Dear Ambassador Lighthizer,

Thank you for the opportunity to request an exclusion for products of Chinese origin from the tariffs imposed under Section 301 of the Trade Act of 1974. Sunair Products, Inc. (“Sunair”) respectfully submits these comments in support of its requested exclusion for certain types of belt-driven compressor units used in automotive air conditioning systems (generally referred to in this request as “compressors”). Sunair understands and shares the administration’s concerns and competitive objectives relating to China’s acts, policies, and practices investigated by your office and more fully described in your report published on March 22, 2018[footnoteRef:2]. [***] [2:  See Findings of the Investigation Into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974, Office of the United States Trade Representative, March 22, 2018. (as used in this request, the “Findings”).] 

These belt-driven compressors are made in China, but are not relevant to what we understand to be the target of the Section 301 tariffs—China’s acts, policies, and practices with respect to intellectual property and its “Made in China 2025” initiative. In fact, the importation of these compressors in the United States benefits U.S. interests by supporting our customers, our operations, and our continued investment in providing high-quality jobs and innovation in creating efficient supply chains that is vital to the overall competitiveness of the U.S. automotive market.

I. **Background information**

Sunair is a family owned business that began in Texas in 1984, and has since expanded to become one of the world’s largest suppliers of mobile air conditioning service and compressor remanufacturing components. Part of Sunair’s success is due to our ability to offer over 12,000 innovative and quality tested products to customers across the globe. Every product Sunair offers at a competitive price is vital to maintain our company’s customer image as a reliable supplier of automotive a/c components. 

The compressor is responsible for assisting in the circulation and pressurization of refrigerant in the air conditioning system of automobiles. The core technology and principles that go into manufacturing compressors has existed since the 18th century.[footnoteRef:3] As such, these components are ubiquitous and well-established in terms of their international design and production. Sunair imports non-OEM versions of these compressors from its affiliated manufacturers in China, which are the subject of this request. [3:  See e.g., “Reciprocating Compressors Past, Present, and Future,” Dr. John P. Elson, Purdue Engineering, https://engineering.purdue.edu/Herrick/conferences/about/ReciprocatingCompressors%20-%20Jack%20Elson.pdf  ] 

[***]

II. **Identification of the Particular Product for Exclusion**

A. **Applicable Tariff Code and Suggested Language**

The types of compressors we seek to exclude are distinct in their appearance from other compressors contained under the HTSUS Code 8414.30.80. Generally, this 8-digit classification encompasses compressors used in forms of refrigerating equipment. The automotive compressors that are the basis of this request can be readily identified from other products under this Code based on their unique and shared characteristics which identify them as “belt driven compressors.”

In particular, automotive compressors fall under the category specific 10-digit HTSUS Code 8414.30.8030 (“Compressors, refrigerating and air-conditioning, for motor vehicles.”). This classification is confirmed in a 2007 Customs ruling on similar refurbished compressors, numbered N012238 (“The tariff classification, marking and country of origin of refurbished compressors from Mexico.”)

This classification, on its own, is likely sufficient tariff language to identify the products as imported. In response to the USTR’s request for specific tariff language to describe the product, we suggest a potential wording may be: “Belt-driven compressors of a type used in refrigerating and air-conditioning equipment for motor vehicles.” 

B. **Physical Description of the Product**

The belt-driven compressor which is the basis of this Request is one complete, assembled item that measures approximately 250 millimeters in length, 150 millimeters high, and 146 millimeters wide. While it is a single unit, it can be broken down into easily identifiable, constituent elements. 

On one end of the belt-driven compressor is a black metal cap that is held in place by 6 silver, evenly-spaced Phillips-head screws. The metal cap is flat on its top and slopes down slightly. Behind the metal cap is the pulley and coil assembly. This assembly appears as a steel, black, cylindrical disc with a single groove. The groove itself is approximately 12 millimeters wide. A black electric wire ending in a plastic connector emerges from the back of the assembly.

Behind the assembly is the compressor body. The body is on solid piece of aluminum, and is silver in color. The body has an a “A”-shaped bracket molded to the top, which has a single threaded hole for a bolt as the eye of the “A.” 

Immediately behind the A-shaped bracket is a black, flat metal plate that is bolted to the top of the body. The plate is bolted by 4 silver bolts arranged in a rectangle. On the bottom of the body are four molded brackets that each have a threaded hole. 

Behind the body is a metal rear head containing the valves. This rear head will have two larger holes which jut out on either the face of the rear head, or protruding along the edge of the rear head. Finally, there is an electrical wire protruding from the clutch assembly, which ends in a male-style plastic connector.

