OT:RR:CTF:VSP H335139 RRB
Matthew D. Lapin
Porter Wright Morris & Arthur LLP
2020 K Street, NW
Suite 600
Washington, D.D. 20006
RE: Modification of NY N326445; Country of origin of an Absorber Crashbox
Dear Mr. Lapin:
This is in response to your submission, dated July 29, 2022, requesting U.S. Customs and Border Protection ("CBP") to reconsider New York Ruling Letter ("NY") N326445, dated June 30, 2022, which was issued to your client Waldasschaff Automotive Mexico S de R.L. de C.V. ("WAM" or "importer"). NY N326445 addressed the classification, trade preference under the United States-Mexico-Canada Agreement ("USMCA"), and the country of origin of an Absorber Crashbox.
In NY N326445, CBP found that the country of origin of the Absorber Crashbox will be China for purposes of applying trade remedies under Section 301 of the Trade Act of 1974, as amended. After reviewing the ruling in its entirety, along with the information in your reconsideration request, we find it to be incorrect only with respect to the country of origin of the Absorber Crashbox for purposes of applying Section 301 trade remedies. For the reasons set forth below, we are modifying NY N326445.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. 1625(c)(1)), as amended by section 623 of Title VI, notice proposing to modify NY N326445 was published on March 27, 2024, in Volume 58, No. 12 of the Customs Bulletin. No comments were received in response to the proposed action.
FACTS:
In NY N326445, the Absorber Crashbox was described as follows:
The item under consideration is an Absorber Crashbox (Crashbox, crash box), which is designed to be used with passenger vehicles. The crash box is an important component designed exclusively to absorb energy in the event of a collision. It prevents the spread of kinetic energy, generating less damage to the vehicle structure. It is placed between the bumper and side rails before the chassis points.
You state in your letter that the Crashboxes are manufactured and assembled in Mexico with certain imported components from China. These imported parts are referred to as "profiles", Part Number V1570 and Part Number V1571. There are two model profiles, each consisting of two pieces. One pair is for the left hand Crashbox and one set for the right hand Crashbox. The Crashboxes are manufactured in Mexico using these profiles imported from China with Mexican labor. The imported profiles are considered a raw material and are subject to various processes in WAM's plant in Mexico including sawing, stamping, washing and heat treatment until the good is finished.
NY N326445 further states:
[a]ccording to the information supplied, none of the components from China undergo any substantial processing. The end-use of all components from China is pre-determined at the time of importation to Mexico. The assembly of the components into the Absorber Crashbox appears to be a minor one, and therefore, does not meet the substantial transformation requirements.
As a result, it is the opinion of this office that no substantial transformation occurs in Mexico. Therefore, the country of origin of the Absorber Crashbox will be China for purposes of applying trade remedies under Section 301, of the Trade Act of 1974, as amended.
In its reconsideration request, the importer explains that the heat treatment applied to the profiles is more than a minor operation. The importer states that the heat treatment process changes the properties of the metal in the profiles in order to permit the crashboxes to meet the requirements of the Federal Motor Vehicle Safety Standards ("FMVSS"). In particular, the heat treatment process subjects the sawed, cut, formed and hole-punched profiles to a specified high temperature for a set amount of time under controlled environmental conditions, using precision measuring and test equipment. This process changes the structural properties of the aluminum used to construct the raw profiles. Items that do not meet specific parameters regarding tensile strength, yield strength and elongation are removed from processing and are not incorporated into final assembly.
The importer asserts that the heat treatment and artificial aging process in Mexico transforms the aluminum components from the imported "T4" component into the "T6" component that can be incorporated into the final assembly of the crashboxes. Moreover, the transformation of the aluminum components into "T6" components renders them with substantially higher strength and hardness compared to the "T4" components form China. This processing leads to an improvement in the material's mechanical properties, including its strength, hardness, and ductility.
The importer explains that these changes to the physical properties of the aluminum are required to effectively absorb energy in a crashbox in the event of a collision and to ensure that the passenger vehicles upon which the crashboxes are installed meet requirements for occupant safety under the FMVSS.
In an email dated August 11, 2023, Counsel for WAM sent to our office photographs of the incoming materials that are sent to Mexico, along with photographs of what happens to these materials at various stages of production of the Absorber Crashboxes in Mexico.
ISSUE:
What is the country of origin of an Absorber Crashbox manufactured and assembled in Mexico, using certain imported components from China, for purposes of applying of Section 301 trade remedies?
LAW AND ANALYSIS:
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 Statess shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such a 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 enacting 19 U.S.C. 1304 was that the ultimate purchaser should be able to know by an inspection of the markings on the imported goods the country of which the good is the product. "The evident purpose is to mark the goods so 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 at 302 (1940).
The regulations implementing the requirements and exceptions to 19 U.S.C. 1304 are set forth in Part 134, Customs and Border Protection Regulations (19 C.F.R. Part 134).
19 C.F.R. 134.1(b) provides as follows:
"Country of origin" means 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; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
The United States Trade Representative ("USTR") has determined that an additional ad valorem duty of 25% 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(f), HTSUS. Among the subheadings listed in U.S. Note 20(f) of Subchapter III, Chapter 99, HTSUS, is subheading 8708.10.60, HTSUS, in which the finished Absorber Crashboxes are classified.
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 order to determine whether a substantial transformation has occurred, 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 National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993).
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade ("CIT") interpreted the meaning of "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 of 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, Inc. v. United States, 3 C.I.T. 220, 226, 542 F. Supp. 1026, 1031, aff'd, 702 F.2d 1022 (Fed. Cir. 1983), 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, 310, aff'd, 989 F.2d 1201 (Fed. Cir. 1993). 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.
Customs has generally held that a heat treatment will result in a substantial transformation only if it alters the article's mechanical properties to a significant extent. See Headquarters Ruling Letters ("HQ") 083236 dated May 16, 1989. The decision in Ferrostaal Metals Corp. v. United States, 664 F.Supp. 535, 11 C.I.T. 470 (1987), is also pertinent. That case concerned whether certain operations performed on cold-rolled steel sheet, described as a continuous hot-dip galvanizing process, substantially transformed the sheet. The process involved two steps: annealing, undertaken to restore the steel's ductility lost in a previous cold rolling, and galvanizing, or dipping the steel in a pot of molten zinc. The court held that the continuous hot-dip galvanizing process resulted in a substantial transformation, in part, because the process changed the character of the steel sheet by significantly altering its mechanical properties and chemical composition.
In National Hand Tool Corp., sockets and flex handles were either cold formed or hot forged into their final shape, speeder handles were reshaped by a power press after importation, and the grip of the flex handles were knurled in the United States. The imported parts were then heat treated, which strengthened the surface of the steel, and cleaned by sandblasting, tumbling, and/or chemical vibration before being electroplated. In certain instances, various components were assembled together, which the court stated required some skill and dexterity. The court determined that the imported components were not substantially transformed by the strengthening, cleaning, and assembly performed in the United States; therefore, they remained products of Taiwan. In making its determination, the court focused on the fact that the components had been cold-formed or hot-forged "into their final shape before importation," and that "the form of the components remained the same" after the assembly and heat-treatment processes performed in the United States. Although the court stated that a predetermined use would not preclude the finding of a substantial transformation, the determination must be based on the totality of the evidence. No substantial change in name, character or use was found to have occurred as a result of the processing performed in the United States.
Regarding certain assembly operations, CBP has generally held that those which 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. 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. 3 C.I.T. at 224, 542 F. Supp. at 1029.
In NY N326445, CBP found that because sawing, stamping, washing and heat treatment are simple operations performed on the aluminum profiles in Mexico, no substantial transformation occurs. Accordingly, it determined that the country of origin of the Absorber Crashboxes is China. However, in the importer's reconsideration request, they explain the processing in further detail, particularly regarding the complexity of the heat treatment.
The aluminum profiles undergo various types of processing in Mexico as part of their manufacture into Absorber Crashboxes. One pair of aluminum profiles imported from China to Mexico is for the left hand crashbox and one pair is for the right hand crashbox. In order to manufacture these profiles into the final product, the profiles are sawed and then sent to a separate machining station where a U-shaped cutout is made in the individual profile. The profiles with cutouts are subject to two different hole-punching steps to allow for connecting to spacers and vehicle crossbeams. Then, they are washed followed by a specialized heat treatment and artificial aging process. In the final step of the manufacturing process, the profiles that have undergone processing are assembled with the spacers to form the Absorber Crashboxes.
