MAR-05 OT:RR:CTF:VS H012926 MLR
Mr. John M. Peterson, Esq.
Neville, Peterson & Williams
17 State Street, 19th Floor
New York, New York 10004
RE: Revocation of HQ 560768 and HQ 561412; country of origin marking of remanufactured photoreceptor cartridges
Dear Mr. Peterson:
This letter is in reference to two Headquarters Ruling Letters, issued to you on behalf of Xerox Corporation (“Xerox”), regarding the country of origin marking requirements applicable to certain remanufactured photoreceptor cartridges. The first letter, Headquarters Ruling Letter (“HQ”) 560768, was issued on May 26, 1998. The second letter, HQ 561412, was issued on January 31, 2000.
In HQ 560768, Customs and Border Protection (“CBP”) held that the country of origin of the remanufactured cartridges, pursuant to section 102.11(b), Customs Regulations (19 C.F.R. § 102.11(b)), was the country of origin of the single material that imparted the essential character to the goods, which was the used cartridges. In 1999, Xerox requested that CBP reconsider the decision in HQ 560768 on the basis of new information. Based on the new information provided, CBP issued HQ 561412, which held that the country of origin of the remanufactured cartridges was the last country in which the goods underwent production, pursuant to 19 C.F.R. § 102.11(d)(3). In both HQ 560768 and HQ 561412, CBP found that for purposes of determining whether there was a change in tariff classification pursuant to the applicable rule under 19 C.F.R. § 102.20, the only “foreign material” incorporated into the remanufactured cartridges was the used cartridges imported into Canada. Neither the component parts disassembled from the used cartridges nor the new parts used to replace damaged or defective parts were considered.
We have had an opportunity to review both of these rulings. For the reasons set forth below, we hereby revoke HQ 560768 and HQ 561412. Pursuant to section 625(c), Tariff Act of 1930 (19 U.S.C. § 1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed revocations was published in the Customs Bulletin, Volume 41, Number 34, on August 15, 2007. Two comments were received in response to the notice. Your comment opposed the proposed actions, while the other comment favored them.
FACTS:
The imported merchandise consists of remanufactured photoreceptor cartridges designed for use with automatic data processing (“ADP”) laser printers. Xerox’s 1997 and 1999 ruling requests provide that the remanufactured cartridges were classifiable under subheading 8473.30.30, Harmonized Tariff Schedule of the United States (“HTSUS”). (We note the classification changed under the 2007 version of the HTSUS and the remanufactured cartridges are now classifiable under subheading 8443.99, HTSUS). The rulings requests also provided the following facts.
The cartridges will be imported from Canada, and they will include a photoreceptor belt or cylinder, toner receptacle unit, toner developing unit, charge/discharge unit, and cleaning unit. A Xerox contractor manufactures the cartridges in Canada, in part from components salvaged from “spent” or used cartridges that are sourced from a variety of countries. When the used cartridges arrive at the facility in Canada, they will undergo extensive disassembly operations. Salvageable parts from the spent cartridges will be placed in bins, and new parts will be ordered from inventory. No effort will be made to identify the components that impart the essential identity to any of the spent cartridges or to keep those components together during the manufacturing process. Disassembled parts determined to be damaged or defective will be discarded. Components that are likely to be replaced include toner augers and gears, wiper blades, developer housings, and magnetic rollers. Components such as photoreceptor drums and corona wires will be replaced in virtually all cases. Parts accounting for approximately 15 percent of the value of the used cartridges will be salvaged and reused. The remaining components used in the assembly of the remanufactured cartridges will be new parts originating in Canada and several other countries.
