CLA-2-73:OT:RR:NC:N1:121
Allison Kepkay
White & Case LLP
701 Thirteenth Street, NW
Washington, DC 20005-3807
RE: The country of origin and application of Section 301 trade remedy of gas furnace units
Dear Ms. Kepkay:
In your letter dated November 8, 2019 you requested a country of origin ruling on behalf of Midea India Private Limited.
The merchandise under consideration is identified as a gas furnace unit, model numbers MGH96M060B3A, MGH96M080B3A, MGH96M080C4A, MGH96M100C5A, MGH96M100D5A, and MGH96M120D5A. The models differ only in terms of heating capacity and design to handle that capacity. Each of these gas-powered units incorporates a blower which circulates warm air through the heat exchangers, out of the furnace unit and into the room(s). Each unit is packed for sale to individual, residential consumers and is sold as a single, self-contained heating unit.
You propose in your letter, and this office concurs, that the Harmonized Tariff Schedule of the United States (HTSUS) classification of the finished goods is 7322.90.0015, which provides for …air heaters and hot air distributors (including distributors which can also distribute fresh or conditioned air), not electrically heated, incorporating a motor-driven fan or blower, of iron or steel.
You also request a determination of whether the merchandise is covered by additional ad valorem duties on certain Chinese imports that the United States Trade Representative (“USTR”) has imposed pursuant to its authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). As of the date of this ruling, USTR has published four lists of Chinese-origin products covered by the Section 301 measures. Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 7322.90.0015, HTSUS, unless specifically excluded, are subject to an additional 25 percent ad valorem rate of duty.
You present a processing scenario for the gas furnace unit for the country of origin determination. Based on the information submitted, the gas furnace unit is made from more than 30 components and sub-assemblies that are sourced from China, India, Mexico and the United States. The transformer, main control board for the gas furnace, DC motor, and primary heat exchanger assembly are sourced in China; the secondary heat exchanger assembly, thermostat and temperature controller are sourced in Mexico; several switches and a sensor are sourced in the US and the remaining components are sourced in India. The foreign materials/components are imported into India where they are manufactured into different subassemblies, and then ultimately assembled into the subject gas furnace units.
The production of the completed gas furnace unit in India consists of both the production of several of the product’s key sub-assemblies and the unit’s final assembly. The production process in India entails 22 distinct steps including safety, performance and final inspections. The standard operation time of each step is 200 seconds. There are 22 specially trained laborers involved in the production process plus 1 shift leader, 1 quality inspector and 1 field process engineer. Key sub-assemblies assembled in India include the chassis, heat exchanger, burner, gas pipe, motor and blower. Following the safety, performance and final inspections, each unit is packaged for export to the United States.
The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. 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 U.S. the English name of the country of origin of the article. The “country of origin” is defined in 19 CFR 134.1(b), in pertinent part, 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.” For tariff purposes, the courts have held that a substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing. United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940); National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F. 2d 1201 (Fed. Cir. 1993); Anheuser Busch Brewing Association v. The United States, 207 U.S. 556 (1908) and Uniroyal Inc. v. United States, 542 F. Supp. 1026 (1982). 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, 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. Regarding the country of origin of the subject gas furnace units, in our opinion the assembly operations performed in India, which consists of 22 assembly steps beginning with individual components processed into subassemblies, and then final assembly into a functional gas furnace unit, is significant and effects a change in the components. In our view, the assembly process described transforms the individual components into a new and different product having a new function and purpose.
Therefore, based upon the facts presented, it is the opinion of this office that the assembly process performed in India results in a substantial transformation of the individual components into a new and different article of commerce with a name, character, and use distinct from the components used in the production of the motor actuators. As such, the gas furnace unit is considered a product of India for origin at time of importation into the United States. As a result, the gas furnace units, model numbers MGH96M060B3A, MGH96M080B3A, MGH96M080C4A, MGH96M100C5A, MGH96M100D5A, and MGH96M120D5A are not subject to Section 301 trade remedies applicable to products of China.
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 Jennifer Jameson at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division