H312790

HQ H312790 February 17, 2021 OT:RR:CTF:VS H312790 AP CATEGORY: Origin Nicolas Guzman, Partner Faegre Drinker Biddle & Reath LLP 191 N. Wacker Drive, Suite 3700 Chicago, Illinois 60606 RE: Country of Origin; Marine propulsion outboard engine; Section 301 trade remedy; 9903.88.01, HTSUS Dear Mr. Guzman: This is in response to your June 19, 2020 ruling request and December 4, 2020 supplemented submission, on behalf of Mercury Marine (“MM”), regarding the country of origin of certain marine propulsion outboard engine used in recreational and light commercial marine applications (“outboard engine”) for purposes of Section 301 trade remedies under three proposed scenarios. A virtual meeting with counsel and MM representatives was held on November 18, 2020. FACTS: The merchandise at issue is described as a four-stroke marine propulsion outboard engine ranging from 40 to 60 horsepower classifiable in subheading 8407.21.00, Harmonized Tariff Schedule of the United States (“HTSUS”). The outboard engine is attached to the back of a boat. The engine is composed of a powerhead engine assembly, a mid-section assembly, and a gear case assembly. Power is generated by an internal combustion engine called the powerhead located at the top of the outboard. The power is transferred vertically downward through the midsection of the outboard, via a driveshaft, to the gear case at the bottom. The gear case, which is under the water line during operation, redirects the power 90 degrees in a backwards direction from the boat and is attached to a propeller. The propeller can be rotated in a clockwise or counterclockwise direction to propel the boat forward or backwards. The powerhead engine assembly will be assembled in Country A (a non-USMCA country), which is other than China, from individual components sourced from China, the United States, Mexico, and South Korea, among other countries. Under scenarios 1 and 2, the engine block of the powerhead engine assembly will be manufactured in China while under scenario 3, it will be manufactured elsewhere. The mid-section and gear case assemblies will be produced in China from individual components sourced primarily from China. The production of the powerhead engine assembly in Country A will be undertaken in two steps. First, a “green assembly” process creates the body of the engine from individual components. This process involves: (1) the assembly of the main bearings and crank to the engine block; (2) the assembly of the piston subassembly from individual rod, pistons, and retainer components, stuffed into the block connected to the crank; (3) the formation of the cylinder head assembly from stamped plates, head gasket, and pin screws; and (4) the assembly of the cylinder head cover, which includes spark plugs, valve cover assemblies, mounting fittings, and seals. You state that the “green assembly” process involves component level assembly of materials like castings, rods, pistons, plates, gaskets and other products, into functional subassemblies like the crankshaft assembly, the piston rod assembly, and the cylinder head assembly. Next, a “dress assembly” process finalizes the powerhead engine assembly. It consists of: (1) the ignition coil plate assembly; (2) the intake manifold assembly; (3) the harness and electronic control unit assembly; (4) the voltage regulation assembly; (5) the fuel pump assembly; (6) the throttle cam assembly; and (7) the flywheel assembly, among others. The “dress assembly” process also includes cold testing and calibration. Once the final powerhead engine assembly is produced in Country A, it will be shipped to China where it will be “married to” the mid-section assembly and the gear case assembly through a simple assembly by fitting the powerhead engine assembly into the mid-section and connecting the gear case. The mid-section assembly process consists primarily of connecting the driveshaft housing assembly with the adaptor plate, which connects the engine to the boat. You state that the components for the mid-section assembly are primarily sourced in China and final production of this assembly will remain in China. The gear case assembly consists primarily of assembling the gear case housing with the drive shaft, gears, and propeller shaft. You state that the components for the gear case assembly are primarily sourced in China and final production of this assembly will remain in China. Under Scenario 1 and 2, the assembly and production steps described above are the same, except that MM will source approximately 20 percent more raw material and components outside of China. Under Scenario 3, the engine block of the powerhead engine assembly will be sourced outside of China. The casting and the machining of the engine block will take place outside of China, in a country to be determined. The engine block will be assembled with the other components of the powerhead engine assembly (the crankshaft and the cylinder head) in Country A. ISSUE: What is the country of origin of the outboard engine under scenarios 1, 2 and 3 for the purposes of applying Section 301 trade remedies? LAW AND ANALYSIS: The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25 percent will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(b), HTSUS. Among the subheadings listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, is 8407.21.00. When determining the country of origin for purposes of applying trade remedies under Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. Texas Instruments, Inc. v. United States, 69 CCPA 151, 681 F.2d 778 (1982). In deciding whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 6 CIT 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. Factors which may be relevant in this evaluation may include the nature of the operation (including the number of components assembled), the number of different operations involved, and whether a significant period of time, skill, detail, and quality control are necessary for the assembly operation. See C.S.D. 80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97. If the manufacturing or combining process is a minor one, which leaves the identity of the article intact, a substantial transformation has not occurred. See Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983). No substantial transformation occurs if the imported parts are formed into their final shape prior to importation and their intended use is predetermined at the time of importation. See Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d per curiam, 989 F.2d 1201 (Fed. Cir. 1993) (hand tool components intended to be incorporated in a finished mechanic’s hand tool were cold-formed or hot-forged into their final shape prior to their importation into the U.S.). In addition, U.S. Customs and Border Protection (“CBP”) has held that whether an assembly process is sufficiently complex to rise to the level of substantial transformation is determined upon consideration of all of the operations that occur within that country, including any

The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25 percent will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(b), HTSUS. Among the subheadings listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, is 8407.21.00. When determining the country of origin for purposes of applying trade remedies under Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. Texas Instruments, Inc. v. United States, 69 CCPA 151, 681 F.2d 778 (1982). In deciding whether the combining of parts or materials constitutes a substantial transformation, the determinative issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 6 CIT 204, 573 F. Supp. 1149 (1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984).Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. Factors which may be relevant in this evaluation may include the nature of the operation (including the number of components assembled), the number of different operations involved, and whether a significant period of time, skill, detail, and quality control are necessary for the assembly operation. See C.S.D. 80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97. If the manufacturing or combining process is a minor one, which leaves the identity of the article intact, a substantial transformation has not occurred. See Uniroy