2019 Rulings and Revocations Summary Rulings
Part I: CBP Rulings
The following is a selection of articles that appeared in International Trade Today in 2019 covering ruling letters. CBP frequently publishes rulings months after they are issued, so these articles are included based on the dates the articles were published, rather than the date the ruling letter was issued.
CBP Says Beer Kegs Qualify for Duty-Free Treatment as IITs, Trade Remedies Apply If Enter US Commerce
Stainless steel beer kegs used by Anheuser-Busch (AB) to transport beer are eligible for duty-free treatment as Instruments of International Traffic but would be subject to applicable trade remedies if the kegs enter U.S. commerce, CBP said in a June 13 ruling that the agency recently posted. Customs lawyer Michael Roll requested the ruling on behalf of AB as to the treatment of the kegs, which are of Chinese, U.S., Spanish, Mexican and German origin. AB will fill the subject kegs with beer outside the U.S. and will import them mostly through 22 U.S. ports, the company told CBP.
Following imports of the kegs, the company delivers the kegs to customers, who pay a deposit so each keg is returned, CBP said. “The customer or distributor will then deliver each keg to an end user, such as a restaurant or bar,” CBP said. “Once the end user has finished the contents of a keg, the keg will be returned to AB for cleaning and shipment abroad for reuse. This cycle will continue for the useful life of a keg, which can be up to 30 years. On average, you report that each keg will remain in the United States for approximately six months or less. You state that AB will transport millions of kegs per year in this manner.”
The company tracks the kegs while they are in the U.S. using bar codes and time stamps, CBP said. AB records each unique keg ID when loading shipping containers for return abroad and “will file IIT diversion reports as necessary for any keg that is lost, stolen, or otherwise diverted in the” U.S. From the submitted information, “we find that the subject stainless steel beer kegs are used as containers in international traffic, are substantial, suitable for and capable of repeated use, and used in significant numbers in international traffic,” CBP said. As a result, the kegs qualify for entry-free and duty-free treatment as IITs in subheading 9803.00.50 of the Harmonized Tariff Schedule of the U.S.
The agency also provided classification information for the kegs. The applicable subheadings -- 7310.29.0025, 7310.29.0050 or 7310.10.0050 -- are all duty-free. Those subheadings are subject to the Section 301 tariffs on goods from China, which would apply if the kegs were to enter U.S. commerce, CBP said. The same is true of any antidumping or countervailing duties that may apply to stainless steel kegs from Germany, Mexico or China, CBP said.
CBP Finds Transponders From China Not Transformed by Programming in Canada
Modems manufactured in China and sent to Canada for programming and other processing are not transformed in Canada and should be considered a product of China, CBP said in a Nov. 26 ruling. The ruling was in response to a request from Electroline Equipment, which asked CBP about NAFTA treatment and the country of origin of the transponders. The transponders are subject to the Section 301 tariffs on goods from China because China is the country of origin, the agency said.
The modems are made in China but sent to Canada in order to become transponders, which are used by cable and telecommunications companies. “The transponders are based on cable modem hardware technology, but the programming completed in Canada turns the unprogrammed modems into a measuring and controlling device that uses the cable modem communication channels to transmit telemetry data, send alarms, and execute actions sent by the cable operator network management system,” the company said. Even so, Electroline said it uses the name “modem” in some product names because one selling point “is that the product can easily be integrated into a customer’s back office software and system as a modem while their network management group accesses the transponder.”
The company argued that after the operations in Canada “the complete transponders are a different article from the Chinese origin modems.” But, because the transponders can also be integrated as modems, “the programming is adding an additional functionality, rather than completely changing the function,” CBP said. Also, “downloading of the firmware onto the Flash Memory is not a permanent change that cannot be undone. Therefore, we find that the programming and testing in Canada do not substantially transform the transponders, and the country of origin of the transponders is China.” The transponders may be marked as products of Canada but are subject to the Section 301 duties, CBP said.
US Treaty With Yakama Tribe Doesn't Exempt Imports From Customs Duties, CBP Says
Goods imported by members of the Yakama tribe from Canada are not exempt from customs duties despite an 1855 treaty between the U.S. and the Yakama Nation of Native Americans, CBP said in a Nov. 12 ruling. JC Company requested that CBP issue a binding ruling on whether that treaty “exempts the Yakamas from payment of customs duties on merchandise when they import into Washington State by ground from Canada.” As part of the request, the company pointed to a Supreme Court decision this year that affirmed that the “right to travel” provision of the treaty pre-empted a conflicting state law that involved importing fuel from Oregon to Washington state.
Previous court decisions have said that treaties are considered to be "on the same footing" as federal law, CBP said. That means that, unlike that Supreme Court case, the customs ruling involves two federal laws, rather than a federal and state law, CBP said. "Congress has the power to regulate commerce with the Indian tribes," the agency said. "Under the Supremacy Clause of the U.S. Constitution, the Yakama Treaty and customs statutes have the same standing under the law. As an administrative agency, we have no authority to declare an enactment of Congress to be unconstitutional."
The "Federal courts have traced the history of the Yakama Treaty and statutory tariff laws enacted by Congress, and have found that Native Americans are not exempt from customs duties," CBP said. The treaty's "right to travel" provision gives Yakamas the right to use public highways "in common" with U.S. citizens, but the scope of that right has been the litigated over in multiple venues. The lack of "express exemptive language" limits how far the provision applies in terms of Yakama paying taxes and fees, a federal court ruled in 2002, CBP said.
Here,"the Yakamas are subject to customs duties and fees because there is neither a treaty exemption nor a federal statutory exemption currently in place," CBP said in its ruling. The ruling had been uploaded onto CBP's database on Nov. 25, but is now not longer available there.
CBP Finds Auto Parts Importer May Use Reconciliation to Adjust Value Based on Commodity Price Formula
An automotive importer may use reconciliation to adjust the value of its entries for quarterly surcharges that account for commodity prices of the metals used in imported auto parts, CBP said in a ruling issued Oct. 22. The surcharges can be included because they are calculated according to a set, non-discretionary formula, and can be linked to specific entries through the importer’s records, CBP said in ruling HQ H302879.
At issue in the ruling was one specific car part, an electromagnetic coil assembly for an automotive transfer case, made initially of steel and copper but now of steel and aluminum. The importer is related to the manufacturer in Asia, and brings in the parts based on purchase orders from the importer’s final customer in the United States.
As part of its inventory system, the importer tracks parts delivered to the final customer back through the importer’s records of deliveries from the manufacturer, CBP said. “The importer must be able to do this as part of its responsibility as a link in the automotive industry supply chain. If parts are identified as out of specification during final assembly or after sale to consumers, the importer is able to trace back parts to the manufacturing source of components to identify causes of non-conformities and assess potential liability for damages and recalls,” it said.
The price paid by the final customer includes a base amount for the steel, copper or aluminum in the electromagnetic coil assemblies. A quarterly surcharge is then applied using a set, agreed upon formula based on three commodity price indexes, including the Platts, London Metal Exchange (“LME”) Grade A Cash for copper; the Platts, London Metal Exchange (“LME”) NA Cash for aluminum; and the Scrap Price Bulletin Chicago No. 1 Bundle for steel.
