[Federal Register Volume 79, Number 205 (Thursday, October 23, 2014)]
[Notices]
[Pages 63416-63419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25237]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Various 
Elliptical Exercise Machines and Option Package Kits

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

ACTION: Notice of final determination.

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SUMMARY: This document provides notice that U.S. Customs and Border 
Protection (``CBP'') has issued a final determination concerning the 
country of origin of various elliptical exercise machines manufactured 
and distributed by Octane Fitness, and their option package kits that 
add from three products to the elliptical exercise machines. Based upon 
the facts presented, CBP has concluded that Taiwan is the country of 
origin of the elliptical exercise machines and two of the option 
package kits, and China for one option package kit, for purposes of 
U.S. Government procurement.

DATES: The final determination was issued on October 16, 2014. 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 within November 24, 2014.

FOR FURTHER INFORMATION CONTACT: Antonio J. Rivera, Valuation and 
Special Programs Branch, Regulations and Rulings, Office of 
International Trade, (202) 325-0226.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on October 16, 
2014 pursuant to subpart B of Part 177, U.S. Customs and Border 
Protection Regulations (19 CFR part 177, subpart B), CBP has issued a 
final determination concerning the country of origin of various 
elliptical exercise machines, and their option package kits, 
manufactured and distributed by Octane Fitness, which may be offered to 
the U.S. Government under an undesignated government procurement 
contract. This final determination, HQ H248696, was issued under 
procedures set forth at 19 CFR Part 177, subpart B, which implements 
Title III of the Trade Agreement Act of 1979, as amended (19 U.S.C. 
2511-18). In the final determination, CBP concluded that, based upon 
the facts presented, the assembly operations for the elliptical 
exercise machines performed in Taiwan, using a majority of Taiwanese 
components, substantially transformed

[[Page 63417]]

the components into the various elliptical exercise machines. 
Therefore, the country of origin of the elliptical exercise machines is 
Taiwan for purposes of U.S. Government procurement. Furthermore, CBP 
concluded that the three option package kits for the elliptical 
exercise machines retained their respective countries of origin because 
the three kits were already in their final form before being packaged 
into the option kit. Therefore, for U.S. Government procurement 
purposes, the country of origin is Taiwan for two option package kits, 
and China for the other option package kit.
    Section 177.29, CBP Regulations (19 CFR 177.29), provides that a 
notice of final determination shall be published in the Federal 
Register within 60 days of the date the final determination is issued. 
Section 177.30, CBP 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 16, 2014.
Glen E. Vereb,
Acting Executive Director, Regulations and Rulings, Office of 
International Trade.

HQ H248696

October 16, 2014

OT:RR:CTF:VS H248696 AJR

CATEGORY: Country of Origin

Mr. Peter Joseph Hammond
Director of Operations
Octane Fitness
7601 Northland Drive
North Suite 100
Brooklyn Park, MN 55428

RE: U.S. Government Procurement; Title III, Trade Agreements Act of 
1979 (19 U.S.C. Sec.  2511); Subpart B, Part 177, CBP Regulations; 
Country of Origin; 23 Variations of Elliptical Exercise Machines and 
Option Package Kits

Dear Mr. Hammond:

    This is in response to your letter dated September 30, 2013, 
forwarded to us from the National Commodity Specialist Division in 
New York, requesting a final determination on behalf of Octane 
Fitness (``Octane'') pursuant to subpart B of part 177, Customs and 
Border Protection (``CBP'') Regulations (19 C.F.R. Sec.  177.21 et 
seq.). Under the pertinent regulations, which implement Title III of 
the Trade Agreements Act of 1979, as amended (19 U.S.C. Sec.  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.
    This final determination concerns the country of origin of 23 
variations of elliptical exercise machines (``Elliptical(s)'') and 
option package kits. We note that Octane is a party-at-interest 
within the meaning of 19 C.F.R. Sec.  177.22(d)(1) and is entitled 
to request this final determination.

FACTS:

    You describe the pertinent facts as follows. The items at issue 
consist of 23 Ellipticals produced in Taiwan by Octane. Three option 
package kits (``Option(s)'') can be added onto certain Ellipticals. 
You advise that each of the Ellipticals, without the Options, 
consist of two main assemblies: a base assembly and a console 
assembly. A significant majority of the components comprising the 
base and the console are stated to originate from Taiwan. The 
submitted bill of materials, stated to reflect an accurate 
proportion of materials used to produce the Ellipticals, lists 461 
component items for the base assembly and 33 component items for the 
console assembly. This bill of materials shows that the base is 
comprised of 450 Taiwanese components, 10 Chinese components, and 1 
U.S. component, while the console is comprised of 31 Taiwanese 
components and 2 Chinese components. You state that the base and the 
console are produced in Taiwanese factories through an extensive 
assembly process. Once the assembly process is complete, the bases 
and consoles are brought together and tested in Taiwan, then 
packaged separately in Taiwan to facilitate shipment, before being 
imported from Taiwan to Octane's U.S. warehouses.
    Along with the submitted bill of materials reflecting the 
country of origin of the components, you submitted a list describing 
the Ellipticals and photos illustrating the step-by-step assembly 
process in Taiwan.

