[Federal Register Volume 81, Number 94 (Monday, May 16, 2016)]
[Notices]
[Pages 30322-30324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11478]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection


Notice of Issuance of Final Determination Concerning Certain 
Exercise Equipment

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 two pieces of exercise equipment known as the 
Matrix[supreg] G3-S60 Selectorized Dip/Chin Assist and the 
Matrix[supreg] G3-FW52 Back Extension Bench. Based upon the facts 
presented, CBP has concluded that the country of origin of the exercise 
equipment is the United States under Scenario One and China under 
Scenario 2.

DATES: The final determination was issued on May 10, 2016. 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 no later than June 15, 2016.

FOR FURTHER INFORMATION CONTACT: Ross Cunningham, Valuation and Special 
Programs Branch, Regulations and Rulings, Office of Trade (202) 325-
0034.

SUPPLEMENTARY INFORMATION: Notice is hereby given that on May 10, 2016, 
pursuant to subpart B of Part 177, U.S. Customs and Border Protection 
Regulations (19 CFR part 177, subpart B), CBP issued a final 
determination concerning the country of origin of two pieces of 
exercise equipment known as the Matrix[supreg] G3-S60 Selectorized Dip/
Chin Assist and the Matrix[supreg] G3-FW52 Back Extension Bench, which 
may be offered to the U.S. Government under an undesignated government 
procurement contract. This final determination, HQ H270580, was issued 
under procedures set forth at 19 CFR part 177, subpart B, which 
implements Title III of the Trade Agreements Act of 1979, as amended 
(19 U.S.C. 2511-18). In the final determination, CBP concluded that 
under Scenario One, the processing in the United States results in a 
substantial transformation, whereas under Scenario Two, the processing 
in the United States does not result in a substantial transformation. 
Therefore, the country of origin of the exercise equipment for purposes 
of U.S. Government procurement is the United States under Scenario One 
and China under Scenario Two.
    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: May 10, 2016.
Myles B. Harmon,
Acting Executive Director, Regulations and Rulings, Office of Trade.

HQ H270580

May 10, 2016

OT:RR:CTF:VS H270580 RMC

CATEGORY: Country of Origin

John A. Knab
Garvey Shubert Barer PC
1000 Potomac Street NW
Suite 200
Washington, DC 20007
Re: U.S. Government Procurement; Country of Origin of Exercise 
Equipment; Substantial Transformation

Dear Mr. Knab:
    This is in response to your letter dated November 3, 2015, 
requesting a final determination on behalf of Johnson Health Tech 
North America (``Johnson'') pursuant to Subpart B of Part 177 of the 
U.S. Customs and Border Protection (``CBP'') Regulations (19 CFR 
part 177). Under these regulations, which implement Title III of the 
Trade Agreements Act of 1979 (``TAA''), as amended (19 U.S.C. 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 for 
products offered for sale to the U.S. Government. This final 
determination concerns the country of origin of two pieces of 
exercise equipment. As a U.S. importer, Johnson is a party-at-
interest within the meaning of 19 CFR 177.22(d)(1) and is entitled 
to request this final determination.

FACTS:

    Johnson is an exercise equipment manufacturer based in Cottage 
Grove, Wisconsin. It is a wholly-owned subsidiary of the Taiwanese 
entity Johnson Health Tech. Co., Ltd. (``JHT''). JHT, through its 
subsidiaries, operates in Taiwan, China, and the United States.
    The two pieces of equipment at issue are the Matrix[supreg] G3-
S60 Selectorized Dip/Chin Assist (``G3 Dip'') and the Matrix[supreg] 
G3-FW52 Back Extension Bench (``G3 Back Extension''). The G3 Dip 
machine is designed to be used for pull-ups and triceps dips. The 
user kneels on a counterweighted lever that supports some of the 
user's body weight during pull-up or triceps-dip exercises. This 
upward pressure helps the user develop strength before transitioning 
to unassisted pull-ups or triceps dips. The G3 Back Extension is an 
adjustable bench, angled at 45 degrees, designed to be used for 
lower-back exercises such as hyperextensions.
    In its submission, Johnson described two scenarios for 
assembling the exercise equipment in the United States. The first 
scenario would apply to both the G3 Dip and the G3 Back Extension 
and involves importing all component parts for the equipment from 
China and welding, painting, and assembling them in the United 
States. The second scenario would apply only to the G3 Dip and is 
similar to the first scenario except that some of the sub-assemblies 
would be welded together in China. The specifics of each scenario 
are described in greater detail below.

