CLA-2-85:OT:RR:NC:N1:102
Mr. Peter K. Paik
Kim & Chang
Jeongdong Building, 17F, 21-15
Jeongdong-gil, Jung-gu
Seoul 04518
Republic of Korea
RE: The country of origin of a battery rack system
Dear Mr. Paik:
In your letter dated August 31, 2019, on behalf of LG Chem, Ltd., you requested a country of origin ruling. A detailed description of the manufacturing process to which the components are subjected to was submitted for our review.
The merchandise under considered is identified as a battery rack system, model number ERT54B22CN21. The system is exclusively used with an Energy Storage System installed on renewable power plants or power grids. The battery rack system has two primary subsystems: one or more battery racks and a battery management system. Each battery rack, which has a voltage output that ranges between 1,000 to 1,200 volts, consists of twenty-two battery modules containing 56 lithium-ion battery cells that store and provide power. Each battery rack also includes a fan module, a battery protection unit, connectors and a rack that houses the subassemblies. The battery management system, which oversees and manages the operation of the battery rack system, consists of a module battery management system, a rack battery management system and a master battery management system.
You state in your request that the battery rack system is classified in subheading 8507.60.0020, Harmonized Tariff Schedule of the United States (HTSUS), which provides for electric storage batteries, including separators therefor, whether or not rectangular (including square); parts thereof: lithium-ion batteries: other. The general rate of duty is 3.4 percent ad valorem.
In regards to the country of origin of the battery rack system, it is said that all of the manufacturing processes of the system occur in South Korea and consist of lithium-ion battery cells from China being combined with various other components and submodules produced in South Korea. Inspections are said to occur as the various manufacturing processes are completed.
The manufacturing process begins by producing twenty-two sub-modules. Each sub-module is produced by laser welding busbars, which form sequences and parallel connections among the battery cells, to the bent lead tabs of battery cells. The sub-modules are subsequently coupled to metal plates and connected to cables, a fuse and a power terminal. Afterwards, each coupled sub-module is connected to a module battery management system and then placed in a protective casing. The encased sub-module, the battery protection units and the rack battery management system are then installed and bolted into their respective slots within the battery rack. The battery modules and battery protection units are then connected with cables, completing the battery rack. The battery rack system is complete once the one or more battery racks are connected to the master battery management system using direct current and data communication lines, making.
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 U.S. 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 the ultimate purchaser in the U.S. the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. "The evident purpose is to mark the goods so that 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). Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.
Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as the country of manufacture, production or growth of any article of foreign origin entering the U.S. 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. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in manufacture which results in an article having a name, character, or use differing from that of the constituent article will be considered substantially transformed.
Further, 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. In Energizer the court reviewed the “name, character and use” test in determining whether a substantial transformation had occurred in determining the origin of a flashlight, 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, the 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 this instance, the manufacturing process described above does not result in a substantial transformation of the battery cells manufactured in China. The lithium-ion cells, in their imported condition, can store and provide electric power and are interchangeable with battery cells that power other electronic devices. In addition, CBP has previously held that the assembly of battery cells into battery packs does not result in a substantial transformation of the cells because the essential character of the cells does not change by simply placing them together in a plastic case. See Headquarters Rulings 563045, dated August 9, 2004, and 734393, dated March 20, 1992. Thus, the battery cells in this instance, which provide the essence of the battery rack system, are not transformed in South Korea into a new and different article of commerce with a name, character, and use distinct from the article exported. In view of these facts, the country or origin of the subject battery rack system is China.
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8507.60.0020, HTSUS, unless specifically excluded, are subject to an additional 15 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.15, in addition to subheading 8507.60.0020, HTSUS, listed above.
The HTSUS is subject to periodic amendment so you should exercise reasonable care in monitoring the status of goods covered by the Note cited above and the applicable Chapter 99 subheading.
For background information regarding the trade remedy initiated pursuant to Section 301 of the Trade Act of 1974, you may refer to the relevant parts of the USTR and CBP websites, which are available at https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions and https://www.cbp.gov/trade/remedies/301-certain-products-china, respectively.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 CFR Part 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 Sandra Martinez at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division