[Federal Register Volume 79, Number 220 (Friday, November 14, 2014)]
[Notices]
[Pages 68284-68286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26955]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Outdoor Unit

AGENCY: U.S. Customs and Border Protection, Department of Homeland 
Security.

ACTION: Notice of final determination.

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SUMMARY: This document provides notice that U.S. Customs and Border 
Protection (``CBP'') has issued a final determination concerning the 
country of origin of Outdoor Units used in HVAC systems. Based upon the 
facts presented, CBP has concluded in the final determination that the 
U.S. is the country of origin of the Outdoor Units for purposes of U.S. 
Government procurement and country of origin marking.

DATES: The final determination was issued on November 7, 2014. A copy 
of the final determination is attached. Any party-at-interest, as 
defined in 19 CFR 177.22(d), may seek judicial review of this final 
determination on or before December 15, 2014.

FOR FURTHER INFORMATION CONTACT: Karen S. Greene, Valuation and Special 
Programs Branch: (202) 325-0041.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on November 7, 
2014, pursuant to subpart B of Part 177, Customs and Border Protection 
Regulations (19 CFR Part 177, subpart B), CBP issued a final 
determination concerning the country of origin of Outdoor Units, which 
may be offered to the U.S. Government under an undesignated government 
procurement contract. This final determination, in HQ H248850, was 
issued at the request of Mitsubishi Electric US Inc., under procedures 
set forth at 19 CFR Part 177, subpart B, which implements Title III of 
the Trade Agreements Act of 1979, as amended (19 U.S.C. 2511-18). In 
the final determination CBP concluded that, based upon the facts 
presented, the Outdoor Units were substantially transformed in the U.S. 
such that the U.S. is the country of origin of the Outdoor Units for 
purposes of U.S. Government procurement and country of origin marking.
    Section 177.29, CBP Regulations (19 CFR 177.29), provides that a 
notice of final determination shall be published in the Federal 
Register within 60 days of the date the final determination is issued. 
Section 177.30, CBP Regulations (19 CFR 177.30), provides that any 
party-at-interest, as defined in 19 CFR 177.22(d), may seek judicial 
review of a final determination within 30 days of publication of such 
determination in the Federal Register.

    Dated: November 7, 2014.
Glen E. Vereb,
Acting Executive Director, Regulations and Rulings, Office of 
International Trade.

Attachment

HQ H248850

November 7, 2014

OT:RR:CTF:VS H248850 KSG

Stuart P. Seidel, Esq.
Baker & McKenzie LLP
815 Connecticut Avenue NW.

[[Page 68285]]

Washington, DC 20006-4078

RE: Government Procurement; Country of Origin of Outdoor Unit of 
CITY MULTI VRF System; substantial transformation

Dear Mr. Seidel:

    This is in response to your letter dated December 13, 2013, and 
additional submission and information dated May 12 and October 31, 
2014, requesting a final determination on behalf of Mitsubishi 
Electric US, Inc. (``Mitsubishi''), pursuant to subpart B of part 
177 of the U.S. Customs and Border Protection (``CBP'') Regulations 
(19 CFR Part 177). Under these regulations, which implement Title 
III of the Trade Agreements Act of 1979 (``TAA'') as amended (19 
U.S.C. 2511 et seq.), CBP issues country of origin advisory rulings 
and final determinations as to whether an article is or would be a 
product of a designated country or instrumentality for the purposes 
of granting waivers of certain ``Buy American'' restrictions in U.S. 
law or practice for products offered for sale to the U.S. 
Government.
    The final determination concerns the country of origin of an 
Outdoor Unit for a CITY MULTI Variable Refrigerant Flow (``VRF'') 
multi-split heating, ventilation and air conditioning system (``HVAC 
System''). We note that as a U.S. importer, Mitsubishi is a party-
at-interest within the meaning of 19 CFR 177.22(d)(1) and is 
entitled to request this final determination. A conference was held 
on this matter on April 8, 2014.

