The country of origin of gasoline engines

N331703 April 18, 2023 OT:RR:NC:N2:206 CATEGORY: Country of Origin H. Michael Leightman Ernst & Young LLP 1401 McKinney Street, Suite 1200Houston, TX 77010 RE: The country of origin of gasoline engines Dear Mr. Leightman: In your letter dated March 22, 2023, you requested a country of origin ruling on gasoline engines for marking purposes, and for purposes of applying trade remedies under Section 301 of the Trade Act of 1974, as amended, from China, which you filed on behalf of your client, Liquid Combustion Technology of Vietnam, Jt. Stock Company, (LCT). The items under consideration are LCT Horizontal Shaft Engines, which are typically used in snow throwers, trash pumps, pressure washers, generators, or other small construction or commercial equipment. There are five different models of the engine with 15 different engine displacements, or sizes, that are all manufactured on this asynchronous line located in Vietnam. The engine models vary in displacement ranges from 79 to 703 cc. You state that every engine manufactured by LCT undergoes strict testing and quality control to maintain high safety and environmental standards. The engines are inherently dangerous if a failure occurs. They are operated with a large amount of highly flammable material coupled with components that reach very high temperatures. Additionally, these engines could pose an environmental risk due to exhaust emissions while running the product if not properly manufactured. In the Bill of Materials (BOM), which you provided with your request, we note that the components comprising the engines are made of 35% in China, 65% in Vietnam, less than 1% in the United States. Once all components are received in Vietnam, they go through pre-manufacturing, manufacturing, quality control, and testing processes to complete the engine using special tools. 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 U.S. 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 U.S. the English name of the country of origin of the article. The "country of origin" is defined in 19 CFR 134.1(b) 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 this part." The courts have held that a substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing.  United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940); National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F. 2d 1201 (Fed. Cir. 1993); Anheuser Busch Brewing Association v. The United States, 207 U.S. 556 (1908) and Uniroyal Inc. v. United States, 542 F. Supp. 1026 (1982).However, if the manufacturing or combining process is merely a minor one that leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026, 1029 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983) (Uniroyal). Substantial transformation determinations are based on the totality of the evidence. See Headquarters Ruling (HQ) W968434, date January 17, 2007, citing Ferrostaal Metals Corp. v. United States, 11 CIT 470, 478, 664 F. Supp. 535, 541 (1987). In Uniroyal case, the court held that an upper was not substantially transformed when attached to an outsole to form a shoe and that the upper was "the very essence of the completed shoe". Further, 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. In Energizer, the court reviewed the “name, character and use” test in determining whether a substantial transformation had occurred in determining the origin of a flashlight, and reviewed various court decisions involving substantial transformation determinations. The court noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. 220, 226, 542 F. Supp. 1026, 1031, aff’d, 702 F.2d 1022 (Fed. Cir. 1983), 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, “…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. In this case, we note that the majority of components are sourced from Vietnam, the final manufacturing steps are in Vietnam, and the value of the Vietnamese components and labor exceeds the Chinese components.  As a result, it is the opinion of this office that the country of origin of the LCT horizontal shaft engines is Vietnam.  The Chinese components became parts of a new article of commerce, which are the engines, by the processing performed in Vietnam, even though they may have had a predetermined use when they were imported into Vietnam.  The character of the Chinese components was changed when they were used in the production of the engines in Vietnam.  Even though the Chinese parts have a predetermined use when they are imported into Vietnam, they nevertheless lost their identity and became parts of a new product of commerce with a new name, character and use, when they are used in the production of the engines in Vietnam.  Therefore, it is the opinion of this office that the country of origin for the LCT horizontal shaft engines will be Vietnam for marking purposes, and for purposes of applying trade remedies under Section 301 of the Trade Act of 1974, as amended. 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 Customs Service 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.”  This ruling is being issued under the provisions of Part 177 of the Customs and Border Protection Regulations (19 C.F.R. 177). A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, please contact National Import Specialist Liana Alvarez at liana.alvarez@cbp.dhs.gov. Sincerely, Steven A. Mack Director National Commodity Specialist Division