These products can be easily distinguished from electric-only compressors, as those compressors do not have the rotating cylindrical pulley assembly as described above. Other compressors that are imported under the same 8-digit tariff heading are either outside of the dimensions described above and/or do not have a rotating cylindrical pulley assembly. 

These compressors are shipped in boxes that measure 8 inches high, 7 inches wide, and 11 inches deep. The box says “Compressor” in black font, and “R134a” in white font on a black band across the corner.

The information in Attachment A provides additional detail that would assist the USTR and U.S. Customs and Border Protection (“USCBP”) in identifying and administering the exclusion of these products. Based on these descriptions and characteristics, we believe USCBP will be able to administer this exclusion request.

III. **Quantity and Value**

IV. **Rationale for Exclusion**

A. **These compressors are not strategically important or related to “Made in China 2025” or other Chinese industrial programs**

Compressors are extremely low-tech and low-value components that do not present a strategic opportunity for China to exploit in its industrial policy. Compressors are not important in this regard for a few reasons:

1. The design and production chains for these products is mature and does not present a high-tech or high-value target for China’s manufacturing sector. In fact, the design and manufacture of compressors has remained relatively unchanged since China began manufacturing them in the mid-1980s. The low-value of these components means they are negligible in the scheme of China’s broader industrial objectives as they relate to the automotive parts industry. The production of compressors relies heavily on labor-intensive assembly. 

2. These products were not selected in China’s market access rues issued in 2009 by the Chinese Ministry of Industry and Information Technology, which prioritized the key automotive technologies as batteries, drive systems, and control systems.[footnoteRef:4] [4:  Findings, page 31.] 

3. Not only this, the compressors we import are for *used* vehicles and thus represent already developed technology that is not beneficial to China’s aim of growing its indigenous new-vehicle production capacity.

In addition to the above, we appreciate that the “Made in China 2025” policy focuses primarily on these high-tech and evolving industries: (1) steel and nonferrous metals, (2) construction materials, (3) rail equipment, (4) power generation and infrastructure, (5) resource development, (6) textiles, (7) new energy vehicles, (8) information technology, (9) machinery, (10) aviation, and (11) shipbuilding. In contrast, these compressors are low tech, unchanging, and are not related to the growth of these industries.

As far as the automotive industry is concerned, the Made in China 2025 initiative prioritizes the development of next-gen vehicles, including “new energy vehicles” (“NEV”) capable of being manufactured as a Chinese brand. While compressors are used in vehicles, an additional tariff will not affect China’s expansion in this sector. In fact, a tariff on compressors may undermine the Section 301 action’s objectives. 

Given China’s long-standing expertise and ability in producing compressors, there is no “supply chain gap” to close, which the Findings suggest is one of the driving forces behind China’s automotive policies.[footnoteRef:5] These compressors exist for the purposes of servicing existing vehicles, relying on designs and supply chains that have existed for over 30 years. Similarly, the maturity of these products means there is no platform from which their production may spur next-generation research and development.  [5:  Findings, page 139.] 

This lack of utility is due to the fact these compressors rely on belt-driven technology for conventional vehicles, as opposed to the electrically powered compressors which would be used in NEVs.[footnoteRef:6] As it stands, these belt-driven compressors are technologically inferior to, and antithetical to the development of, energy-efficient technologies identified as key industrial objectives by the Chinese government.[footnoteRef:7]  [6:  In fact, the existence of the belt on the compressors under the scope of this request is one of the features that allows it to be distinguished from other similar products.]  [7:  See A A Zulkifli et al 2015 IOP Conf. Ser.: Mater. Sci. Eng. 100 012028, “Impact of electric compressor for automotive air conditioning system on fuel consumption and performance analysis.” (finding that conventional belt-driven compressors are an order of magnitude less efficient than newer electric compressors).] 

Indeed, these compressors are parts designed to prolong the longevity of vehicles which were manufactured *outside of*China. To the extent the production of these compressors affects the Chinese market, they are likely to detract from investment in new vehicle production. The existence of affordable automotive parts makes the purchase of new vehicles less attractive by extending the time a used car continues to run. The longer a consumer uses their car, the less demand there is for a new one. Not only this, U.S. demand for Chinese compressors keeps Chinese production focused on supplying foreign consumers. Any reduction in demand brought about by increased costs may result in China’s compressor industry shifting away from servicing foreign clients and *toward* the industrial goals set by the Chinese government.

