Application for Further Review of Protest No. 270422160717; Powin Energy Corp.; Country of Origin of Energy Storage Units; Section 301 Trade Remedy

HQ H327993 November 10, 2022 OT:RR:CTF:VS H327993 AMW CATEGORY: Valuation; Origin Center Director Machinery CEE U.S. Customs and Border Protection 200 N Mariposa Road Nogales, AZ 85621 Attn: Wendell O. Jones, Import Specialist, Machinery CEE RE: Application for Further Review of Protest No. 270422160717; Powin Energy Corp.; Country of Origin of Energy Storage Units; Section 301 Trade Remedy Dear Center Director: This is in response to an Application for Further Review (“AFR”) of Protest Number 270422160717, timely filed on behalf of Powin Energy Corp. (“Powin” or “importer”), concerning liquidation and assessment of duties pursuant to Section 301 of the Trade Act of 1974 for the entry of certain energy storage units. FACTS: The merchandise at issue is a device described as the “Stack 225” and “Stack 230” energy storage systems (the “Powin Stacks”). The subject Powin Stacks were assembled in Taiwan by Powin’s contract manufacturers, iBase Gaming Inc. (“iBase”) and Formosa Electronic Industries, Inc. (“Formosa”). Upon importation, Powin declared the country of origin of the Powin Stacks to be Taiwan. U.S. Customs and Border Protection (“CBP”), however, liquidated the entries as Chinese origin. Powin has paid the additional duties and is now protesting the assessment of the duties. The Powin Stack system is a modular energy storage device that “can be flexibly scaled to provide diverse, energy and electricity grid services.” A marketing brochure provided to CBP further describes the Powin Stacks as “modular, flexible, purpose-built battery arrays that are easily and cost-effectively scalable from kilowatts to megawatts.” Each Powin Stack incorporates hundreds of components, including four main subassemblies: (1) the module subassembly (consisting of eight battery cells), (2) the battery pack controller (“BPC”) subassembly, (3) the battery pack subassembly (consisting of three modules), and (4) the string control box subassembly. These subassemblies are then combined to form one Powin Stack, which consists of 11 battery packs, 11 BPCs, and one string control box. The Protest states that the assembly process in Taiwan relating to the four submodules occurs as follows: The module subassembly consists of 17 steps to produce a single module. The process involves inspecting the cells for defects, applying thermal pads on the two end plates, assembling the cells with the polycarbonate (“PC”) sheet, assembling the end plate onto the base, assembling the insulator parts onto the front end plate, attaching the PC sheet to the modules with rivets, installing and attaching the busbars and cell voltage and temperature sensor wires, physically welding the battery cell terminals using a laser welding machine, and inspecting and performing tests on the modules, including the ACIR Test, individual cell voltage test, module voltage test, and DC and AC HiPot Tests. The BPC subassembly process consists of eight steps to produce a single battery pack. The process involves installation of the BPC fan, the BPC power printed circuit board (“PCB”), heatsink, temperature sensors, power cable, and top plastic cover, and finally the BPC PCB. Testing is performed to verify functionality. The battery pack subassembly consists of 18 steps to produce a single battery pack. The process involves assembling the battery modules to the battery pack enclosure, connecting balance and thermistor cables, staggering the wires and temperature sensing wires in sequence, testing the terminal voyage of each battery module, and installing the busbar, installing the BPC subassembly. The battery pack is subject to various tests to verify functionality and safety, including a BP Charge Discharge FAT Test, BPC FAT Test, and Torque QC Check. The string control box subassembly consists of 100 steps. The process involves rubber pad assembly, the PVC wiring duct installation, the voltage sensor installation, the DC contactor installation, fuse and busbar installation, PC partition installation, channel cutting, switch assembly installation, installation of a 5-pin terminal sockets, circuit breaker wiring harness installation, U2 power supper supply PE and output wiring harness installation, bundling and installation of wire ties, U1 power input and output wiring harness installation, UPS power input and output wiring harness installation, board wiring harness installation, wire connectors installation, K1 relay coil and PE wiring harness installation, current transformer output wiring installation, TCP/IP and CAN wiring harness installation, indication output installation, labeling, installation of the PVC open wiring duct cover, and installation of the front bracket of the string controller panel. The string control box subassembly is then subject to a SCB Fat Test to verify functionality.  