USMCA Eligibility; Country of Origin Marking under 19 U.S.C. 1304, andApplicability of Section 301 Trade Remedy Duties to a Lower Bearing Assembly

HQ H312745 June 15, 2021 OT:RR:CTF:VS H312745 RSD CATEGORY: Origin Mr. Kertis Heidt Diamond Equipment 102-30488 Great Northern Ave Abbotsford, BC V2T 6Y6 Canada RE: USMCA Eligibility; Country of Origin Marking under 19 U.S.C. 1304, and Applicability of Section 301 Trade Remedy Duties to a Lower Bearing Assembly Dear Mr. Kertis: This is in response to your request dated July 4, 2020, on behalf of Diamond Equipment for a ruling concerning the country of origin of machines known as lower bearing assemblies for the purposes of country of origin marking, and the applicability of Section 301 trade remedy duties. In addition, in an email sent on July 30, 2020, you indicated that Diamond Equipment is also interested in finding out whether the products under consideration would be eligible for preferential tariff treatment under the U.S.-Mexico-Canada Agreement (“USMCA”). FACTS: The products under review are lower bearing assemblies for sand and gravel washing machines. There are five specific lower bearing assemblies under review. They have been assigned the model numbers: TA08285, TA08286, TA08287, TA08288, and TA13479. The bearing assemblies are only used on machines that wash sand and gravel in a tub of water. The lower bearing assemblies incorporate a mounting base that is specifically designed to mount to the end wall of the tub, and the stub shaft is specifically designed to attach to the auger shaft within the tub. Furthermore, each bearing assembly supports the auger shaft at the lower end of the machine and allows it to turn. The spinning auger shaft agitates and conveys the cleaned sand or gravel out of the bed of water, and thereby separates the sand or gravel from the dirty water. The top end of the auger shaft is directly powered by a motor which drives a large reduction gear reducer via a belt drive. The gear reducer is then coupled to the auger shaft on one end, while the bearing assembly supports the auger on the opposite end of the shaft. According to the information submitted, the lower bearing assemblies consist of the following major components: stub shaft (China), mounting ring (China), bearing and adapter sleeve (China), bearing housing (China), slinger (U.S.), wear sleeve (China), donut seal (China); gaskets (Canada), oil seal (Taiwan), and clamp plate (Canada). You have indicated that the only difference between the five assemblies listed is the size of their stub shaft, mounting base, bearing, and bearing housing. There are different sizes of machines to wash sand and gravel. Larger machines have larger capacity for washing larger gravel sizes. The larger machines have larger auger shafts, and therefore require a larger stub shaft for the bearing assembly, and they also have a larger bearing to handle the larger loading. All the lower bearing assemblies are produced using the same procedure. Independent of the size of each component, they are sourced through the same vendors. You have also submitted a bill of materials showing the parts with their classifications in the Harmonized Tariff Schedule of the United States (HTSUS) that are used in the production of the lower bearing assemblies: Part Number Description HS Code TB06123 Stub Shaft 8474.90.00 TB06127 Mounting Ring 8474.90.00 TB06128 Bearing Housing 8483.30.00 TD09090 Gasket 4016.93.99 TD09109 Gasket 4016.93.99 TD09115 Clamp Plate 8474.90.00 TD09116 Oil Seal 4016.93.50 TD09575 Gasket 4016.93.99 TD09876 Slinger 4016.99.90 TD12896 Bearing 8482.10.90 TD12899 Bearing Sleeve Assembly 8482.90.21 TD26461 Donut Seal 4016.93.19 TD30877 Wear sleeve - stainless steel 8474.90.00 TD32751 Gasket 4016.93.99 GREASE EP2 grease 3403.99.00 2X2 SKID BO2' x 2' Skid Box Hardware Plow, Carriage, Cap bolts 7318.15.00 You explain that several of the significant parts used to make the lower bearing assemblies are first manufactured in China before they are further processed in Canada. In China, the mounting ring, bearing housing, and stub shaft are cast at a foundry out of ductile iron. All parts are then machined to specification. The donut seal is made from injection molded rubber. The stainless wear and bearing adaptor sleeves are machined to specification from a stainless-steel pipe. In Canada, the Chinese components are inspected, cleaned, and painted, and not further manufactured in Canada. Next, all components, including the components from the U.S., Taiwan, and Canada are assembled resulting in a complete lower bearing assembly. As stated above, each item number (TA08285, TA08286, TA08287, TA08288, and TA13479) is manufactured using the same procedure. The bill of materials that you have submitted also shows that 83.6 percent of the costs of the parts for the lower bearing assemblies are attributable to China, while 14.5 percent and 1.9 percent of the costs of the parts for the lower bearing assemblies can be ascribed to Canada and Taiwan. ISSUES: Whether the Lower Bearing Assemblies qualify for duty-free treatment under the U.S.