MAR-05 RR:CR:SM 562672 KKV
Ms. Margaret J. Parker
Michelin North America
One Parkway South
P.O. Box 19001
Greenville, SC 29602-9001
RE: Country of origin marking requirements applicable to automotive tires manufactured in Poland and/or U.S. and further processed; nail guard sealant; Article 509; 102.11(b); essential character provided by tire; substantial transformation; 9802.00.50
Dear Ms. Parker:
This is in response to your letter dated January 30, 2003, addressed to the National Commodity Specialist Division, New York, which was forwarded to our office for reply. Your letter, which incorporates an earlier submission dated August 14, 2001, seeks a binding ruling regarding the tariff classification and country of origin marking requirements in connection with the importation of automotive tires. No samples were submitted with your request.
FACTS:
Our guidance is sought regarding the tariff classification and country of origin of passenger tires manufactured either in Poland or the U.S., and further processed as described in the following three different manufacturing scenarios.
Passenger tires are manufactured in Poland. They are exported to Canada, where a nailguard sealant is applied. The tires are then imported into the U.S.
Passenger tires are manufactured in the United States. They are exported to Canada, where a nailguard sealant is applied, and subsequently re-imported into the U.S.
Passenger tires are manufactured in Poland. They are imported into the United States, where nailguard sealant is applied. They are subsequently exported to Canada, and later reimported into the U.S.
You described the process of applying the nailguard sealant in the following manner:
The tires are manually washed.
Rubber sealant is applied to the interior of the road surface of the tires by a rubber extrusion machine.
A person, called a “splicer,” diverts the tire to their station and manually smoothes the edges of the sealant together where the machine began and ended the coating.
The tires are manually “bounced” to check the balance of the tire.
The tires are manually sorted.
You state that at the time of manufacture, the country of origin is molded into the sidewall of the finished tire and cannot be removed without defacing the tire and thus rendering it incapable of being sold. Additionally, you indicate that tires both sealed and unsealed tires are sold. Further, in response to our inquiry for further information regarding the nature of the nailguard sealant, you were unable to supply its chemical composition or its tariff classification but informed us by telephone that the sealant is manufactured in Canada.
ISSUES:
What are the country of origin marking requirements applicable to automotive passenger tires processed in each of the processing scenarios described above?
Does the application of nailguard sealant to passenger tires in Canada in regard to scenario two constitute an alteration pursuant to subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), thereby entitling the tires to a partial duty exemption under this subheading?
LAW AND ANALYSIS:
Country of origin marking
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. By enacting 19 U.S.C. 1304, Congress intended to ensure that the ultimate purchaser would be able to know by inspecting the marking on the imported goods the country of which the goods are the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will. United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302 C.A.D. 104 (1940).
Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines “country of origin” as:
The country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of this part; however for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j), Customs Regulations (19 CFR 134.1(j)), provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g), Customs Regulations (19 CFR 134.1(g)), defines a “good of a NAFTA country” as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules, set forth at 19 CFR Part 102.
Under the first two fact scenarios you present, passenger tires are manufactured either in Poland or the U.S. and exported to Canada for additional processing. You inquire as to the effect of the Canadian processing upon the country of origin of the tires. Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. This section states that the country of origin of a good is the country in which:
The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
Section 102.1(e), Customs Regulations (19 CFR 102.1(e)). defines “foreign material” as “a material whose country of origin as determined under these rules is not the same country of origin as the country in which the good is produced.” In the first two scenarios, the passenger tires which undergo processing in Canada were previously manufactured in either the U.S. or Poland. Consequently, they are neither wholly obtained or produced, nor produced exclusively from domestic materials. Accordingly, origin may not be determined under 19 CFR 102.11(a)(1) or (2), requiring continuation to 19 CFR 102.11(a)(3).
Upon consultation, the National Commodity Specialist Division, New York, confirms that with or without nailguard sealant, new pneumatic tires, of rubber, which are of a kind used on motor cars are classifiable in subheading 4011.10, HTSUS. Pursuant to 19 CFR 102.11(a)(3), the country of origin of a good is the country where each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20, which sets forth the specific tariff classification changes and/or other operations that are specifically required to occur in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good.
In the first two fact scenarios, because the foreign (i.e., non-Canadian) passenger tires remain classifiable under the same provision at all stages of processing set forth above, they do not undergo any change in tariff classification, failing to meet the applicable shift required by section 102.20(g), Section VII: Chapters 39 through 40, subheading 4011.10-4012.90, HTSUS, which requires “[a] change to subheading 4011.10 through 4012.90 from any other heading, including another heading in that group.” Consequently, origin cannot be determined under this provision.
Because 19 CFR 102.11(a) (incorporating section 102.20), is not determinative of origin, the next step is section 102.11(b), Customs Regulations, which states, in part:
Except for a good that is specifically described in the Harmonized Tariff Schedule as a set, or is classified as a set pursuant to General Rule of Interpretation 2, where the country of origin cannot be determined under paragraph (a), the country of origin of the good: (1) Is the country or countries of origin of the single material that imparts the essential character of the good, ...
Under the facts presented in the first two proposed processing scenarios, the imported article is a finished passenger tire, either of Polish or U.S. origin, which has undergone additional processing in Canada to include the application of a nailguard sealant.
When determining the essential character of a good under section 102.11, Customs regulations, section 102.18(b)(2), provides that, “for purposes of applying section 102.11, only domestic and foreign materials (including self-produced materials) that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the good set out in section 102.20 shall be taken into consideration in determining the parts or materials that determine the essential character of a good.”
Because the tariff classification of the nailguard sealant has not been provided, we are unable to conclusively determine whether it is classified in a provision from which a change in tariff classification is not allowed under the rule set forth in 19 CFR 102.20(g). Assuming, arguendo, that the sealant is a material which is eligible for consideration under 19 CFR 102.18(b)(2), we find nevertheless that it is the passenger tire which imparts the essential character of the finished good. Accordingly, in the first processing scenario, where the passenger tires processed in Canada are manufactured in Poland, the country of origin of the sealed passenger tires is Poland, pursuant to 19 CFR 102.11(b), and must be marked accordingly upon importation into the U.S.
Likewise, in the second fact scenario, where the tires processed in Canada are manufactured in the U.S., the country of origin of the completed tires is the U.S., pursuant to 19 CFR 102.11(b). Inasmuch as the marking statute requires that only articles of foreign origin be marked upon importation into the U.S., under the second processing scenario, the sealed passenger tires will not be subject to the requirements of 19 U.S.C. 1304.
In the third proposed processing scenario, passenger tires manufactured in Poland are imported into the U.S., where nailguard sealant is applied. The tires are subsequently sent to Canada and later re-imported into the United States. Section 134.35, Customs Regulations (19 CFR 134.35), provides that articles used in the U.S. in manufacture which results in articles having a name, character or use differing from that of the imported articles will be within the principle of the decision in the case of United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267 (1940). Under this principle, the manufacturer or processor in the U.S. who converts or combines the imported article into the different article will be considered the ultimate purchaser of the imported article within the contemplation of 19 U.S.C. 1304(a), and the article shall be excepted from marking. If the article is substantially transformed in the U.S., only the outermost container of the imported article shall be marked.
The well-established test for determining whether a substantial transformation has occurred is derived from language enunciated by the court in Anheuser-Busch Brewing Association v. United States, 207 U.S. 556, 562 (1908), which defined the term “manufacture” as follows:
Manufacture implies a change, but every change is not manufacture and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary, as set forth and illustrated in Hartranft v. Wiegmann, 121 U.S. 609. There must be transformation; a new and different article must emerge, having a distinctive name, character or use.
Simply stated, a substantial transformation occurs “when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing.” See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).
In Headquarters Ruling Letter (HRL) 732652, dated June 20, 1990, steel bakeware was imported into the U.S. and subsequently coated with silicone, carded and packaged for sale. Customs held that the silicone coating and carding were minor finishing operations which did not result in a substantial transformation. Both the imported and finished articles had the same name character and use, and the essential character of the articles was identical. Similarly, in HRL 733579, dated August 20, 1990, Customs held that coating finished imported pots and pans with a non-stick silicone surface did not constitute a substantial transformation, but was a minor processing operation that did not create a new article with a new name, character and use.
Likewise, in the third processing scenario presented, the passenger tires imported into the U.S. are completed articles which can be used without the nailguard sealant. While the application of the sealant enhances the quality of the imported tire with regard to puncture resistance, both the imported article and the finished article have the same name, character and use. Because the passenger tires are not substantially transformed into articles of U.S.-origin as a result of processing in the U.S., the ultimate purchaser of the imported articles is not the U.S. manufacturer but the retail purchaser. Accordingly, the tires must be marked with their country of origin (Poland) at the time of importation, pursuant to 19 CFR 1304. We are informed that the tires are subsequently shipped to Canada and returned. Inasmuch as no processing operations in Canada are alleged or described, the tires remain a product of Poland.