The final assembly of the Powin Stack consists of 36 steps. The process involves the installation of the air duct, the front door frame, the bottom tray, columns, ground wires, AC and CAN cables, DC cables, and busbars, battery pack stacking, and barcode labeling. The finished Powin Stack is subject to a series of tests to verify its functionality and specifications, including an EOL Burn-In Test, EOL Charge Discharge Test, EOL Test, and HiPot and Bonding Test. Although not discussed in the Protest, Powin has previously confirmed to CBP that the battery cells used in the Powin Stacks are produced in mainland China before being incorporated in the assembly process occurring in Taiwan. In addition to the physical assembly, each Powin Stack comes pre-installed with Powin’s StackOS software, an Energy Management System (“EMS”) and Battery Management System (“BMS”) platform. The Protest states that the EMS is intended to “tell the battery resources when to operate,” serving “as the link between the grid demand and the BMS, continually monitoring what the grid needs…” Meanwhile, the Protest states, the BMS software “instructs the battery resources how to operate,” monitoring battery output, voltage, temperature, health, fire warnings, and the state of charge, and regulates the charging and discharging power. All told, the Protest states that an estimated 15-20% of the overall production cost for each Powin Stack is associated with labor and overhead costs incurred in Taiwan. ISSUE: Whether the country of origin for the subject Powin Stacks is Taiwan or China for Section 301 purposes. LAW AND ANALYSIS: We note that the matter protested is protestable under 19 U.S.C. § 1514(a)(5) as a decision relating to the liquidation or reliquidation of an entry. The protest was timely filed, within 180 days of liquidation for the entry. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further review of this protest is properly accorded to the importer pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon. The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty 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”). See Section XXII, Chapter 99, Subchapter III, U.S. Note 20, HTSUS. The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(f), HTSUS. Therefore, when determining the country of origin for applying trade remedies under Section 301, the substantial transformation analysis is applicable. 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). If the manufacturing or combining process is a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983). The Court of International Trade more recently interpreted the meaning of “substantial transformation” in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016). Energizer Battery 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 Generation II flashlight. The Energizer Battery court reviewed the “name, character and use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc., 3 C.I.T. 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 Battery 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 Battery at 1319, citing as an example, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). In a number of rulings, CBP has stated: “in our experience these inquiries are highly fact and product specific; generalizations are troublesome and potentially misleading. See e.g., Headquarters Ruling Letter (“HQ”) 735608 (Apr. 27, 1995) and HQ 559089 (Aug. 24, 1995). The determination is in this instance ‘a mixed question of technology and Customs law, mostly the latter.’” Texas Instruments, Inc. v. United States, 681 F.2d 778, 783 (CCPA 1982). In its protest, Powin offers several arguments as to why the country of origin for the Powin Stack for the purpose of Section 301 trade remedies is Taiwan, and not the People’s Republic of China. For the reasons provided below, we disagree. To begin with, Powin argues that the incorporation of Chinese-origin battery cells into the Powin Stack results in a change of name, character, and use of the battery cells. For name, Powin argues that the battery cells lose their individual names after being incorporated into the larger Powin Stack assembly. In doing so, Powin cites HQ H322417 (Feb. 23, 2022), in which CBP determined that certain items assembled into a smart watch (e.g., altimeter, heart rate monitor, radio transceiver) lost their individual names upon being incorporated into a printed circuit board assembly (“PCBA”). However, HQ H322417 also observes that other inputs (e.g., microphone and speakers) retained their names. In making this determination, HQ H322417 references Energizer Battery. As in the present matter, the plaintiff in Energizer Battery had argued “that none of Energizer’s articles are called ‘flashlight’ at the time of importation” and hence a change in name had occurred once the flashlight had been assembled. Energizer Battery at 1322. 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. Additionally, in HQ H309485 (Aug. 12, 2020), we determined that Chinese-origin lithium-ion batteries incorporated into a “Battery Rack System” did not undergo a name change because, as in Energizer Battery, the components did not lose their individual names. Similar to Energizer Battery and HQ H309485, we find that the battery cells sourced from China do not undergo a change in name when they are assembled into the Powin Stack system in Taiwan. The name of the battery cells, as imported, remains the same as in the completed Powin Stack: they are still called battery cells, and indeed throughout the Protest, Powin has not called them anything else. See e.g., National Hand Tool, 16 C.I.T. at 311. In addition, a marketing brochure provided by Powin similarly refers to the Powin Stacks as a “battery array,” which indicates the device can be considered a collection of discrete battery cells. As the battery cells imported from China do not lose their individual names because of the assembly in Taiwan, no name change has occurred. For character and use, the Protest collapses the “character” and “use” criteria into the same analysis, essentially arguing that the manufacturing process in Taiwan results in a change of both character and use because the cells, on their own, are insufficient to create the final product. In doing so, Powin analogizes the instant matter to HQ H315299 (Jan 4, 2022) in which CBP determined that an automotive power cushion frame containing a Chinese-origin motor, hose, and two shafts experienced substantial transformation in Mexico because, “[w]hen combined with the Mexican components, the Chinese components will lose their individual identities and become an integral part of the automotive power seat cushion frame.” Similarly, Powin claims, all the individual components of the Powin Stacks, including the cells and PCBAs, also undergo a change in character and use.” With respect to character, 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., Energizer Battery, 190 F. Supp. 3d at 1318 (citing National Hand Tool, 16 C.I.T. at 311). Courts have not found a change in character when changes are cosmetic or when the “form of the components remained the same.” Energizer Battery at 1318. 