OT:RR:NC:N:1:105
Meredith DeMent
Sidley Austin LLP
1501 K Street, NW
Washington, DC 20005
RE: The country of origin, marking and application of Section 301 remedies of the FreshBase retail scale.
Dear Ms. DeMent:
In your letter dated May 9, 2020, on behalf of your client, Mettler-Toledo, LLC, you requested a country of origin and marking ruling determination on the FreshBase retail scale.
The item under consideration is the FreshBase retail scale, which is a digital weighing unit designed for use in the grocery retail market. Grocery retailers use the FreshBase Scale to weigh fresh foods (e.g., meats, vegetables, fruits, or cheeses), calculate price based on weight, display weight and price to customers, and print pricing labels. These functions are performed by several key subassemblies, including: (1) the touchscreen operator display, (2) the adjustable customer display, (3) the printer label and (4) the base unit containing the main electronics and load cell. The FreshBase Scale’s intuitive user interface guides operators through the weighing process. The customer display allows retail customers to view weight and price information instantaneously as the operator performs the weighing operation.
In your request, you describe the manufacturing process for the subject retail scale and suggest the country of origin is Mexico. Furthermore, you suggest that the FreshBase retail scale is 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 Mexico that is discussed hereafter.
The FreshBase Scale will be manufactured in Mexico from one hundred and fifty-nine components originating in Taiwan, Switzerland, China and Germany. The manufacture of the scale is a multi-phase process that involves, first, the assembly of three critical subassemblies (the operator display, the customer display and the label printer), followed by the final assembly of the scale (i.e., the production of the base unit and assembly of the base unit with the operator display, customer display and label printer). The assembly operations will be followed by product testing, calibration and packaging, each of which will be performed in Mexico.
The first key component is the Operator Display Assembly, which is the gateway that allows the operator to interact with and control the scale through a graphical user interface. The operator’s inputs via the operator display drive the actions of the machine and allow it to determine the product to be weighed, calculate the appropriate retail price for the product, and direct the machine to print the appropriate pricing label. The operator display assembly will be assembled in Mexico from twenty-two separate components including the LCD touchscreen, which is made in Taiwan. The finished operator display assembly includes a number of other Chinese origin components including a secondary PCBA, various cables, inner and exterior covers, adaptors, and other smaller components, including sealing rings, ties and screws.
The assembly process for the operator display consists of fifteen steps and includes the use of a custom fixture designed to position the components properly during the assembly operation. The operator display screen is affixed and secured to the inner cover using torque tools. A secondary PCBA is affixed to the back of the screen and several cables are threaded and connected to various points on two PCBA’s. Once the cabling is installed and all connections are tightened, the cables are affixed to the inner cover to ensure that the connections do not come loose. The subassembly is completed with the assembly and attachment of the hinge components, the exterior cover and protective sealing rubber rings.
The second key component is the Customer Display Assembly, which allows customers to view the price and weight of product in real time to ensure that their orders are correct. It also allows retailers to cross-promote other products to customers. Retailers may choose to mount the customer display either on the base of the scale or on a tower attached to the scale. The customer display assembly will be manufactured in Mexico from twenty-eight separate components, including the LCD screen manufactured in Taiwan. The assembly process for the customer display consists of fourteen steps that closely resemble the manufacture of the operator display subassembly and also involves the use of a custom fixture to position the components properly during the assembly operation.
The third key component is the printer assembly, which prints an adhesive label that is applied to the merchandise to show the total price of the purchase. To do so, the printer assembly interacts with the operator display. The printer assembly will be manufactured in Mexico from fifty separate components of Chinese origin. The printer assembly consists of four subassemblies: the print head, a cover panel, a paper recycle module, and the bottom module. In total, the printer assembly process consists of sixty steps. Operators are required to wear anti-static wristbands for the completion of the printer subassembly and the bottom module subassembly, and a custom fixture and tooling is also used to ensure proper positioning of the components.
The manufacture of the printer assembly involves the creation of four subassemblies. First, the printer subassembly is manufactured by combining a cable, the print head, the shredder and the positioning shaft. This process requires precise positioning and alignment of the components and involves the use of calipers. Next, the large cover panel assembly is completed by fixing the stop reed with a screw and attaching a green sleeve cover. The operator then fixes a plastic and metal shaft with a metal bracket and spring to produce the paper recycle module subassembly, and must ensure that the assembly meets a 2mm movement tolerance when the printer is in use. Finally, the bottom module of the printer is assembled in a forty step process in which plates, rods, bushings, a motor, gears, wheels, O-rings, a sensor, studs, cables, a PCBA, brackets and other components are combined using specialized tooling, fixtures and to precise torque tolerances to create the finished printer subassembly. After assembly, the printer undergoes testing to ensure its functionality. The printer-specific testing is a thirty-step process involving specialized equipment designed for this purpose.
The final key component is the manufacture of the Base Unit and final scale assembly. The base unit assembly houses the core electronics of the FreshBase Scale, including the main PCBA and two subsidiary PCBAs, power components, and the weighing components, including the weighing platter and load cell. This unit will be manufactured in Mexico from seventy-three separate components of largely Chinese origin in a sixteen stage, fifty-five step process. The base unit assembly will then be combined with the other subassemblies to form the finished scale in Mexico.
After assembly, the FreshBase Scale will undergo testing in Mexico that involves specialized machines and software. Once the final product completes final testing, it is packaged for shipment in Mexico. In order to properly test the FreshBase Scale, software of U.S. and German origin is installed. After the scale is sold and shipped to the customer, new software is added that conforms to the customer’s needs. With regard to your request for the appropriate country of origin of the FreshBase retail scale, 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 Mexico is a NAFTA country, the NAFTA Marking Rules must be applied in determining the country of origin of the subject FreshBase retail scale 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 FreshBase retail scale is 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, the FreshBase retail scale is classified under subheading 8423.81.0030, Harmonized Tariff Schedule of the United States (HTSUS). The applicable rule for subheading 8423.81.0030, HTSUS, in section 102.20 requires: A change to subheading 8423.10 through 8423.89 from any other subheading, including another subheading within that group.
In this instance, the foreign materials, which are imported into Mexico from Taiwan, Switzerland, China and Germany, are all classified from other subheadings. Since the FreshBase retail scale is classified under subheading 8423.81.0030, HTSUS, and the foreign materials undergo an applicable change in tariff classification as set out in 19 C.F.R. § 102.20, the FreshBase retail scale in question qualifies to be marked as a good of Mexico. 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 and 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 the 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 base unit, which includes the main PCBA and weighing components (such as the weighing platter and load cells), imparts the essence of the finished FreshBase retail scale. As stated in your request, most of the materials that go into the FreshBase scale are Chinese components including the aforementioned load cell and PCBA. Therefore based on the facts provided, it is the opinion of this office that the simple assembly process performed in Mexico does not result in a substantial transformation of the Chinese components. Accordingly, the country of origin for purposes of Section 301 remedy duties is China.
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8423.81.0030, HTSUS, unless specifically excluded, are subject to an additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.03, in addition to subheading 8423.81.0030, 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.
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.
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