Country of origin of an Evaporator Assembly for an Automobile Air Conditioner; Section 301 trade remedy; 9903.88.01, HTSUS

HQ H319601 July 16, 2021 OT:RR:CTF:VS H319601 JMV CATEGORY: Origin Aaron M. Marx Crowell & Moring, LLP 1001 Pennsylvania Ave NW Washington, DC 20004 RE: Country of origin of an Evaporator Assembly for an Automobile Air Conditioner; Section 301 trade remedy; 9903.88.01, HTSUS Dear Mr. Marx: This is in response to your request, dated June 4, 2021, filed on behalf of your client Valeo North America (“the importer”). In your letter, you request a binding ruling on the applicability of Section 301 trade remedies. FACTS: The importer, Valeo is an original equipment manufacturer. The item that is the subject of this ruling is an evaporator brushless motor assembly, internal part number T456490, to be used in passenger vehicles and light trucks. Each evaporator assembly consists of a brushless direct current (“DC”) motor stacked together with a coil assembly, an impeller, and other components. The finished evaporator assembly and its major components are all circular in shape. The impeller has fan blades around its circumference. After import into the United States, these goods are further assembled into an automobile air conditioning unit (“HVAC”), where it is used for creating air flow through the system. On May 28, 2021, Valeo obtained a ruling on the country of origin of the stator assembly and rotor assembly that are component parts of the goods subject to this ruling. See New York Ruling Letter (“NY”) N319473, May 28, 2021. Valeo asks for a ruling on the origin of the evaporator brushless assemblies under five different manufacturing scenarios. In all five manufacturing scenarios, the production of the evaporator brushless assemblies begins with the production of the stator assembly and the rotor assembly. The production of both the stator and rotor assemblies is identical to the production of these parts in NY N319473. In the first manufacturing scenario, the production process begins with manufacturing the stator assembly in Vietnam with the production of the stator core. In Vietnam, as described in NY N319473, sheet steel is stamped, pressed, and laminated into a stator core. The stator cores are then exported to China where front and rear plastic covers are added, electrical terminals are soldered, and magnet wire is wound around the stator posts to produce a stator assembly. The core covers, terminals, and magnet wire are sourced from China. Prior to export from China, the stator assembly is inspected and packaged. The manufacturing process of the rotor assembly also begins in Vietnam and is also described in NY N319473. In Vietnam, sheet steel is stamped and pressed into a rotor yoke. The rotor yoke consists of a metal circle with drilled holes that is connected to an outer metal cylinder by uniform, alternating metal arms and airgaps. The rotor yokes are then exported to China where a shaft, magnets, and a snap ring, all sourced from China, are joined to produce a rotor assembly. Prior to export from China, the rotor assembly is inspected, cured, tested, cleaned, and packaged. The stator and rotor assemblies are then exported to Mexico where they are assembled into the evaporator brushless assembly. In Mexico, the stator and rotor assemblies are combined with Thai-origin ball bearings and the following Chinese origin goods: a printed wire board assembly (“PWB assembly”), end stopper, aluminum cover, balance clip, screws, and washers. They are further assembled with an impeller, motor holder, and flange that are manufactured in Mexico. The manufacturing operations include welding, magnetizing, machine pressing, printed circuit board data control, balancing measurement and corrections, noise and vibration inspection, and final motor performance inspection. Production in the remaining four scenarios is identical to the first; however, the origin of each part varies. In the second scenario, the rotor yoke and stator core lamination are manufactured in Japan and then imported into China for assembly. Final assembly of the evaporator brushless motor assembly takes place in Mexico. Otherwise, this scenario is identical to the detailed description of scenario one. In the third scenario, the rotor yoke and stator core are manufactured in South Korea and then imported into China for assembly. Final assembly of the evaporator brushless motor assembly takes place in Mexico. In the fourth scenario, the rotor yoke and stator core are manufactured in Thailand and then imported into China for assembly. Final assembly of the evaporator brushless motor assembly takes place in Mexico. In the fifth scenario, the rotor yoke and stator core are manufactured in Vietnam and then imported into China for assembly. Final assembly of the evaporator brushless motor assembly takes place in China. ISSUES: What is the country of origin of the finished evaporator assembly for the purposes of applying Section 301 trade remedies? LAW AND ANALYSIS: The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25% 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(e), Harmonized Tariff Schedule of the United States (“HTSUS”). Among the subheadings listed in U.S. Note 20(e) of Subchapter III, Chapter 99, HTSUS, is 8414.59.65, HTSUS, where these goods are classified. 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. See Texas Instruments Inc. v. United States, 69 C.C.P.A. 151 (1982). In deciding whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (Ct. Int’l Trade 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, and the essence of the article is considered. Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982), aff’d 702 F.2d 1022 (Fed. Cir. 1983). 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” as used in the Trade Agreements Act of 1979 (“TAA”) for purposes of government procurement. Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight, under the TAA. All the components of the Generation II flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States where they were assembled into the finished Generation II flashlight. The court reviewed the “name, character and use” test in determining whether a substantial transformation had occurred and reviewed various court decisions involving substantial transformation determinations. The court noted, citing Uniroyal, Inc. v. United States, 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. In addition, 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 as an example, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 310, aff’d 989 F.2d 1201 (Fed. Cir. 1993). Furthermore, courts have 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. Historically, CBP has concluded that press-fitting or connecting fan or pump components to a motor does not result in a substantial transformation when considering the country of origin of a fan or pump assembly. The country of origin of a fan or pump assembly is based on the country of origin of the motor, as it is the essence of these types of assemblies. For example, in Headquarters Ruling (“HQ”) H304126, dated February 13, 2020, the country of origin of a dishwasher pump assembly was determined to