Country of origin of electric bikes

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H312767 September 24, 2020 OT:RR:CTF:FTM H312767 MJD CATEGORY: Origin Mr. Robert Hooton Yamaha Motor Corporation, USA 6555 Katella Ave Cypress, California 90630 Re: Country of origin of electric bikes Dear Mr. Hooton: This is in response to your letter, dated July 17, 2020, requesting a binding ruling on the country of origin of two models of Yamaha electric bikes (“E-bikes”), the All Mtn High E-bike and the All Mtn low E-bike. Your request was forwarded by the National Commodity Specialist Division to this office for a response. Our ruling is set forth below. FACTS: The All Mtn High E-bike and the All Mtn Low E-bike are described by the requestor as bicycles that use “a distinctive electrically powered pedal-assist drive system to aid the rider in propulsion.” Both E-bikes are made primarily of Taiwanese components and also include Chinese and Japanese materials. The assembly of the E-bikes takes place in China. The materials sourced from Taiwan include the frame, which is a finished and painted product when shipped to China, and the fork, which will be cut and fitted to the frame and mounted to the crown race in China. The other components from Taiwan include the pedals, crown race, wheels, crank, levers, chain, handlebar, brakes, and seat post. The E-bike components sourced from China include the saddle seat, clips, fasteners, and brackets. The Pedal-Assist Drive Unit, the motor for the E-bike, is a product of Japan. It provides ease of use for the rider when it senses the rider has increased resistance and allows the E-bike to go faster while the rider is pedaling. The battery for the Pedal-Assist Drive Unit is sourced from China, and it powers the pedal assist system. The only difference between the two models of E-bikes is that the shifter assembly for the All Mtn High E-bike is of Japanese origin, while the shifter assembly for the All Mtn Low E-bike is of Chinese origin. All of the products when imported to China are finished products except for the fork. The following assembly process takes places in China: [T]he fork will be fitted to the frame after the fork is cut. The wires, levers, pedals, crank and chain are affixed to the unit and the wheels and brakes are connected to the lever control system. Labels are affixed, saddle is attached to seat post before adding the battery and drive unit to complete this E-Bike. According to the requestor’s supplemental submission, dated September 23, 2020, the total cost of the Taiwanese components, including the frame, accounts for 39.50 percent of the finished E-bikes. The total cost of the Chinese components, including the battery, accounts for 32 percent of the finished E-bikes. Lastly, the total cost of the Japanese components, including the Pedal-Assist Drive Unit, accounts for approximately 28.50 percent of the finished E-bikes. ISSUE: What is the country of origin of the All Mtn High E-bike and the All Mtn Low E-bike? LAW AND ANALYSIS: The marking statute, section 304 of the Tariff Act of 1930, as amended (19 U.S.C. § 1304) provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or 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. Congressional intent in enacting 19 U.S.C. § 1304 was “that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlaender & Co. Inc., 27 C.C.P.A. 297, 302, C.A.D. 104 (1940). The country of origin marking requirements and the exceptions of 19 U.S.C. § 1304 are set forth in Part 134, Customs Regulations (19 C.F.R. Part 134). Section 134.1(b), Customs Regulations (19 C.F.R. § 134.1(b)), defines “country of origin” 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 the marking laws and regulations. A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, and use which differs from the original material subjected to the process. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267, C.A.D. 98 (1940); Texas Instruments, Inc. v. United States, 681 F.2d 778, 782 (1982). In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, or use are primary considerations in such cases. No one factor is determinative. 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.” Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight. All of the components of the flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States and assembled into the finished flashlight. The Energizer court reviewed the “name, character and use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, 3 CIT at 226, 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. 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 Nat’l Hand Tool Corp., 16 CIT at 311-12. Courts have also 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. In reaching its decision in Energizer, the court considered whether the imported components retained their names after they were assembled into the finished flashlights. The court found “[t]he constitutive components of the Generation II flashlight do not lose their individual names as a result [of] the post-importation assembly.” The court also found that the components had a predetermined end-use as parts and components of a Generation II flashlight at the time of importation and did not undergo a change in use due to the post-importation assembly process. Finally, the court did not find the assembly process to be sufficiently complex as to constitute a substantial transformation. The court determined that the imported components did not undergo a change in name, character, or use as a result of their post-importation assembly into a finished Generation II flashlight. Virtually all of the components of the military flashlight, including the most important component, the LED, were of Chinese origin. Thus, the court determined that China was the correct country of origin of the finished flashlights for purposes of government procurement. The CIT has also looked at the essence of an article to determine whether the identity of an article is changed through assembly or processing. For example, in Uniroyal, Inc. v. United States, 3 C.I.T. at 225, the court held that imported shoe uppers added to an outer sole in the United States were the “very essence of the finished shoe” and thus the character of the product remained unchanged and did not undergo substantial transformation in the United States. Similarly, in National Juice Products Association v. United States, 10 C.I.T. 48, 61, 628 F. Supp. 978, 991 (1986), the court held that imported orange juice concentrate “imparts the essential character” to completed orange juice and thus was not substantially transformed into a product of the United States when blended with water, oils, and essences. In Headquarters Ruling Letter (“HQ”) H305370, dated October 11, 2019, CBP determined that China was the country of origin for an electric motor assembled in Mexico with components sourced from China because the Chinese components had a pre-determined end use and the