The surcharge is calculated every three months at the end of each quarter, after which the importer will receive either a debit or credit from the final customer in the amount of the surcharge. The importer will then issue an invoice to the manufacturer in the same amount to reflect the debit or credit. Because of the importer’s supply chain tracking system, the debits and credits can be linked to specific entries of parts. The importer then uses reconciliation to adjust the transaction value of prior entries by the amount of surcharges calculated quarterly according to the commodity price index formula.
By law, rebates or any other decreases in the price paid or payable made after importation are disregarded in determining transaction value. But CBP has ruled that, if the decrease is calculated according to a formula that was in existence before the date of exportation, the decrease should not be disregarded, the agency said. CBP has also ruled that contractually set formulas for adjusting prices may be acceptable if they are based on a future event over which neither the seller nor buyer has any control. On the other hand, if the parties have any control over the adjusted price, the adjusted price will not be accepted by CBP, it said.
Here, “the formula is based on an objective standard over which neither the importer nor the manufacturer have any control, specifically, the three commodity indexes published by a third party,” CBP said. “In addition, the importer is able to link the specific price adjustment to the relevant entry as a result of its strict recordkeeping procedures in its role as a distributor of car parts,” it said. “Accordingly, we find that the surcharge pricing formula constitutes an acceptable mechanism to determine the price actually paid or payable for the imported merchandise. Further, we find that the ACE Reconciliation Program is a proper method for adjusting the final value of the imported car parts,” CBP said.
CBP Finds Section 301 Tariffs Don't Apply to Mattress Base Assembled in Vietnam
Mattress bases largely sourced from China but assembled in Vietnam undergo a substantial transformation and are not subject to the Section 301 tariffs on goods from China, CBP said in an Oct. 30 ruling. The ruling, NY N306524, came in response to a request from lawyer George Tuttle on behalf of Ergomotion. The company asked CBP to confirm that the mattress bases are “country of origin Vietnam, and not subject to China Section 301 duties," CBP said.
The mattress base "incorporates the characteristics of a bed foundation and sits directly on the ground via legs and is the platform for a mattress which sits atop the foundation." The base uses electricity to move it into multiple positions, the company said. The components come from both China and Vietnam and are assembled in Vietnam. "In Vietnam, nearly 300 individual components and materials are assembled by general assemblers, production engineers, and quality assurance workers to product design specifications," Ergomotion said.
A “'complex or meaningful' assembly operation may result in a substantial transformation while a 'minimal, simple, assembly-type operation' ordinarily will not," CBP said. "The term 'simple assembly' is defined in 19 CFR 102.1(o) as 'the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing.'"
The adjustable mattress base assembly includes "a combination of wood, glue, fabrics, steel weldments, fasteners, electronic motors, and a control system so that the sum of the parts transform into a piece of electro-mechanical motion furniture," CBP said. "The major assemblies and their components are manufactured to an extent that none of the individual components alone can perform the mattress adjustability function."
As a result, "the foreign Chinese components and the domestic Vietnamese material components lose their identity during manufacture in Vietnam and undergo a substantial transformation, thereby, taking on a new name, character, and identity," CBP said. "In view of these facts, the country of origin for the mechanically adjustable bed foundation is conferred in Vietnam," and the Section 301 tariffs don't apply, the agency said.
CBP Says Ice Packs Sold With Textile Covers Are Composite Goods
Ice bags that are sold with textile covers that protect users from ice burns are classifiable based on the textile covers, CBP said in a Sept. 16 ruling. The agency's ruling was in response to a request for reconsideration of a 2017 ruling from Precept Medical Products. Precept, which was represented by Kevin Williams of Clark Hill, said the ice bags should not be classified as composite goods.
The ice bags, which are used at hospitals and elsewhere to treat muscle strains or sprains, are not transformed into another item due to the textile covers and the covers are a “mere improvement," the company said. But the product must be treated as a composite good "because the ice bags and the textile covers are each designed to perform a separate function, and are not described in the same heading," CBP said. CBP disagreed that the covers are only an improvement to the product. Similar to the court decision involving CamlBak backpacks, "the primary function of the ice bag is to treat muscle strains or sprains, while the primary function of the textile cover is to protect the users from ice burns," CBP said.
Even if the bags are found to be considered composite goods, the classification should be based on the bags, Precept said. The company objected to CBP's "conclusion that the plastic bags are impractical and hazardous without the textile bag, which adds a new and co-equal function to the article." CBP affirmed that position. "Upon review of the product at issue, we find that although the ice is directly held by the ice bag -- the ice bag is virtually unusable without the textile outer layers that protect the user from being burned by the ice." Because the cover is needed, "it is therefore the textile bag that renders this item functional and consequently, provides this item with essential character," CBP said.
Here, "the ice bags are imported empty and contain no ingredients vital to their performance," CBP said. As a result, "we find that the essential character of the ice bags under consideration, in their condition as imported, is imparted by the textile component." CBP said the ice bags were properly classified in the previous ruling under subheading 6307.90.98, which provides for “Other made up articles, including dress patterns: Other: Other: Other.”
CBP Affirms Use of 'Substantial Transformation' Standard for Section 301 Goods Subject to NAFTA Rules
CBP affirmed its position on the use of substantial transformation as the standard for determining country of origin for goods subject to Section 301 tariffs and NAFTA rules, it said in ruling HQ H305370. CBP said another recent ruling mistakenly said that computer server cabinets assembled in Mexico were not subject to the Section 301 tariffs when in fact they are.
The Oct. 11 ruling was in response to Sara Arami, a lawyer with Rock Trade Law on behalf of Johnson Electric North America, who questioned CBP ruling HQ H301619 from Nov. 6 about the 301 tariffs and country of origin standards for motors assembled in Mexico from Chinese parts. The Nov. 6 ruling found that the substantial transformation analysis applies under the Section 301 tariffs and the country of origin in China.
The Nov. 6 ruling in question was a modification of a ruling the month before that outlined how the Section 301 tariffs are considered alongside NAFTA rules. Johnson asserted "that CBP should use the NAFTA Rules of Origin to determine the origin of the electric motors at issue." In support of that argument, the company pointed to ruling NY N303338, which found the computer cabinets not to be subject to the 301 tariffs. But that ruling "did not state that the NAFTA Rules of Origin is the correct standard for determining origin under Section 301," CBP said. "Instead, it stated that the cabinet at issue was 'not subject to the Section 301 trade remedies as provided for under 9903.88.03, HTSUS,' although it was."
The mistake was not in Nov. 6 finding "that the correct standard to determine origin for purposes of Section 301, is the substantial transformation test," but was in the New York ruling on the computer cabinets, CBP said. The agency is in the process of modifying NY N303338, it said. "Based on the information provided, the production process performed in Mexico is mere simple assembly and the foreign subassemblies are not substantially transformed," CBP said. "Therefore, we affirm the origin of the electric motors is China, the country of origin of the subassemblies."