Finally, the technology behind these compressors has not benefited from any nefarious acts, policies, or practices of the Chinese government or industry writ large. Their production does not rely on the cooption of any sensitive intellectual property, nor has our company been required to embark on any joint-venture or information-sharing scheme in order to gain access to the Chinese market. Put simply, the acts, policies, and practices as described in the Findings are not applicable to the compressors.

B. **Increased tariffs on these compressors would result in significant harm to Sunair’s business and U.S. economic interests**

[***]

There is also a real ripple effect on other industries reliant on affordable compressors from China. The integrated nature of our supply chain means the cost of the product is passed on through to master distributors, warehouse distributors, retailers, repair shops, and then to the consumer at exacerbated prices. Given the increased cost arising from the tariff, each link in this supply chain will be forced to lower employment and/or wages to maintain profitability. 

This risk is especially acute in the case of compressors, which are not “necessary” components for consumers seeking to keep their vehicle in operation. The price elasticity of demand theorem proves that these higher prices ultimately result in fewer compressors sold. Every compressor left unpurchased also means the corresponding labor to install them goes unneeded as well. Hence, increased tariffs on compressors will have a direct effect on employment for well-paying jobs in the automotive repair industry, in addition to lost profits for owners of repair shops. 

[***]

C. **The compressors are available only from China**

China originally began producing compressors in the mid-1980s. Since then, the country has become one of the leading producers of compressors. The emergence of China as a supplier of compressors came at a time when production in the United States was in decline. In fact, only a few of the compressor models we offer were ever manufactured in the United States. Production of these models moved to China nearly 20 years ago. The nature of the automotive parts market means companies like ours are prohibited from acquiring the high-quality compressors we require from other manufacturers. As it stands, Sunair cannot supply its compressors from any other country, including the United States.

The compressor industry has evolved to a point where China is the only feasible supplier of compressors that can be purchased at the volumes required for our business. A select few of the compressor types we sell are made in the United States. However, these compressors are manufactured by original equipment manufacturers (“OEM”) that maintain their own exclusive supply chains that we cannot access. Moreover, the cost of producing these components is so low that it is not economically feasible to produce them outside of China. 

There are some third countries which produce certain types of compressors, but the products that are the subject of this request cannot be sourced from these countries for a variety of reasons. 

First, compressors manufactured outside of China do not meet the rigorous safety and technical standards required by us, and our customers, for automotive use. This is an unavoidable requirement of our business.

[***]

Third, no other country has the workforce capacity to come close to meeting our demand. Similar to the U.S. compressor market, we are unable to avail ourselves of comparable original equipment manufactured outside of China based on the fact these distribution networks are permanently captured by the manufacturer. 

Fourth, the tariffs create an uncertain macroeconomic environment that is not conducive to investment. The nature of these tariffs creates significant investment risk that deters companies from investing in a manufacturing facility, in the United States or elsewhere, capable of producing these products. 

V. **Conclusion**

[***] In spite of this, the additional 301 tariffs would not serve the administration’s underlying purposes with regard to combatting China’s acts, policies, practices, or Made in China 2025 policy as identified in the USTR’s Findings. For the reasons stated in this petition, Sunair requests that the USTR exclude certain automotive compressors under HTS subheading 8414.30.8030 from the list of goods subject to the Section 301 tariffs. 

This submission contains business confidential information (“BCI”) for which Sunair requests confidential treatment. Pursuant to the USTR’s published procedures for Exclusion Requests, Sunair has identified BCI in brackets and has appropriately stamped each page containing business confidential information. A public version of this Request is provided simultaneously with Sunair BCI version. Sunair certifies that disclosure of its BCI would endanger trade secrets or profitability, and that the information would not be customarily released to the public. The undersigned further certifies that the information provided herein is complete and correct to the best of his knowledge.

We would be happy to work with the USTR to answer any questions or provide any additional information. Should you require anything, please do not hesitate to contact me.

**Attachment A**

[*******]

Sunair Products Inc.

2329 Solona Ave Fort Worth, Texas 76117 USA

Phone (817) 831-6301 or (800) 831-6301 Fax (817) 222-7800

Email: sales@sunairusa.com  Web: www.sunairusa.com

Sunair Products Inc.

2329 Solona Ave Fort Worth, Texas 76117 USA

Phone (817) 831-6301 or (800) 831-6301 Fax (817) 222-7800

Email: sales@sunairusa.com  Web: www.sunairusa.com

# image1.png

# image2.png

# oleObject1.bin

# oleObject2.bin