Substantial Transformation Questionnaire

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PREFACE

The Utah STEP Project has chosen to use the following questionnaire developed by the EPA and issued October 22, 2009, to determine whether substantial transformation of a product has occurred in the U.S. 


The challenge for substantial transformation analysis is to determine whether - on the spectrum from: "minimal assembly required" in a simple kit (such as an IKEA box) to heavy machining involving high value labor and sophisticated equipment - the U.S. based production process for each specific finished good reached a point where one could fairly say that substantial transformation has occurred. The simple assembly case is clearly not substantial transformation, the heavy machining clearly is. The focus of substantial transformation analysis is on the many, individualized, more complex cases in between these two, obvious poles.


An oversimplified summary of this analysis is to ask whether the activities in the U.S. substantially transform the components that go into the completed item. Some basic principles in "substantial transformation" analysis include the following.

  • First, the determination of whether "substantial transformation" has occurred is always case-by case, using questions and criteria well-established in administrative and judicial case law. [SDI Technologies v. U.S., 977 F.Supp 1235 (C.I.T. 1997), at 1239 n. 2. Customs Ruling HQ 560427 (August 21, 2997)]
  • Second, no good "satisfies the substantial transformation test by ... having merely undergone '[a] simple combining or packaging operation,'" [19 USC Sec. 2463(b)(2)(A), cited in Uniden America Corp. v. U.S., C.I.T. Slip Op. 00-139, Court No. 98-05-01311 at 8, n. 4.]
  • Third, "[a]ssembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation." [Customs Ruling HQ 734097 (November 25, 1991) (and Customs Cases cited therein)]
Analysis to Determine Whether Substantial Transformation Has Occurred in the U.S.

The questions used in this questionnaire will be used in determining whether substantial transformation has occurred in the U.S. These questions were derived directly from numerous Federal court cases, Customs Department administrative rulings, and interpretive rules for U.S. trade agreements.


In applying these questions to individual cases, "yes" answers must in all cases be documented by meaningful, informative, and specific technical descriptions of the activities in the actual process asked about in each question. These descriptions need not be of great length, but must be sufficiently detailed and clearly written to inform agency reviewers about the activities that have occurred in the process(es), enough to understand their nature and purpose. They should not simply assert a conclusion, describe an end state, or essentially repeat the words of the question as a statement, Simple "yes" answers are always insufficient to make a case that an item has been substantially transformed in the U.S.


These questions all focus on processing work on and assembly/integration of the components into a finished good. Design, planning, procurement, component production, or any other step prior to the process of physically working on and bringing together the components into the item used in and incorporated into the project cannot constitute or be a part of substantial transformation.


Some Actions Are Not Substantial Transformation Under Any Circumstances


Work that makes simply cosmetic or surface changes only in a component, e.g., painting, lacquering, or cleaning, cannot amount or contribute to a finding of substantial transformation. [One example of this: Rules of Origin under the U.S.-Jordan Free Trade Agreement, Final Report, at 4.9 (at http://www.jordanusfta.com/documents/chap4.pdf).] Similarly, simply cutting a material to length or width, e.g., cutting steel pipe to particular length, is considered a minor change that is not and does not advance the case for substantial transformation [Rules of Origin above, at 4.11.2].

CONTACT INFORMATION 











PRODUCT


ANALYSIS CRITERIA

Substantial Transformation has occurred in the U.S. if answer is "yes" to either Question 1, 2, or 3 below.

QUESTION 1


QUESTION 2
This question addresses primarily the situations where important processing work is done on components of the complete item. While assembly is typically also involved, the focus of the question 2 steps is generally on that work prior to final assembly. Because each of the subquestions of 2 call for relatively significant and demanding steps, the answer to question 2 is "yes" if answer to any of 2a, 2b, or 2c is "yes."

2. Was there a change in character or use of the good or the components in America? (These questions are asked about the finished good as a whole, not about each individual component.)






QUESTION 3
This question generally addresses situations where the most significant of the potentially transformative work is assembly. Because assembly is in most cases further down the spectrum towards non-transformative work, a more demanding standard is appropriate. Thus, if the answer to at least two of 3a, 3b, 3c, 3d, or 3e is "yes," then the answer to Question 3 is "yes." Manufacturers who wish to establish beyond a doubt that their product has been substantially transformed in the U.S. via answers to Question 3 will want to provide descriptions of their process(es) that support affirmative answers to as many of the subquestions as are applicable, to increase the likelihood that the answers to at least two of the questions are sufficient.

Question 3: Was(/were) the process(es) performed in the U.S. (including but not limited to assembly) complex and meaningful?










SIGNATURE

By electronically signing below, you agree that the information provided in this questionnaire is true and accurate. All information provided is confidential.





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