CBP Says Origin of Fitbit Trackers Based on Printed Circuit Board Assembly
The country of origin for Fitbit wearable smart devices is based upon where the printed circuit board assemblies are manufactured, CBP said in an Oct. 3 ruling. CBP's decision came in response to a binding ruling request from the company through its lawyer, John Shane of Wiley Rein. CBP discussed multiple sourcing scenarios with Fitbit as part of the ruling request, the agency said. Fitbit recently announced it would shift sourcing outside of China.
Fitbit's ruling request involves two styles of fitness trackers, one which uses a combined Bluetooth transceiver and central processing unit, while other uses a separate transceiver and CPU component, CBP said. Both styles involve parts made in Taiwan, China and the Philippines. A "[s]urface-mount technology ('SMT') is used to load a raw printed circuit board ('PCB') with diodes, transistors, capacitors, resistors, memory chips, and other task-specific integrated circuits," CBP said.
Initially, Fitbit told CBP that both the SMT and final assembly would occur in China, but the company updated the scenario so that "SMT operations for both [printed circuit board assemblies (PCBAs)] would be conducted either in Taiwan or in a third country, such as Malaysia or Indonesia," CBP said. The final assembly would still happen in China.
CBP said that the role of the PCBA in the fitness trackers is similar to that in other previous rulings. "Here, the electronic components from Taiwan and the Philippines are incorporated into the PCBAs by SMT to form the 'brain' of the device that enables the device to operate as intended," the agency said. It is the SMT operations that result "in a new and different product with an overall use and function different than any one function of the individual components." As an example, "Bluetooth transceivers are available to other customers and some are used in devices other than wearable smart devices," CBP said. "Only after they are assembled with other components on the PCBA do the Bluetooth transceivers serve Fitbit’s particular function of exchanging data gathered by the device’s sensors with the user’s paired mobile phone."
Even the final assembly in China "does not render the PCBAs into a product with a new name, character, or use," CBP said. As a result, "we find that the SMT operations constitute a complex assembly process that results in a substantial transformation of the electronic components from Taiwan and the Philippines into a new and different article of commerce with a new name, character, and use distinct from the components," the agency said. "The country of origin for the subject Fitbit devices will be where the PCBAs are manufactured by SMT, whether that be in Taiwan or in another country such as Malaysia or Indonesia."
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. 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.
CBP Finds Solar Cells to be Subject to 201 Tariffs Based on 'Doping' Location
Crystalline silicon photovoltaic cells manufactured in Taiwan and finished in India are considered to be of Taiwan origin and are subject to the Section 201 safeguard measures on solar cells, CBP said in a May 24 ruling. At the time of the ruling (H301813), had the cells been of Indian origin, they would not have been subject to the Section 201 tariffs. As of June 5, though, India is no longer exempt from the safeguards because it was removed from eligibility as a Generalized System of Preferences beneficiary country. The ruling was in response to an internal advice request through the Industrial and Manufacturing Materials Center of Excellence and Expertise.
Merlin Solar Technologies buys the CSPV cells, which are produced by another company in Taiwan, CBP said. The cells "already have a positive-negative, or P/N junction, but lack the metallization and conductor patterns that collect and forward the electricity that is generated by the cell," it said. The cells are then shipped to India, where another company "processes the solar cells by attaching Merlin’s proprietary metalized grid to the front of the solar cell and a copper mesh to the back." Merlin requested whether CBP considers the cells to be a product of India or Taiwan.
CBP said the processing in Taiwan includes a critical feature of a functioning solar cell. There, the "solar cells have already undergone the substantial processing prior to being shipped to India, including the process known as 'doping,' in which phosphorous is diffused into a thin layer of the wafer surface to create a negatively charged phosphosilicate layer terminating in a positive-negative, or P/N junction," the agency said. While the processing in India "allows the solar cell to collect and forward the electricity," that doesn't result in a new article "since the end-use of the solar cells is pre-determined when these cells leave Taiwan," it said. As a result, the cells are a product of Taiwan and not India.
US Is Country of Origin of Software Products Written in US and Canada, CBP Says
The country of origin of software products programmed in the U.S. and Canada is the U.S. for government procurement purposes, CBP said in a final determination. Used for mobile devices and servers, the software’s open source code is written in the U.S. before the source code is further written or modified in Canada and compiled into object code in the U.S., where it is also installed onto U.S.-origin discs. “CBP has consistently held that conducting a software build -- compiling source code into object code -- results in substantial transformation,” CBP said. As the source code was compiled into object code in the U.S., the U.S. is the country of origin for U.S. procurement, CBP said.
CBP Finds Labeling Doesn't Change Condition of Promotional Items Under NAFTA Drawback Rules
Various promotional items imported by Bic Graphic that are labeled in the U.S. before export to NAFTA countries are considered as in the "same condition” for purposes of the NAFTA limitation on drawback, CBP said in an Aug. 12 ruling. CBP said in HQ H292472 the multiple labeling methods involved don't result in a change in condition and also may still be considered "unused." Mallory Alexander International Logistics requested the ruling on behalf of Bic Graphic.
The promotional items include pens, key chains, mugs, pocket lighters, hats and bags, among other things. The company uses screen printing, laser engraving, inkjet printing, pad printing and other methods to label the items before export. When those methods are used "to add decoration, names, trademarks, and company logos onto the promotional items for their customers -- we determine that such operations" don't mean the goods are considered "used" afterwards, it said.
Bic Graphic also "asserts that the goods are in the same condition for purposes of NAFTA drawback and that they are not subject to the limitations of the NAFTA 'lesser of' drawback rule," the agency said. "Goods imported into the U.S. and subsequently exported to Canada or Mexico are subject to special rules under NAFTA," but Bic Graphic argued that the goods can be considered "in the same condition when exported" and can therefore avoid the NAFTA requirements.
The promotional items remain "unchanged by the process of putting the names or logos on them and, the use of the items remains unchanged," CBP said. "That is, a pen imprinted with a logo still fulfills the function of a pen, it applies ink to paper; a key chain or a cap fulfills its original purpose after being labeled with a trademark or a name, that of holding keys or fitting on the head, respectively." Because the character of the promotional products remains after processing, "the goods described, when exported to Canada or Mexico, are in the same condition and thus, not subject to the NAFTA limitation on drawback," CBP said.
CBP Allows Importer to Use Modified Deductive Value for Tools Sold More Than 90 Days After Importation
An importer of woodworking and garden tools that stores the tools with a related U.S. company before they are sold to the consumer may use a modified form of deductive value that relies on the price of sales more than 90 days after importation to appraise the merchandise, CBP said in ruling HQ H304125, issued Aug. 2.
Lee Valley Tools mostly sells directly to U.S. consumers, but in seven states it sells through its U.S. affiliate, Lee Valley Tools USA, which acts as a warehousing facility for Lee Valley Canada. When a U.S. customer located in one of those seven states places an order, Lee Valley USA picks and packs the tools, which are already in the U.S. affiliate’s warehouse, and ships them to the consumer. Lee Valley Canada then pays Lee Valley USA a per transaction “pick/pack fee,” CBP said.
Lee Valley Canada retains full ownership of the product throughout this process, CBP said. “The average turn rate for product warehoused with LV USA is two times per year,” the agency said. But the value of the tool when warehoused is usually the same as the value when first imported, because Lee Valley Canada only changes its prices about once per year.