-Mexico-Canada Agreement? What is the country of origin of the Lower Bearing Assemblies for country of origin marking purposes under 19 U.S.C. 1304? Whether the Lower Bearing Assemblies are subject to Section 301 Trade Remedy Duties? LAW AND ANALYSIS: Eligibility for USMCA Duty-free Treatment The United States-Mexico-Canada Agreement (“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 of the Harmonize Tariff Schedule of the United States (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: For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, 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. (ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials; (iii) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or … Since the lower bearing assemblies contain nonoriginating materials, they are not considered goods wholly obtained or produced entirely in a USMCA country under GN 11(b)(i) and GN 11(b)(ii). Thus, we must next determine whether the lower bearing assemblies qualify under GN 11(b)(iii). The National Commodity Specialist Division has determined that the applicable subheading for the Lower Bearing Assemblies, as described above, is 8474.90.00, Harmonized Tariff Schedule of the United States (HTSUS), which provides for: Machinery for sorting, screening, separating, washing, crushing, grinding, mixing, or kneading earth, stone, ores, or other mineral substances, in solid (including powder or paste) form, machinery for agglome rating, shaping or molding solid mineral fuels, ceramic paste, unhardened cements, plastering materials or other mineral products in powder or paste form; machines for forming foundry molds of sand; parts thereof: The applicable rule of origin for merchandise under subheading 8474.90, HTSUS, is in GN 11(o), HTSUS, which provides, in relevant part: 223. (A) A change to subheading 8474.90 from any other heading; or (B) No change in tariff classification to a good of subheading 8474.90, provided there is a regional value content of not less than: (1) 60 percent where the transaction value method is used; or (2) 50 percent where the net cost method is used. According to the list of the parts used in making the lower bearing assemblies and the tariff classifications for those parts that you have submitted, there are several nonoriginating parts, including the stub shaft, the mounting ring, bearing house and the wear sleeve, which are classified in subheading 8474.90 prior to the production of the lower bearing assembly. Consequently, several of the parts used to make the lower bearing assemblies do not undergo a change tariff classification, and the applicable tariff shift rule set forth in GN 11(o) 223(A) is not satisfied. Additionally, the costed bill of materials for the lower bearing assemblies you have submitted also includes the total costs of the originating and nonoriginating components used to produce these assemblies. This information regarding the cost of the materials indicates that almost 84 percent of the material costs are attributable to China. Accordingly, the regional value content of the lower bearing assemblies does not meet the specified requirements set forth in GN 11(o)/223(B) of the 60 percent using the transaction value method or the 50 percent using the net cost method. Therefore, based on the information you have provided, the lower bearing assemblies do not qualify for the preferential tariff treatment under the U.S.-Mexico-Canada Agreement. Country of Origin Marking 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. Part 134 of the U.S. Customs and Border Protection (“CBP”) Regulations (19 C.F.R. Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. To provide a more seamless transition to the USMCA for Canadian and Mexican traders, at this time, CBP continues to utilize the marking rules in 19 C.F.R. Part 102, except for 19 C.F.R. § 102.19, for purposes of country of origin marking with respect to goods of those countries. Title 19, C.F.R. § 102.11(a) provides that the country of origin of a good is the country in which: The good is wholly obtained or produced; 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. Because sections 102.11(a)(1) and 102.11(a)(2) do 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.” The applicable rule for heading 8474.90, HTSUS, in section 102.20 requires, “A change to subheading 8474.90 from any other heading, except from heading 8501 when resulting in simple assembly.” We note that some of the components used to make the lower bearing assemblies are classified in subheading 8474.90, and therefore, the tariff shift rule is not. Since the country of origin determination cannot be determined by applying section 102.11(a), the analysis continues with section 102.11(b), which instructs us to examine the “essential character” of the Lower Bearing Assemblies to determine their country of origin. Section 102.11(b) states, in relevant part: Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation [(“GRI”)] 3, where the country of origin cannot be determined under paragraph (a) of this section: (1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good …. In determining the “essential character” of the finished good, section 102.18(b)(1) provides, in relevant part: (b) (1) For purposes of identifying the material that imparts the essential character to a good under § 102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the § 102.20 specific rule or other requirements applicable to the good … (ii) Materials that may be