H324660

HQ H324660 March 5, 2024 OT:RR:CTF:VS: H324660 JMV CATEGORY: Origin Center Director Center of Excellence and Expertise - Machinery U.S. Customs and Border Protection 109 Shiloh Drive, Suite 300 Laredo, TX 78045 RE: Application for Further Review of Protest No. 300420101089; Country of Origin of Brewery Machinery; Section 301 Trade Remedy Dear Center Director: This is in response to an Application for Further Review (“AFR”) of Protest Number 300420101089, timely filed on behalf of Specific Mechanical System Ltd. (“SMS”), concerning liquidation and assessment of duties pursuant to Section 301 of the Trade Act of 1974 and the eligibility of preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). FACTS: The product at issue is a complete brewery machinery (herein after “brewery system”) that is classified as a functional unit pursuant to Section XVI, Note 4 of the Harmonized Tariff Schedule of the United States (“HTSUS”) under subheading 8438.40.00, HTSUS, which provides for “machinery, not specified or included elsewhere in this chapter, for the industrial preparation or manufacture of food or drink, other than machinery for the extraction or preparation of animal or fixed vegetable or microbial fats or oils; parts thereof: brewery machinery.” SMS imported the brewery system on September 1, 2019, claiming a country of origin of Canada and preferential tariff treatment under NAFTA. SMS was denied preferential tariff treatment under NAFTA and duties were imposed pursuant to Section 301 of the Trade Act of 1974 for certain goods of Chinese origin. SMS is now protesting the denial of the NAFTA claim and the imposition of Section 301 duties. SMS asserts that the brewery system is made up of multiple grain handling components and tanks connected via fabricated framing and platforms, and includes equipment and components used to hold, transfer, and mill grain within the tanks to produce beer. The brew flows between each tank via piping, pumps, and valves throughout the brewing, fermenting and storage processes. SMS argues that the brewery system consists mostly of parts manufactured by SMS in its British Columbia, Canada plant, but also noted that other relatively minor components were purchased from suppliers located in Canada, the United States, Europe, and Asia. Notably, a large stainless-steel vat from China is used to create the fermenter. The lauter tun, mash kettle and whirlpool are the main vessels in the brewing system, called the “brew house.” The hot and cold liquor tanks are large storage vessels, that contain water used during the brewing process. The brew house plumbing, platform and control panel simplify the operation of the brew house. The plumbing connects each of the three main vessels to their respective pumps, and each other, to facilitate the movement of liquid during the brewing operations. The platform is a rectangular stage custom built by SMS to fit between each of the three main vessels that allows the brewer to access each vessel during the brewing process. The control panel contains the system controls, including pump controls and temperature indicators for each vessel. The lauter tun, mash kettle, whirlpool, hot liquor tank, cold liquor tank, plumbing, platform and control panel are constructed from stainless steel sheeting, plates, tubing and pipe that are rolled, formed, assembled and welded together at SMS’s Canadian manufacturing facility. The brew house components and the hot and cold liquor tanks are created from large 10-foot sheets of stainless steel, which are cut into various shapes and sizes for bending, rolling, drilling, machining, welding and fabricating into the various tanks and vessels. The steel components are machined on lathes and cut with plasma torches, shears, and ground on grinders to prepare them for fabrication. After grinding, the vessels and tanks are hand polished, then lifted with forklifts, overhead cranes, and other equipment to erect the machinery for welding. All welding is done by hand, using skilled and certified welders. After welding, the brewery system goes through a specialized process of cleaning and preparing for food safe and sanitary processing using specially trained staff. The fermenters are created from large stainless-steel vats imported into Canada from China. To create a calibrated and controlled beer fermentation tank, SMS either welds or assembles additional components to the Chinese stainless-steel vat, which includes a pressure gauge, a safety relief valve, tube fittings (clamp, gasket, cap), threaded pipe couplings, connectors, a solenoid valve, and hoses. The fermenter is only one of 14 subassemblies that make up the completed brewery system and constitutes about four percent of the total value of the completed brewery system. The heat exchanger is produced in Canada and consists of a series of plates. In the brew house, hot wort is run through one side of the plate and is cooled by the refrigerant running along the reverse side of the plate in the opposite direction, producing a “heat exchange.” The malt cracker assembly is a milling system for turning raw grain into grist in the brewing process. The malt cracker is assembled with the hopper and flex augers to transport and hold the grain required to make the beer before it is mixed with hot water in the Lauter Tun. The flex augers system integrates the malt cracker with the mash later tun. SMS buys the grinder from a supplier in Germany and fabricates the main hopper infeed system and outlet system to feed the grain into the malt cracker and then into the mash lauter tun vessel. SMS builds the hopper in its shop in a similar fashion to each of the other vessels. A pump, motor, and variable frequency drive (VFD) are mounted onto a wheeled stainless steel frame to create the transfer pump cart. SMS builds the frame, and assembles, mounts and wires the components onto the frame to arrive at the end product. The pump cart allows the brewer to easily move the pumps when needed. All inlet and outlet fittings and mechanical assemblies, such as rakes, mixer agitators, and shafts, included with the vessels were also built and assembled to the vessels in SMS’s plant. The complete brewery system is fully assembled in Canada for calibration and testing and then disassembled for shipping to the United States. SMS asserts that none of the non-originating components are classified in heading 8438, HTSUS. ISSUE: Whether the Chinese vats are substantially transformed when manufactured into fermenters and incorporated into the brewery system. Whether the brewery system qualifies for preferential tariff treatment under the NAFTA. LAW AND ANALYSIS: The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 7.5% 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(s), HTSUS. Among the subheadings listed in U.S. Note 20(s) of Subchapter III, Chapter 99, HTSUS, is 8438.40.00, HTSUS. 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. See Texas Instruments Inc. v. United States, 69 C.C.P.A. 151 (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, 573 F. Supp. 1149 (Ct. Int’l Trade 1983), aff’d, 741 F.2d 1368 (Fed. Cir

The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 7.5% 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(s), HTSUS. Among the subheadings listed in U.S. Note 20(s) of Subchapter III, Chapter 99, HTSUS, is 8438.40.00, HTSUS. 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. See Texas Instruments Inc. v. United States, 69 C.C.P.A. 151 (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, 573 F. Supp. 1149 (Ct. Int’l Trade 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. Uniroyal, I