As no sale for exportation takes place between Lee Valley Canada and Lee Valley USA, transaction value can’t be used as a method of appraisement. Nor is the transaction value of identical or similar merchandise, because the commercial level and quantity of transactions through Lee Valley USA is different than that of direct sales, and Lee Valley Canada doesn’t have “sufficient information” to adjust the price.
Deductive value is only available if the product is sold within 90 days of its date of importation, and here the average turn rate for the tools imported into the U.S. is twice per year. Computed value is also out because Lee Valley Canada doesn’t have the required cost information from its unrelated suppliers.
That leaves the fallback method, CBP said. Under 19 USC 1401a(f), imported merchandise may be appraised “on the basis of a value derived from the normal methods of valuation, reasonably adjusted to the extent necessary to arrive at a value.” CBP’s regulations on the fallback method at 19 CFR 152.107(c) specifically say that “the '90 days’ requirement for the sale of merchandise” under deductive value “may be administered flexibly.”
According to Lee Valley, “because the retail price of the goods changes only once a year, the 90 day requirement should be eased to arrive at a deductive value reasonably adjusted,” CBP said. The agency agreed. “Because the sales of the merchandise in the United States generally occur over 90 days after importation, the most appropriate way to appraise the imported tools would be to use a modified deductive value … where the time restrictions … are relaxed. The value should be based on the price the goods will be sold for, the retail price, minus the allowable deductions,” CBP said.
CBP noted that it has accepted a similar method of valuation in the past. In HQ 546312, issued in 1997, CBP relaxed the 90 day rule for deductive value for “merchandise [that] was consigned to the importer from its related party supplier and was often sold in the United States 6 to 9 months after the goods were imported,” it said.
CBP Says Roomba Assembly in Malaysia Means the Retail Set Not Subject to Section 301 Tariffs
The manufacturing of major Roomba robotic vacuum subassemblies that occurs in Malaysia is enough for the vacuum to be considered of Malaysian origin, CBP said in a July 31 ruling. Sandler Travis lawyer Paula Connelly, representing iRobot, sought CBP's input on the country of origin. The agency also said the retail set that includes the vacuum is of Malaysia. The vacuum is classified in subheading 8508.11.0000, which was included in the third tranche of Section 301 tariffs on goods from China.
The company said that "the country of origin of the Roomba’s four key modules and the unit’s final assembly is Malaysia." CBP said it agreed with iRobot and that "based on the information submitted, the materials/components and subassemblies [are] imported into Malaysia from China where they are manufactured into different subassemblies, which are ultimately assembled." Specifically, the key Malaysian "modules" are the "Main Printed Circuit Board, Wheel Modules, Cliff Harness Module and Bin Module," CBP said. Chinese-origin components include the cleaning head assembly, the light touch sensor assembly and the side brush assembly, the agency said.
The processing in Malaysia "constitutes a substantial transformation of the imported materials/components into 'products of' Malaysia," CBP said. "The manufacturing process in Malaysia transforms the Chinese originating components/materials to produce the finished product. It creates a new and different article of commerce with a distinct character and use that is not inherent in the components imported into Malaysia. Therefore, the 'product of' requirement has been satisfied."
The Roomba "packaged with the Chinese origin accessories of the rechargeable battery, dock station, power card and option virtual wall is a set put up for retail sale," CBP said, agreeing with iRobot's description of the product. Because the vacuum provides the essential character of the kit, the retail set is also considered a product of Malaysia, the agency said. As a result, the set is not subject to the Section 301 tariffs on goods from China.
CBP Rules That China Is Country of Origin for Incomplete Postage Meter
China is the country of origin for a postage meter assembled in that country because a substantial transformation occurs when the components are assembled, CBP said in a June 6 ruling. Barnes Richardson lawyer Sandra Friedman, representing Brother Industries, requested the ruling and said the meter's origin should be based on the “print axis,” the most expensive piece and a product of Malaysia. CBP disagreed and said the “question of the complexity of the assembly process which occurs in China is not limited to an examination of the assembly of the various subassemblies to one another, as initially presented in your submission, but includes an examination of all of the assembly processes involved in China in the production of the incomplete postage meter.”
The specialized printers at issue “carry out the printing function in the mail handling system,” CBP said. Brother said the print axis “imparts the essential character to the imported incomplete postage meter” and should be the determining factor in the country of origin. The company also said the assembly process is not complex and “does not result in a substantial transformation of the assembled components.”
But, “the true question here is whether the print axis is substantially transformed when it is assembled with the other components of the incomplete postage meter, i.e., whether it undergoes a change in name, character, and use,” CBP said. “You focus on the function and value of the print axis, however, the print axis is subsumed into and becomes part of the incomplete postage meter when it is joined with the other components in China.” As a result, the meters are a product of China, CBP said.
CBP Allows Use of Modified Computed Value With Importer's Profit in Appraising Related Maquiladora Shipments
Industrial components imported from a subsidiary manufacturing operation in Mexico may be appraised using a modified version of computed value that accounts for the parent company importer’s -- rather than the Mexican exporter’s -- profit margin, CBP said in a recent ruling. As the maquiladora that makes the parts in Mexico often doesn’t make a profit, the importer’s profit margin is “the best evidence available as it is consistent with how CBP assesses related party pricing,” CBP said.
The anonymous importer that requested the ruling manufactures, custom engineers, installs and services front-end combustion components -- including igniters, flame detectors, burner management systems, dampers, burners and the like -- for the electric utilities, chemical processing, pulp and paper, and cement industries. It outsources the manufacturing of these products exclusively to its subsidiary, a maquiladora in Mexico. The importer acts as importer of record for all shipments to the U.S., even when destined for a U.S.-based customer.
Orders are typically unique to the end customer, so the goods produced by the maquiladora don’t have standard list prices. But the importer and its subsidiary maquiladora share an accounting system that allows for the input of detailed cost data, including the elements used to calculate computed value, such as any assists provided by the importer. The importer claims that “the cost data is specific, auditable, and traceable within the accounting system.”
Rather than pay per order, the importer pays the maquiladora a monthly fee based on its costs and expenses, as well as a manufacturing fee determined by a transfer pricing agreement. That transfer pricing agreement permits transactions that are not at arm’s length and do not earn a profit for the maquiladora.
With no U.S. price available for the related party transactions, and the items imported usually custom-made, CBP said it cannot use transaction value, the value of identical or similar merchandise, or deductive value to appraise the industrial components.
On the other hand, the cost or value of materials and manufacturing operations is available to calculate computed value. But part of that calculation also includes “an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States.” With no profit often made by the subsidiary, and information on profits of similar producers in Mexico unavailable, computed value is inapplicable as well, CBP said.
Rather the importer proposed to calculate “a value using actual costs plus an amount equal to Importer’s average profit margin relative to its end-customers based on sales from the previous year.” Because only the fallback method of valuation is available, CBP found that computed value can in this case “be administered flexibly” and “the formal requirements of computed value do not have to be strictly followed.”
