CLA-02 RR:CR:SM 563078 NL
Mr. James R. Cannon
Williams Mullen
1666 K Street, NW, Suite 1200
Washington, DC 20006
RE: NAFTA; regional value content; originating self-produced material; NAFTA Rules of Origin Regulations; 19 CFR part 181 Appendix; General Note 12(t).
Dear Mr. Cannon:
This is in reply to your letters dated July 14 and October 20, 2004, requesting a review by Customs and Border Protection of three rulings concerning certain polyamide resins produced in Canada by your client, Rhodia Engineering Plastics, Inc., and imported into the U.S. by a related entity, Rhodia Engineering Plastics Corp. (both hereinafter referred to as “Rhodia”). At issue is the eligibility of Rhodia’s “Technyl” engineering plastic for treatment as an originating good under the North American Free Trade Agreement (NAFTA).
This office has advised you, based on its initial review, that the three rulings are relevant, but not directly applicable, to the basis for NAFTA originating status argued in the July 14 submission. Therefore this office does not intend to revoke or modify these rulings. This ruling will consider your position that Rhodia self-produces polyamide resin strand in Canada that may be considered an originating self-produced material for purposes of Rhodia’s claim that Technyl engineering plastic produced from the strand is originating under the NAFTA. Our response follows.
FACTS:
The Products
Rhodia imports raw or pure polyamide resin into Canada from several non-NAFTA countries. The raw or pure product is in the form of translucent, irregularly shaped pellets. In Canada, Rhodia mixes the resin with various materials, depending on the desired grade of Technyl, which may include fiberglass, minerals, flame-retardant chemicals, wax, pigment, plasticizers and crystallization agents. This blend is then melted at high temperature and extruded as Technyl engineering plastic strand with a diameter of 2.5mm. After extrusion the strand is immediately cooled in a liquid bath after which it assumes a solid shape.
At this stage of production Rhodia has a product that is ready to be cut into lengths, packaged in boxes and sold for use in various applications. The commercial designation of the good is Technyl engineering plastic strand. Rhodia claims that this extruded engineering plastic strand qualifies as an originating self-produced material under the NAFTA. Rhodia further claims that goods produced in Canada using this strand would be considered to incorporate it as a NAFTA originating material for the purposes of determining whether the final good is a NAFTA originating good.
While Rhodia can and does remove some of the engineering plastic rod and strand from the production line, the subject of Rhodia’s request is strand that is immediately processed further in the Canadian plant. This processing consists of cutting the strand into cylinders 3.0mm in length. The cylinders are then screened for uniformity and further cooled. The end product is packaged in plastic bags and bulk boxes. This product is called Technyl engineering plastic (in various grades). The mixing, heating, extruding and cutting of the raw resin results in a finished product suitable for injection molding or other applications. The product has properties different from those of the raw resin, including fire retardation, greater structural or load-bearing capacity, colors or internal lubrication. It is engineered to be re-melted by end-users while retaining specific chemical and physical properties.
By a letter dated October 20, 2004, Rhodia advised that its accounting system can identify the total direct cost to produce Technyl strand, even though it is not offloaded from the production line before being used to produce Technyl engineering plastic in cut cylinder form. It is stated that the total direct cost to produce the strand is equal to the cost of the pellet less the direct cost incurred in cutting the strand and in handling the pellets. Indirect costs, factory overhead and energy costs are said to be readily allocated to the strand using generally accepted accounting principles. These representations are offered in support of Rhodia’s position that the engineering plastic strand is a separately identifiable good eligible for designation as a self-produced NAFTA originating material.
Through counsel, Rhodia also has represented that production in Canada satisfies any applicable Regional Value Content (RVC) requirement of the NAFTA rules of origin. This ruling will assume compliance with RVC requirements, subject to any appropriate review at the time of importation.
Classification
In New York Ruling H84948 (August 8, 2001), which was affirmed in Headquarters Ruling 965290 (June 5, 2002), Customs and Border Protection ruled that certain grades of Technyl engineering plastic were classified in heading 39.08, Harmonized Tariff Schedule of the United States (HTSUS). (Specifically, in subheadings 3908.10.00 and 3908.90.70). Heading 39.08 provides for polyamides in primary forms. For Rhodia’s purposes these determinations served to defeat its initial effort to claim NAFTA eligibility for its Technyl engineering plastic imported from Canada. Because the non-NAFTA raw polyamide resins are, it is agreed, also classified in heading 39.08, these non-originating materials do not undergo the change in tariff classification at the heading (four-digit) level required under the applicable NAFTA rule (see discussion below) when they are used to produce the final engineering plastic in Canada.
Rhodia now argues that the uncut extruded Technyl plastic strand, produced from the raw or pure resins and used in the final Technyl engineering plastic, is classified in heading 39.16, which provides for:
Monofilament of which any cross-sectional dimension exceeds 1 mm, rods, sticks and profile shapes, whether or not surface-worked but not otherwise worked, of plastics:
Specifically, the strand would be classified in subheading 3916.90.30.
ISSUES:
Whether Technyl extruded engineering strand used in production of Technyl engineering plastic qualifies as an originating self-produced material for purposes of the NAFTA.
Whether Technyl engineering plastic satisfies the requirements for treatment as a NAFTA originating good.
LAW & ANALYSIS:
Classification
This office agrees that, as claimed in the Rhodia submission, Technyl strand is classified in subheading 3916.90.30, HTSUS. During processing the pellets are melted and extruded to produce strand measuring 2.5mm in diameter. The subheading provides for, “Monofilament of which any cross-sectional dimension exceeds 1 mm, rods, stick and profile shapes, whether or not surface-worked, of plastics: Other: Monofilament.”
NAFTA Rules of Origin
General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a)(i) provides, in pertinent part:
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), 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.
Accordingly, the Technyl engineering plastic will be eligible for the “Special” “CA” rate of duty provided it is a NAFTA “originating” good under General Note 12(b), HTSUS, and qualifies to be marked as a product of Canada under the marking rules. 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— (i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or (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 (iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
The rule of origin applicable to all the Rhodia plastics under review (pure or raw resins, Technyl engineering plastic rod or strand, and Technyl engineering plastic) is set forth in GN 12(t)/39.1, which provides:
A change to headings 3901 through 3920 from any other heading, including another heading within that group, provided there is a regional value content of not less than:
(A) 60 percent where the transaction value method is used, or
(B) 50 percent where the net cost method is used.
Assuming that regional value content requirements are met, application of the tariff shift requirements to Rhodia’s Canada operations yields the following results: non-originating raw or pure polyamide resins classified in heading 39.08 become NAFTA originating materials when used in Canada to produce Technyl engineering plastic rod or strand classified in heading 39.16. In turn, there is a change from another tariff heading when Technyl engineering plastic classified in heading 39.08 is produced in Canada using Technyl rod or strand classified in heading 39.16. In brief, recognition of the tariff shifts from a good of heading 39.08 to a good of heading 39.16, and in turn again to a good of heading 39.08 results in NAFTA originating status for the Technyl engineering plastic, subject also to satisfaction of the RVC requirement of the rule for that good.
Self-Produced Materials (Tariff Shift Requirement)
Recognition of these tariff shifts is available to the producer by application of the provisions for self-produced materials. The NAFTA Rules of Origin Regulations as set forth in 19 CFR Part 181, App. define a “self-produced material” as “a material that is produced by the producer of a good and used in the production of that good.” See 19 CFR Part 181, App., sec. 2(1). Section 4(8) of the NAFTA Rules of Origin Regulations, 19 CFR Part 181, App. sec. 4(8), states that:
For purposes of determining whether non-originating materials undergo an applicable change in tariff classification, a self-produced material may, at the choice of the producer of a good into which the self-produced material is incorporated, be considered as an originating material or non-originating material, as the case may be, used in the production of that good.
An example is set forth in 19 CFR Part 181, App., sec. 4(9):
Producer A, located in a NAFTA country, produces Good A. In the production process, Producer A uses originating Material X and non-originating Material Y to produce Material Z. Material Z is a self-produced material that will be used to produce Good A…. For purposes of determining whether the non-originating materials that are used in the production of Good A undergo the applicable change in tariff classification, Producer A has the option to consider the self-produced Material Z as the material that must undergo a change in tariff classification. As Material Z is of a heading different than that of Good A, Material Z satisfies the applicable change in tariff classification and Good A would qualify as an originating good.
In this case, Rhodia’s Canadian production of Technyl engineering plastic strand meets the definition of a self-produced good and is precisely within the scope of the example. Rhodia has the option to consider this self-produced material as the material that must undergo a change in tariff classification. This self-produced material has been shown to undergo the required change in tariff classification (from heading 39.16 to heading 39.08) when used to produce Technyl engineering plastic. The latter good therefore qualifies as a NAFTA originating good, provided one of the Regional Value Content requirements of GN 12(t)/39.1 also is met.
HOLDING: Technyl extruded plastic strand may be considered a “self produced material” under 19 CFR Part 181, App. sec 4(8) and may be considered an originating material provided there is a regional value content of not less than 60 percent where the transaction value method is used or 50 percent where the net cost method is used.
The Technyl engineering plastics imported from Canada may be considered “originating goods” for the purposes of NAFTA pursuant to General Note 12(t)/39.1, HTSUS, provided there is a regional value content of not less than 60 percent where the transaction value method is used or 50 percent where the net cost method is used.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents are filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division