CLA-2-85:OT:RR:NC:N2:220
Maria Vanikiotis
Grunfeld, Desiderio, Lebowitz, Silverman, Klestadt LLP
599 Lexington Avenue, Floor 36
New York, NY 10022-7648
RE: The country of origin of motor controllers from Canada
Dear Ms. Vanikiotis:
In your letter dated January 28, 2019, on behalf of Navitas Vehicle Systems Ltd., you requested a ruling on the country of origin and application of Section 301 additional duties for motor controllers.
There are two motor controllers under consideration that are identified as the AC Controller Item #10-000878 and the DC Controller Item #10-000685. You describe both devices as motor controllers for use in off-road vehicles such as golf carts or similar low-speed vehicles and state that the devices are fully programmable to be used with varying motor configurations.
The AC Controller Item #10-000878, which is also referred to as the TAC2, is comprised of an aluminum base, three printed circuit board assemblies (PCBAs), various hardware, and a plastic enclosure. The PCBAs for the AC Controller are identified as the Control PCBA and the Power PCBA, which are said to be produced in Canada, and the Capacitor PCBA, which is sourced from China. The aluminum base and plastic enclosure are also sourced from China. The AC Controller is capable of operating at 36 V to 72 V and 600 A motor current.
The DC Controller Item #10-000685, which is also referred to as the TSX3.0, is comprised of an aluminum base, two PCBAs, various hardware, and a plastic enclosure. The PCBAs for the DC Controller are identified as the Control PCBA and the Power PCBA, which are both produced in Canada. The aluminum base and plastic enclosure are sourced from China. The DC Controller is capable of operating at 48 V to 72 V and 440 A motor current.
As an initial matter, we would note that both of the subject controllers electrically control the speed and direction of electric motors, provide under voltage and thermal protection, and deliver regenerative breaking. Consequently, the AC Controller and the DC Controller are properly classified as speed drive controllers under 8504.40.4000, Harmonized Tariff Schedule of the United States (HTSUS).
In your request, you describe the manufacturing process for the subject motor controllers and suggest the country of origin is Canada for both devices. Furthermore, you suggest that the motor controllers are not subject to the application of the Section 301 measures for products of China because the Chinese components undergo a substantial transformation as a result of the assembly process performed in Canada that is discussed hereafter.
Based on the information provided, the AC Controller Item #10-000878 is assembled in Canada by joining the Capacitor, Control, and Power PCBA to the aluminum base, programming with firmware, and assembling the outer plastic enclosure. Your description of the individual PCBAs indicate that the Control PCBA and the Power PCBA are manufactured in Canada by soldering numerous electrical components (resistors, capacitors, integrated circuits, diodes, etc. of various origins) onto bare printed circuit boards through a surface mounting process. As noted previously, the Capacitor PCBA is imported into Canada from China.
Based on the information provided, the DC Controller Item #10-000685 is assembled in Canada by joining the Control and Power PCBA to the aluminum base, programming with firmware, and assembling the outer plastic enclosure. Your description of the individual PCBAs indicate that the Control PCBA and the Power PCBA are manufactured in Canada by soldering numerous electrical components (resistors, capacitors, integrated circuits, diodes, etc. of various origins) onto bare printed circuit boards through a surface mounting process.
With regard to your request for the appropriate country of origin of the motor controllers, 19 C.F.R. § 134.1(b) provides in pertinent part 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;
Since Canada is a NAFTA country, the NAFTA Marking Rules must be applied in determining the country of origin of the subject controllers for marking purposes.
Part 102, Customs and Border Protection Regulations (19 C.F.R. Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required 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 required 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.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the motor controllers are neither wholly obtained nor produced exclusively from “domestic” materials. Because the analysis of sections 102.11(a)(1) and 102.11(a)(2) does not yield a country of origin determination, we look to section 102.11(a)(3). “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.” In this case, two motor controllers are classified under subheading 8504.40.4000, HTSUS. The applicable rule for subheading 8504.40.4000, HTSUS, in section 102.20 requires:
A change to heading 8504.10 through 8504.50 from any other subheading outside that group.
In this instance, the foreign materials, such as the plastic enclosure and base plate, are imported to Canada from China and would be classified under subheading 8504.90, HTSUS, and the various hardware components (gaskets, fasteners, labels, etc.) are all classified outside Chapter 85. Since the motor controllers are classified under subheading 8504.40, HTSUS, the materials undergo an applicable change in tariff classification as set out in 19 C.F.R. § 102.20, and thus the motor controllers in question qualify to be marked as a good of Canada.
Nonetheless, while the NAFTA marking rules contained in 19 C.F.R. Part 102 will determine the country of origin for marking purposes, the substantial transformation test will determine the country of origin for purposes of the Section 301 measures. See, e.g., Headquarters Ruling Letter (“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, 69 C.C.P.A. 151 (1982). 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 order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, all factors such as the components used to create the product and manufacturing processes that these components undergo are considered in order to determine whether a product with a new name, character and use has been produced. No one factor is decisive, and assembly operations that are minimal will generally not result in a substantial transformation.
In our view, the Control and Power PCBAs impart the essence of the finished controller. These items are not substantially changed by the addition of the Chinese materials or the assembly operations performed in Canada. Since both the Control and Power PCBAs are produced in Canada, for purposes of the application of subheading 9903.88.01, HTSUS, the country of origin of motor controllers is Canada. Therefore, AC Controller Item #10-000878 and the DC Controller Item #10-000685 are not subject to the Section 301 trade remedies as provided for under 9903.88.01, HTSUS.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Karl Moosbrugger at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division