OT:RR:CTF:VS H339179 AM
Mark Heusel
Dickinson Wright PLLC
350 S. Main St., Ste. 300
Ann Arbor, Michigan 48103
RE: Country of Origin of Exhaust and Intake Valves; Substantial Transformation; Section 301 Trade Remedy Duties
Dear Mr. Heusel:
This is in response to your request, dated April 16, 2024, filed on behalf of your client,
[ ] ("Company A"). In your letter, you request a binding ruling on the country of origin of intake valves and exhaust valves (collectively, "valves") for purposes of marking and the applicability of Section 301. Your request, submitted as an electronic ruling request, was forwarded to this office from the National Commodity Specialist Division ("NCSD") for response.
You have 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 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 merchandise at issue are intake valves and exhaust valves. You state that these valves are mechanical components assembled within internal combustion engines and are responsible for controlling the flow of fluid or gas during internal combustion. You describe the two utilitarian categories of valves: (1) intake valves that open to let air in, then close immediately to keep the cylinder airtight, allowing them to build compression, and (2) exhaust valves that allow the gas to exhaust out after the combustion process occurs following ignition. The valves are both designed for use in Caterpillar's series 3500 diesel engines.
In response to a request from U.S. Customs & Border Protection ("CBP") for additional information, you submitted a chart showing the names, location, and types of materials supplied by Company A's suppliers for the valves.
Intake valves
Company A currently manufactures the intake valves in China and is considering shifting part of this process to Mexico.
In China the following operations would take place:
. Cutting material: the cylindrical is cut short to remove excess materials
. Grind chamfer: Remove the burrs at both ends of the cutting cylindrical stem.
. Electric upsetting & Extrusion: Stamping the bar plating into the rough shape of the valve (referred to as the "valve blank")
. Bar stock hardening: heat treatment (the blank is heated to a certain temperature for a period of time and then cooled in oil)
. Bar stock temper: heat treatment by tempering (heat the blank for a certain temperature for a period of time and then air cooling)
. Shot blasting: used to remove dirt, grime and imperfections from the valve
. Straightening the stem and head, and inspect the stem and head runout
In Mexico the following operations would take place:
. Grind of the valve tip end
. Rough grind of the valve stem
. Rough turn top of head ("TOH")
. Semi-grind tip end: Partial grind of valve tip end to remove excess materials and imperfections
. Rough grind and finish grinding valve stem: grinding the valve stem to remove excess materials and imperfections
. Magnetic detection
. Rough turn head fillet
. Rough grind and finish grinding of grind fillet, valve head, seat face, keeper groove, and tip end: grinding multiple parts of the fillet, seat face, keeper grove, and tip end to remove excess materials and imperfections
. Inspection before chrome plating is conducted
. Valve stem receives chrome plating
. Stem polishing
. Comprehensive inspection of valve
. Comprehensive inspection of intake valve
. Visual inspection of the finished valve
. Marking the top of valve head
. Demagnetize valve
. Clean, pack, and store valves for shipping
Exhaust Valves
Company A currently manufactures the exhaust valves in China and is considering shifting part of this process to Mexico.
In China, the following operations would take place:
For the "head material":
. Cutting material: the cylindrical is cut short to remove the excess material
. Grind chamfer: Remove the burrs at both ends of the cutting cylindrical stem
. Electric upsetting & Extrusion: Stamping the bar plating into the rough shape of the valve (referred to as the "Valve blank")
. Aging treatment: heat the valve blank to a certain temperature and maintain for a period of time, followed by air cooling
. Cutting and grinding tip end face: remove excess material from the bar and grind the cutting surface
For the "stem material":
. Cutting material: the cylindrical is cut short to remove excess material
. Bar stock hardening: heat treatment (the blank is heated to a certain temperature for a period of time and then cooled in oil)
. Bar stock temper: heat treatment by tempering (heat the blank for certain temperature for a period of time and then air cooling)
. Rough grind stem: grinding the stem to remove excess material
. Cutting and grinding tip end face: remove excess material from the bar and grind the cutting surface
. Magnetic detection: Magnetic particle inspections conducted by running a magnetic current through the material that is being inspected.
.
For the "head and stem materials" welded together:
. Friction welding: the head material is welded together with the stem
. Friction weld clean up: remove excess material in the welding
. Welding temper: heat the welding valve to a certain temperature, heat insulation, and then air cool to remove the stress of the welding position
. Grinding welding line: grinding welding position with grinding machine
In Mexico, the following operations would take place:
. Rough grind of the valve stem
. Rough turns of Outside Diameter ("OD") 1, top of valve head, and plasma transferred arc ("PTA") groove
. Cutting and rough grind valve tip end
. Ultrasonic inspection
. PTA seat facing welding process
. Stress relief and stress reversal
. Rough grind of valve head
. Fluorescence detection
. Tip end hardening
. Induction tempering: heat treatment by tempering (the blank is heated to ascertain temperature for a period of time and then cooled in oil)
. Grind stem: grinding the stem to remove excess materials and imperfections
. Semi-grind tip end: Partial grind of valve tip end to remove excess materials and imperfections
. Rough turn head fillet
. Magnetic detection
. Rough grind head face and finish grind of top head: grinding the valve head face and top of head to remove excess materials and imperfections
. Finish grinding of grind fillet, stem, seat face, keeper groove, and tip end: grinding multiple parts of the valve stem, seat face, keeper grove, and tip end to remove excess materials and imperfections
. Inspection before chrome plating is conducted
. Valve stem receives chrome plating
. Fluorescence detection to identify any imperfections following the valve stem chrome plating
. Stem polishing
. Comprehensive inspection of the valve to ensure environmental regulations are met, productions is met, and that all chroming and inspection equipment is sufficiently advanced to handle the requirements of the chroming process
. Visual inspection of the finished valve
. Marking top of valve head
. Demagnetize valve
. Clean, pack, and store the valves for shipping
You assert the country of origin for the valves is Mexico.