The ruling requests described the disassembly operations as follows:
Removal of covers,
Removal of corona wires,
Removal of springs,
Release of springs,
Removal of plastic pins,
Separation of developer units from waste hoppers,
Removal of metal axle from gear housing,
Removal of photoreceptor drum,
Removal of metal wiper blade,
Vacuum cleaning of waste hopper to remove toner chemicals therefrom,
Inspection of toner auger (agitator) paddle and white gears,
Cleaning of wiper blade,
Inspection of wiper blade,
If wiper blade is suitable for reuse, dipping wiper blade in cleaning solution,
Cleaning of wiper blade removed from solution,
Inspection of wiper blade,
Reinstallation of blade on clean waste hopper,
Inspection of developer housing,
Vacuum removal of toner chemicals from housing,
Removal and inspection of magnetic roller, and
Adjustment of tolerances and sealing of developer unit.
The rulings requests described the assembly operations as follows:
Cleaning of magnetic roller (magnetic rollers will be replaced in virtually all cases),
Filling of toner hopper with a new supply of electrostatic toner chemical,
Checking for leakage in refilled cartridges,
Affixing traceability label on cartridge,
Cleaning of corona wire in ultrasonic bath,
Drying of corona wire and installation in a clean container,
Installation of new photoreceptor drum (100 percent replacement part),
Installation of metal axle into cartridge housing,
Installation of corona wire (many of which will be new replacement parts),
Application of toner chemical on magnetic roller,
Assembly of finished developer unit to waste hopper,
Reinstallation of cartridge cover on housing,
Testing of cartridge and completion of “traceability card,” and
Sealing and labeling of refurbished cartridges.
The comment received in favor of the proposed revocations supports CBP’s proposal to consider the nature and origin of the new components used during the remanufacturing process when determining the country of origin of the remanufactured cartridges for marking purposes. The comment suggests that the analysis employed by CBP in HQ 560768 and HQ 561412 failed to consider the complexity of the remanufacturing operations being performed and the nature and origin of the new components assembled into the remanufactured cartridge.
Your comment asserts that the proposed revocations should not proceed at this time. You note that as a result of the amendments to the 2007 HTSUS, effective February 4, 2007, the photoreceptor cartridges in HQ 560768 and HQ 561412 are now classified in new subheading 8443.99, HTSUS. At the time your comment was submitted, you note that CBP had not finalized revisions to the NAFTA Marking Rules or to General Note 12, HTSUS, based on the amendments to the 2007 HTSUS. You state that to be instructive to the importing public or to have any precedential value, the revised ruling should address the current classification of the goods and the applicable NAFTA Marking Rule. Your comment suggests that proposed HQ H012926, as written, would not apply to any current or future trade activity.
You also allege that proposed HQ H012926 is at variance with the NAFTA “disassembly” rule, as set forth in 19 C.F.R. § 181.132. Although you acknowledge that the NAFTA Marking Rules have not been amended to include a “disassembly” rule similar to the one specified in 19 C.F.R. § 181.132, you suggest that the “originating” status of disassembled parts would have an impact on the application of the NAFTA Marking Rules pursuant to the NAFTA preference override provision set forth in 19 C.F.R. § 102.19. You further indicate that the analysis in proposed HQ H012926 may favor “less integrated” producers, who receive already disassembled parts in a NAFTA country, over more fully integrated producers, as the less integrated producers could perform their country of origin analysis beginning with the classification of the disassembled parts. You urge CBP to not adopt a position contrary to the policy set forth in 19 C.F.R. § 181.132.
ISSUE:
What is the country of origin of the remanufactured cartridges for marking purposes?
LAW AND ANALYSIS:
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 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. Part 134, Customs Regulations (19 C.F.R. Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. “Country of origin” is defined in 19 C.F.R. § 134.1(b) as follows:
“Country of origin” means 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 C.F.R. § 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 C.F.R. § 134.1(g) as an article for which the country of origin is Canada, Mexico or the United States, as determined under the NAFTA Marking Rules set out at 19 C.F.R. Part 102. Section 102.11, Customs Regulations (19 C.F.R. § 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:
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 §102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
As the imported remanufactured cartridges are neither wholly obtained or produced nor produced exclusively from domestic (Canadian) materials, we must first apply 19 C.F.R. § 102.11(a)(3). As noted above, Xerox’s ruling requests provide that the finished cartridges are classifiable in subheading 8473.30.30, HTSUS. In your comment opposing the proposed revocations of HQ 560768 and HQ 561412, you note that the photoreceptor cartridges are now classified in new subheading 8443.99, HTSUS, as a result of the amendments to the 2007 HTSUS.
