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Chinese Motors Not 'Substantially Transformed' Into Actuator Cable Assembles in Mexico, CBP Rules

Actuator cable assemblies assembled in Mexico from Chinese motors and various parts from China, Taiwan, the U.S. and Mexico are products of China based on the motor's predetermined end use, CBP said in a recent ruling -- the first publicly released that cites the Court of International Trade's recent decision in an origin case involving Cyber Power (see 2302270064).

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Responding to applications for further review of two protests by Kongsberg Automotive, CBP found the Chinese motor did not undergo a change in its predetermined use. The final assembly is "an electrical motor with additional components" so the finished actuator was not substantially transformed into a product of Mexico, CBP said.

According to CBP, CIT's February judgment in Cyber Power v. U.S. "did not overrule" prior decisions that applied the "essence” and “pre-determined use” tests. Instead, the judgment merely cautioned that the tests were parts of "many factors in a substantial transformation analysis."

The actuator cable assembly is an electrical motor from China equipped with a printed circuit board assembly (PCBA) assembled in Mexico, cable and housing subassemblies from Mexico, gear components from the U.S., and screws and fasteners from Taiwan. The PCBA communicates with the motor to direct which mechanism to activate, manage motor speed, run-time and current. The motor generates power to rotate the gears and pull the cable. The gears transfer the power to pull and move the cable.

The substantial transformation test requires that an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. CBP cited Energizer Battery v. U.S., in which the court held that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.”

Kongsberg argued the assembly was a product of Mexico for purposes of Section 301 measures because the foreign components were substantially transformed in Mexico. The Chinese motor and other components account for only a third of the material cost while the U.S.-origin components account for the majority of the components by quantity. Kongsberg also argued that no single component performs the function of the actuator and that CBP mistakenly did not make an assessment under the totality of the circumstances.

The importer cited Cyber Power to argue the totality of the evidence should be considered without applying the “essence” test because the PCBA is more important than the motor and is the only component with a predetermined function. The PCBA plays a special role because it communicates with and directs the motor, Kongsberg said.

However, CBP ruled the PCBA is only one of the additional components added to the motor and cannot individually perform the function of the finished assembly. Without the motor, the PCBA and the final assembly were both nonfunctional, CBP said. Like the partially assembled lens head in Energizer Battery, the Chinese motor had a predetermined use and does not lose its identity and undergo a change in its predetermined use as a result of assembly in Mexico, CBP said. The finished actuator assembly remained an electrical motor with additional components.

Following the Cyber Power decision, lawyers had said it could move the substantial transformation analysis toward a comparison between parts and finished components, after a period of focus on essence or critical components (see 2302280065).