U.S. Government Procurement; Title III, Trade Agreements Act of 1979 (19 U.S.C. 2511); Subpart B, Part 177; Brother Mobile Solutions, Inc.; Country of Origin of Mobile Thermal Printers; Substantial Transformation

HQ H328859 June 10, 2024 OT:RR:CTF:VS H328859 AMW CATEGORY: Origin Mr. Rick Van Arnam, Esq. Barnes, Richardson & Colburn, LLP 100 William Street Suite 305 New York, NY 10038 RE: U.S. Government Procurement; Title III, Trade Agreements Act of 1979 (19 U.S.C. 2511); Subpart B, Part 177; Brother Mobile Solutions, Inc.; Country of Origin of Mobile Thermal Printers; Substantial Transformation Dear Mr. Van Arnam: This is in response to your request of November 14, 2022, on behalf of your client, Brother Mobile Solutions, Inc. (“Brother”), for a final determination concerning the country of origin of various thermal printer models, pursuant to Title III of the Trade Agreements Act of 1979 (“TAA”), as amended (19 U.S.C. 2511 et seq.), and subpart B of Part 177, U.S. Customs and Border Protection (“CBP”) Regulations (19 CFR 177.21, et seq.). Brother is a party-at-interest within the meaning of 19 CFR 177.22(d)(1) and 177.23(a) and is therefore entitled to request this final determination. FACTS: Brother seeks a country of origin determination related to five separate models of thermal printers described as the “Brother PocketJet 8 Mobile Thermal Printers” (the “thermal printers”). Your request states that the assembly process for the thermal printers is the same, though the devices differ in type of interface (i.e., USB, Bluetooth, or Wi-Fi) and resolution (either “standard resolution” at 203 dots per inch (“DPI”) or “high resolution” at 300 dots per inch). The five models are as follows: Model Interface Resolution  PJ-822 USB 203 DPI  PJ-823 USB 300 DPI  PJ-862 USB, Bluetooth 203 DPI  PJ-863 USB, Bluetooth 300 DPI  PJ-883 USB, Bluetooth, Wi-Fi 300 DPI   The thermal printers provide full-page mobile printing, producing text or images by passing specially treated paper (i.e., thermal paper) over a “print head” comprised of a small, electrically heated element. Upon exposure to heat, the coating on the paper turns black, producing the desired text or image. The thermal printers connect with most computer models, including IOS and Android devices. The thermal printers will undergo final assembly in Japan by Mie Brother Precision Industries, Ltd. (“Mie Brother”) utilizing discrete components imported from Taiwan, Vietnam, and China, as well as a Japanese-origin printed circuit board assembly (“PCBA”). As outlined in your request, the thermal printers consist of four main component groupings: (1) Print mechanism The print mechanism utilizes direct thermal technology to apply heat to the treated paper and produce text and images. The print mechanism is comprised of approximately 48 components, including a chassis assembly, head spring, gears, thermal plate, paper guide, screws, and a stepping motor used to move paper through the print mechanism. The print mechanism is comprised entirely of Chinese-origin components (aside from the Taiwanese-origin stepping motor), which are assembled into the thermal printers in Japan. (2) Covers/chassis The covers and chassis are static items that make up the chassis of the thermal printers. They are comprised of approximately 59 components, including a top cover, back cover chute cover, battery latches, face tape, and various labels and screws. Each of these components is produced in China and are assembled into the printers in Japan. (3)Sensor unit The sensor unit consists of five components: a Vietnam-produced membrane switch, which functions as an operator interface, allowing the user to operate and control the device. The remaining components, including flexible printed circuits that control the printer’s on/off switch, its LED indicator, and a radio circuit (Bluetooth vs. WiFi in model PJ 863), are all produced in China and assembled into the printers in Japan. (4) Main PCBA The main PCBA is produced by a third-party manufacturer in Japan. The PCBA includes the device’s firmware, and functions as the motherboard of the printer. It controls communication with the device looking to print (i.e., computer or phone), houses the memory for the printer, and forms the image to be printed. In addition to the physical components described above, you state that the device’s firmware is designed and developed in Japan. The firmware consists of software embedded into the PCBA that will control the device. All told, your request indicates that slightly more than half of the printers’ value, is attributable to production occurring in China. Slightly less than half of the printers’ value is produced in Japan. Less than 10% by value is produced in Vietnam and in Taiwan. By quantity, approximately 97% of all components are produced in China, whereas 1% of the printers’ components are produced in Japan, 1% in Taiwan, and 1% in Vietnam. You state that the final assembly of the above-mentioned components occurs in Japan. Specifically, your request indicates that assembly in Japan occurs in roughly the following steps: Mainframe assembly In this stage, the main PCBA is mounted to the main chassis assembly. Then, the stepping motor is attached to the chassis, and the print mechanism components are affixed. Next, the side and upper chassis boards are attached to the main frame, as are three head pressing springs. The platen and transfer gears are added. Finally, the chute cover is attached to this frame. Cover Assembly Next, the cover assembly is created. The components of the sensor unit – the membrane switch, LED lamp, and various flexible printed circuits, are assembled to the top cover. The back cover is then attached, followed by