production process in Mexico involved mere simple assembly. As a result, no substantial transformation took place. However, in HQ H262943, dated November 1, 2016, CBP determined that a treadmill assembled in the United States in an assembly process titled “scenario one” and Taiwan in another assembly process titled “scenario two,” with mostly all of its parts from China in both scenarios, was substantially transformed in the United States under scenario one and Taiwan under scenario two. CBP found that the assembly process in the United States or Taiwan was sufficiently complex and meaningful enough to rise to the level of substantial transformation because when the treadmill parts were imported to the United States or Taiwan, they were not complete and required “substantial additional work to create a functional treadmill.” Moreover, CBP stated that the work performed in Taiwan and the United States would require “a total of 27 seams to create the three major subassemblies (the treadmill base, the console frame, and the console mast) that comprise the finished treadmill,” and the additional assembly steps involved over 466 individual parts. In HQ H308831, dated February 25, 2020, CBP held that several models of battery packs that contained battery cells sourced from Malaysia (except for one model that had a battery cell sourced from Singapore) with other components sourced from China, and assembled in China was a product of Malaysia or Singapore because the battery cell was what imparted the essence of the battery pack. Thus, there was no substantial transformation in China when the battery cell was assembled with the rest of the components in China. In discussing the assembly process, CBP stated the following: The assembly process in China is largely described as assembl[ing],’ ‘connect[ing],’ ‘attach[ing],’ ‘appl[ying],’ and ‘weld[ing]’ various components together followed by ‘install[ing]’ them into a plastic housing. See e.g., Revised Ruling Request at 3-4. This description does not suggest an assembly process that is complex, rather the assembly process in China appears to be no more than the mere simple assembly of the battery cells from either Malaysia or Singapore (each complete and operational, and imported with a predetermined end use) with components from China. CBP has consistently found that the essence of a bicycle is its frame. For example, in HQ H302358, dated January 23, 2020, CBP determined that a bicycle manufactured in Taiwan with its frame sourced from China, and the remaining components sourced from Taiwan, China, Japan, and the United States, was a product of China. CBP stated that the frame was the most essential component of the bicycle as it imparts the overall shape, size, and character of the product. CBP further stated that the other parts of the bicycle lose their separate identity once they are attached to the frame and become a new article of commerce, the finished bicycle, with a new name, character, and use. Therefore, the assembly operations of the various parts of the bicycle in Taiwan did not result in a substantial transformation of the bicycle frame, and the bicycle was deemed a product of China. See also New York Ruling Letter (“NY”) N302992, dated March 27, 2019; NY N295820, dated May 3, 2018; NY N292674, dated December 26, 2017; HQ H253522, dated February 5, 2015; and HQ 735368, dated June 30, 1994 (determining that the frame is the essence, essential character, or most significant or essential component of a bicycle). Similarly, CBP has held that the essence of an E-bike is also its frame. In NY N309404, dated February 12, 2020, CBP found that the essence of an E-bike was its frame and that the frame was not substantially transformed when it was imported from China and assembled in Taiwan with other products also imported from China, but also Taiwan (where among other parts, the electric motor controller and electric battery was sourced), Indonesia, and Japan. In the instant case, we also find that the essence of the All Mtn High E-bike and the All Mtn Low E-bike is its frame. The frame is a finished product that requires no further working when it leaves Taiwan and is assembled together with the other parts in China. The frame gives the E-bikes their overall shape, size, and character. It is how the E-bikes are identified as bikes and is what makes the E-bikes a bike. The Pedal-Assist Drive Unit, the motor of the E-bike, provides ease of use for the rider and powers the bike to go faster while the rider is pedaling. Thus, the Pedal-Assist Drive Unit is what specializes the E-bikes and sets them apart from other non-electric bikes, but it is not the unifying component among all types of bicycles, which gives the bikes its shape, size, and character. Furthermore, the assembly process of the E-bikes is quite simple and involves minor operations with parts that have a pre-determined end use as parts for the E-bikes. Similar to HQ H305370, where the Chinese parts of an electric motor had a pre-determined end use as parts of the electric motor and the assembly process was simple and not complex enough to effect a substantial transformation or HQ H308831 in which CBP determined that the production process of battery packs involving “assembl[ing],’ ‘connect[ing],’ ‘attach[ing],’ ‘appl[ying],’ and ‘weld[ing]’ various components together” was not a complex process, here too we find that the assembly process of the E-bikes is quite simple. The assembly of the E-bikes involves minor operations such as cutting the fork and fitting it to the frame; affixing the wires, levers, pedals, crank and chain to the unit; connecting the wheels and brakes to the lever control system; affixing the label; attaching the seat post; and adding the battery and drive unit. These simple assembly processes in China do not rise to the level of substantial operations like the treadmill in HQ H262943, where in addition to the complex assembly of over 466 individual parts, the parts were not complete when they were imported into the United States or Taiwan (where they were fully assembled) and required substantial additional work. In view of these facts, we find that the frame sourced from Taiwan is the essence of the E-bikes, and the assembly operations of the various components in China does not result in a substantial transformation of the bicycle frames. Therefore, the country of origin of the All Mtn High E-bike and the All Mtn Low E-bike is Taiwan, which is not subject to Section 301 duties. Accordingly, the E-bikes should be marked as “Made in Taiwan.” This marking must be conspicuously, legibly and permanently marked in satisfaction of the marking requirements of 19 U.S.C. § 1304 and 19 C.F.R. Part 134. HOLDING: Based on the facts provided, the country of origin of the Yamaha All Mtn High E-bike and the All Mtn Low E-bike is Taiwan. Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction. Sincerely, Yuliya A. Gulis, Chief Food, Textiles and Marking Branch