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) (imported shoe uppers were the ‘essence of the finished shoe’ and were not substantially transformed by the addition of an outer sole in the United States”)). In HQ H309485 (Aug. 12, 2020), CBP again found that the incorporation of battery cells into a Battery Rack System did not result in a change of character because the cells were “simply held together as an aggregate product after the assembly operations….” In addition, in HQ H309485, CBP applied the “essence” test as it appears in Uniden, determining that the underlying battery cells impart the “essence” of the finished Battery Rack System because the general purpose of the Battery Rack System was to store power for a power plant or electrical grid. And while the system’s BMS “may augment the Battery Cells’ abilities to store and provide this power, the power still stems from the Battery Cells….” In the instant matter, we determine that the character of the battery cells remain the same. The Protest states that the cells are placed inside a module assembly as part of a process that involves inspecting the cells for defects, applying thermal pads on the two end plates, assembling the cells with PC sheet, assembling the end plate onto the base, assembling the insulator parts onto the front end plate, attaching the PC sheet to the modules with rivets, installing and attaching the busbars and cell voltage and temperature sensor wires, physically welding the battery cell terminals using a laser welding machine, and inspecting and performing a series of tests. Although these steps involve incorporating the battery cells into a wider structure, the cells themselves are unchanged. 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.”). As in HQ H309485, the battery cells from China are simply held together as an aggregate product after the assembly operations in Taiwan; the assembly operations do not change the shape or material composition of the battery cells. This interpretation is again bolstered by Powin’s own reference to its product as a “battery array,” rather than a product in which the character of the batteries is changed. In addition, as in HQ H309485, the Chinese-origin batteries provide the essence of the Powin Stack (i.e., to store and provide power). Although the BMS and EMS may augment the batteries’ ability to store, control, and provide this power, the general availability of the power still stems from the batteries and not the BMS, EMS, or other portion of the Powin Stack. Hence, we find that there is no change in character resulting from the assembly operations in Taiwan. With respect to use, courts have found that a change in use has occurred when the end use of the imported product was no longer interchangeable with the end use of the product after post importation processing; in contrast, when the end use was predetermined at the time of importation, courts have generally not found a change in use. See Energizer Battery, 190 F. Supp. 3d at 1319 (citing Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535, 540-41 (1987); National Hand Tool, 16 C.I.T. at 311-12; Ran-Paige Co., Inc. v. United States, 35 Fed. Cl. 117, 121-22 (1996); Uniroyal, 3 C.I.T. at 226). “When articles are imported in prefabricated form with a pre-determined use, the assembly of those articles into the final product, without more, may not rise to the level of substantial transformation.” Id. (citing Uniroyal, 3 C.I.T. at 226). Further, in HQ H309485, CBP determined that battery cells incorporated into a Battery Rack System did not undergo a change in use because the batteries were imported “in a form that allows them to be readily assembled into the final product” and the end use of the battery cells was “interchangeable with the end use of the product after post importation processing.” Here, the use of the underlying battery cells remains the same after assembly. In this instance, the battery cells were imported to Taiwan in the prefabricated form that allowed them to be readily assembled into the final product. Moreover, we find that the end use of the battery cells is interchangeable with the end use of the product after post importation processing. The battery cells are lithium-ion batteries, and lithium-ion batteries are designed to become energy storage units. The initial battery cell thus is interchangeable with the energy storage units. Cf. e.g., Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535, 540-41 (1987). Once again, we also find it significant that Powin markets the product as a “battery array,” which makes clear that the merchandise is primarily intended to be used for the energy storage properties of the underlying batteries. Accordingly, we find that the battery cells do not undergo a change in use due to the assembly process in Taiwan. In addition to the arguments above, Powin analogizes t