2010-26649. Notice of Issuance of Final Determination Concerning Certain Heating Boilers

AGENCY:

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

ACTION:

Notice of final determination.

SUMMARY:

This document provides notice that U.S. Customs and Border Protection (“CBP”) has issued a final determination concerning the country of origin of certain heating boilers. Based upon the facts presented, CBP has concluded in the final determination that Canada is the country of origin of the heating boilers for purposes of U.S. Government procurement.

DATES:

The final determination was issued on October 13, 2010. 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 November 22, 2010.

FOR FURTHER INFORMATION CONTACT:

Barbara Kunzinger, Valuation and Special Programs Branch: [phone].

SUPPLEMENTARY INFORMATION:

Notice is hereby given that on October 13, 2010, pursuant to subpart B of part 177, Customs Regulations (19 CFR part 177, subpart B), CBP issued a final determination concerning the country of origin of heating boilers which may be offered to the U.S. Government under an undesignated procurement contract. This final determination, in HQ H119218, was issued at the request of Camus Hydronics Ltd. 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 heating boilers, assembled in Canada from parts made in the United States, Canada, and France, are substantially transformed in Canada, such that Canada is the country of origin of the finished article for purposes of U.S. Government procurement.

Section 177.29, Customs Regulations (19 CFR 177.29), provides that notice of final determinations shall be published in the Federal Register within 60 days of the date the final determination is issued. Section 177.30, Customs 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: October 13, 2010.

Sandra L. Bell,

Executive Director, Regulations and Rulings, Office of International Trade.

Attachment

    HQ H119218

October 13, 2010

OT:RR:CTF:VS H119218

Ms. Regina Vargo

Greenberg Traurig, LLP

2101 L Street NW, Suite 1000

Washington, D.C. 20037

Re: U.S. Government Procurement; Heating Boilers

Dear Ms. Vargo:

This is in response to your letter, dated August 3, 2010, requesting a final determination on behalf of Camus Hydronics Ltd. (Camus) of Ontario, Canada, pursuant to subpart B of 19 C.F.R. part 177.

Under these regulations, which implement Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. 2511 et seq.), U.S. Customs and Border Protection (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 purpose of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government.

This final determination concerns the country of origin of certain heating boilers. We note that Camus is a party-at-interest within the meaning of 19 C.F.R. 177.22(d)(1) and is entitled to request this final determination as the manufacturer of these boilers under 19 C.F.R. 177.23(a).

FACTS:

This case involves the Camus DynaFlame, DynaForce, and DynaMax heating boilers fabricated and assembled in Canada from sheet metal and components primarily of United States (U.S.), Canadian, and (in the case of the DynaMax) French origin. All three boilers go through both a sub-assembly stage and an assembly stage in Canada, as well as testing, quality control, and packaging. A bill of materials was submitted with your request.

DynaFlame Boilers

The DynaFlame boiler is composed of 65 separate components. Of these, 22 are fabricated in Canada from sheet metal imported from the U.S. Most of the finished components, including the burner, headers, and controls, are also of U.S. origin. The fabrication process includes, among other things, shearing the flat stock to the required size; utilizing punch presses, tools, and dies; bending and welding the steel; and painting the steel components.

Four sub-assembly processes then occur in Canada; these include the assembly of the heat exchanger, the gas train, electronics and controls, and the combustion fan. Assembly of the heat exchanger requires, among other things, cutting copper finned tube to specific lengths, adjusting the tube to the required specifications, inserting the tubes into the headers, inserting and attaching a number of other components, and hydro testing the heat exchanger. The copper tubes used to make the heat exchanger are of U.S. origin. The gas train assembly requires fitting the components together by threading the components with nipples and fittings, and then painting all the pipe black. Assembly of the electronics and controls requires installing and wiring the components together, and programming certain aspects of the control box. The combustion fan is assembled by separating the fan housing, installing the components, and then reassembling the housing.

The four sub-assemblies, along with the fabricated sheet metal parts and various other components, are then assembled into a finished DynaFlame boiler. Final assembly consists of, among other things, installing, wiring, and fastening the sub-assemblies to each other and the remaining components.

DynaForce Boilers

The DynaForce boiler contains almost 60 separate components. Of these, 18 are fabricated in Canada from sheet metal imported from the U.S. The sheet metal fabrication process for the DynaForce is the same as that for the DynaFlame. The heat exchanger is purchased already assembled from a Canadian supplier, and is assembled in Canada from U.S. origin stainless steel plates and tubes. The burner, controls, and fan kit are some of the U.S. origin components.

