HQ 562653 - Country of origin of brake kits assembled in the U.S. from imported parts; further processing of rotors and calipers; plating; drilling; machining; painting; use predetermined at time of importation - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 2003 HQ Rulings > HQ 562537 - HQ 562708 > HQ 562653

Previous Ruling Next Ruling
HQ 562653

May 14, 2003

MAR-05 RR:CR:SM 562653 KKV

CATEGORY: MARKING

Mr. Mendel T. Yano
Brembo North America
1585 Sunflower Avenue
Costa Mesa, CA 92626

RE: Country of origin of brake kits assembled in the U.S. from imported parts; further processing of rotors and calipers; plating; drilling; machining; painting; use predetermined at time of importation

Dear Mr. Yano:

This is in response to your recent letter which requests a binding ruling regarding the country of origin of three products assembled by Brembo North America (“Brembo”) in the U.S. No samples were received, but photographs representative of each product were submitted.

FACTS:

Brembo North America is a manufacturer of automotive brake systems and components. A ruling is sought regarding the country of origin of three separate products to be sold in the United States: “Sport Rotors,” “Gran Turismo (GT) Systems” and “Motorcycle Systems.” We are informed that a variety of component parts are imported into the U.S. and processed in the following manner.

Sport Rotors

Plain rotors of Italian or Mexican origin are imported into the United States. Using computer aided drafting (CAD), a drawing of a solid model is made, from which engineers design the appropriate drill or slot pattern, creating distinct left and right patterns. This process results in the creation of four distinct articles: a drilled left rotor, a drilled right rotor, a slotted left rotor and a slotted right rotor. A machining print is produced from the digital solid model.

The rotors and prints are sent to the machine shop, where the physical work for drilling or slotting is performed and the rotors are marked with the brand logo. The machined rotors are then sent to a plating company where corrosion-resistant material is applied to the external surfaces of the rotors. The finished rotors are boxed, along with instructions for installation and stickers for application on the vehicle, and shipped to customers.

2. Gran Turismo (GT) Systems

To produce the Gran Turismo braking system, Brembo imports unplated drilled and slotted brake rotors and calipers from Italy. As imported, the rotors are not equipped with the center section, called the “bell,” which is produced by Brembo in the U.S. After importation, the rotors are plated with a protective zinc coating and some of the calipers are painted/labeled as per customer specification.

After painting, the calipers are machined to specification, in accordance with the mounting profile determined by engineers using the same computer assisted design process as the Sport Rotors. To create the GT system, two imported plated rotors are each mounted to a U.S.-origin bell by means of ten small bushing assemblies, each of which is comprised of a bushing, spacer, spring washer and bolt. The bushing and the spring are imported from Italy, while the remaining articles are of U.S. origin.

The rotor assembly and machined calipers are packaged together with U.S.-origin mounting brackets and brake line assembly, as well as an instruction manual, a bleed hose, a few decals, and a package of Loctite.

3. Motorcycle Systems

The motorcycle braking systems are manufactured in a manner similar to the GT system. Drilled and slotted brake rotors and calipers are imported from Italy. The calipers arrive in two basic colors, and are painted to customer specification, if desired. To create the system, two Italian rotors are each assembled together with a U.S.-origin bell using bushings, washers and c-clips, all of Italian origin.

The rotor assembly and calipers are packaged together with U.S.-origin mounting brackets and brake line assembly, a master cylinder and fluid reservoir, both of Italian origin, and mounting hardware sourced in the U.S.

ISSUE:

What is the country of origin of the products assembled in the U.S. in the manner described above.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. By enacting 19 U.S.C. 1304, Congress intended to ensure that the ultimate purchaser would be able to know by inspecting the marking on the imported goods the country of which the goods are the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will. United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302 C.A.D. 104 (1940).

Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as:

The country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of this part; however for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.

Accordingly, the country of origin of an article is the country in which it was wholly manufactured or, if processed in several countries, the country in which the article last underwent a substantial transformation. The well-established test for determining whether a substantial transformation has occurred is derived from language enunciated by the court in Anheuser-Busch Brewing Association v. United States, 207 U.S. 556, 562 (1908), which defined the term "manufacture" as follows:

Manufacture implies a change, but every change is not manufacture and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary, as set forth and illustrated in Hartranft v.Wiegmann, 121 U.S. 609. There must be transformation; a new and different article must emerge, having a distinctive name, character or use.

Simply stated, a substantial transformation occurs "when 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 CCPA 152, 681 F.2d 778 (1982) (cited with approval in Torrington Co. v. United States, 764 F. 2d 1563, 1568 (1985)). The issue of whether a substantial transformation occurs is determined on a case-by-case basis.

In determining whether the processing operations constitute a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. See, Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (CIT 1982), aff'd, 702 F.2d 1022 (Fed.Cir. 1983). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See, Customs Service Decision (C.S.D.) 80-111, C.S.D. 89-129, and C.S.D. 90-51.

