OT:RR:CTF:VS H301454 RMC
Barb Carman
Director of Customs Compliance
BCB International, Inc.
1010 Niagara St.
Buffalo, NY 14213
RE: NAFTA Eligibility of Structural Foam Boards
Dear Ms. Carman:
This is in response to your letter on behalf of Armacell Canada. In your letter, you request a binding ruling from U.S. Customs and Border Protection (“CBP”) on whether structural foam boards are eligible for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”).
FACTS:
The structural foam boards will be produced at Armacell Canada’s location in Brampton, Ontario, Canada. According to the information provided, the products, which will be sold under the name “ArmaForm,” are foam boards used in construction, transportation, wind turbines, rail cars, and marine vessels. You state, and we assume for the purposes of this ruling, that the final product is properly classified in subheading 3921.19.00, Harmonized Tariff Schedule of the United States (“HTSUS”). The boards will be produced from Polyethylene Terephthalate (“PET”), a type of thermoplastic polymer resin, including some “post-consumer” (i.e., recycled) PET materials.
The product will comprise both NAFTA-originating and non-originating materials. You state that the following materials will originate in a NAFTA territory:
PET virgin resin (PET granules) of subheading 3907.61.00, HTSUS (Product of the United States)
PET regrind (regranulated PET foam) of subheading 3907.69.00, HTSUS (Product of Canada)
Blowing agent (used in the bonding process) of subheading 2902.19.00, HTSUS (Product of the United States)
Pyromellitic dianhydride (used in the bonding process) of subheading 2917.39.00, HTSUS (Product of the United States)
You state that the following materials will not originate in a NAFTA territory:
PET recycled granulates (post-consumer PET) of subheading 3907.69.00, HTSUS (Product of Belgium)
ADMBNA (a chemical used in the bonding process) of subheading 3907.69.00, HTSUS (Product of Belgium)
The manufacturing process in Canada will involve mixing PET granules with additives and forming foam boards through a “twin-screw continuous extrusion process.” The foam boards will then be welded into blocks and sliced to customer specifications. The finished products will then be exported to the United States.
You also provided the following information relevant to the regional value content of the product (in Canadian Dollars):
Non-Originating Materials: $8.03
Originating Materials: $2.27
Packing Costs: $0.61
Added Value: $6.27
Total Cost: $17.18
Total Net Cost: $16.57
ISSUE:
Whether the foam boards will qualify for preferential tariff treatment under the NAFTA.
LAW AND ANALYSIS:
The NAFTA is implemented in General Note (“GN”) 12 of the HTSUS. GN 12(a)(i) states that goods are eligible for the NAFTA rate of duty if they originate in the territory of a NAFTA party and qualify to be marked as goods of Canada.
NAFTA Originating Under GN 12, HTSUS
GN 12(b) sets forth the various methods for determining whether a good originates in the territory of a NAFTA party. Specifically, these provisions provide, in relevant part, as follows:
Goods originating in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided herein. For the purposes of this note—
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), 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 “CA” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
* * *
(b) 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 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 subdivision (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivision (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; ….
Here, GN 12(b)(i) and (iii) do not apply because the product will neither be wholly obtained or produced nor produced entirely in the territory of Canada, Mexico, and/or the United States exclusively from originating materials. Accordingly, pursuant to GN 12(b)(ii), the production in Canada must cause the non-originating materials to meet the requisite rule set forth in GN 12(t). As noted above, you state, and we assume for the purposes of this ruling, that the product is properly classified in subheading 3921.19.00, HTSUS.
Under GN 12(t), the applicable rule is: “A change to subheading 3921.19 from any other heading, 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.”
You state, and we assume for the purposes of this ruling, that the two non-originating materials (the PET recycled granules and the ADMBNA) are both classified in subheading 3904.69.00, HTSUS. Because these non-originating materials are classified in a heading other than 3921, we find that the tariff shift portion of the GN 12(t) rule is satisfied.
The GN 12(t) rule for goods of subheading 3921.19.0000, HTSUS, also contains a regional value content requirement of 60 percent under the transaction value method or 50 percent under the net cost method. In your letter, you included calculations relying on the net cost method.
The net cost method is set forth in GN 12(c)(ii), HTSUS, which provides as follows:
Net cost method. The regional value content of a good may be calculated on the basis of the following net cost method:
RVC = ((NC – VNM)/NC) x 100.
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 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 manufacturing foam boards, but we note that you have not provided any supporting documentation or any indication how those costs were determined. However, for purposes of this ruling we will apply the costs that you have presented in your submission to determine the RVC. Based upon the information provided, the RVC as determined under the net cost method is as follows:
RVC= NC $[16.57] – VNM $[8.03] X 100
NC $[16.57]
Performing this calculation results in a regional value content of approximately 51.5%. Because this figure exceeds the GN 12(t) requirement of 50% under the net cost method, the regional value content requirement is also satisfied. Accordingly, based on the information before us, the merchandise will qualify as NAFTA originating.
We note, however, that the regional value content calculation would be subject to appropriate review upon importation into the United States based upon the final appraised value of the merchandise, and assumes that all product costs, including labor and overhead, will be considered as well. We also note that pursuant to 19 C.F.R. Part 181, Appendix, Part III, Section 6 (20) of the NAFTA Rules of Origin Regulations, section 6 (20) provides, in pertinent part that:
[i]f the good does not satisfy the regional value-content requirement on the basis of actual costs during that period, [the producer shall] immediately inform any person to whom the producer has provided a Certificate of Origin for the good, or a written statement that the good is an originating good, that the good is a non-originating good.
19 C.F.R. Part 181, Appendix, Part III, Sec. 6 (20).
Qualifies to be Marked under the NAFTA Marking Rules
In addition to being a good that originates in the territory of a NAFTA party, GN 12(a)(i), HTSUS, establishes that NAFTA-originating goods must also qualify to be marked as goods of Canada under the NAFTA Marking Rules before preferential tariff treatment is granted. In this regard, section 134.1(j) of the CBP 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 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 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.
Here, sections 102.11(a)(1) and 102.11(a)(2) do not apply because the product will neither be wholly obtained or produced nor produced exclusively from “domestic” (Canadian, in this case) materials. Accordingly, each foreign material must meet the applicable change in tariff classification set out in Section 102.20 in order for the product to qualify to be marked as a product of Canada.
“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 tariff shift requirement in § 102.20 for a good of subheading 3921.19.00, HTSUS, requires “[a] change to any other good of subheading 3920.10 through 3921.90 from any other subheading, including another subheading within that group.”
In this case, and as stated above, the foreign (i.e., non-Canadian) materials are:
PET virgin resin (PET granules) of subheading 3907.61.00, HTSUS (Product of the United States)
Blowing agent (used in the bonding process) of subheading 2902.19.00, HTSUS (Product of the United States)
Pyromellitic dianhydride (used in the bonding process) of subheading 2917.39.00, HTSUS (Product of the United States)
PET recycled granulates (post-consumer PET) of subheading 3907.69.00, HTSUS (Product of Belgium)
ADMBNA (a chemical used in the bonding process) of subheading 3907.69.00, HTSUS (Product of Belgium)
Because none of these foreign materials are classified in the same subheading as the finished product, the product will qualify to be marked as a good of Canada under the NAFTA Marking Rules. Furthermore, as we have determined that the final product will also originate under GN 12(b), HTSUS, the final product will qualify for preferential tariff treatment under NAFTA.
HOLDING:
Based on the information provided, the foam boards will be eligible for preferential tariff treatment under the NAFTA and should be marked as a product of Canada.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
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