Like with the DynaFlame, the DynaForce goes through both a sub-assembly stage and an assembly stage. The sub-assembly stage has three processes: the gas train, electronics and controls, and the combustion fan. The assemblies of the gas train, electronics and controls, and the combustion fan for the DynaForce are very similar to those for the DynaFlame.

The three sub-assemblies, the heat exchanger, the fabricated components of sheet metal, and the remaining parts are then assembled to create the finished DynaForce boiler.

DynaMax Boilers

The DynaMax boiler contains over 50 separate components. Of those, 21 are fabricated in Canada from U.S. originating sheet metal. The fabrication process for the sheet metal is the same for the DynaMax as it is for the DynaFlame and DynaForce. The heat exchanger (along with the burner) is imported into Canada from France. The controls, sensors, fan, and pump are some of the components of U.S. origin.

As with the other two boilers, the DynaMax has both a sub-assembly stage and an assembly stage. The sub-assembly stage is composed of three sub-assembly processes: the heat exchanger, electronics and controls, and the plate exchanger. Although the heat exchanger is imported from France, it undergoes additional assembly in Canada. The heat exchanger sub-assembly consists of, among other things, inspection, attaching the pump, installing the burner and ignition, and testing the heat exchanger. Assembly of the plate exchanger requires selecting the required plate exchanger, attaching the fittings and labeling the fittings.

These three sub-assemblies are then assembled together with the fabricated components of sheet metal, the combustion fan, the gas train, and various other parts to become the finished DynaMax boiler.

ISSUE:

What is the country of origin of the subject boilers for the purpose of U.S. Government procurement?

LAW AND ANALYSIS:

Pursuant to subpart B of part 177, 19 C.F.R. § 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 purpose 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 C.F.R. § 177.22(a).

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 (Ct. Int'l Trade 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. See C.S.D. 80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97. Whether an operation is complex and meaningful depends on the nature of the operation, including the number of components assembled, number of different operations, time, skill level required, attention to detail, quality control, the value added to the article, and the overall employment generated by the manufacturing process.

The courts and CBP have also considered the essential character of the imported article in making these determinations. See Uniroyal, Inc. v. United States, 542 F. Supp. 1026, 3 CIT 220, 224-225 (1982) (where it was determined that imported uppers were the essence of a completed shoe) and National Juice Products Association, et al v. United States, 628 F. Supp. 978, 10 CIT 48, 61 (1986) (where the court addressed each of the factors (name, character, and use) in finding that no substantial transformation occurred in the production of retail juice products from manufacturing concentrate).

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, extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative.

In Headquarters Ruling Letter (“HRL”) 555532 (September 18, 1990), Customs held that electric and gas water heaters imported from Mexico were a product of Mexico. The Mexican manufacturer fabricated the shell with rolled steel from the U.S. and then assembled the fabricated shell with other components of the water heater, many of which were of U.S. origin. This is very similar to the process used by Camus in this case. Camus uses U.S. originating sheet metal to fabricate many parts, such as the boiler shell, and then assembles U.S., Canadian, and (in the case of the DynaMax) French originating components to create the completed boilers.

In HRL 561450 (April 14, 2000), a home espresso machine assembled in Italy from over 60 components from both Spain and Italy was considered to be a product of Italian origin. The assembly of the components was found to be a substantial transformation resulting in a new commercial product with a new name, character and use. Similarly, the assembly of the U.S., Canadian, and French components for the boilers involves at least 50 components. The assembly results in an article with a new name, character and use from that of the individual components—a boiler.

All three boilers undergo a substantial amount of work in Canada, from the fabrication of the sheet metal into components, the assembly of parts into subassemblies, and the final assembly—combining the subassemblies and the remaining components into the finished boilers. The number of components, the least of which being 50, is a meaningful assembly of individual components into the finished boilers. Although some of the more expensive parts are not of Canadian origin, no one part could function or run the boiler without the others.

Therefore, based on the totality of the circumstances in this case, we find that the Canadian processing results in a substantial transformation of the components and that the DynaFlame, DynaForce, and DynaMax boilers should be considered products of Canada for the purpose of U.S. Government procurement.

HOLDING:

Based on the facts of this case, the country of origin of the Camus DynaFlame, DynaForce, and DynaMax heating boilers is Canada for purposes of U.S. Government procurement.

Notice of this final determination will be given in the Federal Register, as required by 19 C.F.R. § 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 C.F.R. § 177.31 that CBP reexamine the matter anew and issue a new final determination. Pursuant to 19 C.F.R. § 177.30, any party-at-interest may, within 30 days of publication of the Federal Register Notice referenced above, seek judicial review of this final determination before the Court of International Trade.

Sincerely,

Sandra L. Bell

Executive Director

Office of Regulations and Rulings

Office of International Trade