CLA-2 RR:CR:GC 965118 AML
TARIFF Nos.: 7305 and 7306
Area Port Director
U.S. Customs Service
P.O. Box 610
112 West Stutsman Street
Pembina, ND 58271
RE: Internal Advice 01/006; welded tubes and pipes; NAFTA
preference criteria
Dear Port Director:
The following is our decision regarding your memorandum (CLA 1-01: ISTL JK), to the Customs Information Exchange, dated May 16, 2001, forwarding Internal Advice 01/006, which was initiated by IPSCO, and seeks classification of nonalloy steel, welded tubes and pipes and NAFTA preference information pursuant to the Harmonized Tariff Schedule of the United States (HTSUS). We regret the delay in responding.
FACTS:
Based upon the information provided, the product consists of welded tubes and pipes manufactured in Canada from hot-rolled coil (skelp). The skelp is produced from scrap that has been obtained in the U.S. or Canada and additional alloys that may or may not be originating.
The method of producing the steel and the raw materials used in the steel making process (iron ore, limestone, coal, scrap) are not known. Likewise, the origin of the raw materials used in the steel making process is unknown.
ISSUE:
Whether the hot-rolled, flat-rolled nonalloy steel (skelp) is classifiable under heading 7208, HTSUS; whether the nonalloy steel
articles should be classified under headings 7305 or 7306, HTSUS, which provide for steel pipes and tubes; and what preference criteria on Customs Form (“CF”) 434 should be used for these transactions?
LAW and ANALYSIS:
Classification of imported merchandise is accomplished pursuant to the Harmonized Tariff Schedule of the United States (HTSUS). Classification under the HTSUS is guided by the General Rules of Interpretation of the Harmonized System (GRIs). GRI 1, HTSUS, states in part that “for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes[.]”
The HTSUS provisions under consideration are as follows:
7208 Flat-rolled products of iron or nonalloy steel, of a width of 600 mm or
more, hot-rolled, not clad, plated or coated.
* * *
7305 Other tubes and pipes (for example, welded, riveted or similarly closed), having circular cross sections, the external diameter of which exceeds 406.4 mm, of iron or steel:
Line pipe of a kind used for oil or gas pipelines:
7305.11 Longitudinally submerged arc welded:
7305.11.10 Of iron or nonalloy steel.
* * *
7306 Other tubes, pipes and hollow profiles (for example, open seamed or welded, riveted or similarly closed), of iron or steel:
7306.10 Line pipe of a kind used for oil or gas pipelines:
7306.10.10 Of iron or nonalloy steel.
Classification
Chapter 72, HTSUS, provides for Iron and Steel and Chapter 73 provides for Articles of Iron and Steel. Flat-rolled products of iron or nonalloy steel are classifiable under heading 7208, HTSUS, with subheading determined by widths. Tubes and pipes are classifiable under headings 7305 or 7306, HTSUS, depending, at the subheading level, upon method of manufacture and manner of use for classification.
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System. While not legally binding on the contracting parties, and therefore not dispositive, the ENs provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the System. Customs believes the ENs should always be consulted. See T.D. 89 80, published in the Federal Register August 23, 1989 (54 FR 35127, 35128).
The General ENs to Chapter 73 provide, in pertinent part, as follows:
This Chapter covers a certain number of specific articles in headings 7301 to 7324, and in headings 7325 and 7326 a group of articles not specified or included in Chapter 82 or 83 and not falling in other Chapters of the Nomenclature, of iron (including cast iron as defined in Note 1 to this Chapter) or steel.
For the purposes of this Chapter, the expressions “tubes and pipes” and “hollow profiles” have the following meanings hereby assigned to them:
(1) Tubes and pipes
Concentric hollow products, of uniform cross-section with only one enclosed void along their whole length, having their inner and outer surfaces of the same form. Steel tubes are mainly of circular, oval, rectangular (including square) cross-sections but in addition may include equilateral triangular and other regular convex polygonal cross-sections. Products of cross-section other than circular, with rounded corners along their whole length, and tubes with upset ends, are also to be considered as tubes. They may be polished, coated, bent (including coiled tubing), threaded and coupled or not, drilled, waisted, expanded, cone shaped or fitted with flanges, collars or rings.
Based upon the information provided, the nonalloy steel tubes and pipes will be classified under headings 7305 or 7306, HTSUS, which provides for such articles. The subheading determination will be made in consideration of the size and the manner of use of the articles.
