VAL 2 OT:RR:CTF:VS H224595 RSD
Mr. Harold Averill
Corrigan Dispatch Company
Box 3610
Brownsville, Texas 7823-3610
RE: Eligibility of Polyvinylchloride Powder Imported from Mexico for the NAFTA
Duty Preference, Regional Value Content
Dear Mr. Averill:
This is in regard to your letter dated May 7, 2012, requesting a ruling on behalf of Resinoplast, North America concerning the eligibility of a polyvinylchloride (PVC) powder imported from Mexico for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). Your letter was referred to this office for a response by the Chief, Agricultural and Chemical Branch of the National Commodity Specialist Division.
FACTS:
The product at issue is a PVC powder used in various industries as a component for different manufacturing processes. In this instance, the automotive industry is the primary user of the subject PVC powder. The PVC powder is used in the manufacture of faux leather products for car interiors such as dashboards, center consoles, armrests, and door panels.
The manufacturing process for the product is described as a multi-step process. In step one, the raw materials are received at a plant in Matamros, Mexico. The various materials are weighed and measured according to a formula. During step two, the materials are put in a hot mixer, where the polyvinyl chloride [(xxxxxxxxxxxxx)] undergoes an expansion process in which the “pores” of the material open and absorb the other material, including the
plasticizers, such as the [xxxxxxxxxxxxx]. In step three, the material is then placed in a cooling blender, where the material contracts and returns to its original state with materials combined. Once cooled, the [xxxxxxxxxxxxxxx] material is added to the blend. Step four consists of passing the cooled down mixture through a screener to insure a uniform standard size. In the fifth and final step, the finished product is packaged in 750 KG bags for shipment.
The following materials and costs are incorporated into the completed PVC powder based on 1 kilogram.
Raw Materials (RM) Qty/Kgs C/O HTSUS Prices US(U.S. Dollars)
1. [xxxxxxxx xxxx] [xxxxxxx] US 3904.10.000 [xxxxxxxx]
2. [xxxxxxx] [xxxxxxx] FR 3812.20.5000 [xxxxxxxx]
3. [xxxxxxxxxxxx] [xxxxxxx] JP 3907.99.0150 [xxxxxxxx]
4. [xxxxxxxxxxxx] [xxxxxxx] JP 3812.30.9000 [xxxxxxxx]
5. [xxxxxxxxxxxxx] [xxxxxxx] IT 3812.30.9000 [xxxxxxxx]
6. [xxx xxxxxxxxxxxx] [xxxxxxx] DE 3812.30.9000 [xxxxxxxx]
7. [xxxxxxxxxxxxx] [xxxxxxx] FR 2914.39.9000 [xxxxxxxx]
8. [xxxxxxxxxxxx] [xxxxxxx] CN 2933.99.9700 [xxxxxxxx]
9. [xxxxxxxx] [xxxxxxx] JP 2018.29.7500 [xxxxxxxx]
10. [xxxx] [xxxxxxxx] FR 3812.30.9000 [xxxxxxxx]
11. [xxxxxxxxxxx] [xxxxxxx] US 3904.10.0000 [xxxxxxxx]
12. [xxxxxxxxxxxx] [xxxxxxx] NL 2842.10.0000 [xxxxxxxx]
13. [xxxxxxxxxxxx] [xxxxxxx] US 1518.00.4000 [xxxxxxxx]
14. [xxxxxxxxxxxxx] [xxxxxxx] MX 2917.39.7000 [xxxxxxxx]
15. [xxxx] [xxxxxxx] JP 2918.29.7500 [xxxxxxxx]
16. [xxxxxxxxxx] [xxxxxxx] CA 3206.11.0000 [xxxxxxxx]
17. [xxxxxxxxxxxxxxx] [xxxxxxx] FR 3204.17.9086 [xxxxxxxx]
18. {xxxxxx] [xxxxxxx] US 3207.10.0000 [xxxxxxxx]
19. [xxxxxxxxxx] [xxxxxxx] DE 2803.00.0010 [xxxxxxxx]
20. [xxxxxxxxxxxxxxxx] [xxxxxxx] DE 3204.17.9086 [xxxxxxxx]
Total Raw Materials [xxxxxxxx]
Including NAFTA Origin Raw Materials [xxxxxxxx]
1. Utilities [xxxxxxxx]
2. Packaging [xxxxxxxx]
3. RPE [xxxxxxxx]
4. PROFIT [xxxxxxxx]
Total Raw Materials + Other Costs & Profit [xxxxx]
The import price of the finished DSY 260/02 G A4060 Titan Schwar/PVC powder is [xxxxx] in U.S. dollars per kilogram. The price sold to the client is [xxxxx] per kilogram. The importer of record is the same as the exporter.
ISSUE:
Is the imported PVC powder entitled to preferential tariff treatment under the NAFTA?
LAW AND ANALYSIS:
General Note (GN) 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. GN12(a)(ii), HTSUS, provides, in pertinent part, that:
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 Mexico 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), and goods enumerated in subdivision (u) of this note, 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 “MX” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
Accordingly, the PVC powder will be eligible for the “Special” “MX” rate of duty provided: (1) it is deemed to be NAFTA originating under the provisions of GN 12(b), HTSUS; and, (2) qualifies to be marked as products of Mexico under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 C.F.R. 102). In order to determine whether the PVC powder is NAFTA-originating, we must consult GN12(b), HTSUS, which provides, in pertinent part, as follows:
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
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Because the PVC powder is comprised, in part, of non-originating materials, GN 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the tariff shift (or other applicable requirements) prescribed under GN 12(b)(ii), HTSUS. As stated in the importer’s submission, the imported PVC powder is classified in subheading 3904.22.0000, HTSUS. The applicable rule in GN 12(t)/(39.1), HTSUS provides for:
A change to heading 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.
Thus, GN 12t/39.1 requires that non-originating materials undergo a change in tariff classification and further requires that the good satisfy an applicable regional value content (RVC) requirement. Two of the materials used in producing the PVC powder, the [xxxxxxxxxxxxxx] and [xxxxxxxxxxxx] are classified in the same heading as the finished PVC powder, heading 3904, HTSUS. However, because these materials are produced in the United States, they are considered originating, and thus do not disqualify the PVC powder for the duty preference under NAFTA. The remaining non-originating materials used in producing the PVC powder are classified in different headings from heading 3904, HTSUS, the heading in which the finished PVC powder is classified. Thus, the required tariff shift rule set forth in GN 12t/39.1 is satisfied.
Further, in order to determine if the PVC powder will receive NAFTA preferential treatment, we must examine the second part of GN 12t/39.1 and calculate the RVC.
. GN 12(c)(ii), HTSUS, provides as follows:
Regional value content: Except as provided in subdivision (c)(iv) of this note, the regional value content of a good shall be calculated, at the choice of the exporter or producer of such good, on the basis of either the transaction value method set out in subdivision (c)(i) or the net cost method set out in subdivision (c)(ii).
(ii) Net cost method. The regional value content of a good may be calculated on the basis of the following net cost method:
NC - VNM
RVC = ------------------------ X 100
NC
where RVC is the regional value content, expressed as a percentage; NC is the net cost of the good; and VNM is the value of non-originating materials used by the producer in the production of the good. See also 19 C.F.R. Part 181, Appendix, Part III, Sec. 6(3).
The methods of calculating the net cost of a good are set forth in 19 C.F.R. Part 181, Appendix, Part III, Sec. 6 (11). Subsection (11) provides three methods from which the producer of a good may choose to calculate the net cost. The options are:
calculating the total cost incurred with respect to all goods produced by that producer, subtracting any excluded costs that are included in the total cost, and reasonably allocating, in accordance with Schedule VII, the remainder to the good;
calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating, in accordance with Schedule VII, that total cost to the good, and subtracting any excluded costs that are included in the amount allocated to that good; or
reasonably allocating, in accordance with Schedule VII, each cost that forms part of the total cost incurred with respect to the good so that the aggregate of those costs does not include any excluded costs. 19 C.F.R. Part 181, Appendix, Part III, Sec. 6 (11).
“Excluded costs” as used in section 6 (11) is defined in Part I, section 2 (1), and means “sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs.” Each of these aspects of “excluded costs” are further defined in section 2 (1).
The calculation of net cost initially requires the proper calculation of the total cost. Subsection (12) of section 6 addresses “total cost” and states that “[t]otal cost … consists of the costs referred to in section 2 (6), and is calculated in accordance with that subsection.” In this case, CBP was provided with cost information involved in the manufacturing of the PVC powder. Based upon the information contained in your submission, applying the formula under the net cost method of determining regional value content yields the following:
NC [xxxxxxx] – VNM [xxxxxxx]
RVC = ---------------------------------------- X 100
NC [xxxxxxx]
Performing the required calculation renders a result of 51.633 percent, a RVC in excess of that required under Part B of GN 12(t)/85(13), HTSUS.
Transaction value method. The regional value content of a good may also be calculated on the basis of the following transaction value method:
TV - VNM
RVC = --------------------------- X 100
TV
Regarding the transaction value method, we note that since the importer of record is the same as the exporter, and we do not have any further information regarding this transaction, there does not appear to be a valid basis for calculation of the regional value content under this method. However, since under the net cost method, the applicable regional value content requirement of GN 12t/39.1 is satisfied, the imported PVC powder would satisfy the applicable NAFTA rule of origin. We note that the calculations of regional value content would be subject to appropriate review upon importation into the United States based upon the final appraised value of the merchandise.
