• HQ H333699
• Jun 06, 2024

• Type : Origin • HTSUS :
•  Related:   H304677; H018467; H219519; H287548   

OT:RR:CTF:VS H333699 RRB

George W. Thompson, Esq.
Thompson & Associates, PLLC
1050 Connecticut Avenue, NW
Suite 500
Washington, D.C. 20036

RE: Country of Origin of Lexmark MS/MX and CS/CX Series Printers; Substantial Transformation; Marking; 19 C.F.R. Part 102

Dear Mr. Thompson:

This is in response to your correspondence, dated July 11, 2023, on behalf of Lexmark International, Inc. ("Lexmark") requesting a ruling concerning the country of origin of Lexmark's MS/MX and CS/CX series printers for purposes of marking and the application of trade remedies. You previously requested a ruling concerning these same printers under a different proposed production scenario, and we determined in Headquarters Ruling Letter ("HQ") H304677, dated April 21, 2023, that they were products of China for both marking and trade remedy purposes.

On January 30, 2024, our office sent a request via email for additional information concerning the subject printers. On March 12, 2024, you responded to our request via email with a supplemental submission, which included photographs, flow charts, additional bills of materials for some of the subassemblies, and more detailed information about the production process of the printers and their subassemblies.

You have requested that certain information submitted in connection with this ruling request be treated as confidential. In addition, you have requested that certain information identified in your supplemental submission be treated as confidential. On March 29, 2024, our office held a meeting with you and your client to discuss the scope of your confidentiality request. On April 15, 2024, you sent another supplemental submission narrowing the parameters of your confidentiality request. Inasmuch as the amended scope of your confidentiality request conforms to the requirements of 19 C.F.R. 177.2(b)(7), the request for confidentiality is approved. FACTS:

The products at issue are the Lexmark MS/MX and CS/CX series of printers, which are imported into the United States from Mexico. The printers under consideration include both monochromatic and color multifunction and single-function machines. You note that these are the same printers that were discussed in HQ H304677, but that Lexmark has revised the production processes in Mexico, such that the analysis in HQ H304677 is no longer applicable to the current production procedures.

As with the production procedures described in HQ H304677, certain components of the subject printers are assembled in China to create printer subassemblies, referred to as printer transports. A printer transport consists of the basic housings and the associated structures of the printers. They are made up of items such as mechanical frames, covers, and the structures containing the printer's contents, such as the fuser (fuses toner to paper), laser scanning unit (LSU - forms the image to be printed), operator panel ("OpPanel"), scanner (imaging module used in multifunction devices only), and power supply unit (PSU). After their assembly in China is complete, the printer transports will be shipped to Mexico. Unlike in HQ H304677, you aver that in addition to the Printed Circuit Board Assembly ("PCBA"), three of the most important subassemblies-the imaging unit ("IU"), developing unit ("DU"), and toner cartridge ("TC")-are manufactured in Mexico. You state that "[t]he functionality of the Chinese-origin printer transports are significantly diminished with the removal of the imaging unit and the toner cartridge from them" as "[t]hey no longer have 'all of the mechanical printing functions' [i.e., printing, scanning, copying, etc.] incorporated in them." The production of the printer transports in China accounts for 37% of the manufacturing time by labor hours of the printers at issue.

You explain that in order for a laser printer to produce a clear and long-lasting image using small particles of toner that adhere to paper or other media, the PCBA contains software and firmware functions to control the different modules comprising the laser printer assembly. Each of what you describe as the essential subassemblies work in tandem to achieve this functionality. The printer toner is stored in a toner cartridge, which supplies the powder to a developing unit. The developing unit charges the polymer toner through triboelectric means to a specific level and applies a uniform layer of toner to the primary component of the developing unit, which is the developer roll. Subsequently, this uniform layer is transferred to the imaging unit, where its primary component, the organic photoconductor ("OPC"), presents the desired electrostatic image to the uniform toner layer, which results in the development of the final toner image on the OPC. The OPC then transfers the image onto paper or other media.