ISSUES:
1. What is the country of origin of the exhaust valves and intake valves as described for purposes of section 301 trade remedies?
2. What is the country of origin of the exhaust valves and intake valves as described for marking purposes?
LAW & ANALYSIS:
1. Country of Origin for Purposes of Section 301 Trade Remedies
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, Harmonized Tariff Schedule of the United States ("HTSUS").
When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. See, e.g., Headquarters Ruling ("HQ") H301619, dated November 6, 2018. 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). 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). 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 United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (1940).
To determine whether a substantial transformation occurs, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item's components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
You allege that the manufacturing process here is akin to New York Ruling ("NY") J81219[1], dated March 21, 2003. In NY J81219, two types of tire valve products were imported into the United States, combined with additional U.S.-origin components and processed into completed valves. CBP determined that a substantial transformation occurred in the United States when additional U.S.-origin components were added. In the current case, however, no additional components are added to the valves in Mexico. Therefore, this decision is not applicable to the present case.
Additionally, you allege, HQ 563131 dated Feb. 11, 2005, is also similar to the present case. In HQ 563131, steel bar imported into Turkey underwent a manufacturing process involving shearing, tumbling, heating at high temperatures, solutioning, extruding, and forging the product into the final geometry of a valve. CBP determined this process in Turkey was a substantial transformation for purposes of the Generalized System of Preferences. In the current case, however, the raw material is already recognized as a valve imported from China. The processes that occur in Mexico are merely finishing operations which do not change its name, character, or use in Mexico. Thus, this decision is also not applicable to the present case.
Further, you cite NY N315269, dated Nov. 9, 2020, to demonstrate how the manufacturing process in that case differs from the situation here. In NY N315269, steel valves were imported to the United States from China after being forged in India into the valve shape from steel blocks. In India, the valve was trimmed, marked, and inspected and shaped with an inlet and an outlet. In China, the cavities were threaded and machined to specific dimensions. CBP found the operations in China were and do not result in a substantial transformation. Indeed, the facts in NY N315269 are very similar to the case at issue. Here, there is no dispute the operations in Mexico make the valves complete, however, they are mere finishing operations. In China, the valves are cut, shaped, excess material is removed, then the material is hardened, tempered, and marked. Then, in Mexico, the valves are cut, inspected, ground, heat treated, polished, and packaged to be sent to the United States. The valves before and after importation to Mexico possess the essential character of the finished valves. The use of the valves from China is pre-determined at the time of importation to Mexico. As a result, we find that no substantial transformation occurs in Mexico and there is no change in name, character or use in Mexico. Therefore, the valves remain a product of China and are subject to Section 301 duties.
2. Country of Origin for Marking Purposes
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 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
"Material" means a good that is incorporated into another good as a result of production with respect to that other good, and includes parts, ingredients, subassemblies, and components." 19 C.F.R. 102.1(l).
"Foreign material" is defined in Section 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."
The valves are neither "wholly obtained or produced" nor "produced exclusively from domestic materials." Therefore, paragraphs (a)(1) and (a)(2) cannot be used to determine the country of origin, and we need to apply paragraph (a)(3). The valves will be classified under subheading 8409.91, HTSUS.
The tariff shift requirement in 102.20 for a good of subheading 8409.91, HTSUS, requires:
A change to subheading 8409.91 through 8409.99 from any other heading, except a change resulting from a simple assembly.
As stated, the valves before and after importation to Mexico possess the essential character of the finished valves and therefore, are both classified as unfinished valves under subheading 8409.91, HTSUS pursuant to GRI 2(a). As a result, the tariff shift is not met.
Because an analysis of section 102.11(a) has not produced a country of origin determination, we turn to section 102.11(b) of the regulations. Section 102.11(b)(1) provides as follows:
(b) Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation [("GRI")] 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good....
In determining the "essential character" of the finished good, Section 102.18(b)(1) provides, in relevant part:
(b) (1) For purposes of identifying the material that imparts the essential character to a
good under 102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under Part 102.20 specific rule or other requirements applicable to the good ... (ii) Materials that may be considered include materials produced by the producer of the good and incorporated in the good. For example, if a producer of a good purchases raw materials and converts those raw materials into a component that is incorporated in the good, that component is a material that may be considered for purposes of identifying the materials that impart the essential character to the good, provided that the component is classified in a tariff provision from which a change in tariff classification is not allowed under the specific rule...
In this case, the valves are components classified in a tariff provision from which a change in tariff classification is not allowed. Accordingly, the country of origin for marking purposes is China and the valves need to be marked as "Made in China."
HOLDING:
Based on the information presented, the origin of the valves is China, and are therefore subject to Section 301 duties. Pursuant to 19 C.F.R. 102.11(b), the country of origin of the valves for marking purposes is China and must be marked "Made in China" under 19 U.S.C. 1304.
Please note that 19 C.F.R. 177.9(b)(1) provides that "[e]ach 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 [CBP] 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 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
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[1] This office notes there is a typo in the ruling number provided by the importer and should be NY J81294.