• HQ H031320
• Oct 30, 2008

• Type : Classification • HTSUS :

CLA-2 OT:RR:CFT:VS RSD

Michele E. McGuire
Global Trade Solutions
Deloitte Tax LLP
111 S. Wacker Drive
Chicago, Illinois 60606

RE: Eligibility for NAFTA Duty Preference for Silver Sheets Imported from Canada Dear Ms. McGuire:

This is in response to a letter dated June 9, 2008, submitted on behalf of your client concerning their request for a ruling regarding the eligibility of certain silver sheets for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”).

FACTS: Your client is a member of a group of companies that is part of an international materials technology group focusing on the following four business areas: advance materials, precious metal products and catalysts, precious metal services, and zinc specialties. In this instance, your client produces cast silver slabs in Germany. The silver slabs are produced by casting, a manufacturing process by which liquid material is processed by continuous casting operations and allowed to solidify. In this case, the liquid material is molten silver of a purity of at least 92.5 percent that is cast into slabs having a thickness of 6 and 13.2mm. The slabs range in width from 100 to 360mm, and have a length from 300 to 1000mm. The cast silver slabs will be exported from Germany into Canada. At the time of their exportation from Germany, the cast silver slabs are in an unwrought form. This means that they will not have been processed by such methods as hammering, cutting, rolling, drawing or any other tool shaping operations. You state in your letter that at the time of importation into Canada, the cast silver slabs are classifiable under subheading 7106.91 of the Harmonized Tariff Schedule of the United States (HTSUS). After importation into Canada, a related Canadian company will process the silver slabs by cold-rolling. You describe cold-rolling as a process by which the metal is deformed by passing it through a roller at a temperature below its recrystallization temperature. After the cold-rolling process is complete, the product is annealed. During the annealing process, the silver will be altered by gradual heating to 680 degrees Celsius and subsequent cooling. The silver will also undergo a metallurgic gas treatment to prevent oxidizing. After undergoing each of these processes twice, the unwrought silver slabs will have the form of semi-manufactured sheets with a thickness of 2mm. The silver sheets will then be cut to length as required by ultimate customers. The silver sheets will be exported to customers in the United States through several ports, dependent upon the final destination of the product. You indicate that the primary ports of entry are expected to be New York, Boston and San Diego. According to your submission, at the time of their importation into the United States, the silver sheets would be classified in subheading 7106.92, of the Harmonized Tariff Schedule of the United States, (HTSUS). ISSUE: Whether the imported silver sheets will be eligible for preferential tariff treatment under the North American Free Trade Agreement. LAW AND ANALYSIS:

Article 401 of NAFTA is incorporated into General Note 12, HTSUS. General Note 12(a) provides, in pertinent part, that:

(ii) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules ....and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “CA” in parentheses, are eligible for such duty rate....

Thus, by operation of General Note 12(a)(ii), for an article to be eligible for NAFTA duty preference, two criteria must be satisfied. First, the article in question must be “originating” under the terms of that General Note and secondly, the article must qualify to be marked as a “good of Canada” under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 CFR 102). With regard to the first criteria, General Note 12(b), HTSUS, provides, in pertinent part, as follows:

For 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

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or

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 nonoriginating material 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 or

the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or

they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.

In the instant case, in order for the silver sheets in question to be eligible for preferential treatment under General Note 12, by application of the tariff-shift rule for subheading 7106.92, HTSUS, each of the non-originating materials used in the production of the good must undergo the required change in tariff classification. See General Note 12(b)(ii)(A). The applicable tariff shift rule for articles of subheading 7106.92 (HTSUS) is:

“a change to subheadings 7106.10 through 7106.92 from any other subheading, including another within that group.”

For purposes of this ruling, we will assume that the classifications that you have provided for the silver slabs and the silver sheets are correct. The non-originating silver slabs are classified under subheading 7106.91, HTSUS, when they leave Germany. After processing into silver sheets in Canada, and upon entry into the United States, the sheets are classified in subheading 7106.92, HTSUS. Thus, in accordance with rule set forth above, the non-originating materials undergo the requisite change in tariff classification as a result of the processing performed in Canada. Therefore, the silver sheets would be considered originating under General Note 12.

With regard to the second basic requirement of NAFTA duty preference, section 102.11, CBP Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for the purposes of country of origin marking and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2. 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 section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

“Foreign material” is defined in 19 CFR 102.1(e) as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the silver sheets processed in Canada are neither wholly obtained or produced, nor produced exclusively from domestic materials. Because an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, we look to section 102.11(a)(3). Section 102.11(a)(3) provides that the country of origin is the country in which “each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20....” The following tariff shift rule set forth in Section 102.20 is applicable to goods classified under subheading 7106:

7106. . . A change to heading 7106.10 from any other chapter.

Under the facts that you have provided, the silver slabs, when they are imported into Canada from Germany, are classifiable in subheading 7106.91, HTSUS. After the processing is completed in Canada, at the time they are imported into the United States, the silver sheet would be classified in subheading 7106.92, HTSUS. Therefore, they do not undergo a change in chapter as a result of the processing done in Canada. Thus, the applicable tariff shift rule is not satisfied. Therefore, the country of origin cannot be determined in accordance with 19 CFR 102.11(a)(3).

Because 19 CFR 102.11(a) (incorporating section 102.20), is not determinative of origin, the analysis continues to section 102.11(b), which states in pertinent 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 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, or… "Material" is defined in 19 CFR 102.1(1) of the Customs Regulations (19 CFR 102.1(1) as "a good that is incorporated into another good as a result of production with respect to that other good, and includes parts, ingredients, subassemblies, and components." 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."  Based upon the facts provided, the silver slabs are the only materials that are classified in a tariff provision from which a change is not allowed, as set forth by the appropriate rule in 19 CFR 102.20. Therefore, the German silver slab is the single material that imparts the essential character of the good. Accordingly, under section 102.11(b)(1), the country of origin of the silver sheets would be Germany.

We note, however, that section 102.19(a) of the Customs Regulations (19 CFR 102.19(a)), contains a NAFTA preference override provision which states: Except in the case of goods covered by paragraph (b) of this section, if a good which is originating within the meaning of 181.1(q) of this chapter is not determined under section 102.11(a) or (b) or section 102.21 to be a good of a single NAFTA country, the country of origin of such good is the last NAFTA country in which that good underwent processing other than minor processing…;

In other words, the NAFTA preference override in section 102.19(a), allows a good that is otherwise originating within the meaning of General Note 12, but that is not determined under § 102.11(a) or (b) to be a good of a NAFTA country, to be marked as a product of the last NAFTA country in which that good underwent production except in cases where the production consisted of minor processing. Minor processing is defined in 19 CFR 102.1(m) as:

(1) Mere dilution with water or another substance that does not materially alter the characteristics of the good;

(2) Cleaning, including removal of rust, grease, paint, or other coatings;

(3) Application of preservative or decorative coatings, including lubricants, protective encapsulation, preservative or decorative paint, or metallic coatings;

(4) Trimming, filing or cutting off small amounts of excess materials;

(5) Unloading, reloading or any other operation necessary to maintain the good in good condition;

(6) Putting up in measured doses, packing, repacking, packaging, repackaging;

(7) Testing, marking, sorting, or grading;

(8) Ornamental or finishing operations incidental to textile good production designed to enhance the marketing appeal or the ease of care of the product, such as dyeing and printing, embroidery an appliques, pleating hemstitching, stone or acid washing, permanent pressing, or the attachment of accessories notions, finding and trimmings; or

(9) Repairs and alterations, washing, laundering or sterilizing.

In this case, the subject merchandise, in our view, has undergone production beyond minor processing in Canada and, as such, the country-of-origin, for marking purposes, is Canada. Therefore, the silver sheets are considered originating under General Note 12(b) and also qualify to be marked as a good of Canada under the marking rules as set forth in 19 CFR 102. Consequently, the two criteria of General Note 12(a)(ii), for an article to be eligible for the NAFTA tariff preference, have been met. Accordingly, the silver sheets will be considered products of Canada and are eligible for the NAFTA "CA" preferential duty rate provided a NAFTA Certificate of Origin has been completed and presented to CBP.

HOLDING:

Based upon the facts presented, the imported silver sheets will be considered as originating in Canada for NAFTA preferential tariff treatment pursuant to GN 12(b), at the time of their entry into the United States. Moreover, in accordance with the NAFTA Marking Rules, the silver sheets will also qualify to be marked as goods of Canada. Because the silver sheets are considered originating under the NAFTA preference rules, and qualify to be marked as goods of Canada under 19 CFR 102, they will be eligible for the NAFTA duty preference as long as a NAFTA Certificate of Origin for the goods has been completed and presented to CBP. 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 CBP officer handling the transaction. 
Sincerely,

Monika R. Brenner, Chief
Valuation and Special Programs Branch