NAFTA Preference
To be eligible for tariff preferences under the North American Free Trade Agreement (NAFTA), goods must be "originating goods" within the rules of origin in General Note 12(b), HTSUS. In this case, there are two methods by which goods imported into the United States may be "goods originating in the territory of a NAFTA party." The first method is that "they are goods wholly obtained or produced in the territory of Canada, Mexico and/or the United States." See General Note 12(b)(i), HTSUS. The second method is that they be "transformed in the territory of Canada, Mexico and/or the United States" pursuant to General Note 12(b)(ii)(A), HTSUS, which states:
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....
According to General Note 12(n), in the first method, the phrase "goods wholly obtained or produced in the territory of Canada, Mexico and/or the United States", means, in pertinent part:
(i) mineral goods extracted in the territory of one or more of the NAFTA parties;...
(x) goods produced in the territory of one or more of the NAFTA parties exclusively from goods referred to in subdivisions (n)(i) through (ix), inclusive, or from their derivatives, at any stage of production.
"Production" is defined by General Note 12(p), as "growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing or assembling a good."
We are of the opinion that when the nonalloy steel tubes and pipes are manufactured in Canada from United States-origin starting material, they are considered wholly obtained or produced in a NAFTA territory, and are therefore "originating goods" for purposes of the NAFTA pursuant to General Note 12(b)(i), HTSUS. The starting material of skelp – a hot-rolled, flat-rolled steel product intended to be used to manufacture the welded pipes and tubes - is manufactured in the United States or Canada. The United States-origin products are then manufactured into finished nonalloy steel tubes and pipes in Canada. Therefore, the finished nonalloy steel tubes and pipes are considered to be goods wholly obtained or produced in the territory of Canada and are eligible for preferential treatment under the NAFTA.
For all the other situations, i.e., where non-originating starting materials are used, we must examine whether the nonalloy steel tubes and pipes are
"transformed in the territory of Canada, Mexico and/or the United States" pursuant to General Note 12(b)(ii)(A), HTSUS. As the finished nonalloy steel tubes and pipes are classified under headings 7305 and 7306, HTSUS, a transformation is evident when a change in tariff classification occurs that is authorized by General Note 12(t) 73.6, HTSUS. General Note 12(t) 73.6, HTSUS, states:
A change to headings 7305 through 7307 from any other chapter.
Therefore, any non-originating materials must come from a chapter other than chapter 73.
In the case of the nonalloy steel tubes and pipes, the non-originating materials are ferrous waste or scrap, classified within chapter 72, specifically under various subheadings of heading 7204, HTSUS; iron ore, classified within chapter 26 under subheading 2601, HTSUS, depending on form; limestone, classified within chapter 25 under subheading 2521, HTSUS; and coal classified in chapter 27 under subheading 2701, HTSUS, depending on form. A change in tariff classification occurs. Therefore, the nonalloy steel tubes and pipes manufactured from originating skelp and non-originating raw materials (see above) are eligible for preferential tariff treatment under the NAFTA.
The following Preference Criteria on the NAFTA Certificate of Origin form (CF 434) are under consideration:
A. The good is “wholly obtained or produced entirely” in the territory of one or more of the NAFTA countries as referenced in Article 415. Note: the purchase of a good in the territory does not necessarily does not render it “wholly obtained or produced[.]”
B. The good is produced entirely in the territory of one or more of the NAFTA countries and satisfies the specific rule of origin, set out in Annex 401, that applies to its tariff classification. The rule may include a tariff classification change, a regional value-content requirement, or a combination thereof. The good must also satisfy all other applicable requirements of Chapter 4[.]
C. The good is produced entirely in the territory of one or more of the
NAFTA countries exclusively from originating materials. Under this criterion, one or more of the materials may not fall within the definition of “wholly produced or obtained” as set out in Article 415. All materials used in the production of the good must qualify as “originating” by meeting the rules of Article 401 (a) through (d)[.]
As stated above, neither the method of producing the steel and the raw materials used in the steel making process (iron ore, limestone, coal, scrap) nor the origin of the raw materials used in the steel making process is known.
Therefore, criterion A is precluded. Preference criterion B requires that the goods (welded pipes and tubes of heading 7305 and 7306) be produced entirely in the territory of one or more of the NAFTA countries and satisfy the specific rule of origin that applies to their tariff classification. In this case a change in tariff classification is required. GN 12(t)/73.6 requires a change to headings 7305 through 7307, HTSUS, from any other chapter. The change in tariff classification has been made. Criterion B is therefore applicable.
HOLDING:
The nonalloy steel tubes and pipes are classified under headings 7305 or 7306, HTSUS, which provides for welded tubes and pipes. Criterion B on the CF 434 is applicable.
You are directed to mail this decision to the internal advice applicant, 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 Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other public methods of distribution.
Sincerely,
John Durant, Director
Commercial Rulings Division