As the importer is the parent company of the exporter, “there is support” for using the importer’s profit margin instead of the exporter’s, CBP said. For example, CBP has looked to the profit of the parent company when considering whether transaction value is appropriate when appraising related party transactions. CBP found the importer’s proposal to be the best available method. “It is acceptable to use the profits of Importer, as the parent company, in calculating profits for a modified computed value,” CBP said.
CBP Says US Is Country of Origin for Government Procurement of EEG Electrodes
Electroencephalogram (EEG) cutaneous electrodes partly assembled in China are of U.S. origin for government procurement purposes, CBP said in a final determination notice. The ruling was in response to a request from Rhythmlink International. The agency found that "the assembly and attachment of a lead wire to the U.S. origin Electroencephalogram (EEG) Cutaneous Electrodes by crimping or gluing in China is not a substantial transformation," it said. "Therefore, the last substantial transformation of the Rhythmlink Electroencephalogram (EEG) Cutaneous Electrode product occurs in the United States."
CBP Affirms Policy for Multiple Section 301 Tariffs on Sets
CBP correctly applied two Section 301 tariff rates to imported toolsets from China, CBP said in a July 30 ruling. Stanley Black & Decker, through its lawyer at Follick & Bessich, requested reconsideration of an April ruling that found that a tool set imported by the Apex Tool Group could be subject to multiple tariffs. The same issue seems to be under review at the Office of the U.S. Trade Representative after a lawmaker mentioned potential broader impact if the fourth tranche of tariffs takes effect and asked whether the USTR considered CBP's interpretation to be correct.
The ruling in question found that the tool sets are classified in subheading 8206.00.00. That tool set subheading duty rate is based upon whichever component has the highest rate of duty, and because one of the components was subject to the Section 301 tariffs, the entire set received the same rate. Because the subheading for tool sets was subsequently also included in another list of Section 301 tariffs, the tariff rate increased even further. The addition of the first and third tranche tariffs, both now 25 percent, brings the duty rate to about 50 percent.
Black & Decker argued that "USTR did not intend to assess both additional rates of duty on items classified in subheading 8206.00.00, [Harmonized Tariff Schedule of the United States (HTSUS)] under Section 301." The company based "this argument on the fact that prior to the assessment of the 10% additional duty (now 25%) under List 3, there was neither a separate general (or Column 1) duty rate, nor a separate additional Section 301 duty rate assessed on tool sets classified in subheading 8206.00.00, HTSUS," CBP said. "However we find this argument unpersuasive."
While the Column 1 duty rate "may vary based on the items included in the tool set [that] does not mean that the Column 1 duty rate does not exist," the agency said. "Further, the fact that there was no separate additional Section 301 duty rate assessed on tool sets classified in subheading 8206.00.00, HTSUS prior to its inclusion in Section 301 List 3, also does not suggest that USTR did not intend for the Section 301 measures to apply twice. USTR’s silence on this issue could be interpreted either way. It could easily be argued that USTR knowingly included tool sets in List 3 and did not specify that these would be in lieu of the Column 1 duty rate."
CBP said there is "no need to attempt to deduce USTR’s intention with a plain reading of the HTSUS" because "nothing in the language of the Column 1 rate for 8206.00.00, HTSUS limits the duty rate to the article subject to the highest general duty rate." The rate for the tool sets "is the same as the article subject to the highest rate of duty without regard to whether that rate is derived from trade remedies."
CBP Lays Out Section 301 Applicability for Multiple Watch Assembly Scenarios
The country of origin for watches is largely based upon where the watch "movement" is produced, but the origin of watch bands and cases is determined by whether the assembly is completed in the same country where the movement was made, CBP said in a June 25 ruling. Seiko Watch of America, through Ernst & Young, asked CBP to rule on how the company should declare country of origin in four scenarios and whether Section 301 duties might apply. CBP found that only in one of the scenarios would the proposed fourth list of Section 301 tariffs not apply.
The first scenario involves a movement and battery made in Japan, a case and band made in China and the full assembly in Japan. Past CBP rulings have found that simply assembling the watch band and case with the movement don't automatically result in a substantial transformation of the watch band. But CBP has also ruled that "watch straps and bands assembled to a watch in the same country where the movement was assembled were substantially transformed and became a product where the watch movement was made." A watch movement is defined as the system used for determining intervals of time.
That first scenario would result in a watch that has the country of origin for all components as Japan. "The movement and the battery of the watch are produced in Japan, while the case and the band are produced in China," the agency said. "The assembly of the components of the watch also occurs in Japan. In accordance with CBP’s long standing position, the country of origin of the watch would be Japan, the country where the movement was produced." As a result, the Section 301 tariffs would not apply, CBP said.
The next scenario involved a movement and battery made in Japan, a case and band made in China and the full assembly in China. Although the country of origin will still be Japan, based on the movement, the band and case would remain of Chinese origin. That's because the assembly occurred outside of the country where the movement was made, CBP said. "[B]ecause the Chinese origin cases and bands are not substantially transformed, the proposed 301 duties would apply to the Chinese origin case and band," it said.
In the third scenario, the Japanese movement and Chinese case and band would be assembled in Thailand. Here, again, the country of origin for the watch would be Japan, but the bands and cases would be of Chinese origin because the assembly occurred in a different country from where the movement was produced, CBP said. In the last scenario, a movement from Malaysia would be assembled with Chinese cases and bands in China. The watch would be of Malaysian origin, while the band case would be of Chinese origin, CBP said. "[S]ince the Chinese origin watch bands and watch cases are not substantially transformed in the countries where these components are assembled with the watch movements, they will remain of Chinese origin, and the proposed Section 301 duties would apply to the watch bands and watch cases in these two scenarios," CBP said.
CBP Finds Vehicle Importer/Exporter Unable to Prove TIB Extension Request Prior to Expiration
CBP denied a request from MDT Armor Corp. that the company's temporary importation bond (TIB) be extended after it exported a vehicle beyond the TIB expiration date. CBP said in the April 9 ruling that it found MDT's explanations to be lacking. Panmet Group, an agent working on behalf of MDT, told CBP that it did submit a timely TIB extension request and "was under the impression that the request had been processed." CBP's ruling only applies to the TIB extension request and not liquidated damages, the agency said.
MDT imported 10 Land Rovers under a 2014 TIB that expired Oct. 7, 2015, and "MDT failed to export or destroy one of the vehicles prior" to that date, CBP said. The company reported to CBP in 2016 that all 10 vehicles had been exported, and one was "exported on November 14, 2015." After MDT received a Notice of Penalty or Liquidated Damages Incurred and Demand for Payment from the Port of Atlanta, Panmet submitted a request for extension to the Atlanta Fines, Penalties & Forfeitures Officer and said MDT believed the extension had already been processed.
Panmet told CBP it previously filed a TIB extension request. "However, when the Port requested a copy of this request, Panmet explained that a copy was not made of the original submission," the agency said. "Instead, Panmet submitted email correspondences between MDT and Panmet, dated October 5, 2015, and Panmet and its broker, Atlanta’s Customs Broker, dated October 9, 2015, requesting the status of the new close date after its extension." The company also provided a November 2015 email to CBP "requesting an update on the new close date after the extension" of the TIB.