A. The 23 Variations of Ellipticals

    The Ellipticals are presented in charts titled ``GSA Elliptical 
Cross Trainer Model (and Description).'' The Ellipticals are further 
``grouped into like categories'': ten ``Standing'' Ellipticals, nine 
``Seated'' Ellipticals, and four ``Lateral'' Ellipticals.
    The ten Standing Ellipticals include two commercial grade 
Ellipticals (PRO310 and PRO370) and eight heavy commercial grade 
Ellipticals (PRO3700 and PRO4700). The PRO3700 and the PRO4700 come 
in four different models: (1) the Touch Integrated 15'' LCD TV 
embedded with Netpulse package; (2) the Attached Flat Screen TV 
package; (2) the 900 MHz Keypad package; and (4) the basic package, 
which is without the LCD TV, flat screen TV, or keypad.
    The nine Seated Ellipticals, known under their trade name 
``xRide,'' include eight heavy commercial grade Ellipticals (xR5000 
and xR6000) and one commercial grade Elliptical (xR650), which has 
total body seating and moving arms. The xR5000 has only lower body 
seating, while the xR6000 has total body seating and moving arms. 
The xR5000 and the xR6000 come in four different models: (1) the 
Touch Integrated 15'' LCD TV embedded with Netpulse package; (2) the 
Attached Flat Screen TV package; (3) the 900 MHz Keypad package; and 
(4) the basic package, which is without the LCD TV, flat screen TV, 
or keypad.
    The four Lateral Ellipticals, known under their trade name 
``LateralX,'' are all heavy commercial grade Ellipticals under the 
LX8000 series, which is a total body Elliptical that is laterally 
adjustable. The LX8000 comes in four different models: (1) the Touch 
Integrated 15'' LCD TV embedded with Netpulse package; (2) the 
Attached Flat Screen TV package; (3) the 900 MHz Keypad package; and 
(4) the basic package, which is without the LCD TV, flat screen TV, 
or keypad.
    These Ellipticals are described to have a similar base and 
console assembly process, which takes about eight weeks to 
manufacture in factories located in Taiwan with over 100 workers 
assembling the mostly Taiwanese components, one-by-one, until the 
product is completed.

B. The Base Assembly Process

    The base assembly process takes place in Taiwan and is described 
as follows:
    1. Obtaining over 80 feet of steel tubes and sheet metal;
    2. Cutting the steel tubes with an automated sawing machine into 
about 20 pieces;
    3. Cutting holes in some of the steel tubes using automated 
equipment in machining workshop;
    4. Bending some of the steel tubes into precise shapes using 
automated tube bending machines;
    5. Attaching the separate steel and metal pieces into 
subassemblies in a welding workshop using automated welding 
machines;
    6. Powder coating process to clean, heat, paint, and dry the 
parts;
    7. Cleaning and heating through a variety of chemical baths and 
preparing the parts for painting;
    8. Painting and drying; and
    9. Assembling the final base product.

C. The Console Assembly Process

    The console assembly process takes place in Taiwan. The 
Taiwanese components consist of a circuitboard assembly, plastic 
components, cable assemblies, and a keypad. The Chinese components 
consist of a power supply and power cord. The process is described 
as follows:
    1. Wave soldering electronic components to a circuit board using 
surface mount technology;
    2. Molding the plastic components by injecting Taiwanese 
material into a mold machine;
    3. Assembling Taiwanese wires and connectors for the cable 
assemblies; and
    4. Assembling the keypad.
    Once complete, the consoles provide the Ellipticals with 
automated control by adjusting the motion of the hand and foot 
pedals; fluctuating resistance to the pedals to vary workouts; and 
tracking the time exercised, calories burned, and heart rate of the 
Elliptical's user.
    Lastly, the final assembly brings together the base assembly and 
console assembly. The bases and consoles are then packaged 
separately and imported from Taiwan to Octane's U.S. warehouses.

D. The Assembly Process for the Options

    You advise that three Options are available: stationary side 
steps; a ``Cross

[[Page 63418]]

Circuit Pro kit,'' consisting of adjustable dumbbells and stationary 
side steps; and an upper body lockout kit. Minor variations of the 
Options are available depending on the model of Elliptical machine 
they serve.
    The stationary side steps Option is available for the PRO3700 
and PRO4700 Ellipticals. It allows users to step onto platforms on 
each side of the machine. The stationary side steps undergo an 
assembly process similar to the base assembly process, where a 
Taiwanese factory takes steel and sheet metal through automated 
machines and conveyer systems to cut, bend, weld, clean, heat, 
paint, and then dry the final stationary side steps product. Under 
this Option, the stationary side steps product is shipped by itself 
from Taiwan to Octane's U.S. warehouses.
    The Cross Circuit Pro kit Option provides the stationary side 
steps and the adjustable dumbbells in a package for the PRO3700, 
PRO4700, and LX8000 Ellipticals. Unlike the stationary side steps 
assembly process, the adjustable dumbbells are first made in China 
before being brought to Taiwan. In Taiwan, the adjustable dumbbells 
are packaged together with the stationary side steps as the Cross 
Circuit Pro kit. This kit is imported as one unit from Taiwan to 
Octane's U.S. warehouses.
    The upper body lockout kit Option is available for the PRO370, 
PRO3700, and PRO4700 Ellipticals. It allows users to isolate lower 
body exercises by preventing upper body movements. The upper body 
lockout kit undergoes a similar assembly to the base and the 
stationary side steps assemblies. Here, a Taiwanese steel tube is 
processed through a Taiwanese supplier that also uses automated 
machines and conveyer systems to cut, bend, weld, clean, heat, 
paint, and then dry the final upper body lockout kit. This kit is 
imported from Taiwan as a unit to Octane's U.S. warehouses.

ISSUE:

    What is the country of origin of the Ellipticals and the Options 
for the purpose of U.S. Government procurement?

LAW AND ANALYSIS:

    Pursuant to subpart B of part 177, 19 C.F.R. Sec.  177.21 et 
seq., which implements Title III of the Trade Agreements Act of 
1979, as amended (19 U.S.C. Sec.  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 purposes 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. Sec.  
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. Sec.  177.22(a).

    In rendering advisory rulings and final determinations for 
purposes of U.S. Government procurement, CBP applies the provisions 
of subpart B of part 177 consistent with the Federal Acquisition 
Regulations. See 19 C.F.R. Sec.  177.21. In this regard, CBP 
recognizes that the Federal Acquisition Regulations restrict the 
U.S. Government's purchase of products to U.S.-made or designated 
country end products for acquisitions subject to the TAA. See 48 
C.F.R. Sec.  25.403(c)(1). The Federal Acquisition Regulations 
defines ``designated country end product'' through the following 
relevant defintions:

Designated country end product means a WTO GPA country end product, 
an FTA country end product, a least develop country end product, or 
a Caribbean Basin country end product.
World Trade Organization Government Procurement Agreement (WTO GPA) 
country means any of the following countries: Armenia, Aruba, 
Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, 
Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, 
Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea (Republic 
of), Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, 
Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovak 
Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan, or United 
Kingdom.
WTO GPA country end product means an article that--
(1) Is wholly the growth, product, or manufacture of a WTO GPA 
country; or
(2) In the case of an article that consists in whole or in part of 
materials from another country, has been substantially transformed 
in a WTO GPA country 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 transformed. The term refers to a product 
offered for purchase under a supply contract, but for purposes of 
calculating the value of the end product includes services (except 
transportation services) incidental to the article, provided that 
the value of those incidental services does not exceed that of the 
article itself.
48 C.F.R. Sec.  25.003.

    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. Factors which 
may be relevant in this evaluation may include the nature of the 
operation (including the number of components assembled), the number 
of different operations involved, and whether a significant period 
of time, skill, detail, and quality control are necessary for the 
assembly operation. 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. If the manufacturing 
or combining process is a minor one which leaves the identity of the 
article intact, a substantial transformation has not occurred. 
Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 
(1982), aff'd 702 F. 2d 1022 (Fed. Cir. 1983). In a number of 
rulings (e.g. Headquarters Ruling Letter (``HQ'') 732498, dated 
October 3, 1989, and HQ 732897, dated June 6, 1990), CBP stated, 
``merely packaging parts of a kit together does not constitute a 
substantial transformation.''
    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 the 
degree of skill required during the actual manufacturing process may 
be relevant when determining whether a substantial transformation 
has occurred. No one factor is determinative.
    In HQ 735608, dated April 27, 1995 and HQ 559089, dated August 
24, 1995, CBP has stated: ``in our experience these inquiries are 
highly fact and product specific; generalizations are troublesome 
and potentially misleading.''
    In HQ 735368, dated June 30, 1994, CBP held that the country of 
origin of a bicycle assembled in Taiwan with components made in 
several countries was Taiwan. CBP stated that because the bicycle 
was assembled in Taiwan and one of the bicycle's most significant 
components, the frame, was made in Taiwan, the country of origin of 
the bicycle was Taiwan. Although the other components came from 
several different countries, when they were assembled together in 
Taiwan, they each lost their separate identity and became an 
integral part of a new article of commerce, a bicycle.
    In the instant case, the assembly of the Ellipticals is 
comprised of two major assemblies, the base assembly and the console 
assembly. The base and console for each of the Ellipticals are 
produced through separate, extensive assembly processes that occur 
entirely in Taiwan. With regard to the generalized base assembly, 
approximately 461 components, from which 450 originate from Taiwan, 
are transformed into the final base product by cutting, bending, 
welding, painting, and further assembling these components into 
bases for the Ellipticals. With regard to the generalized console 
assembly, approximately 33 components, from which 31 originate from 
Taiwan, are transformed into the final console product by wave 
soldering, molding, and further assembling these components into 
consoles for the Ellipticals. Though the base and console are 
shipped separately to Octane's U.S. warehouses, the base and console 
are first brought together in Taiwan for a complete machine test 
that ensures the machine is working properly. We find that

