OT:RR:CTF:VS H339955 AP
Center Director
Machinery Center of Excellence and Expertise
U.S. Customs and Border Protection
109 Shiloh Drive, Suite 300
Laredo, Texas 78045
RE: AFR of Protest No. 1703-23-116022; Finished Water Filters; Origin; Section 301
Dear Center Director:
The following is our decision regarding the Application for Further Review (“AFR”) of Protest Number 1703-23-116022, timely filed on September 11, 2023, on behalf of Paragon Water Systems, Inc. (“importer”). The protest concerns the origin of a water filtration system and a water filtration replacement cartridge (collectively “finished water filters”), which were classified in subheading 8421.21.00, Harmonized Tariff Schedule of the United States (“HTSUS”) upon entry.
FACTS:
At issue in this AFR/Protest are: (1) part no. 22010372, A.O. Smith Clean Water 4-stage Carbon Block Reverse Osmosis Filtration System, and (2) part no. 22000332, replacement cartridge (reverse osmosis membrane filter type) for Aquasana 3-Stage. The finished water filters are intended to be used for residential drinking water systems installed underneath a household sink. A.O. Smith part no. 22010372 contained carbon block and reverse osmosis (“RO”) membrane type filters while Aquasana part no. 22000332 only had a RO membrane filter. The carbon block and RO membrane filters were designed to perform a contaminant-removal function and did not require electricity to function. The carbon block was manufactured in the United States and the RO membrane filter was manufactured in South Korea.
The production process in South Korea to produce the RO membrane filters involved “a series of chemical reactions, material cutting (permeate collection material, membrane, feed channel spacer, outer wrap, etc.), and spinning operations.” The RO membrane filter was then shipped to China where it was assembled with other components to produce the finished water filters, which were then tested, packed, and imported into the United States. The assembly process in China involved combining the RO membrane filter together with mostly small plastic components such as O-rings, flow controllers/regulators, filter bodies/cartridges, and caps. The total amount of time that it took to assemble the finished water filters in China ranged from 30 seconds to 10 minutes. The assembly steps involved primarily screwing and gluing operations, in addition to pressing/inserting components into place.
The finished water filters were entered on April 25 and May 23, 2022, as originating from China and subject to 25 percent ad valorem Section 301 duty under subheading 9903.88.01, HTSUS, based on the importer’s belief that the country of origin of the filters was the country where the final assembly occurred, which was China. After the entries were liquidated as entered on March 17 and April 21, 2023, the importer reevaluated and filed a protest/AFR claiming that the country of origin of the finished water filters should be South Korea, where the RO membrane filters were manufactured. U.S. Customs and Border Protection’s (“CBP”) Machinery Center of Excellence and Expertise (“CEE”) denied the protest due to lack of supporting documentation showing where the RO membrane filters were manufactured and forwarded the AFR to our office for review. On June 21, 2024, our office contacted the importer’s counsel to request supporting documentation to determine the origin of the RO membrane filters and the finished water filters. On July 26, 2024, importer’s counsel supplemented the protest/AFR and submitted the requested supporting documentation.
ISSUE:
What is the origin of the imported A.O. Smith and Aquasana finished water filters for purposes of Section 301 measures?
LAW AND ANALYSIS:
This matter is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed, within 180 days of liquidation for the entries.
See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429,
§ 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further review of the protest is properly accorded to the importer pursuant to 19 C.F.R. § 174.24(b) because the issue protested involves questions of law or fact, which have not been ruled upon.
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 its 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 8421.21.00, HTSUS.
When determining the country of origin for purposes of applying Section 301 measures, 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, 681 F.2d 778 (CCPA 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 process is a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. In Uniroyal, Inc. v. United States, 3 CIT 220 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983), the U.S. Court of International Trade (“CIT”) concluded that a finished shoe upper was not substantially transformed when it was combined with the shoe’s outer sole. The process of attaching the shoe upper was a minor manufacturing or combining process which left the identity of the upper intact and was “conceptually no different than (for example) attaching buttons to a man’s dress shirt or attaching handles to a finished piece of luggage.” Id. at 224. The CIT further stated that “the upper – which in its condition as imported is already a substantially complete shoe – is readily recognizable as a distinct item apart from the outsole to which it is attached.” Id. The CIT concluded that the uppers did not lose their identity and were the “very essence of the finished shoe.” Id. at 225.
The CIT interpreted the meaning of “substantial transformation” in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016). Energizer involved the determination of the country of origin of a flashlight. All its components were of Chinese origin, except for a white light-emitting diode and a hydrogen getter. The components were imported into the United States and assembled into the finished flashlight. The court reviewed the “name, character and use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, 3 CIT at 226, 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 Nat’l Hand Tool Corp., 16 CIT at 311-312.
When considering the origin of finished water filters, CBP has found the country of origin of the water filter component to be significant. In New York Ruling (“NY”) N333554, dated July 10, 2023, the country of origin of an A.O. Smith Direct Connect Single-Stage Carbon Block Under Sink Water Filtration System for marking purposes was the country where the carbon block was manufactured. The finished water filter was assembled in China using components manufactured in various countries, including the United States, Germany, and China. The assembly process in China involved screwing, gluing and pressing together O-rings, a cap key, top cap, bottom cap, and sump from China, flow control/regulator from Germany, and carbon block from the United States during a 10-step process. The carbon block was the most expensive portion of the system, and the item performing the filtering of the water. Also, NY N335575, dated Oct. 17, 2023, concluded that the country of origin of replacement refrigerator filters for Section 301 and marking purposes was the country where the carbon block was manufactured. Similarly, NY N337204, dated Jan. 8, 2024, involved lead-free replacement refrigerator filters designed to reduce chlorine and contaminates. The assembly process performed in China predominantly involved gluing, welding, and pressing various components into place. The combining process did not create a new and different article of commerce with a name, character, and use distinct from the individual components. CBP concluded that the country of origin of the replacement water filters for purposes of Section 301 remedies was the origin of the carbon block, which was the essential component removing contaminants from water through an absorption process.
Here, the importer seeks reliquidation of the A.O. Smith and Aquasana finished water filter entries and argues that the assembly operations in China were not complex and meaningful to result in a substantial transformation. The importer claims that the RO membrane filter is the essence of the finished water filters because it performs the essential function of the faucet (i.e., filtering the impurities). The RO membrane filter does not change shape or construction during the final assembly process in China.
The supporting documentation in the form of manufacturers’ declarations and third-party certifications, descriptions and images of the production process, bills of materials, bill of lading, purchase orders, invoices, packing list, and proof of payment that the importer submitted on
July 26, 2024, demonstrates that the RO membrane filters were manufactured in South Korea and were exported from South Korea to China to be assembled into the final water filters in China. We note that the RO membrane filter exported from South Korea to China has a pre-determined use to make the finished water filters and performs the essential function of filtering the water impurities. As in Uniroyal, where the upper was the essence of the finished shoe and its country of manufacturing was the last substantial transformation, the RO membrane filter here was manufactured in South Korea, and the country of origin of the finished water filters is South Korea.
HOLDING:
The importer has withdrawn its protest/AFR with respect to the melt-blown filters and their country of origin remains China as liquidated. You should grant the protest with respect to the A.O. Smith and Aquasana water filters. The country of origin of the A.O. Smith and Aquasana finished water filters is South Korea, and Section 301 remedies do not apply.
You are instructed to notify the importer of this decision, through the importer’s counsel, no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System
(“CROSS”) at https://rulings.cbp.gov/, which can be found on the CBP website at https://www.cbp.gov and other methods of public distribution.
Sincerely,
For Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division