Country of Origin of Assembled Goods

Country of Origin of Runner Assembly

The product under consideration is a runner assembly (runner), which is a part of a Francis type hydro-turbine. The runner assembly consists of band, crown, cone, and blades. The rough machined runner castings sub components will be sourced from a Chinese foundry, where they are welded and roughly machined, and then imported into Canada (in the first scenario) or Japan (in the second scenario) for further processing and manufacturing, which includes inspection, final machining, and balancing.

Classification

The applicable subheading for the runner is 8410.90.0000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Hydraulic turbines, water wheels and regulators therefor; parts thereof; Parts, including regulators.”

Country of origin

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 U.S.  If the merchandise in question is not wholly manufactured, produced, or grown within a single country, then we must consider the origin of any component or raw material that is used in the manufacture, production, or assembly of the final product, and whether the further work or material added to the product in a subsequent country effected a “substantial transformation” on that part, component or material, so as to render such other country the “country of origin” of the end product.

In the Case of Canada: NAFTA Marking Rules

In the case where the finishing operations were performed in Canada, the NAFTA Marking Rules will determine the country of origin of the runner.

Customs Regulations Part 102 sets forth the “NAFTA Marking Rules” for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 of the regulations, sets forth the required hierarchy for determining country of origin for marking purposes. Applied in sequential order, the required hierarchy establishes that the country of origin of a good is the country in which:

(a)(1) The good is wholly obtained or produced;

(a)(2) The good is produced exclusively from domestic materials; or

(a)(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in Section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

Because the imported runner is neither wholly obtained nor produced exclusively from “domestic” materials, Sections 102.11(a)(1) and 102.11(a)(2) do not apply.

For Section 102.11(a) (3), each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in Section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

The runner is classified in subheading 8410.90.0000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Hydraulic turbines, water wheels and regulators therefor; parts thereof; Parts, including regulators.” The applicable rule for subheading 8410.90, HTSUS, in section 102.20 requires, “A change to subheading 8410.90 from any other heading.” The unfinished runner imported from China to Canada is also classified in heading 8410.90, HTSUS. As a result, the tariff shift requirement is not met, and the country of origin cannot be determined under Section 102.11(a)(1), (2), and (3).

Section 102.11(b) states, “Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section: (1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good.

Section 102.18 (b) (1): For purposes of identifying the material that imparts the essential character to the good under section 102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the section 102.20 specific rule or other requirements applicable to the good.

As we earlier determined, the unfinished runner is classified in subheading 8410.90, HTSUS. It is the single component, which is not allowed under section 102.20 specific rule. Therefore, the country of origin of the entire assembly will be the country of origin of the unfinished runner. Thus, the country of origin of the finished runner assembly will be China for marking purposes.

In the present case, the processes in Canada do not cause a change in the name, character, or use. Although necessary operations are performed in Canada in order for the runner to operate as designed, the runner does not undergo any physical change. As a result, the unfinished runner is not substantially transformed in Canada.

In the Case of Japan as the Country of Last Manufacture

Since Japan is a non-NAFTA country, the analysis of substantial transformation will determine the country of origin for the second scenario performed in Japan, where the manufacturing steps are identical to the first scenario. 

As described above in the case of NAFTA country, the processes in Japan do not cause a change in the name, character, or use. Although necessary operations are performed in Japan in order for the runner to operate as designed, the runner does not undergo any physical change. As a result, the unfinished runner is not substantially transformed in Japan.

Based on the analysis above, the country of origin of the runner assembly for marking and tariff purposes will be China for both the first and second scenarios.

Custom Ruling ― NY N306640: the country of origin marking of a runner assembly (Oct28, 2019).