Dispute Over Origin of Power Supplies Headed to Trial, CIT Says
Neither importer Cyber Power Systems (USA) Inc. nor the U.S. succeeded in persuading the Court of International Trade that their side was right in a tiff over the country of origin for shipments of uninterruptible power supplies and a surge voltage protector. Judge Leo Gordon, in a Feb. 24 order, denied both parties' motions for judgment, ordering the litigants to pick dates on which to set up a trial.
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Cyber Power imported five models of UPS and one SVP model, but the packaging had two COO labels: one designating the Philippines as its place of origin and one stating that China was its true home. CBP seized the imports, ultimately resulting in Cyber Power filing suit at CIT. It is undisputed in the case that many of the goods' components came from China. Cyber Power told the trade court, though, that the goods were substantially transformed in the Philippines, changing their COO to the Southeast Asian country. The U.S., meanwhile, said that the process in the Philippines amounted to a simple assembly, meaning China was the proper COO.
The Department of Justice said that the point of the marking statute is to inform the ultimate purchaser of the country of origin of a good's components. DOJ also said that the purpose of the Section 301 China tariffs -- which would be imposed on the goods if they are deemed to be from China -- would be frustrated by saying that goods with parts from China that are assembled elsewhere have a COO elsewhere. Gordon disagreed with the U.S. on both points, holding that the purpose is not to inform the purchaser of the components' origin.
Cyber Power, a Taiwanese company, also intentionally decoupled production from China, moving its operations to the Philippines to avoid U.S. tariffs. The judge said that the purpose of Section 301 may actually be served by holding the COO of the goods to be the Philippines. "Cyber Power’s deliberate de-coupling from China, and its development of Philippine facilities used to make the subject merchandise, appears to be precisely in line with the intended consequences of the Section 301 tariffs," the judge said.
Gordon then moved on to discuss whether the goods were substantially transformed in the Philippines or if the processes there amounted to a simple assembly. The judge wasn't swayed by either position, sending the case to a potential trial. The U.S. argued, among other things, that the court's substantial transformation analysis should focus on printed circuit board assemblies (PCBAs), which, in all but one model of the UPSs, were made in China. Since the PCBAs were the main component of the imports, wherever they are assembled should be the proper COO, the U.S. argued.
"Here, the court is not convinced by Defendant’s argument that the pre-determined use of the Chinese PCBAs for inclusion in Plaintiff’s UPS and SVP products precludes a finding that subject merchandise underwent a substantial transformation as a result of Plaintiff’s Philippine operations," Gordon said. "... It is one thing to say that the attachment of a handle to a pan, or a sole to a shoe, is too mundane for a substantial transformation; it is another to suggest that all parts (however many) assembled into a 'pre-determined' product may never result in a substantial transformation. That is not, and cannot be, the law."
Given the lack of objective standards on which to assess whether a simple assembly or substantial transformation took place, the court said that the alternative means resorting to applying its "own subject standards." To resolve this matter, though, Gordon said that "a determination as to the resulting 'character' and 'use' of the subject merchandise after production at Plaintiff’s Philippine facility requires analysis and adjudication of contested issues of material fact." The parties have until March 7 to find a date for submission of the order governing preparation for trial, submission of the pretrial order, the pretrial conference and the trial date.
(Cyber Power Systems (USA) Inc. v. United States, Slip Op. 22-17, CIT #20-00124, dated 02/24/22, Judge Leo Gordon. Attorneys: John Peterson of Neville Peterson for plaintiff Cyber Power; Brandon Kennedy for defendant U.S. government)