The TIB regulations allow for CBP Headquarters to consider untimely requests for TIB extensions. "Generally, extensions based upon untimely requests are granted only sparingly for extraordinary reasons, such as the death or serious illness of the employee responsible for making the request for extension," the agency said. Despite Panmet's assertions, "there is no record of an Application for Extension of Bond for Temporary Importation, CBP Form 3173, having been received by the Port," CBP said.
There's not enough evidence to support the extension, CBP said. While there's no evidence of other violations of the bond and MDT doesn't have a history of issues, "the vehicle covered by the entry did remain in the country and there is evidence of a lack of due diligence exercised by MDT, without a reasonable explanation of why the application was not timely filed," CBP ruled. MDT's "reliance on a different entity to ensure compliance demonstrates a lack of due diligence."
The email submissions reflect that insufficient due diligence. "Approximately a month after the TIB’s expiration, on November 2, 2015, Panmet e-mailed CBP to determine the status of the TIB close date," CBP said. "However, no other correspondences or documentation were provided. The responses to these e-mails were not provided, and it does not appear that MDT inquired further to confirm that the purported request was actually filed and received. Rather, it was not until MDT received the Notice of Penalty or Liquidated Damages Incurred & Demand for Payment that it provided a letter request for an extension."
CBP Rules That Tool Set Is Subject to Multiple Section 301 Tariffs
Tool sets imported from China by the Apex Tool Group can be hit with multiple Section 301 tariffs, CBP said in an April 10 ruling. As was the case in a September 2018 ruling involving Apex, the tool set is classified based on the article subject to the highest rate of duty under General Rule of Interpretation 1. CBP ruled that the tool sets are dutiable at a 38.9% rate.
CBP's previous ruling on Apex, which is represented by Marilyn-Joy Cerny at Sandler Travis, said that a similar tool set's classification can consider the Section 301 tariffs in determining the article subject to the highest duty rate. The same is true of this tool set, using the applicable duty rate for 8466.10.0175 of 28.9%, based on the regular 3.9% rate plus the Section 301 25 percent tariff. This set is classifiable as 8206.00.00 as "Tools of two or more headings of 8202-8205, put up in sets for retail sale."
Since the Apex ruling last year, though, the Office of the U.S. Trade Representative instituted the third tranche of Section 301 tariffs. Those 10 percent tariffs include subheading 8206.00.00 and, as a result, increase the duty rate on the tool set up to 38.9%. Apex argued that the 28.9% rate should apply and the application of the 10 percent tariff "would result in an 'anomalous result' of a 38.9% duty rate for the merchandise that USTR did not intend."
CBP disagreed. "Our analysis here focuses on the language of the provision," the agency said. "The Section 301 measures applicable to the set itself, however, state that '[a]ll products of China that are classified in the subheadings enumerated in U.S. note 20(f) to subchapter III are subject to the additional 10 percent ad valorem rate of duty imposed by heading 9903.88.03.' The inclusion of 'additional' in the text of this provision indicates that the 10% Section 301 measures are added to any other duties owed on the merchandise. Because the language of these provisions is clear, we find Apex’s argument that USTR did not intend for such a high rate of duty to apply to the product unpersuasive."
CBP Says 'U.A.E.' Remains Unacceptable for Marking Purposes
United Arab Emirates cannot be shortened to U.A.E. or Emirates for country of origin marking purposes, CBP said in a Feb. 28 ruling. CBP's ruling came in response to a request from Arnold & Porter lawyer Michael Shor who inquired about the marking requirements on behalf of Central National Gottesman. CBP denied the requested use of the abbreviated versions because the country is not sufficiently known under those names, the agency said.
Gottesman specifically asked CBP about the marking for copy paper from the UAE. The company asserted that "U.S. consumer awareness of the United Arab Emirates has changed in the 14 years since CBP’s last ruling with respect to this issue" and that the abbreviations are now more well known. "CBP has consistently denied a number of requests for abbreviations where it determined that the abbreviation was not sufficiently known in the United States for consumers to recognize the country of origin," the agency said.
Gottesman pointed to interchangeable usage of the shortened versions by news articles, the State Department, the CIA and CBP's own previous rulings. "We find that the interchangeable use of the 'U.A.E.' abbreviation and 'United Arab Emirates' on websites or in newspaper articles, or the occasional sole reference to 'U.A.E' or 'UAE' in such sources is not sufficient to unmistakably identify the name of the country of origin for marking purposes to the ultimate purchaser," the agency said. "Similarly, your reliance on the CIA Factbook or the U.S. Embassy websites is misplaced as we do not rely on such sources to make our determination as to recognizability of an abbreviation for country of origin marking purposes. Although the CBP rulings cited in your submission referenced 'U.A.E.,' they did not indicate that 'UAE' or 'U.A.E.' were acceptable country of origin abbreviations."
CBP Rules That Steel Posts From US Wrongly Considered of Mexican Origin, Section 232 Tariffs Don't Apply
Steel fence posts assembled in Mexico are actually products of the U.S. and are not subject to the Section 232 tariffs, CBP said in a Feb. 27 ruling. The ruling was in response to a request from Alex Romero of A.F. Romero & Co. Customs Brokers on behalf of Merchant Metals that asked CBP to weigh in on whether steel fence posts sent to Mexico for assembly operations could be returned under heading 9802 and whether the return entry triggers Section 232 liability. CBP said the Mexican processing doesn't create a substantial transformation of the posts.
Merchant Metals produces the fence post assemblies with U.S.-origin square steel tubing, which is then sent to Mexico to assemble the final product. "The Mexican operations involve welding a flange to the bottom of the tube, powder coating the tube and flange, and soldering a steel cap on the end of the tube." Romero said "that the final product is a product of Mexico and is classified in subheading 7306.61.50" and asked about "the applicability of subheading 9802.00.80" on such goods from Mexico.
Subheading 9802.00.80 provides a duty allowance for goods "assembled abroad in whole or in part of fabricated components" that meet the necessary requirements. Here, CBP found that the steel pipe will keep its form and ship and won't lose its physical identity due to the processing in Mexico. "Based on these facts, and assuming that all documentary requirements are met, the fence posts will be eligible for a duty allowance under subheading 9802.00.80," CBP said.
As for Section 232 tariffs' applicability, CBP ruled that the goods were in fact of U.S. origin and therefore not subject to the tariffs. "Here, you state that the steel fence posts will be of Mexican origin," but CBP disagreed with that assertion. "With the exception of the flange and cap, the finished fence post has the same shape as the U.S.-origin steel tubing from which it is made," the agency said. "Furthermore, as the steel tubes are sent to Mexico as pre-cut components, the U.S. origin tubes will have a predetermined use at the time of importation, which is an important factor in determining whether a substantial transformation has occurred."
Instead, the steel tubes retain the "very essence" of the steel fence posts, CBP said. "Based on the information provided, the finished fence post is simply the U.S.-origin steel tube with a cap on the top and a flange on the bottom," the agency said. "Under these circumstances, no change in character will occur when the U.S.-origin steel tubing is processed into finished fence posts in Mexico. Accordingly, the merchandise will be a product of the United States, and the Section 232 measures will not apply."
