Recent CIT Decision May Be 'Reset' of Substantial Transformation Law, Customs Lawyer Says

The Court of International Trade’s recent tariff classification decision on Cyber Power’s uninterruptible power supplies “may be a meaningful reset of the law of substantial transformation,” moving the analysis back to a comparison between parts and finished components after a period of focus on essence or critical components, customs lawyer Larry Friedman said in a Feb. 27 blog post.

Though Cyber Power only prevailed on one of the six models of power supplies and surge protectors at issue in the decision, also issued Feb. 27 (see 2302270064), Friedman said that, nevertheless, “the Court has some good things to say.”

CIT reiterated its 2022 decision in the same case (see 2202240059) that rejected “an approach that asks whether only essential or critical components have been substantially transformed,” Friedman said. “The Court also rejected an approach that performed a component-by-component analysis.” And while not mentioning pre-determined end use, which has become a feature of CBP’s recent substantial transformation analysis (see 2202250049 and 2203020073), the trade court said intended use of components is one of many factors the court should consider.

“Instead, the Court looked to evidence of ‘the potentially transformative processing’ in relation to the nature of the product,” Friedman said. “That means whether the finished product has a different name, character, and use than the parts from which it was made.” He noted language in the decision on the classification of the one model of power supply on which Cyber Power prevailed that said the change from the components to the finished product “is a changed so marked” as to prove Cyber Power’s case.

“The Court seems to have rejected the essence or critical components tests, including the notion that the location where the main PCBAs are assembled will generally be the country of origin,” Friedman said. “It also seems clear that the proper point of comparison is between the parts and the finished products rather than the parts before and after assembly.”

“That is good for importers trying to manage their supply chain. Clarity, consistency, and predictability are always helpful for compliance,” Friedman said. “It is too soon to make major decisions based on this opinion, but this is a positive step.”