1. Scenario One--Design, Weldments, and Assembly in the United States

a. Design in the United States

    Johnson states that the G3 Dip and G3 Back Extension will be 
derived from previous industrial designs that were completed in the 
United States, although some additional U.S. industrial design may 
be needed to refresh the look of the equipment. In the design 
process, U.S.-based engineers will use SolidWorks software to create 
3D models and 2D drawings from computer models. Each unit will 
generally require between 100 and 200 2D computer drawings 
representing between 300 and 500 separate components and 
subassemblies. These 2D drawings will then be used as the blueprints 
in the manufacturing process.

b. Component Parts and Materials Come From China

    The G3 Dip will consist of approximately 500 parts all produced 
in China from Chinese materials except for the cable that connects 
the weights to the counterweight. This cable will be procured from a 
U.S. supplier but is of unknown origin. The G3 Back Extension will 
consist of approximately 200 parts all produced in China from 
Chinese materials.

[[Page 30323]]

c. Description of Manufacturing Process

i. Description of Weldments/Major Subassemblies

    Johnson states that the equipment will consist of a number of 
major subassemblies referred to as ``weldments.'' Each weldment 
consists of a number of metal parts that are welded together to 
create a major component. These weldments are subsequently either 
welded or bolted together to form the finished product.
    Nine weldments will comprise the G3 Dip: (1) The weight tower 
frame; (2) the base frame with steps; (3) the kneel pad support; (4) 
the left-hand chin-up bars; (5) the right-hand chin-up bars; (6) the 
head plate; (7) the add-a-weight frame support; (8) the add-a-weight 
weight stack support; and (9) the belt termination. The G3 Back 
Extension will have three weldments: (1) the base exercise frame; 
(2) the telescopic adjustment tube; and (3) the thigh pad support.
    Johnson notes that none of the parts as imported from China or 
the weldments as assembled in the United States will be able to 
function on their own until they are assembled, welded, or bolted 
together in the United States.

ii. Chinese Operations

    In China, Johnson will purchase steel tubing that becomes the 
basis for the equipment's frame. The tubes will be cut to length, 
punched or drilled, and bent into the required shape before being 
packaged with individual parts and sent to the United States.

iii. Assembly in the United States

    In the United States, Johnson will first clean the steel tubes 
in a steam booth and then clamp them into various weld fixtures for 
welding into weldments.
    With respect to the G3 Dip, each weldment will require the 
following number of welding seams to fuse the various metal 
components together:
    (1) Weight Tower Frame--18 seams;
    (2) Base Frame With Steps--12 seams;
    (3) Kneel Pad Support--6 seams;
    (4) Left-Hand Chin-Up Bar--4 seams;
    (5) Right-Hand Chin-Up Bar--4 seams;
    (6) Head Plate--1 seam;
    (7) Add-A-Weight Frame Support--1 seam;
    (8) Add-A-Weight Weight Stack Support--1 seam;
    (9) Belt Termination--2 seams.
    With respect to the G3 Back Extension each weldment will need 
the following number of welding seams to fuse the various metal 
components together:
    (1) Base Exercise Frame--16 seams;
    (2) Telescopic Adjustment Tube--4 seams;
    (3) Thigh Pad Support--2 seams.
    After welding the metal components, workers will grind down some 
of the welds to ensure a proper fit for the final product. Next, 
metal components will be painted with powder-coat paint and placed 
into a paint oven to cure the paint. Some of the painted components 
will then be painted a second time with clear coat to protect the 
finish. At this point, all components and subassemblies will be 
ready for assembly into the final product, which will involve 
bolting together weldments; fastening hardware; adding rubber grips; 
capping off tube ends; positioning pulleys; adding weights, cables, 
or belts; and placing warning placards.
    For the G3 Dip, Johnson states that it will take approximately 
255 steps to assemble the 500 parts that make up the final product. 
As for the G3 Back Extension, it will take workers 148 steps to 
assemble the 200 parts that comprise the finished bench.