In National Hand Tool v. United States, Slip Op. 92-61 (April 27, 1992, aff'd, 989 F.2d 1201 (1993), a country of origin marking case, certain hand tool components used to make flex sockets, speeder handles, and flex handles, were imported from Taiwan. The components were cold-formed or hot-forged into their final shape prior to importation, with the exception of speeder handle bars, which were reshaped by a power press after importation. The grip of the flex handles were also knurled in the U.S., by turning the grip portion of the handle against a set of machine dies that formed a cross-hatched diamond pattern. The components were subject to heat treatment, which increased the strength of the components, sand-blasting (a cleaning process), and electroplating (enabling the components to resist rust and corrosion). After these processes were complete, the components were assembled into the final products, which were used to loosen and tighten nuts and bolts.

The Court of International Trade decided the issue of substantial transformation based on three criteria, i.e., name, character, and use. Applying these rules, the court found that the name of the components did not change after the post-importation processing, and that the character of the articles similarly remained substantially unchanged after the heat treatment, electroplating and assembly, as this process did not change the form of the components as imported. The court further pointed out that the use of the articles was predetermined at the time of importation, i.e., each component was intended to be incorporated in a particular finished mechanic's hand tool. The court dismissed as a basis for a substantial transformation the value of the processing, stating that the substantial transformation test utilizing name, character and use criteria should generally be conclusive in country of origin marking determinations, and that this finding must be based on the totality of the evidence. Based on this test, the court concluded that the processing in the U.S. did not effect a substantial transformation of the foreign hand tool components.

A similar finding was made in Superior Wire v. United States, 867 F.2d 1409 (Fed. Cir. 1989), where the appellate court affirmed the Court of International Trade's holding that no substantial transformation occurred from the multistage processing of drawing wire rod into wire. In that case, the court noted that the "end use of the wire rod is generally known before the rolling stage and the specifications are frequently determined by reference to the end product for which the drawing wire will be used." Accordingly, the court found that the character of the final product was predetermined and that the processing did not result in a significant change in either character or use of the imported material. While the wire rod and wire had different names and identities in the industry, the court concluded that they were essentially different stages of the same product.

Upon careful review of all relevant documentation, we find a similar conclusion must be reached with regard to the imported brake rotors and calipers used in the GT and Motorcyle braking systems. At the time of importation, both the rotors and the calipers are not rough, generic forms with a multitude of uses, but are essentially completed articles which already bear the name of the finished product. Like the hand tool components in National Hand Tool, supra, the use of the articles has been predetermined at the time of importation. While the calipers undergo some machining operations in the U.S., the overall shape and form of the finished articles is essentially the same as the imported articles. Likewise, although all of the rotors are plated in the U.S., and some undergo additional drilling and/or slotting in the U.S., the overall dimensions and diameter remain the same. Nor do the imported rotors lose their identity and become an integral part of a new article when assembled to the U.S. bell. Thus, the imported rotors and calipers do not undergo a change in name, character as a result of processing in the U.S. and remain products of Italy. See also Headquarters Ruling Letter (HRL) 734873, dated September 7, 1994 (imported brake rotor castings were not substantially transformed by processing in the U.S.).

Accordingly, the imported rotors and calipers are not substantially transformed into a new and different article when they are used to produce finished rotors and/or packaged together with U.S. components for braking systems.

With respect to the Sport Rotors that are made with plain rotors from Mexico, a comparable result is found under the NAFTA Marking Rules, set forth at 19 CFR 102.11. Although the tariff classification of the imported article and finished product was not provided, based upon the information submitted it would appear that the imported plain rotors and finished Sport Rotors are classifiable under subheading 8708.39, HTSUS.

The applicable tariff shift rules are set forth at section 102.20. Because the rotors remain classifiable under the same subheading at all stages of processing set forth above, they fail to meet the applicable shift required by section 102.20(p) Section XVII: Chapter 86-89, which requires “a change to subheading 8708.39 from any other heading.” Consequently, the country of origin of the finished Sport Rotors is Mexico, the country that produced the single material that imparts the essential character of the finished good – the plain rotors - pursuant to 19 CFR 102.18(b)(iii).

As detailed above, neither the imported rotors nor the imported calipers are substantially transformed into a new and different article when used to produce finished Sport Rotors and/or are processed and packaged together with U.S. components to create GT and Motorcycle braking systems. Therefore, Brembo is not the ultimate purchaser of the imported articles; rather the ultimate purchaser is the person(s) who purchases the finished brake rotors and braking systems in the U.S., and the articles (or their containers) must be marked as products of Mexico or Italy, as applicable.

HOLDING:

Based upon the information provided, the calipers which undergo machining and/or painting operations, and the imported rotors which undergo plating and/or drilling/slotting operations, are not substantially transformed in the U.S., or do not undergo the requisite tariff shift under the Nafta Marking Rules, when assembled into completed brake rotors and/or braking systems. Accordingly, the retail purchaser and not the domestic processor is the ultimate purchaser and the finished articles are subject to country of origin marking as products of Mexico or Italy, as applicable.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

Previous Ruling Next Ruling