FACTS:

    The HVAC System is comprised of Outdoor Units; Indoor Units; 
Branch Circuit (BC) Controllers; system controllers; and vertical 
air handlers. This final determination pertains to the Outdoor Units 
of the system. You listed various types of Outdoor Units, including 
the R2 Series, the Y Series, the H2i hyper-Heat Series, the WY 
Series, and the WR2 Series.
    In the U.S., the base from Japan is unpacked. The base pan 
contains the compressor and accumulator. An appropriate flat heat 
exchanger (HEX) with aluminum fins and copper tubing and copper 
headers is selected for the particular Outdoor Unit and the HEX is 
moved with a mechanical lift to coil bending equipment. The HEX is 
placed in coil bending equipment to form the coil with two 90 degree 
bends. The HEX is then removed from the bender and positioned on the 
base pan. Some Outdoor Units utilize two coils and each must be 
formed before being placed on the unit base pan. The refrigerant 
tubing from the headers of the HEX is connected to the refrigerant 
tubing on the unit base connecting compressors, reversing valves, 
the accumulator and other components depending on the model type. 
The tubing is filled with nitrogen. The six to ten connections 
between the refrigerant tubing from the headers on the HEX are 
brazed to the refrigerant tubing on the base unit. The unit is moved 
into a leak test chamber to test for leaks. Photographs which show 
the complex machinery and segments involved in the HEX bending and 
brazing processes were submitted.
    Although there are various types of Outdoor Units, you state 
that in the U.S., the fan motor, fan, fan-motor mount, unit top 
panel, fan orifice, and fan guard cover are installed onto the unit 
base. The vacuum pump is also attached to the unit process tube. 
Next, an appropriate control box is placed into the programming 
fixture. The compressor, outdoor fan motor, reversing valve, 
pressure switches and sensors are wired to the appropriate location 
in the control box. Software is loaded onto the printed circuit 
board (PCB) which separates the PCB specification for Y Series and 
R2 Series Outdoor Units. It is stated that the software used for the 
Outdoor Unit was developed in the U.S.
    Various tests are performed to ensure the Outdoor Unit 
functions. You have provided the costs of the various materials and 
labor used to produce the Outdoor Units in Japan and the U.S.
    The mechanical contractor brings all the components of the 
system together to install them as laid out by the design engineer. 
The Outdoor Unit itself is ground or roof mounted and is connected 
to the BC Controller.

ISSUE:

    What is the country of origin of the Outdoor Unit for U.S. 
Government procurement and country of origin marking.

LAW AND ANALYSIS:

    Pursuant to subpart B of part 177, 19 CFR 177.21 et seq., which 
implements Title III of the Trade Agreements Act of 1979, as amended 
(19 U.S.C. 2511 et seq.), CBP issues country of origin advisory 
rulings and final determinations as to whether an article is or 
would be a product of a designated country or instrumentality for 
the purposes of granting waivers of certain ``Buy American'' 
restrictions in U.S. law or practice for products offered for sale 
to the U.S. Government.
    Under the rule of origin set forth under 19 U.S.C. 2518(4)(B):

    An article is a product of a country or instrumentality only if 
(i) it is wholly the growth, product, or manufacture of that country 
or instrumentality, or (ii) in the case of an article which consists 
in whole or in part of materials from another country or 
instrumentality, it has been substantially transformed into a new 
and different article of commerce with a name, character, or use 
distinct from that of the article or articles from which it was so 
transformed.

See also 19 CFR 177.22(a).

    In rendering advisory rulings and final determinations for 
purposes of U.S. government procurement, CBP applies the provisions 
of subpart B of Part 177 consistent with the Federal Acquisition 
Regulations. See 19 CFR 177.21. In this regard, CBP recognizes that 
the Federal Acquisition Regulations restrict the U.S. Government's 
purchase of products to U.S.-made or designated country end products 
for acquisitions subject to the TAA. See 48 CFR 25.403(c)(1). The 
Federal Acquisition Regulations define ``U.S.-made end product'' as:

. . .an article that is mined, produced, or manufactured in the 
United States or that is substantially transformed in the United 
States into a new and different article of commerce with name, 
character, or use distinct from that of the article or articles from 
which it was transformed.

