VAL-2 OT:RR:CTF:VS H102017 CMR
Mr. C.J. Erickson
Cowan, Liebowitz & Latman, P.C.
1133 Avenue of the Americas
New York, NY 10036-6799
RE: Eligibility of heat recovery steam generators for preferential treatment under the
North American Free Trade Agreement
Dear Mr. Erickson:
This is in response to your request of March 23, 2010, on behalf of your client, Astoria Energy II, LLC (“Astoria Energy”), for a ruling seeking confirmation of the classification of certain heat recovery steam generators in subheading 8402.11.0000, Harmonized Tariff Schedule of the United States (HTSUS). In addition, you request a ruling on the eligibility of the merchandise for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). In reaching our decision set forth below, we have taken into consideration the additional arguments submitted in your letter of May 7, 2010; the discussion at the meeting held on May 19, 2010 at Customs and Border Protection’s (CBP) offices; the additional information submitted by you and your client via email to CBP on June 2, 2010; and the additional information submitted via email on June 14, 2010.
FACTS:
Your client, Astoria Energy, will be importing two heat recovery steam generators from Mexico. You originally requested classification of the generators in subheading 8402.11.0000, HTSUS, which provides for “Steam or other vapor generating boilers (other than central heating hot water boilers capable also of producing low pressure steam); super-heated water boilers; parts thereof: Steam or other vapor generating boilers: Watertube boilers with a steam production exceeding 45 t per hour.” After meeting with CBP personnel, you request classification of the generators in subheading 8402.20.0000, HTSUS, which provides for “Steam or other vapor generating boilers (other than central heating hot water boilers capable also of producing low pressure steam); super-heated water boilers; parts thereof: Super-heated water boilers.”
You indicate that the generators are each comprised of over 200 individual components. The generators are produced in Mexico from both NAFTA originating and non-originating materials. The non-originating materials are classified in subheadings other than subheadings 8401.11 through 8401.20. You have indicated that the non-originating materials include materials classified in subheading 8402.90, HTSUS.
Following the meeting on May 19, 2010, with CBP personnel, a revised listing of non-originating materials in Exhibit 3 was submitted. You submit that the classification of the materials listed in Exhibit 3 as goods of subheading 8402.90, HTSUS, was based upon assembly in Mexico after importation of the components into that country. Your client has de-consolidated the invoices on which these goods were listed to identify the individual components as imported into Mexico. You now submit that many of these materials are assembled in Mexico to become parts classifiable under subheading 8402.90, HTSUS, as parts of steam or other vapor generating boilers or of super-heated water boilers, and by virtue of their assembly in Mexico into goods of subheading 8402.90, become originating goods. You are designating these self-produced materials as intermediate materials for purposes of calculating the regional value content. As such, you claim the value of these intermediate goods must be considered as originating goods in the calculation of the regional value content.
You assert that the non-originating materials utilized in the production of the heat recovery steam generators satisfy the tariff shift rule set forth in General Note (GN) 12(t) of the HTSUS and that the regional value content requirement of the applicable tariff shift rule is met. Thus, you submit that the heat recovery steam generators qualify as originating goods for purposes of the NAFTA.
In support of your argument, you submit:
Exhibit 1 A spreadsheet identifying all originating materials used in the production of the heat recovery steam generator.
Exhibit 2 A spreadsheet identifying all non-originating materials used in the production of the heat recovery steam generator.
Exhibit 3 A spreadsheet identifying all non-originating materials used in the production of the heat recovery steam generator and classified under subheading 8402.90, HTSUS. [Revised after submission]
Exhibit 4 A summary spreadsheet identifying the name, country of origin, tariff classification and unit cost of all originating and non-originating materials (parts) used in the production of the heat recovery steam generator. The spreadsheet also includes a breakdown of the Mexican production labor charges.
In arguing the heat recovery steam generators qualify under GN 12(t), you initially argued that the applicable tariff shift rule, Rule 3, Chapter 83, GN 12(t), consists of two rules, A and B, which are to be applied together to the heat recovery steam generator. You argued that Rule 3(A) applies to all non-originating materials other than materials of subheading 8402.90, and that Rule 3(B) applies only to non-originating materials of subheading 8402.90 and imposes a regional value content requirement only upon those non-originating materials. We wish to address this argument although your recent submissions make clear you have abandoned it.
In addition, you request confidential treatment be extended to all value information and origination percentages set forth in the ruling request. We believe you have satisfied the requirements to justify withholding such information and will redact any information set forth in this decision.
ISSUE:
Are the heat recovery steam generators at issue classifiable in subheading 8402.20.0000, HTSUS?
Do the heat recovery steam generators qualify for preferential treatment under the NAFTA?
LAW AND ANALYSIS:
Classification of goods under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) is governed by the General Rules of Interpretation (GRIs). GRI 1 provides that "classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to [the remaining GRIs taken in order]."
Heading 8402, HTSUS, provides for “[s]team or other vapor generating boilers (other than central heating hot water boilers capable also of producing low pressure steam); super-heated water boilers; parts thereof[.]” Steam or other vapor generating boilers are classifiable in subheadings 8402.11.00, 8402.12.00 or 8402.19.00, HTSUS, depending upon whether the boiler is a watertube boiler or other vapor generating boiler and depending upon the measurement of the steam production. Super-heated water boilers are classifiable in subheading 8402.20.00, HTSUS. Goods classifiable in these provisions are eligible for a Free rate of duty under the NAFTA provided they meet the applicable requirements.