be Serbia based on the manufacturing and assembly processes of the motor in Serbia. In HQ H304126, the majority of the discrete parts were sourced from China and then shipped to Serbia to be manufactured into the rotor subassembly and the stator subassembly, and then combined to form the finished centrifugal dishwasher pump. The assembly of the motor involved magnetization of the rotor, pneumatic pressing of multiple components, ultraviolet glue curing, and induction soldering. CBP held that the assembly was complex and, as such, the country of origin of the motor, which is the essence of the pump assembly, was determined to be Serbia. Therefore, the origin of the pump assembly was also Serbia. Furthermore, it is generally CBP’s position that the country of origin of an electric motor will be determined by where the two most essential components of an electric motor, the rotor and the stator, are made. In turn, the country of origin of the stator and rotor will often be based upon the country where the cores of these components are made. In NY N305251, August 1, 2019, CBP considered the origin of an electric stepper motor under three manufacturing scenarios. In the first scenario, the stator and the rotor were manufactured in Japan by stamping the steel slits from coils that were then pressed into a stator and rotor stack. The balance of the stepper motor components (the pulley, the bearing, the shaft, the end caps, etc.) were sourced from China. The assembly of the stepper motor components into a functional motor was also performed in China through operations such as the machining the stator and rotor, painting, winding of the wire, affixing the shaft and bearing onto the rotor, soldering the wire onto the connector board, screwing the housing and endcaps together, etc. CBP found that the stator and rotor imparted the essence of the finished stepper motor and were not substantially changed by the assembly of the remaining motor components. CBP held that the assembly operations were not complex enough to transform the stator and rotor into a new article and, therefore, the country of origin of the electric stepper motor was Japan, where the stator and rotor stack were produced. In addition, CBP has held that whether an assembly process is sufficiently complex to rise to the level of substantial transformation is determined upon consideration of all of the operations that occur within that country, including any subassembly processes that take place in that country. For example, in HQ H303529, dated June 6, 2019, the subject merchandise was an incomplete postage meter, which functioned as a specialized printer in a mail handling system. While one of the major subassemblies was made in Malaysia, the remaining subassemblies were made in China, and the final assembly process of connecting the subassemblies also occurred in China. CBP found that the assembly process that occurred in China was sufficiently extensive and complex as to substantially transform the components into a product of China. In doing so, CBP noted that the question of the complexity of the assembly process which occurred in China was not limited to an examination of the assembly of the various subassemblies to one another, but included an examination of all the assembly processes involved in China in the production of the incomplete postage meter. See Energizer at 1318 (2016) (“case law…indicates that a determination of substantial transformation must be based on a totality of factors”) (citing National Hand Tool Corp. at 312, and Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121 (1996)). With regard to motors, the extent of processing that occurs after the stator and rotor core are created must also be taken into account. For example, in NY N309707, dated March 11, 2020, CBP considered the origin of a fan blower. The fan blower was produced in Mexico from parts of largely Chinese origin. The parts that came from China were a stator core, magnetic wire, insulator sheets, bottom housing, a lead wire harness, a rotor shaft, bearing housing, ball bearings, and rotor yoke. In Mexico, workers created the stator subassembly by winding the magnetic wire onto a stator core. The printed circuit board assembly (“PCBA”) and the Chinese insulator sheets were then connected and soldered onto the stator assembly. The stator assembly was then installed and bonded to the Chinese bottom housing. A lead wire harness from China was then soldered to the contacts of the PCBA assembly and a Japanese seal was installed in the bottom housing. Workers then created the rotor assembly by installing a retaining ring on a Chinese shaft to form a shaft assembly. Washers from Mexico or the United States were then installed onto the shaft and ball bearings were bonded to bearing housings and the shaft. The magnet was then assembled and bonded to the rotor yoke with adhesive. The magnetic yoke assembly was then cured, magnetized, and bonded to the rotor assembly. The Chinese impeller was then bonded onto the rotor assembly, which in turn was fastened to the stator assembly. Chinese top housing was fitted and screwed onto the impeller attached to the completed rotor and stator assemblies. CBP found that the various manufacturing and assembly processes in Mexico created a new and different article of commerce, as the air circulating and motor components of each unit, to include the less significant Chinese and Japanese components, were subjected to operations resulting in the individual parts losing their separate identities to become a new article, i.e., a fan blower assembly that consisted of an impeller and a motor. In scenarios 1-4, we find that the country of origin of the evaporator brushless assembly is the origin of the stator and rotor assembly, which in turn is the origin of the stator core and rotor core. The origin of these two components is the same in each scenario. In scenario 1, the origin for purposes of section 301 is Vietnam; in scenario 2, the origin is Japan; in scenario 3, the origin is South Korea; and in scenario 4, the origin is Thailand. Therefore, Section 301 measures will not apply to the instant merchandise in scenarios 1-4. However, scenario 5 is more similar to NY N309707 and HQ H303529. In scenario 5, a majority of the production takes place in China with mostly Chinese parts, including the impeller. Additionally, while the stator core and rotor core are major components from Vietnam, they are processed into a stator and rotor subassembly, then into a motor, and finally into a brushless evaporator assembly in China. Therefore, in Scenario 5, the country of origin for purposes of Section 301 is China. HOLDING: In scenarios 1-4 outlined above, the country of origin of the evaporator assembly for the purposes of the application of subheading 9903.88.03, HTSUS is not China in each of the scenarios presented. Therefore, Section 301 measures will not apply. However, in scenario 5, the country of origin of the evaporator assembly for the purposes of the application of subheading 9903.88.03, HTSUS is China in each of the scenarios presented. Therefore, Section 301 measures will apply. A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch