OT:RR:CTF:VS H027707 GOB
Port Director
U.S. Customs and Border Protection
237 West Service Road
Champlain, NY 12919
RE: Request for Internal Advice; Subheading 9802.00.50, HTSUS; NAFTA; Marking
Dear Port Director:
This is in response to your request for internal advice of March 25, 2008 with respect to Momentive Performance Materials (the “internal advice requester” or the “requester”). Our ruling follows.
FACTS:
The internal advice requester describes the facts as follows. It produces in its United States plant various grades and shades of silicone products (the “product” or the “silicone product”). For the purpose of this request, the silicone product consists of consumer sealant applications, i.e., caulk used by homeowners and builders. The bulk silicone product is repacked into tubes and sometimes colored at the requester’s U.S. plant or at its plant in Canada. If the product has been repacked (and perhaps colored) in Canada and is needed in the U.S., the requester’s Canadian plant ships the product back to the U.S., with the requester as the importer.
In its submission, the requester describes three scenarios. Because your office agrees with the requester with respect to the first two scenarios, we do not address those scenarios here. See section 177.11(b)(4), Customs and Border Protection (“CBP”) Regulations (19 CFR § 177.11(b)(4)) which provides that an internal advice request will be submitted to CBP Headquarters where “agreement cannot be reached” between the CBP field office and the internal advice requester.
We will address the third scenario where the product is manufactured in the U.S., repacked with a change of color at the requester’s Canadian facility, and then shipped back to the U.S. The requester describes the repacking and coloring process as follows. The bulk silicone is mechanically forced through packing machinery by corkscrew-type extruders. At the same time, a small amount of coloring is added. No special machinery is used for coloring and there is no chemical alteration of the product with respect to the coloring, which is essentially cosmetic. The requester states that, in some cases, it “can and does obtain higher pricing (value) in the marketplace because of the Pickering coloring process.” The requester also states that “[t]he color is essentially cosmetic in nature, as the original color (referred to as neutral or gray) would also meet technical specification requirements, other than the shade requirement as a condition of sale.”
ISSUES:
Under the facts presented, may the silicone product be entered under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (“HTSUS”)?
What is the country of origin for marking purposes of the silicone product?
What is the country of origin for duty purposes of the silicone product?
LAW AND ANALYSIS:
Subheading 9802.00.50
Subheading 9802.00.50, HTSUS, provides a partial or complete duty exemption for articles exported from and returned to the United States after having been advanced in value or improved in condition abroad by repairs or alterations, provided the documentary requirements of section 181.64 (for articles returned from Canada or Mexico) or section 10.8 (for articles returned from any other country), CBP Regulations (19 CFR §§ 181.64 and 10.8), are satisfied.
Section 181.64(a), CBP Regulations, (19 CFR § 181.64(a)) provides that:
‘Repairs or alterations’ means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential character of, or create a new and commercially different good from, the good exported from the United States.
Court cases considering the applicability of subheading 9802.00.50, HTSUS, and its precursor provisions (item 806.20, Tariff Schedules of the United States (“TSUS”), and, before that, paragraph 1615(g), Tariff Act of 1930), have held that this tariff provision is inapplicable where: (1) the exported articles are not complete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See Guardian Indus. Corp. v. United States, 3 Ct. Int’l Trade 9 (1982), and Dolliff & Co., Inc., v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff’d, 66 C.C.P.A. 77, C.A.D. 1225, 599 F.2d 1015 (1979).
In its submission, the requester states in pertinent part as follows:
In theory, HTS 9801.00.10 could legitimately continue to apply to some Pickering coloring processes where the process is truly de minimis (not an advancement in value), as discussed. However, as a practical matter Momentive believes that attempting to define with precision which products would fall within 9801 and which would fall within 9802 would be burdensome administratively, for both Momentive and Customs. This is especially relevant given that there is no duty ramification (NAFTA). Therefore, the best treatment is to regard all Pickering coloring as “advancement in value.”
Momentive proposes to treat all coloring as advancement in value, therefore treating the colored product for Customs purposes under HTS provision, 9802.00.50.