As noted above, you request classification of the generators in subheading 8402.20.0000, HTSUS, as super-heated water boilers. We have reviewed the additional information you submitted on May 7, 2010, and found additional information
on the internet relevant to the heat recovery steam generators at issue. Based upon the additional information, we agree with you that the heat recovery steam generators at issue are classifiable in subheading 8402.20.00, HTSUS, as super-heated water boilers.
GN 12(a)(ii), as noted in your submission, provides for the NAFTA rate for goods that originate in the territory of a NAFTA party and that qualify to be marked as goods of Mexico. GN 12(b) sets forth the various methods by which a good may be determined to originate in the territory of a NAFTA party. As the heat recovery steam generators at issue are not wholly obtained or produced in the territories of the NAFTA parties, nor are they produced in the NAFTA territories from originating goods, the heat recovery steam generators must be transformed in the territory of Mexico so that, except as provided for in GN 12(f) (de minimis), “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[.]” See GN 12(b)(ii)(A).
As the merchandise at issue is classifiable in subheading 8402.20.00, HTSUS, the applicable tariff shift rule is Rule 3, Chapter 84, GN 12(t) which provides:
(A) A change to subheadings 8402.11 through 8402.20 from any other heading;
or
(B) A change to subheadings 8402.11 through 8402.20 from subheading
8402.90, whether or not there is also a change from any other heading,
provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Rule 3 requires that either the tariff shift rule set forth in (A) be applied or the rule set forth in (B) be applied to determine if the imported good qualifies under the NAFTA. As the heat recovery steam generators at issue incorporate non-originating materials, some of which are classifiable in subheading 8402.90, Rule 3(B) applies. As non-originating goods classifiable in subheading 8402.90 are included, Rule 3(A) would not apply as subheading 8402.90 is within the same heading as the group (subheadings 8402.11 through 8402.20) to which the change must be made. If Rule 3(A) does not apply, the applicable tariff shift rule is Rule 3(B) which requires that ALL non-originating materials be considered in the calculation to determine whether the regional value content required by the rule has been met.
As Rule 3(B) applies in this case, we must consider whether the regional value content requirement has been met. The figures submitted in your original submission have been adjusted in your latest submission based on the designation of self-produced intermediate products as originating goods because they meet Rule 4A, Chapter 84, GN 12(t) which provides:
A change to subheading 8402.90 from any other heading[.]
These self-produced intermediate products are identified as an outlet duct and a complete Ammonia Injection system. You have indicated that the outlet duct is produced from materials of subheading 7308.90.3000, HTSUS, which provides for “Structures (excluding prefabricated buildings of heading 9406) and parts of structures (for example, bridges and bridge sections, lock gates, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, shutters, balustrades, pillars and columns) of iron or steel; plates, rods, angles, shapes,
sections, tubes and the like, prepared for use in structures, of iron or steel: Other: Columns, pillars, posts, beams, girders and similar structural units: Not in part of alloy steel.” The Ammonia Injection system is assembled from components classifiable as other articles of iron or steel under subheading 7326.90, HTSUS, and from components classifiable as other machines and mechanical appliances having individual functions, not specified or included elsewhere in chapter 84 under subheading 8479.89, HTSUS.
Based upon the information provided, we agree that these parts of the heat recovery steam generators qualify as intermediate originating goods and pursuant to GN 12(c)(iii) and (c)(viii), the value of non-originating materials used in the production of the heat recovery steam generators shall not include the value of non-originating materials used in the producing the outlet duct and the Ammonia Injection system. After reviewing the revised figures for the total cost and value of non-originating materials, we agree that the processing occurring in Mexico to produce the heat recovery steam generators meets the requirements of Rule 3(B), Chapter 84, GN 12(t).
Having met the preferential rule set forth in GN 12(b), we must determine whether the heat recovery steam generators qualify to be marked as goods of Mexico. We look to the NAFTA Marking Rules contained in 19 CFR Part 102 of the CBP Regulations in determining the marking of the generators.
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. In this case, § 102.11(a)(3) is applicable and 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 heat recovery steam generators at issue are classified in subheading 8402.20, HTSUS, and therefore, the applicable rule set forth in § 102.20 is:
8402.19 – 8402.20 A change to subheading 8402.19 through 8402.20 from any other subheading, including another subheading within that group.
As the assembly in Mexico satisfies the rule set forth above, the heat recovery steam generators may be marked as goods of Mexico. Thus, the heat recovery steam generators qualify as NAFTA originating goods eligible for preferential tariff treatment.
HOLDING:
The heat recovery steam generators at issue are classifiable in subheading 8402.20.00, HTSUS, which provides for “Steam or other vapor generating boilers (other than central heating hot water boilers capable also of producing low pressure steam); super-heated water boilers; parts thereof: Super-heated water boilers.” Merchandise classifiable in this subheading is dutiable at 3.3 percent ad valorem.
The heat recovery steam generators at issue qualify for preferential treatment under the NAFTA as their production in Mexico meets the requirements of the applicable tariff shift rule in GN 12(t) and the goods qualify to be marked as goods of Mexico.
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 CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch