CLA-2 OT:RR:CTF:VS H0333395 KSG
James Caffentzis, Esq.
4 Tanglewood Road
Scarsdale, NY 10583
Re: Eligibility of ball point pens for preferential tariff treatment under the DR-CAFTA; country of origin marking
Dear Mr. Caffentzis:
This is in reply to your letter dated July 10, 2008, on behalf of your client, concerning the eligibility of certain ball point pens for preferential tariff treatment under the Dominican Republic Central America United States Free Trade Agreement (“DR-CAFTA”) and the proper country of origin marking of the imported pens.
FACTS:
The pens are manufactured in a country that is a party to the DR-CAFTA (“DR-CAFTA country”). The ball point pens consist of a plunger, plunger spring, dome, clip, mechanism (a base, piston, and actuator), band, tip, plastic grip refill, refill spring and upper barrel. All the components except the upper barrel are produced in a country that is not a party to the DR-CAFTA. The upper barrel is manufactured in a DR-CAFTA country from either aluminum or brass tubing that originates in a non-party country. The upper barrel is finished with U.S.-origin paint.
With the exception of the aluminum, brass tubing and two springs, the various parts are classified in either subheading 9608.99.40 or subheading 9608.60.00, HTSUS. The aluminum tubing is classified in heading 7608, HTSUS; the brass tubing is classified in heading 7411, HTSUS. The two springs are classified in heading 7320, HTSUS. The finished ball point pen is classified in subheading 9608.10.00, HTSUS.
The processing in the DR-CAFTA country includes the production of the upper barrel of the pen and the assembly of the various components listed above. The production of the upper barrel involves cutting brass tubing on a lathe into 3 inch sections, feeding the sections through an end forming machine to shape the upper barrel, polishing, spray painting, and cutting two slots for the insertion of the clip.
You propose to mark the pens with the phrase “Made in” on one side of the metal pen clip and the name of the DR-CAFTA country on the other side of the pen clip. You submitted a sample of this marking.
ISSUES:
I. Whether the imported pens are considered originating goods pursuant to the DR-CAFTA?
II. What is the proper country of origin marking of the imported pen?
LAW AND ANALYSIS:
I. Originating good analysis
The DR-CAFTA was signed on August 5, 2004, and includes as parties the United States, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica. The provisions of the DR-CAFTA were adopted by the U.S. in the Dominican Republic Central America Free Trade Agreement Implementation Act, Public Law 109-53 (2005). General Note 29, of the Harmonized Tariff Schedule of the United States (“HTSUS”) sets forth the rules of origin for the DR-CAFTA. Interim regulations for the DR-CAFTA are set forth in 73 FR 33673, dated June 13, 2008, and are found at 19 CFR 10.581 et seq.
Pursuant to GN 29(b), goods are eligible for treatment as an originating good if—
(i) the good is a good wholly obtained or produced entirely in the territory of one or more of the parties to the agreement;
(ii) the good was produced entirely in the territory of one or more of the parties to the agreement and—
(A) each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (n) of this note; or
(B) the good otherwise satisfies any applicable regional value content or other requirements specified in subdivision (n) of this note;
and the good satisfies all other applicable requirements of this note; or
(iii) the good was produced entirely in the territory of one or more of the parties to the agreement exclusively from originating materials.
The imported pens are not wholly obtained or produced entirely in the territory of the DR-CAFTA countries.
The imported pens are produced entirely in a DR-CAFTA country. The applicable tariff shift rule for the pens, which are classified in subheading 9608.10, HTSUS is set forth in GN 29(n) as follows:
(A) A change to subheadings 9608.10 through 9608.20 from any other chapter; or
(B) A change to subheadings 9608.10 through 9608.20 from subheadings 9608.60 through 9608.99 provided there is a regional value content of not less than 30 percent when the build-down method is used.
Since in this case, all the non-originating materials do not undergo a chapter change, rule (A) is not satisfied. Therefore, we need to determine if the good satisfies rule (B).
With regard to the build-down regional value content requirement in rule (B), GN 29(f)(i)(a) states that the formula for this method is:
RVC= AV-VNM/ AV X 100
where RVC is the regional value content of the good expressed as a percentage; AV is the adjusted value of the good; and VNM is the value of nonoriginating materials that are acquired and used by the producer in the production of the good but does not include the value of a material that is self-produced.
We first examine the non-originating tubing that is manufactured into the upper barrel in a DR-CAFTA country to determine whether the upper barrel may be considered a material that is self-produced. The term “material that is self-produced” is defined in GN 29(c)(ii)(D) as “an originating material that is
produced by a producer of a good and used in the production of that good.” The upper barrel would be classified in subheading 9608.99, HTSUS. The applicable tariff shift rule for subheading 9608.99 is set forth in GN 29(n) as follows:
A change to subheading 9608.99 from any other heading.
In this case, either the aluminum or brass tubing would undergo a change in heading and would satisfy the tariff-shift rule in a DR-CAFTA country and therefore, the upper barrel would be considered a self-produced material that is originating.
You have not submitted the values of the various materials used and other costs involved in the production of the imported pens, so we are unable to determine if the 30% regional value content requirement under the build-down method is satisfied in this case.
The other non-originating parts except the springs are classified in subheading 9608.60 or 9608.99, HTSUS, and would undergo the required subheading change set forth in rule (B).
The non-originating springs that are used in the production of the pens, are the only non-originating materials that do not satisfy the tariff shift rule. However, you ask us to assume for the purposes of this ruling, that the value of the springs would be valued at less than 10 percent of the adjusted value of the ball point pens.
GN 29(e)(i), HTSUS, provides, in pertinent part, that a good that does not undergo a change in tariff classification pursuant to subdivision (n) of this note is an originating good if—
the value of all nonoriginating materials that—
are used in the production of the good, and
do not undergo the applicable change in tariff classification set out in subdivision (n) of this note, does not exceed 10 percent of the adjusted value of the good.
(B) the value of such nonoriginating materials is included in the value of nonoriginating materials for any applicable regional value requirement for the good;…
You ask if the value of the brass and aluminum tubing could be excluded from the value of non-originating materials. As the non-originating tubing is used in production in a DR-CAFTA country to create a self-produced material, per GN 29(b)(i)(A), the value of the tubing would be excluded from the value of non-originating materials in calculating whether the regional value content requirement is satisfied under the build-down method.
Pursuant to GN 29(e)(B), the value of the springs would be included in the calculation of the non-originating materials in calculating the regional value content under the build-down method.
You asked whether the value of U.S. paint would be excluded from the value of nonoriginating materials. GN 29(c)(iv)(A), HTSUS, provides that originating materials from the territory of one or more parties to the Agreement that are used in the production of a good in the territory of another party to the Agreement shall be considered to originate in the territory of that other party to the Agreement. Therefore, U.S. paint would be treated as an originating material and therefore, excluded from the value of nonoriginating materials.
You also asked if there are any indirect materials that would be attributable to nonoriginating materials in this case.
The term “Indirect materials” are described in GN 29(j) as:
a good used in the production, testing or inspection of a good but not physically incorporated into the good or a good used in the maintenance of buildings or the operation of equipment associated with the production of a good, including—
(i) fuel and energy;
(ii) tools, dies and molds;
(iii) spare parts and materials used in the maintenance of equipment or buildlings;
(iv) lubricants, greases, compounding materials and other materials used in production or used to operate equipment or buildings;
(v) gloves, glasses, footwear, clothing, safety equipment and supplies;
(vi) equipment, devices and supplies used for testing or inspecting the good;
(vii) catalysts and solvents; and
(viii) any other goods that are not incorporated into the good but the use of which in the production of the good can reasonably be demonstrated to be a part of that production.
No information was provided indicating that any indirect materials were used in the production of this good. Further, pursuant to GN 29(j), indirect materials are treated as originating materials without regard to where they are produced.
II. Country of origin marking
Section 304 of the Tariff Act of 1930 (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin 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 of 19 U.S.C. 1304. Pursuant to 19 CFR 134.1(b), “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. A substantial transformation results when a new and different article emerges from the processing having a distinctive name, character or use. United States v. Gibson-Thomsen Co., Inc., 27 CCPA 269 (1940).
In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 573 F. Supp. 1149 (CIT 1983), aff’d, 741 F.2d 1368 (Fed. Cir. 1984). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D. 85-25. However, the issue of whether a substantial transformation occurs is determined on a case-by-case basis.
Based on the information submitted, the assembly of the various components and the manufacture of the upper barrel in the DR CAFTA country would create a new article with a new name, use and character and would constitute a substantial transformation. When both the assembly operation and the manufacture of the upper barrel are considered together, the processing would be more than a simple assembly. See HQ 735169, dated January 26, 1994. Therefore, the assembled pen would be considered a product of the DR CAFTA country for country of origin marking purposes.
The regulations set forth at 19 CFR 134.41(b) require that the marking be situated where an ultimate purchaser could find it easily and read it without strain. The manner in which you propose to mark the pens, by placing the country of origin on the side of the pen clip, is difficult to read and find and would not satisfy this requirement. Marking the name of the country on the front of the clip for instance would be conspicuous and therefore, would be acceptable.
HOLDING:
You have not submitted the values of the various materials used and other costs involved in the production of the imported pens, so we are unable to determine if the 30% regional value content requirement under the build-down method is satisfied in this case. The value of the aluminum and brass tubing and the U.S. paint would be excluded and the value of the two springs would be included in the value of nonoriginating materials in calculating whether the regional value content requirement is satisfied in this case.
The country of origin for marking purposes would be the DR CAFTA country where the upper barrel is produced and the pens are assembled. The imported pens, as described above, would not be marked in a conspicuous manner as required by 19 CFR 134.41(b).
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 official handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch