CLA-2 RR:CR:GC 964019 JAS
Mr. Lawrence M. Friedman
Barnes, Richardson & Colburn
303 East Wacker Drive, Suite 1100
Chicago, Illinois 60601
RE: Crankshafts Processed in Mexico from Forgings of Brazilian Origin;
Originating Goods under NAFTA
Dear Mr. Friedman:
In letters, dated March 15 and September 13, 2000, on behalf of Cummins Engine Company, Inc., you inquire as to the eligibility as originating goods under the North American Free Trade Agreement (NAFTA) of crankshafts for diesel engines processed in Mexico from forgings of Brazilian origin. You also inquire as to the proper country of origin marking requirements for the crankshafts. We regret the delay in responding.
FACTS:
As described, the product is alloy steel crankshafts for diesel engines.
The crankshaft forgings are produced in Brazil from the closed-die forging process,
which involves forging between matrices. The articles are allowed to cool, then
removed from the dies and their ends lightly machined to allow them to be securely
clamped into machines which perform subsequent machining operations. The
forgings’ center of balance is then established by drilling locator center points on
each end. This permits proper positioning of the forgings in machines that perform
the subsequent processing operations. The forgings possess the shape of a crank
shaft, are clearly recognizable as crank shafts and can only be processed into
finished crank shafts. They do not require further working or shaping by forging.
Rather, the further working essentially involves machining operations to bring the
surfaces into tolerances required for finished crank shafts. Finally, the forgings are
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shot blasted to remove scale and other surface impurities. You state that all of the
processing operations in Brazil, together, take less than fifteen minutes. In Mexico, the locator center points are reestablished and grease pockets, necessary for finished crank shafts, are machined into the ends of each forging. Complete, finished crankshafts are then produced by 21 additional turning, milling, drilling and heat treatment operations. You state that the operations in Mexico touch over 95% of the forgings’ surface, result in the removal of up to one third of the material by thickness on some surfaces, and between one-third and two-fifths of an inch of steel from some of the surfaces.
You maintain that on the facts presented the forgings entering Mexico from Brazil will be classifiable as semi-finished products of alloy steel in the appropriate provision of Chapter 72, HTSUS, and that upon importation into the United States from Mexico, the finished crankshafts will be classifiable in the appropriate provision for crankshafts, in heading 8483, HTSUS. You conclude that as a result of this change in tariff classification, the crankshafts qualify as “originating goods” under the NAFTA rules of origin, with Mexico being the country of origin for marking purposes.
ISSUE:
Whether the imported crankshafts qualify as “originating goods” within the rules of origin in General Note 12(b), HTSUS.
LAW AND ANALYSIS:
Under General Rule of Interpretation (GRI) 1, Harmonized Tariff Schedule of the United States (HTSUS), goods are to be classified according to the terms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6. GRI 2(a) states, in part, that incomplete or unfinished articles are classifiable as if complete or finished provided that, as imported, they have the essential character of the complete or finished article. Chapter 72, Note 1(ij), HTSUS, defines the term Semifinished products as “Continuous cast products of solid cross section, whether or not subjected to primary hot-rolling; and other products of solid section, which have not been further worked than subjected to primary hot-rolling shaped by forging, including blanks for angles, shapes or sections. These products are not presented in coils.”
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the HTSUS. While not legally binding, the ENs provide a commentary on the scope of each heading of the HTSUS and are thus useful in ascertaining the classification of merchandise under the System. Customs believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
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ORIGINATING GOODS STATUS UNDER NAFTA
To be eligible for tariff preference under the NAFTA, goods must be “originating goods” within the rules of origin in General Note 12(b), HTSUS. General Note 12(b)(ii)(A), HTSUS, states, in relevant part, that for the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if they have been transformed in the territory of Canada, Mexico and/or the United States so that except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein.
One such authorized change in tariff classification is to subheading 8483.10 from any other heading. See General Note 12(t)/243(A), HTSUS. In facts nearly identical to those at issue here, the CIT in Cummins Engine Co., v. United States, Slip Op. 99-139 (Ct. Int’l Trade, decided December 21, 1999), held that automotive crankcase forgings from Brazil, processed in Mexico into finished automotive crankcases, were classifiable as other camshafts and crankshafts, in subheading 8483.10.30, HTSUS. With respect to the classification of the forgings entering Mexico, the Court rejected plaintiff’s claim under heading 7224, HTSUS, as semifinished products of other alloy steel, because the grease pocket - 50 mm in diameter and 13 mm deep, a feature that exists for the use of the finished crankshaft in a vehicle and a feature that constituted the first step toward accomplishing the considerable further shaping of the forging - was machined into the article in Brazil. This, the Court concluded, made the forging entering Mexico from Brazil further worked than roughly shaped by forging. In the current situation, however, the grease pockets are machined into the forgings in Mexico, so that the issue to be resolved is whether the crankcase forgings from Brazil, processed as described but without grease pockets, are considered roughly shaped by forging and thus classifiable, upon entering Mexico, in heading 7224, HTSUS. If they are, then the requisite tariff shift is met and originating goods status is conferred on the finished crankshafts imported into the United States from Mexico.
We must now consider the meaning of the phrase “roughly shaped by forging" in Note 1(ij), HTSUS. The term is not defined in the HTSUS. However, the ENs to Heading 72.07, Section (B), on page 1079, describe semi finished pieces "roughly shaped by forging" as products "of rough appearance and large dimensional tolerances produced from blocks or ingots by the action of power hammers or forging presses." The ENs, applicable by appropriate substitution of terms to goods of heading
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74.24, is even more specific as it addresses an example of a flattened zig zag for a crank shaft as a piece roughly shaped by forging:
(B) PIECES ROUGHLY SHAPED BY FORGING
"* * * They may take the form of crude recognisable shapes in order that the final
article can be fabricated without excessive waste, but the heading covers only those
pieces which require considerable further shaping in the forge, press, lathe, etc. The
heading would, for example, cover an ingot roughly hammered into the shape of a
flattened zig zag and requiring further shaping to produce a marine crankshaft, but it
would not cover a crankshaft forging ready for final machining. The heading similarly
excludes drop forgings and pressings produced by forging between matrices since
the articles produced by these operations are ready for final machining.
The forgings at issue are made from a billet (a semi finished product of heading 72.24) or bar stock (a finished product of heading 72.27 or 72.28) by a closed die process between matrices and are clearly recognizable as crank shafts. Notwithstanding the fact that machining operations must be performed in order to finish the forgings, the machining would not appear to be the type of "considerable further shaping" as described in the ENs. Rather, it appears to consist of "finishing operations in which the identifiable journals and faces are machined to tolerance and balance.”
From these facts, we conclude that the crank shaft forgings entering Mexico from Brazil are not roughly shaped by forging for purposes of Note 1(ij) to Chapter 72. The articles, therefore, are not semi-finished products of heading 7224. The forgings, however, are recognizable as crank shafts. Crank shafts are specifically named in heading 84.83. EN (II) to GRI 2(a), at page 2, describes certain unfinished articles as "blanks" which are classified in the heading for the article. The crank shaft forgings in this case appear to be described in that EN as blanks:
The provisions of this Rule also apply to blanks unless these are
specified in a particular heading. The term " blank " means an article,
not ready for direct use, having the approximate shape or outline of
the finished article or part, and which can only be used, other than in
exceptional cases, for completion into the finished article or part
(e.g., bottle preforms of plastics being intermediate products having
tubular shape, with one closed end and one open end threaded to
secure a screw type closure, the portion below the threaded end being
intended to be expanded to a desired size and shape).
Therefore, we conclude that the closed die crank shaft forgings entering Mexico from Brazil are “blanks” under GRI 2(a) and, therefore, unfinished crank shafts provided for in heading 8483, HTSUS. Consequently, finished crankshafts imported into the customs territory from Mexico do not meet the requisite tariff shift and do not qualify as “goods originating in the territory of a NAFTA party,” and are not eligible for preferential tariff treatment under the NAFTA.
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COUNTRY OF ORIGIN MARKING
The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. 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 U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.
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 U.S. 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.
(Emphasis added.)
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. A "good of a NAFTA country" is defined in
19 CFR 134.1(g) as an article for which the country of origin is Canada, Mexico, or the U.S., as determined under the NAFTA Marking Rules set out at 19 CFR Part 102.
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. Paragraph (a) of this section states that the country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) 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.
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In this case, the applicable rule is 19 CFR 102.11(a)(3). The finished crankshafts are classifiable under subheading 8483.10.30, HTSUS. The applicable change in tariff classification is set out in section 102.20(o), Section XVI, Chapters 84 through 85, and provides:
8483.10... A change to subheading 8483.10 from any other subheading.
The crankshaft forgings from Brazil are classifiable in subheading 8483.10.30, HTSUS. Therefore, the crankshafts imported into the United States from Mexico will not undergo the requisite tariff shift, and 19 CFR 102.11(b) of the hierarchical rules must be applied. This paragraph provides in pertinent part as follows:
Except for a good that is specifically described in the Harmonized System as a set,
or is classified as a set pursuant to General Rule of Interpretation 3, where the country
of origin cannot be determined under paragraph (a), the country of origin of the good:
Is the country or countries of origin of the single material that imparts the essential
character of the good ...
When determining the essential character of a good under 19 CFR 102.11,
19 CFR 102.18(b)(1) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration. Section 102.18(b)(1)(iii), Customs Regulations (19 CFR 102.18(b)(1)(iii)), provides that if there is only one material that is classified in a tariff provision from which a change in tariff classification is not allowed, then that material will represent the single material that imparts the essential character to the good under 19 CFR 102.11.
Pursuant to 19 CFR 102.18(b)(1)(iii), the single material that imparts the essential character to a finished crankshaft is the forging. Accordingly, the country of origin of the finished crankshafts is the country of origin of the forgings, which is Brazil.
HOLDING:
Under the authority of GRI 1, the crankshafts imported into the United States from Mexico are provided for in heading 8483. They are classifiable in subheading 8483.10.30, HTSUS.
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Because the processing performed in Mexico does not result in the requisite NAFTA change in tariff classification, the finished crankshafts do not qualify as originating goods, and are not eligible for preferential tariff treatment under the NAFTA. Based upon the information provided for the crankshaft forgings imported into Mexico from Brazil, pursuant to 19 CFR 102.11(b)(1) the country of origin of the finished crankshafts is the country of origin of the forgings, which is Brazil.
Sincerely,
John Durant, Director
Commercial Rulings Division