Main Idea: Feeling positive about your country of origin determination? CBP’s decision on battery modules and packs confirms the importance of understanding the complexity of the substantial transformation rules.
In a decision impacting the electric vehicle, renewables, and other related industries, U.S. Customs and Border Protection (CBP) discusses the country of origin of battery modules and battery packs, as well as the applicability of certain trade remedies under Section 301 to such products. The products CBP analyzes in ruling N329847 (Jan. 10, 2023) are lithium-ion battery modules and battery packs that are used in various battery electric systems for electric vehicles. Each battery module’s main components include: lithium-ion battery cells, a top and bottom housing, a cell holder and current collector, a module cold plate, and a battery management board. The battery modules are manufactured into battery packs containing multiple battery modules. Both the battery modules and battery packs are assembled in Canada through multi-step assembly processes that include: applying adhesive, aligning, pressing, curing, plasma cleaning, laser ablation, wire bonding, material injection, bolting, and testing of inputs sourced from Canada, China, Germany, Indonesia, Japan, Singapore, South Korea, and the United States. The lithium-ion battery cells are sourced from either China, Japan, or South Korea.
19 C.F.R. § 134.1(b) defines country of origin as: “… the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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” …” A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, and use that differs from the original material subjected to the processing.” See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). CBP country of origin determinations on a case-by-case basis based on the totality of evidence.
Applying the substantial transformation analysis to the battery modules and battery packs assembled in Canada, CBP focuses on the component providing the “essence” of the battery module and in which country that component undergoes a substantial transformation. In its ruling CBP determines that the country of origin for the products is China, Japan, or South Korea, depending upon where the battery cells are manufactured. CBP states that the assembly operations in Canada do not substantially transform the battery cells, which provide the essence of the battery module and subsequent battery pack, into an article with a new name, character, or use, different from that possessed by the article prior to processing.
CBP has previously held that assembling battery cells into battery packs does not characterize substantial transformation of the battery cells because the fundamental character of the cells is not altered simply by being placed together in plastic casing. See HQ 563045 (Aug. 9, 2004) and HQ 734393 (Mar. 20, 1992).
CBP’s ruling presents an example of why importers and manufacturers need to be aware of the manufacturing and assembly criteria CBP considers “substantial” enough to constitute a substantial transformation.