OT:RR:NC:N2:220
Juan Corona
Windtech-inc
91 G Avenue
Douglas, AZ 85607
RE: The country of origin and status under the United States-Mexico-Canada Trade Agreement (USMCA) of a rotor assembly
Dear Mr. Corona:
In your letter dated April 27, 2021 on behalf of your client, Dix-Mex S.A. de C.V., you requested a country of origin ruling and a determination on the eligibility of duty free treatment for a rotor assembly under the USMCA.
The merchandise under consideration is identified as the Rotor, Part Number 20A346, which is described as a rotor used in a heavy-duty electric motor for foam spray application systems. The subject rotor consists of the concentrators, mandrel, shaft, magnets, various hardware, and epoxy. The concentrators are composed of stacks of electrical grade silicon steel and are positioned adjacent to the magnets. The mandrel forms the base of the rotor, where the shaft and concentrator assembly are affixed. You state that the concentrators, shaft, and magnets are sourced from China, the mandrel is sourced from the United States, a retaining washer is sourced from Malaysia, and the epoxy is sourced from Italy. The subject rotor is said to be assembled, as described below, at your client’s facility in Mexico.
In your letter, you suggest the rotor assembly is classifiable under subheading 8503.00.6500, Harmonized Tariff Schedule of the United States. You also suggest that the concentrator and mandrel are classifiable under heading 8503, HTSUS. We agree.
You inquire whether the rotor assembly is eligible for preferential treatment under the USMCA. The USMCA was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). General Note (GN) 11, HTSUS, implements the USMCA. GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA.
GN 11(b) states, in relevant part:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country … is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if—
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
the good is a good produced entirely in the territory of one or more USMCA countries using non-originating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); ….
Since the rotor assembly contains non-originating material, it is not considered a good wholly obtained or produced entirely in a USMCA country under GN 11(b)(i) and (ii). We must next determine whether the rotor assembly qualifies under GN 11(b)(iii). As the imported rotor is classified in heading 8503, HTSUS, the applicable rule of origin is in GN 11(o), HTSUS, which provides, in relevant part:
Chapter 85 (3): A change to heading 8503 from any other heading.
The concentrators, which you state are manufactured in China, are classifiable under heading 8503, HTSUS, and the tariff shift requirement is not met. Furthermore, we would note that the value of all non-originating materials represents 84% of the value of the finished rotor assembly and the de minimis provisions set forth in GN 11(e)(i)(A) are not applicable. Based on the foregoing, the subject rotor assembly is not eligible for USMCA preferential tariff treatment upon importation into the United States.
Regarding the country of origin marking of the rotor, the assembly process in Mexico is described as follows:
The rotor is assembled by alternately positioning 60 concentrators and 60 magnets into a fixture.
A hydraulic machine press is used to form a concentrator assembly, which is transferred to a potting fixture.
The mandrel and shaft are secured together by a hydraulic machine press and then placed into the potting fixture where epoxy is injected.
After curing, the rotor assembly is inspected and packaged for export.
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 United States 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 United States the English name of the country of origin of the article.
The “country of origin” is defined in 19 CFR 134.1(b) 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.”
The United States Trade Representative has determined that an additional ad valorem duty of 25% will be imposed on certain Chinese imports pursuant to its authority under Section 301(b) of the Trade Act of 1974 (Section 301 measures). When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. 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). To determine whether a substantial transformation has occurred, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. CBP has stated that a new and different article of commerce is an article that has undergone a change in commercial designation or identity, fundamental character, or commercial use.
To allow for a more seamless transition period, at this time, CBP continues to utilize the marking rules set forth in 19 C.F.R. Part 102, with the exception of 19 C.F.R. § 102.19, for purposes of country of origin marking with respect to goods from Canada and Mexico. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes, with the exception of textile goods which are subject to the provisions of 19 C.F.R. § 102.21. 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:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in § 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 rotor assembly is neither wholly obtained or produced or 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 section 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.”
The applicable tariff shift requirement in section 102.20 for the rotor assembly of heading 8503, HTSUS, is:
A change to subheading 8503 from any other heading.
The foreign material in this case consists of the concentrator, the shaft, the mandrel, the washer, and the magnets. As noted previously, the concentrator and mandrel are classified under heading 8503, HTSUS, and the subject rotor does not satisfy the tariff shift requirements of section Furthermore, the combined value of the non-originating components exceed the allowable de minimis cap as outlined in 19 CFR 102.13. Accordingly, the subject rotor assembly does not satisfy the applicable subheading change outlined in 19 CFR 102.20.
In our view, section 102.11(b) or (c) are also not applicable as the rotors are neither a set pursuant to General Rule of Interpretation 3, nor is there a single component(s) within the assembly that imparts the essential character of the good. Consequently, Section 102.11(d) requires:
(d) Where the country of origin of a good cannot be determined under paragraph (a), (b) or (c) of this section, the country of origin of the good shall be determined as follows:
(d)(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good;
(d)(2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts; or
(d)(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
The production of the rotor assembly cannot be described as minor processing or simple assembly. Thus, in accordance with section 102.11(d)(3), the country of origin of the subject rotor assembly for origin and marking purposes upon importation into the United States is Mexico.
Regarding the applicability of Section 301 measures, in our opinion, the work performed in Mexico consisting of arranging/machine pressing the concentrators and magnets, machine pressing the shaft and mandrel, and epoxy encapsulation into a rotor assembly substantially transforms the Chinese components into a new and different article of commerce with a name, character, and use distinct from the articles exported from China. As such, the rotor assembly is not subject to the additional duties under Section 301 of the Trade Act of 1974, as amended, upon importation into the United States.
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