the top cover and then the latches. All cover screws are tightened. A dummy battery is inserted, and a label is affixed on the bottom of the cover. After assembly is complete, the thermal printers undergo a testing process in which the machines receive a function test, printing inspection, Wi-Fi/Bluetooth check, and appearance inspection. ISSUE: What is the country of origin of the subject thermal printers for purposes of U.S. Government procurement? LAW AND ANALYSIS: CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purpose of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government, pursuant to subpart B of Part 177, 19 CFR 177.21 et seq., which implements Title III, Trade Agreements Act of 1979, as amended (19 U.S.C. 2511-2518). CBP’s authority to issue advisory rulings and final determinations is set forth in 19 U.S.C. 2515(b)(1), which states: For the purposes of this subchapter, the Secretary of the Treasury shall provide for the prompt issuance of advisory rulings and final determinations on whether, under section 2518(4)(B) of this title, an article is or would be a product of a foreign country or instrumentality designated pursuant to section 2511(b) of this title. The rule of origin set forth in 19 U.S.C. 2518(4)(B) states: An article is a product of a country or instrumentality only if (i) it is wholly the growth, product, or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed. See also 19 CFR 177.22(a). In rendering advisory rulings and final determinations for purposes of U.S. Government procurement, CBP applies the provisions of subpart B of Part 177 consistent with the Federal Acquisition Regulations (“FAR”). See 19 CFR 177.21. In this regard, CBP recognizes that the FAR restricts the U.S. Government’s purchase of products to U.S.-made or designated country end products for acquisitions subject to the TAA. See 48 CFR 25.403(c)(1). Section 25.003 defines “designated country end product” as: a WTO GPA [World Trade Organization Government Procurement Agreement] country end product, an FTA [Free Trade Agreement] country end product, a least developed country end product, or a Caribbean Basin country end product. Section 25.003 defines “WTO GPA country end product” as an article that: Is wholly the growth, product, or manufacture of a WTO GPA country; or In the case of an article that consists in whole or in part of materials from another country, has been substantially transformed in a WTO GPA country into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed. The term refers to a product offered for purchase under a supply contract, but for purposes of calculating the value of the end product includes services (except transportation services) incidental to the article, provided that the value of those incidental services does not exceed that of the article itself. Once again, we note that the subject thermal printers are assembled in Japan, a WTO GPA country, with components sourced from both TAA-designated countries (i.e., Taiwan and Japan) as well as non-TAA countries (i.e., China, Vietnam). 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, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative. A new and different article of commerce is an article that has undergone a change in commercial designation or identity, fundamental character, or commercial use. A determinative issue is the extent of the operations performed and whether the materials lose their identity and become an integral part of the new article. See Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). “For courts to find a change in character, there often needs to be a substantial alteration in the characteristics of the article or components.” Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (Ct. Int’l Trade 2016) (citations omitted). Courts have looked to “the essence” or essential character of the completed article “to determine whether it has undergone a change in character as a result of post-importation processing.” Id. (citing Uniroyal, Inc. v. United States, 542 F. Supp. 1026 (Ct. Int’l Trade 1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983)). In Uniroyal, 542 F. Supp. at 1030, the U.S. Court of International Trade (“CIT”) held that “it would be misleading to allow the public to believe that a shoe is made in the United States when the entire upper – which is the very essence of the completed shoe – is made in Indonesia and the only step in the manufacturing process performed in the United States is the attachment of an outsole.” In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the CIT interpreted the meaning of the term “substantial transformation” as used in the TAA for purposes of government procurement. Energizer Battery 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 Energizer Battery 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, 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 Battery at 1319, citing as an example, National Hand Tool. 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. In reaching its decision in the Energizer Battery case, the court expressed the question as one of whether the imported components retained their names after they were assembled into the finished Generation II 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 pre-determined 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. Thus, the court found that Energizer’s imported components did not undergo a change in name, character, or use because of the post-importation assembly of the components into a finished Generation II flashlight. The court determined that China, the source of all but two components, was the correct country of origin of the finished Generation II flashlights under the government procurement provisions of the TAA. In this matter, counsel argues that the country of origin of the subject thermal printers will be Japan because: (1) the final assembly of the various components occurs in Japan, and all components undergo a substantial transformation when assembled into the thermal printers; (2) the main PCBA is produced in Japan, which functions as the “brains” of the device and therefore imparts the essential character; and (3) the device’s firmware is designed, developed, and embedded in Japan. In doing so, the request cites Headquarters Ruling Letter (HQ) H298653, dated November 19, 2018; HQ H241146, dated May 21, 2013; and HQ H185775, dated December 21, 2011. In HQ H298653, CBP considered the country of origin of solar panels that were assembled in China using both Chinese and non-Chinese components, including polycrystalline solar cells that were entirely manufactured in Germany. CBP determined that polycrystalline solar cells, which imparted the essential character of the finished panels, did not lose their identity and became an integral part of the solar panels when they were combined with other components during the processing in China. The end-use of the solar cells and other components was pre-determined before the components were imported into China, and the solar cells (and other components) remained solar cells during processing in China. Therefore, CBP found that the country of origin of the solar panels was Germany. We note, however, that HQ H298653 pertains to solar panels, which is a completely different product class from the subject merchandise, and that does not include a PCBA, firmware, or similar components to the subject merchandise. In HQ H241146, CBP considered the country of origin of monochrome laser printers. In that case, Chinese-origin subassemblies were imported into the United States, where they were assembled with U.S.-origin PCBs, and programmed with Japanese-origin firmware. While the printers were comprised of subassemblies and components from various countries, they were also comprised of a controller unit assembled in the United States (with U.S.-origin PCBs), which was important to the function of the printers. As a result, CBP found that the last substantial transformation occurred in the United States. In HQ H185775, CBP considered the country of origin of a multifunction office machine. In that case, the incomplete print engine was produced in Vietnam and consisted of a metal frame, plastic skins, motors, controller board with supplier-provided firmware, a laser scanning system, paper trays, cabling paper transport rollers, and miscellaneous sensing and imaging systems. The incomplete print engine was shipped to Mexico, where the following assemblies were added: the formatter board, scanner/automatic document feeder, control panel, fax card, hard disk drive/solid state drive, firmware (which was developed and written in the United States), along with other minor components and accessories. CBP determined that Mexico was the country of origin because the assembly of the various nonfunctioning assemblies and components, along with the addition of firmware and programming, resulted in a substantial transformation. In addition to the rulings cited in Brother’s request, we identified several additional relevant rulings, as follows: HQ H304677, dated April 21, 2023; HQ H301910, date August 5, 2019; HQ H287548, dated March 23, 2018; HQ H219519, dated April 3, 2013; and HQ H018467, dated January 4, 2008. The applicability of each ruling is discussed below. In HQ H304677, CBP considered the country of origin of various models of multi- and single-function printers that underwent final assembly in Mexico. Most of the components for the printers were assembled in China to create subassemblies referred to as “printer transports,” which consisted of the basic housing and associated structures (e.g., frames, covers, laser scanning unit, power supply unit). The units’ PCBAs were manufactured in Mexico via surface mount and pin through hole technology. The devices’ firmware was downloaded in Mexico, but was architected and designed in the United States, with support from an entity in the Philippines. In determining the country of origin to be China, CBP noted that the Mexican-origin PCBA did not serve as the only fundamental functioning component of the printers, but that the other Chinese-origin components also proved critical in enabling the units to perform their function, including feeding the paper and printing images onto the paper. In HQ H301910, CBP considered the country of origin of mailing machine engines used in certain postage meters. In that ruling, the body of the engine was assembled in China and then transported to Japan where the Japanese-origin PCBA, print head, and print control and diagnostic firmware were installed. Testing and packaging also occurred in Japan. CBP determined that the main PCBA, the print control firmware, and the print head constituted the primary and fundamental essence of the mailing machine engine because these components controlled the engine’s function, operations, and enabled the printing of the correct postage. In particular, the main PCBA itself was composed of components essential to the fundamental function and primary purpose of the engine including the CPU, the memory, and the Field-Programmable Gate Array - all of which combined to form the “brain” of the machine. CBP held that, inasmuch as the main PCBA, the print control firmware, and the print head were all produced in Japan, the country of origin of the mailing engine machine was Japan. In HQ H287548, CBP determined that the country of origin of a monochrome laser printer was Japan despite having com