Reconsideration of NY N306055; Country of Origin of Battery Rack System; Section 301 Trade Remedy

HQ H309485 August 12, 2020 OT:RR:CTF:VS H309485 JW CATEGORY: Origin Mr. Richard A. Mojica Miller & Chevalier Chartered 900 16th Street NW Washington, DC 20006 RE: Reconsideration of NY N306055; Country of Origin of Battery Rack System; Section 301 Trade Remedy Dear Mr. Mojica: This is in response to your request for reconsideration of New York Ruling Letter (“NY”) N306055 issued on September 27, 2019. Your request for reconsideration, dated February 27, 2020, is filed on behalf of your client LG Chem, Ltd. (“LG Chem”). In addition, on May 19, 2020, we had an oral discussion with you, and following the oral discussion, on June 5, 2020, you submitted a supplement to your request. NY N306055 found that the manufacturing process in Korea did not result in a substantial transformation of the battery cells from China and that the country of origin of the Battery Rack System was China. You argue that the country of origin of the Battery Rack System is the Republic of Korea. We reviewed your request for reconsideration and have determined that NY N306055 is correct for the reasons set forth herein. The merchandise at issue is a certain Battery Rack System, Model No. ERT54B22CN21, which is a lithium-ion, cabinetized battery system. You state that the Battery Rack System is designed for incorporation into a “grid-scale” Energy Storage System (“ESS”). Each Battery Rack System is custom-made for a purchaser, and final assembly typically occurs at the purchaser’s site. Purchasers of the Battery Rack System are typically operators of renewable power plants or power grids. The Battery Rack System incorporates hundreds of components and consists of at least four main subassemblies: the Battery Modules, the Battery Racks, the Battery Protection Units, and the Battery Management System (which consists of the Master Battery Management System, the Rack Battery Management System, and the Module Battery Management System). The two main subsystems of the Battery Rack System consist of the following: One or more cabinets containing battery modules (i.e., ‘Battery Racks’), which are connected in parallel. The Battery Racks charge, discharge, and store power under the control of the Battery Management System. Each Battery Rack contains twenty-two Battery Modules connected in series. Each Battery Module contains fifty-six lithium-ion Battery Cells. Each Battery Rack contains 1,232 lithium-ion Battery Cells (LG Chem’s JH4 battery cell model). The Battery Racks also have several other subassemblies and components, including: Battery Protection Units (“BPUs”), which are protection circuits embedded in each Battery Rack that control charge and discharge to prevent electric shock. BPUs are assembled from terminal blocks, fans, fuses, and other components. Charging and Discharging System, which includes cables, positive and negative terminals, and other connectors that transmit power and data from each BPU to the Battery Modules within a single Battery Rack, as well as busbars that transmit charge and discharge between the Battery Cells within each Battery Module. Battery Rack Frame and Housing, which are racks, panels, and protective housing for the Battery Racks and Battery Modules including the fans that provide cooling to each Battery Module. Built-in hardware, firmware, and software (i.e., a ‘Battery Management System’). The Battery Management System includes proprietary hardware and software that collects data from each Battery Rack. It calculates the charge/discharge power limit value and controls the charge/discharge for the entire system. The Battery Management System performs functions such as renewable integration, peak shifting, and frequency regulation. The Battery Management System performs these functions through PCBAs with proprietary firmware and software, which are embedded in the Battery Modules and Battery Racks. The Battery Management System includes a number of parts: The Master Battery Management System (“Master BMS”) that (a) receives data on diagnostic information; processes the data to manage charge and discharge and prevent overheating; and (b) sends control signals to the other components of the Battery Management System. The Master BMS is configured for the Battery Racks but not physically incorporated into the Battery Racks. Depending on the number of Battery Racks managed by the Master BMS, a Battery System Controller (“BSC”) and/or a Bank Battery Management System (“Bank BMS”) may be used as the Master BMS. The Rack Battery Management System (“Rack BMS”) and a Module Battery Management System (“Module BMS”). The Module BMS (a) collects diagnostic information directly from the battery cells; (b) transmits the data back to the Master BMS; and (c) executes control signals received from the Master BMS. The