Sweden for assembly into finished vehicles, here, the metal body shell from China, and the battery and electric drive unit, will be shipped separately to Country A to produce the subassemblies and then the finished vehicles. As a result, while the complex assembly in HQ H302821 occurred in China, here it occurs in Country A, where the subassemblies will be produced and the final assembly will occur. Furthermore, while the Chinese subassemblies in HQ H302821 had pre-determined end-uses and did not undergo a change in character and use during the assembly process in Sweden, here the imported components such as the metal body shell, battery pack, and electric drive unit will lose their individual identities and will become an integral part of a new article possessing a new name, character, and use.
HOLDING:
The country of origin of the electric passenger vehicles is Country A and Section 301 duties do not apply.
Sincerely,
Elif Eroglu, Acting Branch Chief
Valuation and Special Programs Branch