B. NAFTA ELIGIBILITY: COUNTRY OF ORIGIN MARKING
In addition to being a good that originates in the territory of a NAFTA party, General Note 12(a)(ii), HTSUS, establishes that NAFTA-originating goods must also qualify to be marked as goods of Mexico under the NAFTA Marking Rules before the tariff preferential treatment is granted. In this regard, section 134.1(j) of the Customs and Border Protection Regulations (19 C.F.R. §134.1(j)), provides that the “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) 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.
Part 102, Customs and Border Protection Regulations (19 C.F.R. Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. See 19 C.F.R. 102.11. Applied in sequential order, the required hierarchy establishes that the country of origin of a good is the country in which:
(a)(1) The good is wholly obtained or produced;
(a)(2) The good is produced exclusively from domestic materials;
or
(a)(3) 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.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the imported PVC powder is neither wholly obtained or produced exclusively from “domestic” (Mexican, in this case) materials. Because the analysis of sections 102.11(a)(1) and 102.11(a)(2) does not yield a country of origin determination, we look to section 102.11(a)(3). “Foreign material” is defined in 19 C.F.R. 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.”
The applicable rule for subheading, HTSUS, in section 102.20 CBP Regulations (19 C.F.R. 102.20(j)), states:
A change to heading 3901 through 3915 from any other heading, including another heading within that group provided that the domestic polymer content is no less than 40 percent by weight of the total polymer content.
In this instance, there are two materials used in making the PVC powder, [xxxxxxxxxxxxx] and [xxxxxxxxxxxx] that are classified in heading 3904, HTSUS, the same heading as the finished PVC Powder. Thus, the first part of the applicable rule is not satisfied. Moreover, the PVC powder is made using a polymer, [xxxxxxxxxxxxxx], which accounts for almost [xx] percent of the weight of the finished product. Since the [xxxxxxxxxxxxxxx] is of U.S. origin rather than Mexican origin, and the processing takes place in Mexico, the 40 percent domestic polymer content requirement is also not met. Thus, the country of origin of the PVC powder for marking purposes cannot be determined under 19 C.F.R. 102.11(a).
Because 19 C.F.R. §102.11(a) (incorporating section 102.20) is not determinative of origin for country of origin marking purposes, the analysis continues to section 102.11(b). The next section,102.11(b)(1), CBP Regulations (19 C.F.R. 102.11(b)(1)) states that the country of origin is determined by the single material that gives the good its essential character. Under 19 C.F.R. 102.18(b), the essential character of the good is determined in pertinent part as follows:
(b)(1) For purposes of identifying the material that imparts the essential character to a good under §102.11 the only materials that shall be taken into consideration are those domestic or foreign
materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the §102.20 specific rule or other requirements applicable to the good.
In this instance, there are two materials used in making the PVC powder which do not undergo the required change in tariff classification under the specific rule in §102.20 applicable to the good. The two materials are the [xxxxxxxxxxxxxx] and the [xxxxxxxxxxxxxxxx].
Section 102.18(b)(2) further states:
For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under Sec. 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:
The nature of each material, such as its
bulk, quantity, weight or value; and
(ii) The role of each material in relation to the
use of the good.
Applying these criteria to the two applicable materials, we note that the significance, weight and value of the [xxxxxxxxxxxx] used in producing the PVC Powder is substantially greater than the significance, weight, and the value of the [xxxxxxxxxxx] We thus find that the [xxxxxxxxxxxxx] imparts the essential character to the finished PVC powder. Therefore, under 19 C.F.R. 102.11(b), the country of origin of the PVC powder would be the country of origin of the [xxxxxxxxxxxxxx] which in this case is the United States.
Because the country of origin of the PVC Powder for marking purposes is the United States, the NAFTA preference override set forth in 19 C.F.R. 102.19(b) is applicable. Section 102.19(b) provides as follows:
If under any other provision of this part, the country of origin of a good which is originating within the meaning of section 181.1(q) of this chapter is determined to be the United States and that good has been exported from, and returned to the United
States after having been advanced in value or improved in
condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.
Accordingly, in this case, while the country of origin of the PVC powder for marking purposes under the NAFTA marking rules is the United States, pursuant to 19 C.F.R. 102.19(b), the country of origin for Customs duty purposes would be Mexico, the last NAFTA country in which the PVC Powder was advanced in value and improved in condition.
HOLDING:
Based upon the facts presented, the PVC powder identified in the production scenario set forth above will be considered as originating in Mexico for NAFTA preferential tariff treatment pursuant to General Note 12(b), at the time of its entry into the United States. Moreover, because under 19 C.F.R. 102.19(b), Mexico is the country of origin of the PVC powder for Customs duty purposes, it will be eligible for preferential tariff treatment under NAFTA. However, as a product of the United States, no country of origin marking is required.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been 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 and Special Programs Branch