Returned Goods Provisions Allowed for Avoiding Possible Increase to Section 301 Tariffs, CBP Says
Importers can use the temporary import provisions with goods subject to Section 301 tariffs in order to pay the tariffs at current levels and avoid potential increases, CBP said in a Feb. 21 ruling, HQ H302203. Alex Romero of A.F. Romero & Co. Customs Brokers requested CBP's ruling on behalf Panacea Products Corp. Several of Panacea's products are subject to the third list of Section 301 tariffs, which were originally slated to increase from 10 percent to 25 percent on Jan. 1. That increase has since been delayed "until further notice" while the U.S. and China negotiate (see 1903010036).
Goods are eligible for duty-free treatment under Harmonized Tariff Schedule of the U.S. subheading 9801.00.10 if they are U.S. merchandise "returned after having been exported, or any other products when returned within 3 years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad," CBP said. Panacea usually imports its goods from China, sends them in-bond to the company's packaging operations in Mexico under the maquiladora program, and then enters the packaged goods for consumption in the U.S.
In preparation for possible tariff increases, the company instead "plans to ship the goods back to the United States and enter them for consumption" before the packaging step, "thus triggering liability for U.S. duties and any applicable Section 301 measures." It would then send the goods to Mexico for packaging, with liability for Section 301 tariffs already established at 10 percent.
Panacea's plans appear to meet the requirements for the subheading, CBP said. "Because Panacea proposes to enter the goods for consumption in the United States before sending them to Mexico for packaging and bringing them back to the United States for resale, the goods will qualify as 'returned' for the purposes of subheading 9801.00.10, HTSUS," it said. "Furthermore, Panacea states that the goods will remain in Mexico for a period of a few months to a year (i.e., less than the three-year limit established in subheading 9801.00.10, HTSUS) before being returned to the United States." The packaging operations also don't advance the value or improve the condition of the goods, the agency said.
As to whether the Section 301 tariffs would apply again when the merchandise is returned from Mexico, CBP said that answer is no. "Section 301 measures do not apply to goods for which entry is properly claimed under subheading 9801.00.10, HTSUS," it said. "Therefore, provided that the merchandise in this case is reimported with a proper claim under subheading 9801.00.10, HTSUS, the Section 301 measures will not apply upon reimportation." CBP notes that the agency has not yet updated its regulations to reflect the changes to subheading 9801.00.10 from the Trade Facilitation and Trade and Enforcement Act. "While portions of the regulations are no longer pertinent," some of the reporting requirements remain in place, the agency said.
More information is necessary for CBP to determine if Panacea can make use of subheading 9801.00.20 and whether the goods will be returned “after having been exported under lease or similar use agreements,” CBP said. Whether the agreement with Panacea Mexico "qualifies as a 'similar use agreement' for purposes of subheading 9801.00.20, HTSUS, requires a detailed analysis of the specific agreement at issue and a clear understanding of the rights and obligations of each of the parties," it said. "In this case, however, Panacea has only stated that the merchandise will be exported to Mexico under the Mexican maquiladora program. Without more information on this program and how it applies to the transaction under consideration, we cannot determine whether it qualifies "
CBP Says Tool Sets Avoid Section 301 Tariff Due to Origin of Ratchets
Two hand tool sets that undergo some work in China are not subject to the Section 301 tariffs because the sets are classifiable based on the ratchets, which are of Taiwan origin, CBP said in a Feb. 14 ruling N301954. Apex Tool, through Sandler Travis lawyer Marilyn-Joy Cerny, sought CBP's advice on classification, marking and the country of origin. Unlike another recent ruling involving Cerny and Apex Tool that found the Section 301 tariffs do apply, CBP said the set can be classified through General Rule of Interpretation (GRI) 3.
Using GRI 3, the tool sets can be classified as the component that gives the essential character, CBP said. Both sets are therefore classifiable in Harmonized Tariff Schedule of the United States subheading 8466.10.0175, which provides for “Parts and accessories suitable for use solely or principally with the machines of headings 8456 to 8465, including work or tool holders, self-opening dieheads, dividing heads and other special attachments for the machines; tool holders for any type of tool for working in the hand: Tool holders and self-opening dieheads: Other”. The duty rate is 3.9 percent. Subheading 8466.10.01 was included on the first list of Section 301 tariffs on goods from China.
While the components undergo some work in China, it isn't enough to change the essential character, CBP ruled. "In this case, the ratchets, extensions and bit drivers are all forged to visible identifiable shapes in Taiwan prior to exportation to China," it said. "The articles already have their final shape and their use as ratchets, extensions and bit drivers is predetermined prior to processing in China. The articles have the same name both before and after processing in China. In addition, with regard to the press fit assembly operation, the mating of the Taiwanese driver to the Chinese handle does not result in a substantial transformation. Thus, the country of origin for the ratchets, extensions and bit drivers is Taiwan."
CBP has provided guidance as to Section 301 tariffs on sets classified using GRI 3 in a list of frequently asked questions. "If the HTSUS provision under which the entire set is classified is not covered by the Section 301 remedies, but the set contains components that are classified in a subheading covered by the 301 list, the 301 duties will not be assessed on the individual components," CBP said. "Following this guidance, the product, i.e., the ratchet, that (1) imparts the essential character to the tool sets, and (2) by which the HTSUS provision under which the complete sets are to be classified is a product of Taiwan. Thus, the instant tool sets will not be subject to the Section 301 remedy."
CBP Says US Is Country of Origin for Government Procurement of Stimulating Probes
Stimulating probes assembled in China are of U.S. origin for government procurement purposes, CBP said in a final determination notice. The ruling was in response to a request from the importer, Rhythmlink, for a final determination on the probes. The probes are produced in the U.S. from U.S. origin steel and assembled in China, CBP said. "We find the processing of the probes that occurs in China does not change the name, character or use of the probes," the agency said. As a result, CBP said the probes are of U.S. origin.
CBP Says US Is Country of Origin for Government Procurement of Ethernet Switches, Routers
Ethernet switches, routers and network cards made in China but programmed in the U.S. are of U.S. origin for government procurement purposes, CBP said in a final determination notice. "We find that the country of origin of the final product is the United States, where the non-functional devices are substantially transformed as a result of downloading performed in the United States, with software developed in the United States," CBP said.
Civil Aircraft Parts Need Not Be Airworthy at Time of Entry for Duty-Free Treatment, CBP Says
Aircraft parts imported for repair do not have to actually be “airworthy” at the time of entry to qualify for duty-free treatment under the Civil Aircraft Agreement, CBP said in a recent ruling. The parts need only be used as original or replacement parts for civil aircraft, and meet documentation requirements including an airworthiness certificate issued by the Federal Aviation Administration or a foreign authority, to enter duty free under the CAA, the agency said in HQ H302111.
Barfield Precision Electronics, an FAA repair station in Atlanta, had requested the ruling for civil aircraft parts it imports for repair in the United States. The parts are returned to the shipper after they are made airworthy, but are not imported in airworthy condition.
Requirements for claiming CAA treatment are outlined in General Note 6 to the tariff schedule, which says importers have to maintain supporting documentation required by CBP, and certify that the imported article is a civil aircraft or is for use in civil aircraft, to qualify. That note goes on to define “civil aircraft” as including parts, components and subassemblies for repair, and says civil aircraft are operated under a certificate issued by the FAA or a foreign country’s “airworthiness” authority.