Firmware stated to be architected and designed in the United States, with support from Lexmark's subsidiary in the Philippines is downloaded onto the PCBA in Mexico. In addition, between 20 to 25 cables, depending on the printer model, will be connected to the PCBA and the other components of the printers, including the fuser, LSU, OpPanel, scanner, power supply, as well as other fans, sensors, and motors. Toner cartridges for testing the print quality and the paper movement will thereafter be installed. To perform the function of printing onto paper, the printers use toner that is manufactured in either the United States or Mexico. The printers will then be packaged and palletized for transportation.

Printed Circuit Board Assemblies (PCBAs)

Extensive information was presented on the manufacture of the PCBAs, the toner cartridges, the developing units, and the imaging units. As we noted in HQ H304677, the PCBA is a complete assembly comprised of a printed circuit board ("PCB") that uses Surface Mount Technology ("SMT") and Pin Through Hole Technology ("PTH") to incorporate components, such as transistors, resistors, integrated circuits ("ICs"), and capacitors. To the make the PCBA, a PCB, a thin board made of fiberglass, composite epoxy, or other laminate material is used to serve as a base for the various microelectronic components. Conducive pathways are "etched" and printed onto the board, and transistors, resistors, and ICs from China, Taiwan, Korea, Malaysia, or Japan are connected onto the PCB. The PCBA includes a system-on-a-chip ("SOC") that interprets the requests from the OpPanel or a network interface. The requests to perform functions are translated by the firmware running on the SOC to a sequence of action then commanded to each module. You state that production of the PCBA in Mexico accounts for 44% of the manufacturing time by labor hours of the finished printer at issue.

Toner Cartridges and Toner

You explain that the toner cartridges are produced in Mexico from components originating in Mexico, the United States and China. The toner cartridge incorporates two primary components: the paddle and tenor level assembly and the toner cartridge primary assembly. The toner powder within the toner cartridge provides a durable and lasting pigment that is easily discernible on media, such as paper. The function of the toner cartridge primary assembly is to meter known amounts of toner powder to the developing unit when called for either by mechanical means from the developing unit or when prompted by the PCBA.

Developing Unit

You state that the developing unit is produced in Mexico from components originating in various countries. It involves 34 separate steps and parts. These components include the Mexican-origin plastic housing, Chinese-origin paddles, Mexican-origin augers, developer rolls, toner adder rolls, cleaning blades, seals, toner, and packaging materials. You explain that the production process involves a high degree of skill and precision. The developer roll, which originates in a third country, is a highly engineered component that helps transfer powder into the imaging drum to create high-quality printing. You explain that the individual components lose their individual identities through incorporation in the developing unit. On their own, none of these components can execute the purpose of the developing unit, which is to deliver a uniformly charged and uniformly distributed layer of toner to the imaging unit. The individual components are only capable of doing so upon incorporation into the developing unit by acting together to provide this functionality.

Imaging Unit

You explain that the imaging unit is produced in Mexico from components originating in Mexico, the United States, and China. The OPC, which you assert is the primary component of the imaging unit, is developed and manufactured at Lexmark's facility in the United States. The OPC production process in the United States involves processing, coating and drying of cores, overcoating, and inspection, sorting and packaging of the finished OPC. Aside from the OPC, the production process of the imaging unit in Mexico involves 36 steps. The OPC and other components lose their individual identities through incorporation in the imaging unit. On their own, none of these components can execute the purpose of the imaging unit, which is to present an electrostatic image to the toner layer to develop the toner image on the OPC for subsequent transfer on the print medium. The individual components are only capable of carrying out this function upon incorporation into a finished imaging unit by acting together to provide this functionality.