considered include materials produced by the producer of the good and incorporated in the good. For example, if a producer of a good purchases raw materials and converts those raw materials into a component that is incorporated in the good, that component is a material that may be considered for purposes of identifying the materials that impart the essential character to the good, provided that the component is classified in a tariff provision from which a change in tariff classification is not allowed under the specific rule or other requirements applicable to the good; … (2) For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under § 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following: (i) The nature of each material, such as its bulk, quantity, weight, or value; and ii) The role of each material in relation to the use of the good. In reviewing the components listed in the bill of materials that you have submitted, we note that there are several parts used in making the lower bearing assemblies including the stub shaft, the mounting ring, the clamp plate, and wear sleeve, that are classified in the same subheading of 8474.90, HTSUS as the finished lower bearing assemblies are made in China. Thus, there is more than one material used in making the lower bearing assemblies that do not undergo the applicable change in tariff classification rule. Furthermore, we have also considered the bulk, quantity, weight, value, and use of the materials used in making the lower bearing assemblies, to see if there is a single material that imparts the essential character to the lower bearing assemblies. Based upon our review, we are unable to conclude that there is a single material that imparts the essential character to the finished lower bearing assemblies. Accordingly, the country of origin of the lower bearing assemblies cannot be determined by finding a single material that imparts an essential character under section 102.11(b). The analysis continues and Section 102.11(c) must be looked at next. This rule relates to sets, mixtures or composite goods and would thus be inapplicable to the subject lower bearing assemblies. Section 102.11(d) is next in the rules of origin hierarchy. These rules state that the country of origin of a NAFTA good shall be determined as follows: (1) If the good was produced only because 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. (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 is the country of origin of those parts. (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 lower bearing assemblies are not produced as a result of minor processing as described in 19 C.F.R. 102.1(m). Furthermore, the lower bearing assemblies are not produced through a simple assembly because the assembly to make them involves the fitting together of more than five parts (see 19 C.F.R. 102.1(o)). Therefore, neither sections 102.11(d)(1) and (2) apply in this instance. Consequently, the country of origin will be determined according to Section 102.11 (d)(3) as the last country in which the good underwent production. As the last production process to put together the various components of the lower bearing assemblies into the finished product occurs in Canada, in accordance with 19 C.F.R. 102(d)(3), the five lower bearing assemblies will be considered products of Canada for the country of origin marking requirements of 19 U.S.C. 1304. Section 301 Trade Remedy Duties The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25 percent will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(b), HTSUS. Among the subheadings listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, is 8474.90.00. When determining the country of origin for purposes of applying 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. Texas Instruments, Inc. v. United States, 69 CCPA 151, 681 F.2d 778 (1982). In deciding whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of the operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 6 CIT 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. Factors, which may be relevant in this evaluation, may include the nature of the operation (including the number of components assembled), the number of different operations involved, and whether a significant period of time, skill, detail, and quality control are necessary for the assembly operation. See C.S.D. 80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97. If the manufacturing or combining process is a minor one, which leaves the identity of the article intact, a substantial transformation has not occurred. See Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983). No substantial transformation occurs if the imported parts are formed into their final shape prior to importation and their intended use is predetermined at the time of importation. See Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d per curiam, 989 F.2d 1201 (Fed. Cir. 1993) (hand tool components intended to be incorporated in a finished mechanic’s hand tool were cold-formed or hot-forged into their final shape prior to their importation into the U.S.). In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the CIT interpreted the meaning of “substantial transformation.” Energizer involved the determination of the country of origin of a flashlight, refer