CBP’s regulations at 19 CFR 10.183 further outline documentation requirements, requiring that each entry claiming duty-free treatment must be supported by documentation verifying the claim, including a written order and “other evidence.” That other evidence may include an FAA certification or approval of airworthiness by the airworthiness authority in the country of export “and evidence that the FAA recognizes that approval as an acceptable substitute for an FAA certification.”
“In the instant case, if the aircraft parts imported for repair meet the requirements under GN 6, HTSUS, and the documentary requirements under 19 C.F.R. § 10.183, they will be eligible for duty-free treatment [under] the CAA. There is no requirement that the imported civil aircraft parts must be airworthy at the time of entry to be eligible for duty-free treatment under the CAA,” CBP said. “Civil aircraft parts imported for repair, which are not airworthy at the time of entry, may be eligible for duty-free treatment under the CAA” if they meet the requirements under GN 6 and documentation requirements.
CBP Says US Is Country of Origin for Government Procurement of Electrodes
Self-adhesive cutaneous electrodes assembled in China are of U.S. origin for government procurement purposes, CBP said in a final determination notice. The ruling was in response to a request from the importer, Rhythmlink, for a final determination of the electrodes. The electrodes consist of a “sticky pad,” made of electrically conductive U.S.-origin hydrogel "laminated onto conductive plastic and fabric backing, which is attached" to a lead wire with a minuscule amount of glue, CBP said. While there is some "low-skill" assembly of the products in China, that processing is not substantially transformative, the agency said. "We find that the U.S.-origin hydrogel imparts the essential character of the self-adhesive cutaneous electrode," CBP said.
CBP Rules Section 301 Tariffs Apply Despite MTB Inclusion
The Section 301 tariffs still apply to textile backpacks used to hold dolls even though that product was included in the Miscellaneous Tariff Bill that became law, CBP said in a Dec. 10 ruling. That ruling, NY N301879, follows CBP's previously announced position that the Section 301 tariffs would still be imposed on MTB goods from China. While the MTB allows for duty-free treatment of the backpacks, the 10 percent tariffs apply on those goods from China, CBP said.
S.J. Stile Associates asked on behalf of Fast Forward LLC for CBP to weigh in on the classification of the backpacks. The backpacks are for storage during travel and include "six straps on the back wall to hold dolls in place." The backpacks lack "an exterior window," so would be classifiable in subheading 4202.92.3120, which includes a 17.6 percent duty rate, CBP said. The backpack is also provided for in HTS subheading 9902.12.40, which, "by virtue of legislative action, provides for a temporary reduction in the rate of duty."
Although the backpacks are eligible for the duty-free treatment under the MTB, "when that merchandise is produced in China it will be subject to additional duties imposed by Section 301," CBP said. Goods classified in subheading 4202.92.31 were included in the third tranche of Section 301 tariffs, which imposed an additional 10 percent duty rate. As a result, the backpacks from China would be tariffed at 10 percent. "At the time of importation, you must report subheadings 9903.88.03, 9902.12.40 and 4202.92.3120," CBP said.
CBP Reverses Ineligibility Finding for Steam Turbine Assemblies Under US-Israel FTA
Steam turbine shaft assemblies and nozzle rings were properly claimed as eligible for duty-free treatment under the U.S.-Israel FTA, CBP said in a Nov. 30 ruling. The ruling, HQ H291700, was in response to an application for further review of protest submitted by Tuttle Law Offices for the importer, Ormat Nevada. The agency said the imported good satisfied the requirements of the FTA and that the protest should be granted.
Ormat Nevada operates geothermal energy power plants in the U.S. and Ormat Israel produces steam turbine shaft assemblies and nozzle rings in Israel. Ormat goods made entry at Honolulu, Hawaii, after arriving on an Air Canada flight from Vancouver, though the importer said that the goods didn't enter Canadian customs territory. After the Automotive and Aerospace Center of Excellence and Expertise began a verification of the FTA claim, an import specialist concluded no substantial transformation occurred in Israel.
Ormat Nevada protested following liquidation in 2017 and said CBP incorrectly applied a transaction valuation method. Transaction value is wrong in this case because the seller, Ormat Israel, and the buyer, Ormat Nevada, are related. Neither the "circumstances of the sale nor the test values methods can be satisfied" for transaction value based on the contract between the two companies, it said. CBP agreed with that argument and said the goods should instead be appraised under computed value.
The company also argued that substantial transformation did occur Israel. While CBP has ruled that "simple machining of imported castings combined with a simple assembly does not result in a substantial transformation," that doesn't appear to be the case in this instance. After the assemblies are milled from circular metal forgings "additional complex assembly and processing occurs in Israel," the agency said. "Based on these facts, we find that a new and different article of commerce with a new name, character, and use was created when the raw metal forgings are processed into steam turbine shaft assemblies and nozzle rings in Israel. Therefore, a substantial transformation has occurred, and the U.S.-Israel FTA 'product of' requirement is satisfied."
Although the merchandise passed through Canada on the way to the U.S., CBP also found that the "imported directly" requirement was met. "The invoice and shipping documentation provided indicates that the final destination of the merchandise was the United States, and [Ormat Nevada] states that the merchandise did not enter the customs territory of Canada during this time or leave the control of the carrier, Air Canada," CBP said. Ormat Nevada also successfully showed that the merchandise exceeded the 35% value-content requirement, CBP said.
CBP Says Additional Processing of Fragrances in China Doesn't Change Country of Origin
The packaging and dilution of perfume and cologne in China don't result in a change to the country of origin, CBP said in a Nov. 28 ruling (NY N301656). The colognes and perfumes therefore are not subject to the Section 301 tariffs on goods from China, the agency ruled. The ruling request came from Fantasia Accessories through Grunfeld Desiderio lawyer Kevin Leonard.
Fantasia sought CBP advice on the country of origin marking for five types of colognes and perfumes. The sprays each "consist of a single fragrance base which is currently supplied from either Singapore or Australia," and the company proposed to CBP either "Product of Singapore” or “Product of Australia” as acceptable country of origin markings. The processing of the single base in China includes blending "with alcohol, water and propylene glycol" and packaging in aerosol spray cans. "The blending process alters the viscosity of the fragrances so that they may be applied via a spray mechanism," the company told CBP. "No chemical reaction, change in structure, or intermixing of fragrance bases occurs during this processing."
That processing in China doesn't amount to a "substantial transformation," CBP said. "While the finished fragrances are made suitable for spraying by diluting the fragrance bases, they retain the same chemical identity and character as the precursor bases," the agency said. "In this case, the changes in concentration and viscosity which occur in China, do not result in a substantial transformation for origin purposes."
The proposed marking as products of Singapore or Australia would meet the country of origin requirements "if printed legibly, clearly, and in a conspicuous place," the agency said. Because the Section 301 duties apply based on country of origin and not country of export, the tariffs don't apply, CBP said. Based on the processing described during the manufacturing of the body mist sprays, the subject merchandise will not be subject to those additional duties upon importation.