48 CFR 25.003.

    In order to determine whether a substantial transformation 
occurs when components of various origins are assembled into 
completed products, CBP considers the totality of the circumstances 
and makes such determinations on a case-by-case basis. The country 
of origin of the item's components, extent of the processing that 
occurs within a country, and whether such processing renders a 
product with a new name, character, and use are primary 
considerations in such cases. Additionally, factors such as the 
resources expended on product design and development, the extent and 
nature of post-assembly inspection and testing procedures, and the 
degree of skill required during the manufacturing process may be 
relevant when determining whether a substantial transformation has 
occurred. No one factor is determinative. The same standard is 
applicable to determinations of the country of origin for marking 
purposes under 19 U.S.C. 1304.
    In determining 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 (CIT 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. In Carlson Furniture 
Industries v. United States, 65 Cust. Ct 474 (1970), the U.S. 
Customs Court (predecessor to the U.S. Court of International 
Trade), held that the assembly of finished and unfinished chair 
parts into finished chairs in the U.S. was a substantial 
transformation. The court did acknowledge that more than the 
assembly of chairs took place; the legs were cut to length and in 
some cases, the seats were upholstered.
    It is your position that the country of origin of the Outdoor 
Unit is the U.S. because the final assembly in the U.S. is complex.
    In New York Ruling Letter (NYRL) 808608 dated April 13, 1995, 
Customs considered whether imported heat exchanger cores were 
required to be individually marked with their country of origin if 
they were later processed in the U.S. by a U.S. manufacturer. The 
heat exchanger core was a heat exchanger subassembly constructed of 
25 steel tubes with attached aluminum fins. The tubes were evacuated 
and filled with a small amount of water which made them into ``heat 
pipes'' (a two-phase heat transfer system). The final subassembly 
had a protective aluminum housing that surrounded the fins. After 
importation into the U.S., two fans, a wire harness and a gasket 
were installed on the heat exchanger core. The completed unit was 
then marketed as a cabinet cooler. It was determined that the 
imported heat exchanger cores were substantially transformed as a 
result of the U.S. processing, and therefore the U.S. manufacturer 
was the ultimate purchaser under 19 CFR 134.35.

[[Page 68286]]

    We find that the processing in the U.S. of the Outdoor Unit is 
similar to the processes considered in NYRL 808608. Similar to NYRL 
808608, the HEX is bent and assembled with the fan motor and vacuum 
pump to complete the Outdoor Unit. Substantial processing is 
performed in the U.S., including bending of the HEX, brazing of the 
various connections, and installation of the control box which 
includes software developed in the U.S. to complete the Outdoor 
Unit. We find that these are complex operations requiring skilled 
workers. Based on the totality of the circumstances, we find that 
the Outdoor Units are substantially transformed as a result of the 
processing in the U.S. Accordingly, we find that the Outdoor Unit 
may be considered a product of the U.S. for purposes of U.S. 
Government procurement.
    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 U.S. 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 U.S. the English name of the country 
of origin of the article. Congressional intent in enacting 19 U.S.C. 
1304 was ``that the ultimate purchaser should be able to know by an 
inspection of the marking on the imported goods the country of which 
the goods is 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 at 302; C.A.D. 104 (1940).
    Part 134, Customs Regulations (19 CFR Part 134), implements the 
country of origin marking requirements and the exceptions of 19 
U.S.C. 1304. 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 U.S. 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 the marking laws and regulations. The case of United 
States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) 
(1940), provides that an article used in manufacture which results 
in an article having a name, character or use differing from that of 
the constituent article will be considered substantially 
transformed. In such circumstances the U.S. manufacturer is the 
ultimate purchaser. The imported article is excepted from individual 
marking and only the outermost container is required to be marked. 
See 19 CFR 134.35.
    As Mitsubishi Electric US, Inc. will be considered the ultimate 
purchaser of the Outdoor Units, the imported components used in the 
manufacture of the Outdoor Units may be excepted from country of 
origin marking, provided their outer containers in which they are 
imported are marked with their country of origin pursuant to 19 
U.S.C. 1304(a)(3)(D).

HOLDING:

    Based on the facts provided, the Outdoor Unit is considered a 
product of the U.S. for U.S. Government procurement purposes, and 
Mitsubishi Electric US, Inc. will be considered the ultimate 
purchaser of the Outdoor Unit.
    Notice of this final determination will be given in the Federal 
Register, as required by 19 CFR 177.29. Any party-at-interest other 
than the party which requested this final determination may request, 
pursuant to 19 CFR 177.31, that CBP reexamine the matter a new and 
issue a new final determination. Pursuant to 19 CFR 177.30, any 
party-at-interest may, within 30 days after publication of the 
Federal Register notice referenced above, seek judicial review of 
this final determination before the Court of International Trade.

Sincerely,

Glen E. Vereb

Acting Executive Director, Regulations and Rulings Office of 
International Trade

[FR Doc. 2014-26955 Filed 11-13-14; 8:45 am]
BILLING CODE 9111-14-P