A recent ruling by the U.S. Court of International Trade (CIT) has important implications for importers and manufacturers making “Made in USA” claims for products assembled from imported components. While the case concerned compliance with the Buy America provision of the Trade Agreements Act (TAA) by a government contractor, the CIT reasoning might be used in other country of origin cases that involve imported components. In Energizer Battery, Inc. v. United States, 2016 WL 7118538 (Ct. Int’l. Trade 2016) the Court ruled that mere assembly of foreign component parts does not constitute substantial transformation and the resulting product cannot be considered to be of U.S. origin.
In Energizer Battery the CIT upheld U.S. Customs and Border Protection’s determination that Energizer’s Generation II military flashlights are made in China. Energizer had argued that domestic assembly of its foreign components amounts to substantial transformation and creates a product of U.S. origin. 19 U.S.C. §1304 provides that every article of foreign origin imported into the U.S. shall be marked as to indicate the country of origin of the article; and therefore, Customs enforces the country of origin marking requirement. Furthermore, the regulations provide that a foreign article used in the United States to manufacture an article having a name, character, or use differing from that of the imported article will be considered substantially transformed and therefore the U.S. manufacturer will be considered the ultimate purchaser of the imported article and within the parameters of §1304.
While the Court considered a number of factors relied on by Customs, the decision noted that, “whether there has been a substantial transformation depends on whether there has been a change in the name or use of the components.” Energizer at 23-24. However, the court focused not on “whether the components as imported have the form and function of the final product” but rather “whether the components have a pre-determined use at the time of importation.” Id. at 26. Here, the Court found that because the imported Chinese parts had a pre-determined usage at the time of import, their fulfillment of that end-use through assembly could not constitute substantial transformation. Instead, the Court suggested that the imported parts would need to undergo “further work” beyond mere assembly to be considered substantially transformed. Id. at 30-31.
The Energizer decision will have implications for importers seeking to comply with origin marking requirements and marketers making “Assembled” or “Made in USA” claims. The Court made clear that the substantial transformation analysis examines all the circumstances surrounding importation and completion of a product, such that each case is based on an independent factual analysis. Any party making an assembly claim ought to reexamine their own manufacturing structure to determine whether substantial transformation has taken place and that the claim is still valid in light of this new guidance.