Bank BMS and Rack BMS communicate and process data and control signals to and from the Master BMS. The Rack BMS and the Module BMS are physically incorporated into the Battery Racks. You state that all of components of the Battery Management System originate in Korea, except for the Battery Cells, which originate in China. All assembly of components into subassemblies occurs in Korea. The assembly process for the Battery Cells, the Battery Modules, the Battery Racks, the BPUs, the Battery Management System, and the final Battery Rack System is discussed below. The Battery Cells are produced at LG Chem’s facilities in China. The Battery Cells used in the Battery Rack System are LG Chem’s JH4 Lithium-ion Battery Cells. In summary, the production process for the Battery Cells is as follows: Cathodes and anodes are rolled; Cathodes and anodes are laminated; Laminated cathodes and anodes are stacked; An electrolyte is inserted to connect the cathodes and anodes; Positive and negative terminals are inserted into aluminum pouch; Laminated cathodes and anodes are vacuum packed into an aluminum pouch, creating first recognizable “Battery Cell”; Battery Cell is activated or “aged”; Battery Cell is degassed; Battery Cell is tested; Battery Cell is packed for storage and/or shipment. After the Battery Cells are produced in China, they are shipped to LG Chem’s manufacturing facilities in Korea, and all subsequent processing happens in Korea. A summary of the production process of the Battery Module is provided below: Battery Cells are unpacked from storage/shipment, visually inspected, and cleaned; Each Battery Cell is placed inside a plastic cartridge; [XXX] plastic cartridges (each with [XX] Battery Cell) are stacked [XXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] as a “Cell Module Assembly” (“CMA”); The CMA is inspected; Busbar assemblies are fastened to CMA, [XXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXX]; Battery Cell positive and negative terminals [XXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX] connect [XXXX] to attached busbar assemblies; [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXX]; [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]; [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]; [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]; Sensing cables are attached to busbars [XXXXXXXXXXXXXXXXX]; [XXXXXXXXXXXXXXXXXXXXXXXXXXXXX]; [XXXXXXXXXXXXXXXXXXXXXXXXX]; Thermistors are inserted [XXXXXXX]; The front cover assembly, which includes a front plate assembly, power terminal assembly, cooling fan assembly, and Module BMS, is attached to the front of the Battery Module The top plate, side covers, and rear covers are attached to the Battery Module; The Battery Module is tested by machine, and packed for storage/shipment with four Battery Modules per box. In parallel to the production of the Battery Modules, the BPUs are also produced in Korea. The production process for the BPU is summarized below: Battery terminal blocks and a fan are affixed to the front plate of BPU; Emergency stop mechanism is affixed to the front plate of BPU; Front plate is affixed to bottom plate; Power cables are connected to terminal blocks; [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]; [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]; Power cables are connected [XXXXXXXXXXXXXXX]; The RBMS is attached [XXXXXXXX]; Protective housing is attached to front and bottom plate to enclose the BPU. In parallel to the Battery Modules and BPUs, the Battery Management System, which includes the Master BMS (which may consist of a BSC and/or the Bank BMS), and the Rack BMS, and Module BMS, is also produced in Korea. The Master BMS is configured for, but not physically integrated into the Battery Racks. The Rack BMS is physically integrated into the BPU and the Module BMS is physically integrated into the Battery Modules. The BSC, Bank BMS, Rack BMS, and Module BMS all operate through a PCBA. Although the configuration of the PCBAs for these are different, the assembly process can be summarized similarly as follows: Electric components are surface mounted to a printed circuit board (“PCB”) to create a PCBA; The PCBA is affixed to protective housing, including connection of power supply, communication, general-purpose input/output, analog to digital converter and pulse width modulation inputs; and Quality control is performed on each PCBA. Once each PCBA is assembled, LG Chem’s proprietary software and firmware (which is developed in Korea) are installed onto the memory cells within the BSC, Bank BMS, Rack BMS, and Module BMS. Once the software and firmware is downloaded onto the elements of the Battery Management System, these elements are connected using power cables and communication cables and embedded into the Battery Racks. Once this process is complete, tests are