Cars Assembled in Sweden From Chinese Subassemblies Subject to Section 301 Tariffs, CBP Says

Cars assembled by Volvo in Sweden as part of a “knockdown operation” using subassemblies manufactured in China are products of China and are subject to Section 301 tariffs, CBP said in a recent ruling. The “complex assembly process” occurs in China, not Sweden, so that’s where substantial transformation happens for the purposes of determining country of origin, CBP said in HQ H302821, issued July 26 and published by CBP on Oct. 2.

Volvo makes the subassemblies in China using mostly components from other countries, it said. The subassemblies assembled in China include a painted body assembly with parts originating in Italy, the United Kingdom, Slovakia, France and China; an engine module using pars from Sweden, Japan, the U.S. and China; and a rear suspension module with parts from Sweden, Japan and Germany. Various other parts from China, including a hood, bumpers, batteries, fuel and exhaust systems, and seats, are also shipped to Sweden for final assembly.

Volvo ships the components and subassemblies using two methods: all components for a single vehicle shipped together in two containers, and “sufficient components to build the number of vehicles in the production plan as separate shipments,” CBP said. After assembly in Sweden, the cars are imported into the U.S. under subheadings 8703.60.00 and 8703.80.00.

“When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable,” CBP said. “The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character, or use, different from that possessed by the articles prior to processing.” Courts have been reluctant to find substantial transformation when an operation involves only assembly, the agency said.

In one case, the Court of International Trade found Energizer flashlights were not substantially transformed by assembly in the U.S. of components made in China (see 1612120038). CIT held that, when end-use is pre-determined at the time of importation, there has not been a change in use. CIT also found that the components of the flashlights did not lose their individual names as a result of assembly. And it ruled that the assembly process was not complex enough to be substantial transformation, CBP said.

CBP applied that logic here and found the cars are still products of China despite their assembly in Sweden. “With respect to the final assembly, we find the manufacturing processes of the five subassemblies in Sweden do not rise to the level of complex processes necessary for a substantial transformation to occur. Further, the five subassemblies from China have a pre-determined end-use and do not undergo a change in use due to the assembly process in Sweden,” it said.

“Accordingly, we find that based on the information provided, the subassemblies and the foreign parts that are imported to Sweden are not substantially transformed as a result of the assembly operations performed in Sweden,” it said. As the goods are products of China, they are subject to 25 percent Section 301 tariffs under subheading 9903.88.01, CBP said.