Tariff Classification
Subheading 9802.00.50, HTSUS, provides a partial or complete duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of a repair or alteration provided that the documentary requirements of section 181.64(c), Customs Regulations (19 CFR 181.64(c)), are met. Goods entitled to subheading 9802.00.50 treatment after having been repaired or altered in Canada are subject to duty upon the value of the repairs or alterations using the applicable NAFTA “CA” rate set forth in the applicable HTSUS tariff provision describing the good.
However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff’d C.D. 1752, 36 Cust.Ct. 46 (1956) and Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. See Dolliff & Company, Inc., v. United States, 81 Cust.Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015, 1019 (1979).
Section 181.64(a) defines “repairs or alterations” as follows:
For purposes of this section, “repairs or alterations” means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the United States.
The criteria to be examined in determining whether an operation performed abroad creates a new or commercially different article for purposes of subheading 9802.00.50, HTSUS, has been the subject of judicial review.
In Royal Bead Novelty Co. v. United States, 68 Cust.Ct. 154, C.D. 4353, 342 F.Supp. 1394 (1972), uncoated glass beads were exported so that they could be half coated with an Aurora Borealis finish which imparted a rainbow like luster to the half coated beads. The court found that the identity of the beads was not lost or destroyed in the coating process and no new article was created. Moreover, there was no change in the beads' size, shape, or manner of use in making articles of jewelry (plaintiff testified that both uncoated and half coated beads were used interchangeably). Accordingly, the court concluded that the application of the Aurora Borealis finish constituted an alteration.
In HRL 559648, dated May 20, 1996, baking pans were exported to Canada, where the traditional silicone coating was removed and replaced with a superior, long life, non-stick coating. Customs found that at the time of exportation to Canada, the baking pans were complete for their intended use, and that the processing abroad did not serve to change the identity or the character of the exported articles. No new and different article of commerce was created as a result of the processing abroad; rather, the exported baking pans merely underwent an operation to equip them with the ability to function more effectively. Accordingly, Customs held that the processing abroad constituted an alteration within the meaning of subheading 9802.00.50, HTSUS.
Moreover, in HRL 554192, dated September 5, 1986, Customs held that treating shakes and shingles with fire retardant chemicals in Canada qualified as an alteration eligible for purposes of 806.20, Tariff Schedule of the United States (a precursor of the current HTSUS), because the products were completed articles ready for their intended use, were regularly so used in their untreated condition, and appeared to be preferred over the more expensive treated product by the vast majority of customers.
As in HRL 559648 and HRL 554192, supra, we find that at the time of importation into Canada, the passenger tires are complete for their intended use. While the application of the nailguard sealant enhances the quality of the imported tire with regard to puncture resistance it does not create a new and different article of commerce. Accordingly, we find that the processing abroad constitutes an alteration within the meaning of subheading 9802.00.50, HTSUS. Therefore, the returned tires described in scenario two will be entitled to preferential tariff treatment under subheading 9802.00.50, HTSUS.
No information was provided regarding the processing operations, if any, regarding the tires exported to Canada in scenario three. If no operations are performed in Canada, the Polish tires would be fully dutiable upon importation into the U.S. See U.S. Note 2, Chapter 98, HTSUS.
HOLDING:
Based upon the information provided in the first two processing scenarios, where passenger tires manufactured either in Poland or the U.S., are exported to Canada where nailguard sealant is applied, the essential character of the finished article is the tire. Accordingly, in each instance, the country of origin of the processed tires is the country in which they were originally manufactured, pursuant to 19 CFR 102.11(b).
Based upon the information provided in the third processing scenario, passenger tires manufactured in Poland and subsequently processed in the U.S. are not substantially transformed into new and different articles when coated with nailguard sealant. Accordingly, the country of origin of the processed tires is Poland.
On the basis of the information provided, we find that the application of the nailguard sealant to passenger tires Canada constitutes a qualifying alteration. Thus, the returned tires in scenario two will be entitled to preferential tariff treatment under subheading 9802.00.50, HTSUS. The NAFTA “CA” rate set forth in subheading 4011.10, HTSUS, to be applied to the value of the alterations performed in Canada is “free.” Absent any operations performed in Canada under scenario three, the Polish tires returned to the U.S. will be fully dutiable.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
Myles B. Harmon
Director
Commercial Rulings Division