iv. Post-Assembly Inspection and Testing

    Johnson states that significant inspection and testing will be 
required for each piece of G3 equipment. The inspection will 
generally consist of a geometric measurement and analysis of the 
incoming components, a visual inspection of defects in workmanship 
and materials, functional testing of assembled units, inspection of 
paint, and cable tensile testing.

v. Labor & Investment in the United States

    Johnson states that in order to assemble equipment in the United 
States using Scenario 1, it will need to hire at least 16 additional 
employees in the United States. Further investments will also need 
to be made in designing and building at least two new weld features, 
expanding into or acquiring new factory space, and updating IT 
infrastructure.

2. Scenario Two--Design, Some Weldments, and Assembly in the United 
States

    As noted above, Scenario Two would apply only to the G3 Dip 
machine. It is similar to Scenario One except that three of the nine 
weldments will be welded together in China and sent to the United 
States as pre-welded components: (1) the add-a-weight frame support; 
(2) the add-a-weight weight stack support; and (3) the belt 
termination. Workers in the United States will then conduct a pre-
cleaning and degreasing, an incoming inspection, painting and 
curing, and assembly on the Chinese-produced weldments. As a result 
of the additional welding in China, four fewer welding seams would 
be needed in the United States under Scenario 2. Otherwise, the 
steps required under Scenario 2 are the same as those described 
above under ``Description of the Manufacturing Process'' for 
Scenario 1. Johnson states that it will take 210 steps to assemble 
the G3 Dip under Scenario Two and will require 17 additional 
employees in the United States (one employee more than under 
Scenario One due to the additional inspections required).

ISSUE:

    What is the country of origin of the G3 Back Extension and the 
G3 Dip for purposes of U.S. government procurement?

LAW AND ANALYSIS:

    Pursuant to subpart B of part 177, 19 CFR 177.21 et seq., which 
implements Title III of the Trade Agreements Act of 1979, as amended 
(19 U.S.C. 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. 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 CFR 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 Federal Acquisition 
Regulations. See 19 CFR 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 CFR 25.403(c)(1). The 
Federal Acquisition Regulations define ``U.S.-made end product'' as:
    . . . an article that is mined, produced, or manufactured in the 
United States or that is substantially transformed in the United 
States 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.

48 CFR 25.003.

    In order to determine whether a substantial transformation 
occurs when components of various origins are assembled into 
completed products, 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. See Belcrest Linens v. 
United States, 6 CIT 204 (1983), aff'd, 741 F.2d 1368 (Fed. Cir. 
1984). 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.
    CBP has consistently held that complex and meaningful assembly 
operations in the United States can result in a substantial 
transformation. See, e.g., HQ H156919, dated July 26, 2011. By 
contrast, assembly operations that are minimal or simple will 
generally not result in a substantial transformation. For example, 
in HQ 733188, dated July 5, 1990, CBP held that no substantial 
transformation occurred when Venezuelan exercise benches and boards 
were assembled in the United States. The metal frames as imported 
from Venezuela were essentially complete, and the U.S. assembly 
consisted primarily of attaching the

