What is the Pre-Determined Use Test Under the Trade Agreements Act?

Imagine that you are a seller of cookware products. Picture yourself ordering pans from China with a pre-existing shape and composition. Additionally, you order handles from China. You import the handle-less pan and the handles to the U.S. Finally, you attach the handles to the pans to create fully functional pans. Does this assembly process substantially transform the pans into TAA-compliant end-products?

The United States Court of Federal Claims said no in an early case that formed the bedrock of this subtest.[1] The court applied the pre-determined end-use test, which was discussed in an earlier case.[2] The test is simple: the use of the components should not be predetermined at the time of importation. The court reasoned that the cookware could be used even without the post-importation process taking place in the U.S. On the other hand, the handles had the same use after the assembly process: to be used as handles for a pan. In other words, when the handles left China, their use was already predetermined at the time of importation, i.e., to be used as handles for a pan. If the handles had come in as raw materials, underwent a complex process to be transformed into handles, and then assembled onto the pan, maybe then it would have been considered a substantial transformation. The substantial transformation test states that an article or articles of commerce must undergo a change in name, character or use to become a new and different article of commerce. When such a change occurs, the article is “substantially transformed” and is compliant with the TAA if the transformation occurs in a designed country. China is not a designated country.

If you are selling to the government and the government requires you to sell TAA compliant products, keep in mind the pre-determined end-use test. If you have any questions, feel free to reach out to the author or Centre Law’s Partner Alan Chvotkin.

[1] In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1319 (Ct. Int’l Trade 2016), the court quoted  “Ran–Paige, 35 Fed.Cl. at 121–122 (when post-importation processing consisted primarily of attaching handles to pans and covers the court likened it to Nat’l Hand Tool when “plaintiff did not change the use of the components, especially given the fact that the use was predetermined at the time of importation”); Uniroyal, 3 C.I.T. at 226, 542 F.Supp. at 1031 (the court did not find substantial transformation when the imported upper underwent no physical change, “[n]or was its intended use changed. It was manufactured by plaintiff in Indonesia to be attached to an outsole; it was imported and sold to Stride–Rite for that purpose; and Stride–Rite did no more than complete the contemplated process”).” These early cases formed the fundamental idea behind the pre-determined end-use test.

[2] Nat’l Hand Tool Corp. v. United States, 16 C.I.T. 308, 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993)