MAR-2-90:OT:RR:NC:N1:105
Keith James Feigenbaum, Esq.
Duane Morris LLP
30 South 17th Street
Philadelphia, Pennsylvania 19103
RE: The country of origin of a Universal Bill Acceptor
Dear Mr. Feigenbaum:
In your letter dated October 15, 2019, on behalf of your client, JCM American Corporation (JCM), you requested a country of origin ruling. A detailed description of the manufacturing process was submitted for our review.
The products under consideration are referred to as Universal Bill Acceptors (UBA), model numbers UBA-10, UBA-14 and UBA-24. You state that the UBAs are able to detect multiple currencies simultaneously and distinguish counterfeit bills. The UBAs are used in industries such as banking, financial, gaming, kiosk, retail, transportation, vending and specialty industries. Each UBA model is composed of three subparts, which include a transport unit, frame and cash box. The UBA-14 also includes Universal Serial Bus (USB) communication capabilities. The UBA-24 adds the feature of upside-down mounting capability. Finally, each model contains magnetic and optical sensing as well as mechanical anti-stringing technology.
In your letter you suggest classification under 9504.30.0060, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Video game consoles and machines, articles for arcade, table or parlor games, including pinball machines, bagatelle, billiards and special tables for casino games; automatic bowling alley equipment; parts and accessories thereof: Other games, operated by coins, banknotes, bank cards, tokens or by any other means of payment, other than automatic bowling alley equipment; parts and accessories thereof: Parts and accessories.” We disagree. CBP has issued rulings in which similar merchandise have been classified in other tariff subheadings. For example, NY N009267 (dated April 10, 2007), CBP classified banknote validators and bill acceptors, used to measure the physical properties of paper bills by using optical sensors, under subheading 9031.49.9000. We note that these “bill acceptors” described in NY N009267 (unlike the banknote validators) are not stand-alone machines similar to the UBAs listed above. They are internal components of various machines including but not limited to banking, dispensing and vending.
The applicable subheading for all three models of the subject universal bill acceptor will be 9031.49.9000, HTSUS, which provides for “Measuring or checking instruments, appliances and machines, not specified or included elsewhere in this chapter; profile projectors; parts and accessories thereof: Other optical instruments and appliances: Other: Other. The rate of duty will be free.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at https://hts.usitc.gov/current.
In regards to the country of origin of the UBA-10, UBA-14 and UBA-24 universal bill acceptors. The units are designed in Japan, including mechanical, electrical and firmware/software aspects. The product’s CPU chip, validation sensors (measure light reflected from the banknote’s surface), belts, motor driver and other electronic components are also developed in Japan.
It is stated that JCM will transfer the production processes currently being performed in China to the Philippines. As part of the UBA’s production in the Philippines, the following processes will be key to transforming the component parts into a functional UBA:
- Pressing of the encoder gear onto the UBA’s motor shaft.
- Soldering a harness to the motor terminals for connection to the main UBA circuit board.
- Electronic configuration and calibration of the validation sensors.
- Installation and electrical connection of the main circuit board.
- Installing/downloading of the firmware/software into the main circuit board.
The production of the component parts into subparts consists of three phases performed by forty workers. 1) Transport unit assembly; 2) frame assembly; and 3) cash box assembly. Within the production phases there are several complex processes requiring precision in order for the final UBA to work properly. Each of these functions require specialized training which ensures the employees are able to perform their tasks correctly within a specified amount of time. Steps four, five and six require specialized workers to place a 1.5 e-ring attachment without the use of an e-ring holder. This process requires specialized skill and tailored training to ensure the springs are not accidentally deformed during the process. In addition, step eleven requires attaching the CPU board and connecting harnesses, which again require highly skilled workers to prevent deformation and damage. Finally, in step eighteen the workers must carefully install an e-ring without damaging or marking gear teeth. As the transport tray plastic is thin, there is a risk workers could damage threads when installing the step motor if this task is not done properly.
Several of the steps require the use of sophisticated machinery such as automatic lens bonding machines, press fit jigs, automatic screw tightening machines, and motor harness soldering machines. Following the final production in the Philippines there will be crucial firmware downloads, function tests which include motor speed and centering mechanism testing, burn-in and live note acceptance tests, sensor calibration, intelligent cash box initialization and set-up. Throughout these steps, troubleshooting and quality control activities are also conducted.
The UBA-14 and UBA-24 contain additional processing in the Philippines, which include adding the USB capability, which includes a USB chipset that is brought in from Japan and erasable programmable read-only memory (EPROM) manufactured in the United States. Similarly, the UBA-24 contains additional parts to allow for upside-down mounting which include a barcode sensor and related control chip/circuit that are manufacturing in Japan and incorporated into the UBA-24 based on JCM’s designs. The harness includes wires between the CPU and lower sensor board in order to pass the barcode sensor signal.
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. In enacting 19 U.S.C. 1304, Congress intended 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, 302 (1940). Part 134, Customs Regulations (19 C.F.R. Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 C.F.R. 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 seminal case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), instructs 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 interpreted the meaning of “substantial transformation” as used in the Trade Agreements Act of 1979 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, 190 F. Supp. 3d at 1318. 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 results in a substantial transformation of the UBA-10, UBA-14 and UBA-24 universal bill acceptors manufactured in the Philippines. The products entering the Philippines are not able to function as working UBA’s without the essential assembly process being performed by skilled workers in the Philippines. The assembly, which is also the last place work is being completed, is paramount to creating a final functioning UBA. Each of the individual subassemblies, including the CPU chip and validations sensors developed in Japan, will not function without the articles being combined. In addition to the subassemblies losing their distinct character and use, the subassemblies also provide a different capability and functionality once the final assembly is performed. As noted above, the assembly process in the Philippines requires several complex steps utilizing sophisticated machines that would escalate above the level of simple assembly.
The UBA-10, UBA-14 and UBA-24 universal bill acceptors emerging from the Philippines are new and different article of commerce with a name, character, and use distinct from the articles coming from Japan and other counties. Therefore, it is the opinion of this office that the country of origin of the UBA-10, UBA-14 and UBA-24 universal bill acceptors is the Philippines.
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 Jason Christie at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division