performed. After the subassemblies above are completed, they are incorporated into a battery rack frame to create the final Battery Rack. The production of the Battery Rack is summarized as follows: The battery rack frame is assembled, which includes assembly of a bottom plate, affixing a main frame to the bottom plate, affixing various components to the main frame, and temporarily boxing the battery rack frame and putting on a pallet for storage or shipment; At a later time, the battery rack frame is unboxed and the doors are temporarily removed for insertion of the BPU and Battery Modules; The Rack BMS is inserted [XXXXXX]; The BPU [XXXXXXXXXX] is inserted into the battery rack; [XXXXXXX] Battery Modules are inserted into the battery rack; Battery Modules are bolted to [XXXXXXXXXXX] the battery racks; A fan cable is arranged and fastened [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]; [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]; Doors are reattached; Exterior of the battery rack is inspected; Completed Battery Rack is repackaged for storage/shipment. The Battery Rack System is generally imported into the United States as a complete article, although presented in a partially unassembled state. At the customer’s site, the Battery Racks (which includes the Battery Modules and BPUs within each Battery Rack) are connected in parallel with high-voltage, DC cables. The Battery Management System (which includes the Module BMS and Rack BMS) is connected with data cables to the Master BMS (which may be the Bank BMS and/or the BSC). The Battery Rack System must then be connected to an Energy Storage Power Conversion System (“PCS”). 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 has occurred 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); see also Belcrest Linens v. United States, 741 F.2d 1368, 1372 (Fed. Cir. 1984). 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). LG Chem asserts that the country of origin of the Battery Rack System for purposes of Section 301 trade remedies is the Republic of Korea, and not the People’s Republic of China. For the reasons provided below, we disagree. First, LG Chem argues that the Battery Cells lose their individual names and are not called cells when combined with other components to make the battery modules and later become indistinguishable in name from the final product. LG Chem cites HQ H303529 for support that a change in name has occurred; however, while HQ H303529 found that substantial transformation of the print axis occurred in China, there was no separate analysis regarding a change in name. Rather, we note Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1322 (2016) where the plaintiff argued “that none of Energizer’s articles are called ‘flashlight’ at the time of importation” and hence a change in name had occurred. Id. The Court disagreed and stated “[t]he issue is not whether Plaintiff imported approximately fifty ‘flashlights,’ but rather whether the Plaintiff’s imported components retained their names after they were assembled into the Generation II flashlight. Thus, the proper query would be whether the . . . components would still be called by their pre-importation name after assembly into the finished flashlight, or whether they would be indistinguishable in name from the finished product.” Id. The Court found that “[t]he constitutive components of the Generation II flashlight do not lose their individual names as a result of post-importation assembly [accordingly] no such name change has occurred.” Id. Similar to Energizer Battery, we find that the Battery Cells sourced from China do not undergo a change in name when they are assembled into the Battery Rack System in Korea. The name of the Battery Cells, as imported, remains the same as in the completed Battery Rack System: they are still called Battery Cells, and indeed throughout the Request for Reconsideration and the Supplement, LG Chem has not called them anything else. See e.g., National Hand Tool, 16 C.I.T. at 311. As the Battery Cells imported from China do not lose their individual names as a result of the post importation assembly in Korea, no name change has occurred. For character, LG Chem argues that the Battery Cells undergo a change in character from individual battery cells to a complex battery system. LG Chem states that while the battery cells are capable of storing and discharging power, the Battery Rack System is capable of coordinating the storage and discharging of power across thousands or tens of thousands of battery cells at a Megawatt (i.e., power grid) scale. LG Chem further asserts that the Korean-origin Battery Management System (the brains and nerves) plays a critical role in the functioning of the final product by allowing the system to safely charge and discharge power at such large scales and are as important as the Battery Cells. As such, the Battery Cells do not determine the “essence” of the Battery Rack System. However, we find that there is no change in character of the Battery Cells as a result of the assembly operations in Korea. For courts to find a change in character, there often needs to be a substantial alteration in the characteristics of the articles or components. See e.g., National Hand Tool, 16 C.I.T. at 311. Courts have not found a change in character when the “form of the components remained the same.” Id. In other cases, courts have looked to the “essence” of a completed article to determine whether an imported article has undergone a change in character as a result of post importation processing. Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (2016) (citing Uniden America Corp. v. United States, 120 F. Supp. 2d 1091, 1095-1098 (2000) and Uniroyal, Inc. v. United States, 3 C.I.T. 220 aff’d, 702 F.2d 1022 (Fed. Cir. 1983)). Here, the form of the Battery Cells remain the same. The Battery Cells are placed inside plastic cartridges and then additional components are added onto these plastic cartridges such as busbar assemblies, and plates and panels. Although the terminals of the Battery Cells subsequently undergo bending and are welding to attach to the busbar assemblies, we still find that the form of the Battery Cells remains the same. See e.g., National Hand Tool, 16 C.I.T. at 311 (“The heating process changes the microstructure of the material, but there was no change in the chemical composition of the material. Although the microstructural changes pointed out by plaintiff’s witness may amount to the changes in characteristics of the material, they do not change the character of the articles.”). The Battery Cells from China are simply held together as an aggregate product after the assembly operations in Korea; the assembly operations in Korea do not change the shape or material composition of the Battery Cells from China. Hence, we find that there is no change in character as a result of the assembly operations in Korea. LG Chem does not dispute the finding that there is no change in the form of the battery cells; instead LG Chem argues that although a change in form is sometimes an indicator of a change in character (and can suffice), a change in form, shape or composition is not required. In support, LG Chem cites Uniden Am. Corp. v. United States, 24 C.I.T. 1191, 1193 (2000). LG Chem states that the Uniden court described an assembly process similar to LG Chem’s assembly process and found the assembly of the components gave the cordless telephone “a character and identity separate and distinct from any of its parts” and for the Uniden court, this “separate and distinct” character was enough. However, we note that the Uniden court used the essence test to support its conclusions and found that the A/C adapter did not impart the essential character of the cordless telephone, rather the essence of the telephone was held in the base and handset. Id. Thus, Uniden is distinguishable from the instant case as discussed infra, we find that the essence of the Battery Rack System are the battery cells. With respect to “essence,” we agree with NY N306055 that the Battery Cells from China impart the “essence” of the finished Battery Rack System. The “essence test” has generally been used by courts to determine in some instances whether there has been a change in character. Uniden Am. Corp., 120 F. Supp. 2d at 1096 (citation omitted). In applying the “essence” test to this case, the question is whether the Battery Management System or whether the Battery Cells impart the essential character of the Battery Rack System. “The term ‘character’ is defined as ‘one of the essentials of structure, form, materials, or function that together make up and usually distinguish the individual.’” Id. (citation omitted). While LG Chem notes the Battery Management System plays a critical role in the functioning of the final product, the same applies to the Battery Cells (and possibly most of the other components that make up the final product as well). Moreover, even though the Battery Rack System here may be more complex than the products considered in HQ H563045 and HQ H734393, LG Chem nonetheless states that the battery system stores power for a power plant or electrical grid. This power is stored and provided by the Battery Cells, not the Battery Management System. While the Battery Management System may augment the Battery Cells’ abilities to store and provide this power, this power still stems from the Battery Cells and not the Battery Management System. Hence, we find that the Battery Cells constitute the “essence” of the finished article and neither the assembly operations in Korea, nor the addition of a Battery Management System, results in a change in character. LG Chem cites to HQ H302801; HQ H301910;