OT:RR:CTF:VS H147338 KSG
Mr. John Peterson
Neville Peterson LLP
17 State Street, 19th Floor
New York, NY 10004
Re: Revocation of NY N149155; NAFTA preference override; processing in foreign country;
Dear Mr. Peterson:
This is in regard to New York (NY) Ruling N149155, dated March 15, 2011, which Customs has reviewed and find to be in error. Therefore, we are revoking NY N149155. Since this revocation is within 60 calendar days of the issuance of the ruling, the publication procedures set forth in 19 CRR 177.12(b) are not required. This ruling revokes NY N149155.
FACTS:
MicroSemi imports discrete semiconductors (“diodes”) which it produces in the U.S. and then sends to Ireland for testing and certain additional processing. For the purposes of this ruling, we accept that the diodes are classified in subheading 8541.10 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The diodes are marketed in several different channels of trade, including the commercial electronics market, the military market, and the space-qualified market. They have a variety of different uses, including as diodes, transistors, relays and power surge protectors.
The testing conducted in Ireland depends on what market segment the products will be offered for sale. In Ireland, the products are tested using a JANS/ESA process, which can take from several days to several weeks to complete. The testing includes a visual examination, a stabilization bake, a thermal shock test, a gross leak test, a direct current electrical test, a sharp/stability test, a surge test, test readiness review, and a capacitance test. The goods are cleaned and marked to indicate that they have been tested. Then, the goods undergo a further external visual examination, dimension and serialization test, a read/record test, an HTRP test, further read/record test, a data review and a burn to ensure that the circuit pathways are stable. The products are tested for functionality in high and low temperatures, further electrical testing, radiographic inspection, a “go/no go” test and conformance/LAT testing.
After the diodes are tested, they are subjected to a plating and/or solder dipping operation. The plating process imparts a uniform external appearance and covers any scratches, dents or other visual imperfections and in some cases, improves the electrical connectivity of the devices. The diodes are then imported into the U.S.
ISSUE:
Whether the imported diodes, produced as described above, are eligible for exemption from the MPF as originating goods under the NAFTA.
LAW AND ANALYSIS:
General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a) provides, in pertinent part:
(i) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States 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, in accordance with section 201 of the NAFTA Implementation Act.
(ii) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “MX” in parentheses, are eligible for such duty rate, in accordance with section 201 of the NAFTA Implementation Act.
General Note 12(b), HTSUS, provides, in pertinent part:
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—
… (ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that—
(A) 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, or
(B) 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…
…There are goods enumerated in subdivisions (u) of this note and meet all other requirements of this note.
(u) For the purposes of subdivision (b)(v) of this note, notwithstanding the provisions of subdivision (t) above, the automatic data processing machines, automatic data processing units and parts of the foregoing that are classifiable in the tariff provisions enumerated in the first column and are described opposite such provisions, when the foregoing are imported into the customs territory of the United States from the territory of Canada or of Mexico, shall be considered originating goods for the purposes of this note:…
(11) 8541.10….
Further, GN 12(l) provides that a good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of this note if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the NAFTA parties, other than unloading, reloading or any other operation necessary to preserve it in good condition or to transport the good to the territory of Canada, Mexico and/or the United States. Therefore, ordinarily, the additional processing in Ireland would render the good non-originating under GN 12(l).
However, the subheading rule for goods of subheadings 85.41.10 through 8541.60 set forth in GN 12(t) states that for goods classified in subheadings 8541.10 through 8541.60 or 8542.31 through 8542.39, goods qualifying under such rules may undergo further production outside the territory of the parties and, when imported into the territory of a party, will originate in the territory of a party, provided that such further production did not result in a change to a subheading outside of that group. Counsel states that the diodes are manufactured in the U.S. and are originating and are then processed in Ireland.
In this case, the imported articles qualify as originating under the special subheading rule set forth in GN12(t). Accordingly, we concur with counsel in reading the subheading rule to mean that the processing in Ireland does not exclude the imported diodes in this case from consideration as an originating good under the NAFTA.
Nonetheless, having examined the preferential rule set forth in GN 12(b), we must next determine whether the imported goods qualify to be marked as either goods of Canada or Mexico. We look to the NAFTA Marking Rules contained in 19 CFR Part 102 of the CBP Regulations in determining the marking of the imported good.
Section 102.11 sets forth the General Rules for determining the country of origin of imported merchandise, with the exception of textile goods which are subject to the provisions of § 102.21. Since the imported goods are not wholly obtained or produced in a single NAFTA country or produced exclusively from domestic materials because they are further processed in Ireland, 19 CFR 102.11(a)(1) and (2) are inapplicable.
We proceed to § 102.11(a)(3), which provides that the country of origin of a good is the country in which: 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. The imported good is classified in subheading 8541.10, HTSUS, and therefore, the applicable rule set forth in § 102.20, in pertinent part, is: 8541 – 8542 … A change to a mounted chip, die or wafer classified in heading 8541 or 8542; or
A change to a programmed “read only memory” (ROM) chip from an unprogrammed “programmable read only memory” (PROM) chip; or
A change to any other good of heading 8541 through 8542 from any other subheading, including another subheading within that group.
Since all the above rules require at least a subheading change, none of the tariff-shift rules are satisfied in this case. Applying the hierarchy set forth in 19 CFR 102.11, we must next examine 102.11(b) to determine the country of origin of the imported good. The language of 19 CFR 102.11(b)(1) determines the country of origin based on the single material that imparts the essential character to the good. The U.S.-origin diode imparts the essential character to the good and determines the country of origin of the imported good. Accordingly, the country of origin of the imported good under 19 CFR 102.11 would be the U.S.
Counsel asserts that the NAFTA preference override set forth in 19 CFR 102.19 applies to determine which special program indicator would be utilized for the entry of the imported diodes.
However, we find that the language of 19 CFR 102.19 does not apply to the instant case. The first paragraph, section (a), applies to originating goods where no NAFTA country has been determined under 19 CFR 102.11(a) or (b), which is not the situation here as the U.S. is the country of origin. The second paragraph, paragraph (b), applies where a good is determined to be a product of the U.S. and has been advanced in value or improved in condition in Canada or Mexico. Neither scenario has occurred in this case. The imported diodes do not qualify to be marked as a good of either Canada or Mexico.
Further, under GN 12(u), in order to be considered originating, the imported goods would have had to be imported into the U.S. from either Mexico or Canada. Since the imported diodes are imported from Ireland, they do not meet the terms of GN 12(u) and would not be considered an originating good under this provision either.
HOLDING:
The NAFTA preference override set forth in 19 CFR 102.19 does not apply to the imported diodes, manufactured as described above. The imported diodes would also not qualify as originating goods under GN 12(u). Therefore, the imported diodes are not originating goods under the NAFTA. Accordingly, the imported diodes would not be excepted from the Merchandise Processing Fee.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to CPB personnel, and to the public on the CPB Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
EFFECT ON OTHER RULINGS:
NY N149155, dated March 15, 2011, is hereby REVOKED. This revocation is not subject to the notice and comment provisions of 19 U.S.C. 1625(c) because NY N149155 has been in effect for less than 60 days.
Sincerely,
Myles B. Harmon, Director,
Commercial & Trade Facilitation Division