Final Assembly

Lexmark will import the Chinese-origin printer transports into Mexico, where the PCBA, developing unit, imaging unit, and toner-filled toner cartridges, as well as firmware, will be installed and the various modules comprising the printer will be connected by cables. The assembled printer will then undergo final testing. At this stage, the non-functional transports are provided with the electronic means for their components to perform their intended tasks through incorporation of the PCBA, toner cartridge, developing unit, and imaging unit. Lexmark explains that final printer assembly and testing in Mexico accounts for 11% of the manufacturing time by labor hours of the printer at issue. In total, 61% of printer manufacturing time by labor hours are spent in Mexico, 37% in China, 2% in the United States, and 1% in a third country.

ISSUES:

1) What is the country of origin of the above-described Lexmark printers imported from Mexico for purposes of applying trade remedies?

2) What is the country of origin for the above-described Lexmark printers imported from Mexico for marking purposes?

LAW AND ANALYSIS:

Country of Origin for Trade Remedies

Effective July 6, 2018, the Office of the United States Trade Representative imposed an additional tariff on certain products of China classified in the subheadings enumerated in Section XXII, Chapter 99, Subchapter III U.S. Note 20(b), HTSUS. For additional information, see "Notice of Action and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation" (June 20, 2018, 83 F.R. 28710). Products of China that are classified in the subheadings enumerated in U.S. Note 20, HTSUS, continue to be subject to antidumping, countervailing, or other duties, fees and charges that apply to such products.

When determining the country of origin for purposes of applying current trade remedies under Section 301, Section 232, and Section 201, the substantial transformation analysis is applicable. The test 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). U.S. Customs and Border Protection ("CBP") considers the totality of the circumstances and makes substantial transformation 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. See Nat'l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993).

Minimal or simple assembly operations 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, 542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983) (imported shoe uppers added to an outer sole in the United States were the "very essence of the finished shoe" and the character of the product remained unchanged and did not undergo substantial transformation in the United States).

In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade ("CIT") interpreted the meaning of the term "substantial transformation" as used in the Trade Agreements Act of 1979 ("TAA") for purposes of government procurement. Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight, under the TAA. All the components of the Generation II flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States where they were assembled into the finished Generation II flashlight.

The court reviewed the "name, character and use" test in determining whether a substantial transformation had occurred and reviewed various court decisions involving substantial transformation determinations. 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 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. Furthermore, courts have considered the nature of the assembly, i.e., whether it is a simple assembly or more complex, such that individual parts lose their separate identities and become integral parts of a new article.

In reaching its decision in the Energizer case, the court expressed the question as one of whether the imported components retained their names after they were assembled into the finished Generation II flashlights. The court found "[t]he constitutive components of the Generation II flashlight do not lose their individual names as a result [of] the post-importation assembly." The court also found that the components had a pre-determined end-use as parts and components of a Generation II flashlight at the time of importation and did not undergo a change in use due to the post-importation assembly process. Finally, the court did not find the assembly process to be sufficiently complex as to constitute a substantial transformation. Thus, the court found that Energizer's imported components did not undergo a change in name, character, or use because of the post-importation assembly of the components into a finished Generation II flashlight. The court determined that China, the source of all but two components, was the correct country of origin of the finished Generation II flashlights under the government procurement provisions of the TAA.

In Headquarters Ruling Letter ("HQ") H018467, dated January 4, 2008, CBP was asked to consider two manufacturing scenarios for multi-functional printers. In one scenario, manufacturing took place in two countries. In the other scenario, manufacturing took place in three countries. In the two-country scenario, 18 units were manufactured in the Philippines from components produced in various countries. The units were sent to Japan where the system control board, engine control board, OPC drum unit, and the toner reservoir were manufactured and incorporated into the units. The control boards were programmed in Japan with Japanese firmware that controlled the user interface, imaging, memories, and the mechanics of the machines. The machines were then inspected and adjusted as necessary. CBP found that the manufacturing operations in Japan substantially transformed the Philippines units such that it was determined that Japan was the country of origin of the multifunctional machines. In making the determination (and in addition to the finding that operations performed in Japan were meaningful and complex and resulted in an article of commerce with a new name, character, and use), CBP found it very significant that the system control board, the engine control board, and the firmware, which were very important to the functionality of the machines, were manufactured in Japan.

In HQ H219519, dated April 3, 2013, CBP addressed the substantial transformation of a laser jet printer and fax machine that included parts which were produced in China and where the final assembly of all component parts occurred in Mexico. The laser jet printer/fax machine was composed of a print engine, motors, control board (with firmware), paper trays, rollers, transfer belt, a formatted printed circuit board, and other components. CBP determined that the assembly in Mexico was not complex or significant enough to result in a substantial transformation. CBP explained that the assembly in Mexico did not change or define the use of the finished laser jet printer/fax machine.

In HQ H287548, dated March 23, 2018, CBP considered the country of origin of a monochrome laser printer. The main PCB and firmware were produced in Japan, while the feeder unit, fuser unit, photo conductor, toner cartridge and operation panel were all produced in Vietnam. The final manufacturing operations took place in the United States by soldering and wiring the 10 subassemblies together and programming the units with the Japanese firmware. Given the operations in three different countries, CBP determined that the PCB and firmware, both manufactured in Japan, embodied the primary essence of the laser printer because the firmware provided the control program for the printer and enabled the main PCB assembly to function as the electronic "brains" of the printer by controlling all printer functions. Compared to less complex operations performed in Vietnam and the United States, the country of origin was determined to be Japan.

You have proposed a revised production process for the printers in HQ H304677. Under this revised production scenario, you assert that the three most important printer subassemblies-namely, the toner-filled toner cartridge, the developing unit, and the imaging unit-will be made in Mexico, along with the PCBA, using components and materials from various countries. Thus, you state the reasoning set forth in HQ H304677 no longer applies to the revised production process. Accordingly, you argue that under this revised production scenario, where the most important subassemblies are installed into non-functional printer transports in Mexico, the country of origin of the finished printers will be Mexico where the printer transport and PCBA, developing unit, imaging unit, and toner cartridge are combined.

As we explained in HQ H304677, the rulings cited above demonstrate that the component (or components) which imparts the character of a product will be a significant factor in determining the country of origin of a product. In HQ H304677, we found that the Mexican-origin PCBA was not the only fundamental functioning component of the subject printers. While we acknowledged that the PCBA, along with the firmware, allowed the operator panel to perform its function, the other subassemblies, including the printer transports, were critical to allow the printer to feed the paper and to accomplish the goal of printing copies. Accordingly, we held in HQ H304677 that the country of origin of the finished printers for purposes of applying trade remedies was imparted by the Chinese-origin printer transports.

Under the production scenario in HQ H304677, the printer transports had more significant functionality vis--vis the finished printers because the Chinese-origin transports included the toner cartridge, developing unit and imaging unit. Under your revised production scenario, with the removal of the toner cartridge, developing unit, and imaging unit from the Chinese-origin printer transports, the Chinese transports no longer have all of the mechanical printing functions incorporated in them. Accordingly, under your revised production scenario, the character of the finished printer, i.e., those that are critical in allowing the printer to feed the paper and to accomplish the goal of printing, scanning, copying, and all other printer functions, is no longer mostly imparted by the Chinese printer transports since the subassemblies that provided this functionality-the developing unit, imaging unit, and toner-filled toner cartridge-in conjunction with the PCBA, have been removed from the Chinese transports.

Along with the Mexican-origin PCBA, the developing unit and imaging unit are manufactured in Mexico, where the individual components of these subassemblies undergo a change in name, character and use to carry out their critical functionality when integrated into the finished developing unit and imaging unit.

Returning to the final production of the printers, where the printer transports are of Chinese origin, and the developing unit, imaging unit, the PCBA, and the toner cartridge are of Mexican origin, we will employ a totality of the circumstances approach in determining the country of origin of the finished printers. Three of the most critical subassemblies of the finished printers, separate from the final assembly, are manufactured in Mexico. The printer transports of Chinese origin have diminished functionality compared to the printer transports in your earlier production scenario described in HQ H304677. Much of that printer functionality is now found within the developing unit, imaging unit and toner cartridge when installed in the finished printers with the PCBA. In addition, although of less significance, we note that 61% of printer manufacturing time by labor hours occurs in Mexico, whereas 37% occurs in China and 2% occurs in the United States. Accordingly, we find the country of origin of the finished printers will be Mexico for purposes of applying trade remedies.