Based upon the facts presented, we find that the silicone is advanced in value or improved in condition by an alteration, i.e., the coloring process. 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 (evidence was presented which indicated 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, TSUS. HQ 561383, dated June 15, 1999, concerned whether certain imported Egyptian yarns, which are exported to Canada for dyeing, may receive subheading 9802.00.50, HTSUS treatment when returned to the U.S. Information submitted by the requester in that case indicated that many customers use the same Egyptian yarns for knitting, weaving or sewing in their undyed condition, and that only in situations where the yarns are to be knit or woven to create patterned or jacquard fabrics was it necessary to dye the yarns to color first. CBP found that the dyeing operation was not an “intermediate processing operation which is performed as a matter of course in the preparation or manufacture of finished” yarns. Further, CBP stated that the dyeing clearly does not destroy the identity of the exported yarns or create a new or different article of commerce. Thus, CBP determined that the dyeing operation qualified as an alteration. We believe that these authorities are very relevant here. While the coloring of the silicone product clearly imparts a new characteristic to the product, it does not result in the loss of the product’s identity or the creation of a new article with a different commercial use. The processing in Canada does not significantly change the quality, character, or performance characteristics of the silicone product. We find that the Canadian processing operation constitutes an alteration within the meaning of 9802.00.50, HTSUS.
Therefore, based upon the facts presented, we find that the silicone product, after exportation to Canada for coloring and repacking, is eligible for treatment under subheading 9802.00.50, HTSUS, upon its subsequent importation into the U.S., provided that the applicable documentary requirements are satisfied. Under the facts and circumstances presented by the requester, we have no need to address subheading 9801.00.10, HTSUS.
Marking
The marking statute, 19 U.S.C. § 1304, provides that, unless excepted, every article of foreign origin (or its container) 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, CBP Regulations (19 CFR Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304.
Section 134.1(b), CBP Regulations, provides:
“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" 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 134.1(j), CBP Regulations, provides that “[t]he ‘NAFTA Marking Rules’ are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country.” Section 134.1(g), CBP Regulations, defines a "good of a NAFTA country" as “an article for which the country of origin is Canada, Mexico, or the United States as determined under the NAFTA Marking Rules.”
Section 102.11, CBP Regulations, sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 provides in pertinent part that the country of origin of a good is the country in which:
(a) The country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) 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.
Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:
The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good . . .
Because the product is manufactured in the U.S. and colored in Canada, it is neither wholly obtained or produced (19 CFR § 102.11(a)(1)), nor produced exclusively from domestic materials (19 CFR § 102.11(a)(2)). The National Commodity Specialist Division advises that the product, both before and after the repacking and coloring, is classified in subheading 3214.10.00, HTSUS. The applicable tariff shift rule in 19 CFR § 102.20 for subheading 3214.00.10, HTSUS, is: “A change to subheading 3214.10 through 3214.90 from any other heading, including another subheading within that group, except from subheading 3824.50.” Because there is no change in classification of the product, the tariff shift rule is not satisfied. Therefore, we turn to the essential character test of 19 CFR § 102.11(b)(1). We find that the essential character of the colored silicone product is imparted by the silicone product manufactured in the U.S. See 19 CFR § 102.18(b)(1)(iii). Accordingly, the country of origin for marking purposes of the silicone product is the United States.
NAFTA Preference
The requester states that it “could elect to pursue duty free treatment under NAFTA.” It has not provided details of the manufacture of the silicone product in the United States. We note that, to the extent the silicone is originating under 19 CFR § 181.1(q), the coloring of the product in Canada will not have an impact upon its eligibility for NAFTA. See 19 CFR § 102.19.
HOLDINGS:
Based upon the facts presented, we find that the silicone product, after exportation to Canada for coloring and repacking, is eligible for treatment under subheading 9802.00.50, HTSUS, upon its subsequent importation into the U.S.
Pursuant to 19 CFR § 102.11(b)(1), the country of origin for marking purposes of the silicone product, after exportation to Canada for coloring and repacking, is the United States.
Pursuant to 19 CFR § 102.19, to the extent the silicone is originating under 19 CFR § 181.1(q), the coloring of the product in Canada will not have an impact upon its eligibility for NAFTA.
Please promptly provide a copy of this ruling to the internal advice requester. Sixty days from the date of this ruling the office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP 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.
Sincerely,
Monika R. Brenner
Chief
Valuation and Special Programs Branch