MAR-05 RR:TC:SM 561553 KKV
Mr. Peter L. Stormer
RohMax USA
100 Independence Mall West
Philadelphia, PA 19106-2399
RE: Applicability of country of origin marking requirements to an oil additive exported to Canada for further processing and the eligibility of the returned product for preferential tariff treatment under subheading 9802.00.50, HTSUS
Dear Mr. Stormer:
This is in response to your letter dated October 22, 1999, which requests a binding ruling regarding the country of origin marking requirements applicable to an oil additive exported to Canada for further processing and the eligibility of the returned product for preferential tariff treatment under subheading 9802.00.5060, Harmonized Tariff Schedule of the United States (HTSUS). We regret the delay in processing.
FACTS:
We are informed that Viscoplex™ 1-155, a formulated oil additive of U.S. origin, is exported to Canada for further processing with other materials of Canadian origin. The resulting finished product, formulated oil additive Viscoplex™ 1-3004, is subsequently imported into the United States. You inquire as to the applicability of the marking requirements to the returned product as well as the eligibility of Viscoplex™ 1-3004 for preferential tariff treatment under subheading 9802.00.50, HTSUS.
ISSUE:
Whether the processing of the exported oil additive in Canada results in a substantial transformation of the imported product into a new and different article of Canadian origin, rendering it subject to the country of origin marking requirements upon return, and whether the finished product imported into the U.S. is eligible for preferential tariff treatment under subheading 9802.00.50, HTSUS.
LAW AND ANALYSIS:
I. Country of origin marking requirements
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin 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. By enacting 19 U.S.C. 1304, Congress intended to ensure that the ultimate purchaser would be able to know by inspecting the marking on the imported goods the country of which the goods are the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will. United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302 C.A.D. 104 (1940).
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 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 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 the purposes of country of origin marking requirements. 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 finished oil additive is processed in Canada from both Canadian and U.S. materials and therefore, is neither wholly obtained or produced, nor produced exclusively from domestic (i.e., Canadian) materials. Because an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, analysis continues 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…” Upon receipt of your request for a binding ruling and supporting documentation, the technical data received in connection with your request was forwarded to the Customs Service Office of Laboratories and Scientific Services for analysis and comments. Based upon the information you have submitted and a report by the Customs Office of Laboratories and Scientific Services, the exported additive Viscoplex™ 1-155 is classifiable under subheading 3906.90.50, HTSUS, which provides for “Acrylic polymers in primary forms: Other: Other: Other.” Further, we are informed that the returned oil additive, Viscoplex™ 1-3004, is classifiable under subheading 3811.21.00, HTSUS, which provides for “Antiknock preparations, oxidation inhibitors, gum inhibitors, viscosity improvers, anti-corrosive preparations and other prepared additives, for mineral oils (including gasoline) or for other liquids used for the same purposes as mineral oils: Additives for lubricating oils: Containing petroleum oils or oils obtained from bituminous minerals.” The applicable tariff shift rule found in section 102.20(f) provides as follows:
3810 – 3816 A change to heading 3810 through 3816 from any other heading, including another heading within that group.
Because the qualifying “foreign material,” U.S. origin Viscoplex™ 1-155, initially classifiable under subheading 3906.90.50, HTSUS, is subsequently classifiable under subheading 3811.21.00, HTSUS, as a result of processing operations in Canada, the article undergoes the requisite tariff shift. Accordingly, the country of origin of the returned article, Viscoplex™ 1-3004, is Canada and must be marked accordingly.
Eligibility for preferential tariff treatment under subheading 9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of a repair or alteration and duty is assessed only on the cost or value of the repair or alteration abroad, where the documentary requirements of section 181.64(c), Customs Regulations (19 CFR 181.64(c)) are met. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff’d C.D. 1752, 36 Cust.Ct. 46 (1956) and Guardian Industries Corp. v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (January 5, 1982). The duty partial exemption provided by subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of finished articles. See Dolliff & Company, Inc., v. United States, 81 Cust.Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015, 1019 (1979).
The Customs regulations which implement NAFTA are contained in title 19 CFR Part 181. Section 181.64(a) defines "repairs or alterations" for purposes of NAFTA as follows:
For purposes of this section, "repairs or alterations" means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the
essential characteristics of, or create a new or commercially different good from, the good exported from the United States.
The criteria to be examined in determining whether an operation performed abroad creates a new or commercially different article for purposes of subheading 9802.00.50, HTSUS, has been discussed in several court cases. In Burstrom v. United States, supra, the court held that where steel ingots were exported to Canada and converted into steel slabs, the imported slabs were not the same articles as the ingots, in that they differed in name, value, appearance, size, shape, and use. Thus, the operations performed abroad were not considered to be alterations within the meaning of paragraph 1615(g), Tariff Act of 1930, as amended, the precursor provision to item 806.20, TSUS (and subheading 9802.00.50, HTSUS.).
In C.J. Tower & Sons of Niagara, Inc. v. United States, C.D. 2208, 45 Cust.Ct. 111 (1960), cotton drills - greige goods - were exported and subjected to multiple operations, including dyeing and finishing. Among the factors the court considered in determining that the finished cloth backing was a new or different article, thus precluding its eligibility for the partial duty exemption, was the fact that it had a specialized and more limited use than the greige goods, i.e., it was peculiarly adapted for use in the manufacture of coated abrasives.
In Dolliff & Company, Inc., v. United States, supra, a heat setting treatment performed abroad resulted in a permanent adherence of certain finishing chemicals to treated fabric, which had been exported as greige goods and returned as finished fabric suitable for manufacture into curtains. The greige goods and finished fabric were offered for sale and sold in different markets to different classes of buyers. The court held that where “foreign processing produces such changes in the performance characteristics of the exported article as to alter its subsequent handling and uses over that which earlier prevailed, the resultant product is of necessity a new and different article.” 81 Cust. Ct. at 5, 455 F. Supp. at 622.
However, in Amity Fabrics, Inc. v. United States, 43 Cust.Ct. 64, C.D. 2104, 305 F.Supp. 4 (1959), unmarketable pumpkin colored cotton twill back velveteen was exported to be redyed a black color. The court found that the merchandise was advanced in value and improved in condition commercially by the dyeing operation and that such change constituted an alteration. The court further found that “the identity of the goods was not lost or destroyed by the dying process; no new article was created; there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color.” Likewise, in Royal Bead Novelty Co. v. United States, 68 Cust.Ct. 154, C.D. 4353, 342 F.Supp. 1394 (1972), uncoated glass beads were exported so that they could be half coated with an Aurora Borealis finish which imparted a rainbow like luster to the half coated beads. The court found that the identity of the beads was not lost or destroyed in the coating process and no new article was created. Moreover, there was no change in the beads' size, shape, or manner of use in making articles of jewelry (plaintiff testified that both uncoated and half coated beads were used interchangeably). Accordingly, the court concluded that the application of the Aurora Borealis finish constituted an alteration within the meaning of item 806.20 and 19 CFR 10.8.
The present case may be distinguished from Royal Bead, where the coating of glass beads with a lustrous rainbow finish was held to be an acceptable “alteration” within the meaning of subheading 9802.00.50, HTSUS. In that case, the coating of the beads did not affect their manner of use, as both the coated and uncoated beads could be used interchangeably. In the case before us, however, the viscosity index of the exported Viscoplex™ 1-155 (290-390 CST) is materially altered in Canada when blended with other substances to create Viscoplex™ 1-3004, a much “thicker” product with a viscosity index of 80 CST. The difference in viscosity between the two products is so great that they could not be used interchangeably. Instead, the effect of the blending operations on the physical properties of the Viscoplex™ 1-155 is similar to the heat treatment of the fabric in Doliff, supra. Like the treated fabric, the foreign operations performed on the Viscoplex™ 1-155 alter the performance capability of the exported article, resulting in the creation of a commercially different product with new performance characteristics and a more specialized use. Accordingly, the blending operations performed in Canada exceed mere “repairs and alterations” as required by 19 CFR 81.64(a), and the Viscoplex™ 1-3004 will not be eligible for the partial duty provided by subheading 9802.00.50, HTSUS, upon importation into the U.S.
HOLDING:
Based on the information provided, exported Viscoplex™ 1-155, classifiable under subheading 3906.00.50, HTSUS, is subsequently classifiable under subheading 3811.21.00, HTSUS, as a result of blending operations in Canada. Therefore, pursuant to 19 CFR 102.11(a)(3), the resulting article, Viscoplex™ 1-3004 is a product of Canada and must be marked accordingly.
Foreign blending operations which materially alter the physical properties of exported Viscoplex™ 1-155, result in the creation of a commercially different product with new performance characteristics and a more specialized use. Accordingly, the blended product, Viscoplex™ 1-3004 is not eligible for the partial duty exemption provided by 9802.00.50, HTSUS, upon importation into the U.S.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division