In the September 30, 2015 Customs Bulletin, CBP gave notice that it was revoking two prior rulings regarding the marking of certain solar panels made by Kyocera. One of those prior rulings applied the NAFTA marking rules to find the country of origin to be Mexico. The second permitted the solar panels to be marked “Components from Japan, Assembled in Mexico.” This revocation is interesting as it implicates NAFTA tariff shifts, country of origin marking rules, statistical suffixes to the tariff, and the value of obtaining Customs’ binding rulings.
In most cases, the country of origin of goods produced in one country from components made in another is determined under the “substantial transformation” test. That test is satisfied where an article emerges from a manufacturing process with a name, character, or use which differs from that of the original material. For articles imported from a NAFTA country, there is a different test. In that case, one determines the appropriate country of origin by application of the NAFTA Marking Rules (set forth at 19 CFR Part 102).
The solar panels at issue here are classified under subheading 8541.40.6020, HTSUS (Annotated). The NAFTA Marking Rule for heading 8541 requires a “change to any other good of heading 8541 through 8542 from any other subheading, including another subheading within that group.” In a 2004 ruling, Customs found that, as the solar panels are made from Japanese solar cells classified under subheading 8541.40.6030, HTSUS (Annotated), there had been a qualifying tariff shift and the finished solar panels were of Mexican origin for marking purposes.
In a 2009 ruling, Customs considered whether Kyocera could mark the solar panels as “Components from Japan, Assembled in Mexico.” The relevant regulation provides as follows:
Where an article is produced as a result of an assembly operation and the country of origin of such article is determined under this chapter to be the country in which the article was finally assembled, such article may be marked, as appropriate, in a manner such as the following:
* * *
(2) Assembled in (country of final assembly) from components of (name of country or countries of origin of all components).
19 CFR § 134.43(e)(2). In view of this regulation and its earlier finding that Mexico was the country of origin, Customs ruled that marking the solar panels “Components from Japan, Assembled in Mexico” was proper.
In its September 30, 2015, Notice, Customs has indicated an intent to revoke both prior Kyocera rulings. The Notice observes that a change from subheading 8541.40.6030 to subheading 8541.40.6020, HTSUS (Annotated) is not a change that satisfies the tariff shift rule. Rather, it is only a change from one ten-digit statistical suffix to another, both within subheading 8541.40.60, HTSUS. As a consequence, the relevant marking rule is not satisfied and the solar panels are not viewed as being of Mexican origin. Rather, their country of origin is determined according to the component that imparts the essential character to the good - the Japanese solar cells. Accordingly, the solar panels should be marked as products of Japan.
Although Customs has changed its view of the marking requirement for these solar panels, because it sought binding rulings from Customs, Kyocera will suffer no adverse consequence apart from the administrative burden of compliance. The moral of the story is to always seek advance rulings – compliance can be difficult and unpredictable so it is good to have a bit of insurance.