A ruling issued issued last week by U.S. Customs and Border Protection further clarifies how to properly determine the country of origin for electric motors when assembled from components of differing origin.
The subject product is an electric motor assembly manufactured from various components under five different scenarios in either Vietnam or Mexico. The assembly operations involved, however, are largely the same in each scenario.
The questions at issue concern what the country of origin of the motor assembly should be for the purposes of marking and for applying Section 301 trade remedies in each case.
Law and Analysis
Articles of foreign origin imported into the United States are required by law to be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to the name of the country of origin to the ultimate purchaser in the U.S.
Customs regulations define “country of origin” as the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a “substantial transformation” in order to be determinative of the final product’s origin. Accordingly, for both marking and Section 301 trade remedy purposes, substantial transformation is the required test for determining country of origin.
In deciding whether an assembly process is sufficiently complex to rise to the level of substantial transformation, CBP states that it takes into consideration all of the operations—including any subassembly processes— that occur within that country.
Defining the “Essential Character” of Motors
In a 2019 ruling, CBP held that with regards to a stepper motor made from various components of differing origin, it was the stator and rotor which “impart the essence ” of the finished product.
However, unlike that situation where both components were made in either China or Vietnam, in one of the present scenarios under consideration, the rotor assembly is manufactured in China whereas the stator is manufactured in Vietnam.
CBP contends, therefore, that “the stator is arguably the more fundamental component of a motor.” This is based on the stator (consisting of the frame, core, and windings) being regarded as fundamentally more complex than the rotor. Additionally, it is felt that the stator’s crucial role in physically turning the motor through magnetic interaction with the rotor is what gives the finished product its essential character.
CBP notes that even if the rotor and stator are considered to be viewed equally important, the assembly in the particular scenario at issue, “although not exceedingly complex, occurs in Vietnam, which is the last country of production prior to importation into the United States.”
In view of these considerations, CBP found the motor consisting of a Chinese origin rotor assembly with a stator assembly of Vietnamese origin to be a product of Vietnam for purposes of marking and Section 301 measures.
Why It Matters
With more companies moving production out of China to other Southeast Asian countries such as Vietnam to avoid the U.S. Section 301 tariffs, understanding the various factors that guide how CBP determines the final product’s origin for customs purposes is more important than ever before. This is especially the case when various components of the finished goods may still be made in China, but assembled or otherwise further processed in another country prior to being exported to the U.S.
Need More Information?
Should you have any questions about CBP’s country of origin guidance or want to find out more about how you may be able to benefit from tariff engineering, don’t hesitate to contact one of our knowledgeable trade experts to find out more.