Country of Origin Marking

You also seek a determination regarding the country of origin marking requirements of the Lexmark printers under your revised production scenario. Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), 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 its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. By enacting 19 U.S.C. 1304, Congress intended to ensure that the ultimate purchaser would be able to know by inspecting the marking on the imported goods the country of which the goods are the product. "The evident purpose is to mark the goods so that at the time of purchaser 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 C.A.D. 104 (1940).

Part 134 of the U.S. Customs and Border Protection ("CBP") Regulations (19 C.F.R. Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Title 19, Section 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 this part; ...."

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 hierarchy for determining the country of origin of a good for marking purposes. See 19 C.F.R. 102.11. Applied in sequential order, the hierarchy establishes that the country of origin of a good is the country in which:

(a)(1) The good is wholly obtained or produced.

(a)(2) The good is produced exclusively from domestic materials; or

(a)(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in Section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

Here, sections 102.11(a)(1) and 102.11(a)(2) do not apply because the product will neither be wholly obtained or produced nor produced exclusively from "domestic" (in this case Mexican) materials. Accordingly, each foreign material must meet the applicable change in tariff classification set out in Section 102.20 in order for the product to qualify to be marked as a product of Mexico.

"Foreign material" is defined in 19 C.F.R. 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." You indicate that the printers are classified in subheadings 8443.31 and 8443.32, Harmonized Tariff Schedule of the United States ("HTSUS"). The tariff shift requirement in 102.20 for a good of subheadings 8443.31 and 8443.32, HTSUS, requires:

A change to printer units of ADP machines of subheading 8443.31 through 8443.32 from any other good of subheading 8443.31 through 8443.32 or from any other subheading, except from parts and accessories suitable for use solely or principally with the machines of subheading 8443.31 through 8443.32 of subheading 8443.99 when that change is the result of simple assembly, or from subheading 8504.90 or heading 8473, when that change is the result of simple assembly, and except from other units of ADP machines of subheading 8517.62 through 8517.69 or heading 8528 or from subheading 8471.60 through 8472.90 HTSUS.

Under the scenario here, you now assert that section 102.11(a)(3) will be satisfied for the foreign (Chinese) transports that are classified either in subheading 8443.31 or 8443.32, HTSUS where the transports qualify as "any other good of subheading 8443.31 through 8443.32." You did not make this claim in HQ H304677. As the type of Chinese transports has changed in this scenario, we will evaluate it now. Accordingly, you argue that the applicable tariff shift rule for the foreign printer transports is met. You further posit that the PCBAs, developing units, imaging units, and toner cartridges satisfy the applicable tariff shift rule for "[a] change to parts or accessories of printers of subheading 8443.31 or 8443.32..." In sum, you assert that because all of the foreign subassemblies satisfy the applicable tariff shift rule, the country of origin of the finished printers pursuant to 19 C.F.R. 102.11(a) will be Mexico.

The relevant tariff shift rule allows for "[a] change to printer units of ADP machines of subheading 8443.31 through 8443.32 from any other good of subheading 8443.31 through 8443.32..." Because the transports qualify as "any other good of subheading 8443.31 through 8443.32," the Chinese printer transports will undergo the requisite tariff shift set forth in 19 C.F.R. 102.20. Further, any other foreign materials will either undergo the requisite tariff shift for subheading 8443.31 through 8443.32, or will become domestic materials by their assembly into subassemblies in Mexico.

Based on the foregoing, we find that the country of origin of the finished printers is Mexico for marking purposes.

HOLDING:

The country of origin of the Lexmark MS/MX and CS/CX series of printers imported from Mexico for purposes of applying trade remedies and for marking will be 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