[[Page 63419]]

under the described assembly process, the components from China and 
the U.S. lose their individual identities and become an integral 
part of the articles, the Ellipticals, possessing a new name, 
character and use. The assembly process that occurs in Taiwan is 
complex and meaningful, requiring the assembly of various components 
into a base and a console, which are then further assembled into the 
final Elliptical product for testing before shipment from Taiwan. 
Additionally, aside from the significant number of components that 
originate from Taiwan, the Elliptical's most significant components, 
the base and the console, were made from start to finish in Taiwan, 
which was an important consideration in HQ 735368. Moreover, the 
base and the console are combined for testing as the full Elliptical 
product in Taiwan. Thus, even though the base and the console are 
shipped separately from Taiwan to the U.S., the identity of the 
product as an Elliptical is already intact in Taiwan during testing, 
and before shipment to the U.S. where any later combination in the 
U.S. should be seen as a minimal assembly process that does not 
result in a substantial transformation.
    Similarly, the assembly of two of the Options, the stationary 
side steps and the upper body lockout kit, are entirely produced in 
Taiwan from starting components to finished products. Conversely, 
the adjustable dumbbells are made into their final form in China 
before reaching Taiwan. We find that under the described assembly 
processes, the side stationary steps and the upper body lockout kit 
are products originating from Taiwan because their components, 
Taiwanese metals, and manufacturing processes wholly originate and 
take place in Taiwan. However, we find that the adjustable dumbbells 
originate from China since packaging the adjustable dumbbells with 
the stationary side steps in the Cross Circuit Pro kit in Taiwan 
does not substantially transform the adjustable dumbbells into a new 
article of commerce having a new name, character or use. As noted in 
HQ 732498 and HQ 732897, the repackaging of the adjustable dumbbells 
and the stationary side steps is not a substantial transformation 
because the separate items are already in their finished forms, not 
modified or affixed to each other, or combined in a permanent 
matter. Accordingly, the individual products which make up these 
Options retain their individual countries of origin, such that the 
adjustable dumbbells in the Cross Circuit Pro kit are not considered 
products of Taiwan, but rather products of China.
    Therefore, based upon the information before us, we find that 
the country of origin of the Ellipticals, the stationary side steps, 
and the upper body lockout kit is Taiwan for U.S. Government 
procurement purposes. However, the packaging of the Cross Circuit 
Pro kit is not sufficient to change the country of origin for the 
adjustable dumbbells from China to Taiwan, and the adjustable 
dumbbells remain a product of China.

HOLDING:

    The components that are used to manufacture the Ellipticals are 
substantially transformed as a result of the assembly operations 
performed in the Taiwan. Therefore, the country of origin of the 
Ellipticals for U.S. Government procurement purposes is Taiwan. The 
Options for the Ellipticals retain their respective country of 
Origin because repackaging these products into Option kits for the 
Ellipticals does not substantially transform these products from 
their already final product form. Therefore, the countries of origin 
for U.S. Government procurement purposes of the stationary side 
steps, adjustable dumbbells, and upper body lockout kits are Taiwan, 
China, and Taiwan, respectively.
    Notice of this final determination will be given in the Federal 
Register, as required by 19 C.F.R. Sec.  177.29. Any party-at-
interest other than the party which requested this final 
determination may request, pursuant to 19 C.F.R. Sec.  177.31, that 
CBP reexamine the matter anew and issue a new final determination. 
Pursuant to 19 C.F.R. Sec.  177.30, any party-at-interest may, 
within 30 days after publication of the Federal Register notice 
referenced above, seek judicial review of this final determination 
before the Court of International Trade.
    Sincerely,

Glen E. Vereb,
Acting Executive Director, Regulations and Rulings, Office of 
International Trade.

[FR Doc. 2014-25237 Filed 10-22-14; 8:45 am]
BILLING CODE 9111-14-P