In its reconsideration request, the importer explains that the heat treatment process changes the structural properties of the aluminum used to construct the profiles in order to permit the crashboxes to meet FMVSS requirements for passenger safety. According to the importer, this heat treatment and aging process results in a change to the grain structure of the aluminum components, based on the formation of precipitates within the aluminum alloy to strengthen the material, which leads to an improvement in the material's mechanical properties, including its strength and hardness. Without these increases in strength and hardness following heat treatment of the aluminum, the crashboxes would not be suitable for their intended use in absorbing sufficient energy as part of a vehicle's crash management system.
To better assess whether the heat treatment and aging processes performed on the aluminum profiles in Mexico result in a significant change to the structural and chemical properties of the aluminum profiles used in the manufacture of the Absorber Crashboxes, this office requested the assistance of CBP's Laboratories and Scientific Services Division ("LSSD"). In its Lab Report, LSSD confirmed that "the heat treatment changes the properties of the material to ensure proper safety. . ."
Because CBP did not have complete information regarding the processes performed in Mexico to manufacture the aluminum profiles into Absorber Crashboxes, it erroneously concluded in NY N326445 that the country of origin of the crashboxes was China. Upon receiving more fulsome details of the processing operations, as well as photographs of the imported aluminum profiles before and after processing, we conclude that unlike in National Hand Tool Corp., the imported aluminum profiles were not in their final shape before importation. Based on the provided photographs, the aluminum profiles underwent sufficient cutting and shaping such that the form of the components after processing was no longer the same.
Other evidence presented with the reconsideration request provides further detail into how the heat treatment and artificial aging process changes the character and use of the imported aluminum profiles. The importer avers that such processing transforms the aluminum profiles from the "T4" components received from China into the "T6" components that can be incorporated into the final assembly of the crashboxes. Specifically, we confirmed that the heat treatment applied to the aluminum profiles in Mexico changes the structural properties and character of the aluminum used to construct the raw profiles. In particular, the heat treatment notably alters the tensile strength, yield strength and elongation of the profiles used in the final assembly of the Absorber Crashboxes. The aluminum profiles that do not meet specific parameters regarding tensile strength, yield strength and elongation are removed from processing and not incorporated into final assembly, as they would not be suitable for their intended use in Absorber Crashboxes.
In determining whether a substantial transformation has occurred as a result of the various manufacturing processes performed in Mexico, we turn to the "name, character, and use test." See National Hand Tool Corp. Here, there is a change in name subsequent to processing because the imported articles are aluminum profiles whereas the finished product that integrates the processed aluminum profiles are Absorber Crashboxes. Additionally, even before the aluminum profiles are assembled into the Absorber Crashboxes, they undergo a name change from the "T4" to the "T6" as a result of the heat treatment applied to the aluminum. There is also a change in character as a result of the heat treatment and aging process applied to the profiles, which alters the grain structure of the aluminum components, based on the formation of precipitates within the aluminum alloy to strengthen the material. The heat treatment also alters the tensile strength, yield strength and elongation of the profiles. Without these increases in strength and hardness, the crashboxes would not be suitable for their intended use in absorbing sufficient energy as part of a vehicle's crash management system. Thus, the purpose of the heat treatment is to change the properties of the aluminum so that the final product, the Absorber Crashboxes, meets the requirements for occupant safety under FMVSS by absorbing energy in the event of a collision. In sum, it is our determination that the sawing, stamping, washing, heat treatment and aging processes performed on the aluminum profiles in Mexico as part of their manufacture into Absorber Crashboxes result in a substantial transformation. Accordingly, the country of origin will be Mexico.
HOLDING:
The country of origin of the Absorber Crashboxes for purposes of applying trade remedies under Section 301 of the Trade Act of 1974 is Mexico.
EFFECT ON OTHER RULINGS:
NY N326445, dated June 30, 2022, is hereby MODIFIED.
This ruling will become effective 60 days from the date of publication in the Customs Bulletin.
Sincerely,
Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division