As a result of the 2007 HTSUS modifications, revisions to the NAFTA Marking Rules, set forth in 19 C.F.R. Part 102, and to General Note 12, HTSUS, which incorporates Article 401 of the NAFTA into the HTSUS, are necessary. On October 30, 2008, a final rule setting forth technical corrections to the NAFTA Marking rules was published in the Federal Register. 73 FR 64518 (October 30, 2008). For purposes of changing rulings issued in 1998 and 2000, CBP believes that it is clearer to reference the tariff classification of the subject photoreceptor cartridges, as discussed in those rulings. However, in an effort to be as transparent as possible, we have noted the 2008 classification of the remanufactured cartridges in the “FACTS” section of this ruling and we will set forth and apply the technical correction as set forth in the final rule in parentheses. As noted in the 1998 and 2000 Xerox ruling requests, the remanufactured cartridges were classifiable in heading 8473, HTSUS. (In 2008, the remanufactured cartridges are classifiable in subheading 8443.99, HTSUS.)
The applicable change in tariff classification for goods of heading 8473, HTSUS, (subheading 8443.99, HTSUS (2008)), set out in section 102.20(o), provides:
8473 ... A change to heading 8473 from any other heading, except from heading 8414, 8501, 8504, 8534, 8541, or 8542 when resulting from a simple assembly.
(8443.99 … A change to parts or accessories of printers of subheading 8443.31 or 8443.32 from any other heading, except from heading 8414, 8501, 8504, 8534, 8541, or 8542 when resulting from a simple assembly, or from heading 8473 or subheading 8517.70; or ….)
Xerox’s 1998 and 2000 ruling requests state that several of the new components assembled into the cartridges are classified under heading 8473, HTSUS (classified in 2008 as subheading 8443.99, HTSUS). These components include the magnetic rollers, photoreceptor drums, and machine-dedicated plastic cartridge housings. The requests claim that to the extent that these components are not of Canadian origin, the requisite tariff shift will not be satisfied.
We find that the “foreign materials” to be considered for purposes of 19 C.F.R. § 102.11(a)(3) include not only the complete, used cartridges, but also the new parts used in the assembly of the remanufactured cartridges, such as the photoreceptor drums, magnetic rollers, corona wires, etc. Indeed, this was the original argument made by Xerox in its 1997 submission. Therefore, the question presented is whether these foreign materials, imported into Canada, undergo the change in tariff classification or other requirements set out in section 102.20 for the good. As noted in HQ 560768 and HQ 561412, the used cartridges are classified under the same heading as the remanufactured cartridges. (In 2008, used cartridges are classified under the same subheading as the remanufactured cartridges and do not undergo a change in heading as set forth in the 2008 rule.) Furthermore, with regard to the disassembly of the used cartridges in Canada, 19 C.F.R. § 102.17 provides that:
A foreign material shall not be considered to have undergone an applicable change in tariff classification specified in section 102.20 … or to have met any other applicable requirements of those sections merely by reason of … (b) dismantling or disassembly.
Your comment opposing the proposed revocations asserts that CBP should not adopt a position that is at variance with the “disassembly rule” in 19 C.F.R. § 181.132. (In short, the “disassembly rule” of 19 CFR 181.132 provides that a component recovered from a good disassembled in a NAFTA Party may be considered originating.) In response to your comment, we note that the Final Rule on disassembly, published in the “Federal Register”, states that 19 CFR 181.132 does not address country of origin for marking purposes, which is governed by 19 C.F.R. Part 102. See Tariff Treatment Related to Disassembly Operations Under the North American Free Trade Agreement, 70 Fed. Reg. 37669, 37673 (June 30, 2005). Subsequent CBP rulings have also followed this position. See HQ H004446, dated April 11, 2007, and HQ 563325, dated November 18, 2005. As these rulings note, pursuant to 19 C.F.R. § 102.17, changes in tariff classification resulting from dismantling or disassembly are considered non-qualifying operations for purposes of determining whether there is a change in tariff classification under the applicable rule in 19 C.F.R. § 102.20. Therefore, the used cartridges will not undergo the prescribed tariff shift specified in section 102.20 even after disassembly into component parts and reassembly in Canada. We believe that this position is consistent with the Final Rule on disassembly, 19 CFR 181.132, and CBP’s subsequent rulings interpreting the disassembly rule and the NAFTA Marking Rules. If however, as alleged, the cartridges became originating per 19 C.F.R. § 181.132 and analysis of the NAFTA Marking Rules did not result in the cartridges being goods of a NAFTA country, 19 C.F.R. § 102.19 would then be applicable.
Returning to our analysis under 19 C.F.R. § 102.11(a)(3), we note that some of the new parts, such as the photoreceptor drums and magnetic rollers, are also classified under heading 8473, HTSUS, (under heading 8443, HTSUS (2008)), the same heading as the remanufactured cartridges. Therefore, to the extent that the new parts of foreign origin are classified under heading 8473, HTSUS, (under 8443, HTSUS (2008)), they will also fail to undergo the applicable change in tariff classification set out in section 102.20. Accordingly, 19 C.F.R. § 102.11(a)(3) is inapplicable for determining the country of origin of the remanufactured cartridges.
Consequently, our analysis proceeds to 19 C.F.R. § 102.11(b)(1) of the hierarchical rules. This section provides:
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) of this section:
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, or
If the material that imparts the essential character to the good is fungible, has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the basis of an inventory management method provided under the appendix to part 181 of this chapter.
When determining the essential character of a good under 19 C.F.R. § 102.11, 19 C.F.R. § 102.18(b)(1) provides that only domestic and foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the § 102.20 specific rule or other requirements applicable to the good shall be taken into consideration. Section 102.18(b)(2), Customs Regulations (19 C.F.R. § 102.18(b)(2)), provides:
For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under § 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:
The nature of each material, such as its bulk, quantity, weight or value; and
The role of each material in relation to the use of the good.
Several foreign and domestic materials used in the assembly of the remanufactured cartridges do not meet the prescribed tariff shift. These materials include the foreign used cartridges and various new parts like the photoreceptor drums and magnetic rollers classified under heading 8473 (under subheading 8443.99, HTSUS (2008)).
Xerox’s ruling requests claim that it is impossible to find any single component of the imported photoreceptor cartridges that imparts the essential character, and that several components are roughly of coequal importance to the function of the article. The ruling requests provide that the components of equal importance are the photoreceptor, toner, developing unit, and housing. As discussed above, we do not consider the components salvaged in the disassembly of the used material to be a “foreign material.” Therefore, the plastic housing is not taken into consideration, pursuant to 19 C.F.R. § 102.18(b)(1). However, the used cartridges and the new component parts that fail to satisfy the change in tariff classification set out in section 102.20 are taken into consideration. From among the foreign and domestic materials that do not meet the prescribed tariff shift, we agree that no one single material imparts the essential character to the remanufactured cartridge. The used cartridge is significant in that salvaged parts from the cartridge are used in the production of the remanufactured cartridge. In addition, new parts like the photoreceptor drum, for example, contribute significantly to the functionality of the remanufactured cartridge. Therefore, 19 C.F.R. § 102.11(b) cannot be used to determine the country of origin of the remanufactured cartridges.
The country of origin of the remanufactured cartridges cannot be determined by application of 19 C.F.R. § 102.11(c), as the cartridges are not specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture, or composite good pursuant to General Rule of Interpretation 3.
Accordingly, we next consider section 102.11(d) of the hierarchical rules, which provides:
(d) Where the country of origin of a good cannot be determined under paragraph (a), (b), or (c) of this section, the country of origin of the good shall be determined as follows:
(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good;
(2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts; or
(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
19 C.F.R. § 102.11(d).
“Minor processing” is defined in 19 C.F.R. § 102.1(m) as including, in part, the mere dilution with water or another substance, cleaning, application of preservative or decorative coatings, trimming, filing, or cutting off small amounts of excess materials, unloading, reloading, putting up in measured doses, packing, repacking, packaging, repackaging, testing, marking, sorting, or grading, ornamental or finishing operations incidental to textile good production, repairs and alterations, washing laundering, or sterilizing. “Simply assembly” is defined in section 102.1(o) as “the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing.
Based on the facts provided, we find that the operations performed in Canada constitute more than “minor processing” and exceed a “simple assembly.” Therefore, subparagraphs (1) and (2) of 19 C.F.R. § 102.11(d) are inapplicable. Consequently, by application of 19 C.F.R. § 102.11(d)(3), the country of origin of the remanufactured cartridges is the last country in which the goods underwent production. The term “production,” as defined in 19 C.F.R. § 102.1(n), includes manufacturing, processing, and assembling a good. The operations performed in Canada constitute production. Accordingly, we find that the country of origin of the remanufactured cartridges is Canada, the last country in which the goods underwent production prior to entering the United States.
In your comment opposing the proposed revocations, you allege that pursuant to the foregoing analysis, less integrated producers will have an advantage over more fully integrated producers of remanufactured photoreceptor cartridges. With all other facts being equal to those presented in the instant case, a less integrated producer, who obtains parts from the disassembly of a photoreceptor cartridge in a NAFTA country, must also begin an analysis of the NAFTA Marking Rules by considering the articles that were actually imported into the NAFTA country and therein disassembled. Although the disassembled parts may potentially qualify as NAFTA originating under the specific rules of origin set forth in General Note 12, HTSUS, changes in tariff classification resulting from dismantling or disassembly are considered non-qualifying operations for purposes of determining whether there is a change in tariff classification under the applicable rule in 19 C.F.R. § 102.20. See 19 C.F.R. § 102.17. Accordingly, the “foreign materials” that should be considered for purposes of 19 C.F.R. § 102.11(a)(3) include not only the imported used cartridges, but also any new parts imported into the NAFTA territory that are used in the assembly of the remanufactured cartridge. As the imported cartridge does not satisfy the applicable change in tariff classification under 19 C.F.R. § 102.20, the analysis would proceed to 19 C.F.R. § 102.11(b)(1), in the same manner as the analysis for the subject photoreceptor cartridges. Accordingly, we believe the less integrated producer will not receive an advantage over the more fully integrated producer.
In a second hypothetical, a less integrated producer imports into a NAFTA country already disassembled parts. With all other facts being equal to those presented in the instant case, the less integrated producer must consider whether all of the imported parts undergo the change in tariff classification under the applicable rule in 19 C.F.R. § 102.20. Based on the facts presented in the instant case, at least one imported part, the plastic housing, does not undergo the specified change in tariff classification. Therefore, 19 C.F.R. § 102.11(a)(3) would not be applicable, and the analysis would proceed, in the same manner as the analysis for the subject photoreceptor cartridges, to 19 C.F.R. § 102.11(b)(1). Under this second scenario, we believe the less integrated producer will not receive any advantage over the more fully integrated producer for purposes of applying the NAFTA Marking Rules.
HOLDING:
Based on the information provided and pursuant to 19 C.F.R. § 102.11(d)(3), the country of origin of the remanufactured cartridges is Canada, the last country in which the goods underwent production.
EFFECT ON OTHER RULINGS:
HQ 560768, dated May 26, 1998, and HQ 561412, dated January 31, 2000, are hereby revoked.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division