[[Page 30324]]

cushions and minor parts. Further, no machining was done in the 
United States and no specialized training, skill, or equipment was 
required to assemble the exercise equipment. CBP thus held that no 
substantial transformation occurred in the United States.
    Similarly, the Court of International Trade has applied the 
``essence test'' to determine whether the identity of an article is 
changed through assembly or processing. For example, in Uniroyal, 
Inc. v. United States, 3 CIT 220, 225, 542 F. Supp. 1026, 1030 
(1982), aff'd 702 F.2d 1022 (Fed. Cir. 1983), the court held that 
imported shoe uppers added to an outer sole in the United States 
were the ``very essence of the finished shoe'' and thus were not 
substantially transformed into a product of the United States. 
Similarly, in National Juice Products Association v. United States, 
10 CIT 48, 61, 628 F. Supp. 978, 991 (1986), the court held that 
imported orange juice concentrate ``imparts the essential 
character'' to the completed orange juice and thus was not 
substantially transformed into a product of the United States.
    Here, with respect to Scenario One, although all or nearly all 
the parts will be of Chinese origin, the extent of U.S. assembly 
operations is sufficiently complex and meaningful to result in a 
substantial transformation. Unlike the exercise equipment at issue 
in HQ 733188, the G3 Dip and G3 Back Extension under Scenario One 
will not be essentially complete when their component parts are 
imported. To the contrary, they will require substantial additional 
work to create a functional article of commerce. Under Scenario 1 
for the G3 Dip, U.S. workers will need to produce nine separate 
weldments and weld 49 seams to create the major components that 
comprise the finished equipment. Likewise, with respect to the G3 
Back Extension, U.S. workers will need to produce three separate 
weldments and weld 22 seams to create the major components that 
comprise the finished equipment.
    In addition to the extensive welding operations that U.S. 
workers will undertake in Wisconsin, the parts that make up the 
frame will need to be cleaned and degreased, ground down, and 
sprayed with paint and clear coat in the United States. Next, 
workers will assemble 200 to 500 individual parts that go into the 
final product in an assembly process that will involve 148 to 255 
individual steps. The assembly process will involve fastening 
hardware; adding rubber grips; capping off tube ends; positioning 
pulleys; adding weights, cables, or belts; and placing warning 
placards. Together with the U.S. welding operations, this assembly 
will cause the individual parts to lose their separate identities 
and to become integral components of a product with a new name, 
character, and use.
    In addition to the extent and complexity of the U.S. assembly 
operations, several additional factors weigh in favor of finding 
that a substantial transformation will occur in the United States. 
As noted above, CBP also considers the resources expended on product 
design and development in the United States and the degree of skill 
required during the actual manufacturing process. Here, Johnson will 
expend significant resources in the United States on product 
development when its U.S.-based engineers create 3D CAD models and 
2D drawings for use as blueprints during the manufacturing process. 
Furthermore, these engineers and the workers who will weld the 
subassemblies together require significant education, skill, and 
attention to detail.
    With respect to Scenario Two, however, three of the G3 Dip's 
weldments will be imported from China as pre-assembled components 
(the add-a-weight frame support, the add-a-weight weight stack 
support, and the belt termination). Under Uniroyal, 3 CIT 220, these 
critical components together impart the ``very essence'' of the 
finished product. The processing in the United States thus will not 
result in a substantial transformation. See also National Juice 
Prods. Ass'n, 10 CIT 48.
    Based on the facts presented, the country of origin of the 
exercise equipment is the United States under Scenario One and China 
under Scenario Two.

HOLDING:

    The country of origin of the finished exercise equipment under 
Scenario One is the United States for purposes of government 
procurement and China under Scenario Two.
    Notice of this final determination will be given in the Federal 
Register, as required by 19 CFR 177.29. Any party-at-interest other 
than the party which requested this final determination may request, 
pursuant to 19 CFR 177.31, that CBP reexamine the matter anew and 
issue a new final determination. Pursuant to 19 CFR 177.30, any 
party-at-interest may, within 30 days of publication of the Federal 
Register Notice referenced above, seek judicial review of this final 
determination before the Court of International Trade.

Sincerely,

Myles B. Harmon,

Acting Executive Director Regulations & Rulings Office of Trade.

[FR Doc. 2016-11478 Filed 5-13-16; 8:45 am]
BILLING CODE 9111-14-P