OT:RR:CTF:VS H302878 JK
Port Director
Port of Savannah, GA
1 East Bay Street
Savannah, GA 31401
RE: United States-Korea Free Trade Agreement (“UKFTA”); 2-Hydroxyethyl Methacrylate (2HEMA); Self-Produced Materials
Dear Port Director:
This is in response to your correspondence, dated February 27, 2019, forwarding the Application for Further Review (AFR) of Protest No. 1703-18-100261, timely filed by Kowa American Corporation (Kowa), concerning 2-Hydroxyethyl Methacrylate (2HEMA), classified under subheading 2916.14.20 of the Harmonized Tariff Schedule of the United States (“HTSUS”) for preferential tariff treatment under the United States-Korea Free Trade Agreement (“UKFTA”).
FACTS:
Kowa imported the subject merchandise, 2HEMA, on January 7, 2018 from Korea. The port denied Kowa’s UKFTA preferential claim due to lack of raw material receipts and factory production records. The entry was liquidated on April 20, 2018.
According to Kowa, 2HEMA is produced in Korea by LOTTE MCC using two materials: Methacrylic Acid (MAA) and Ethylene Oxide (EO). MAA is classifiable under subheading 2916.13.00, HTSUS. LOTTE MCC produces MAA by using a process of isobutylene direct oxidation. The raw materials used in the production of MAA are isobutylene, classifiable under subheading 3815.90, HTSUS; oxygen, classifiable under subheading 2804.40, HTSUS; and a catalyst, classifiable under subheading 3815.90, HTSUS. EO is classifiable under subheading 2910.00, HTSUS. LOTTE MCC purchases EO from LOTTE Chemical, a related Korean manufacturer.
Along with its protest, Kowa provided the following documentation: a letter from LOTTE MCC outlining the production process; a flow chart showing the manufacturing process for 2HEMA; sample production documents demonstrating the production of 2HEMA and MMA by LOTTE MCC and a translation of those production documents; purchase orders and remittance records for EO; a certificate of origin; and shipment documents for the subject merchandise. On September 19, 2019, in response to a request for additional information, Kowa provided translated production records of 2HEMA and MAA specific to the production of the subject merchandise; proof of payment records for the subject merchandise; an Electronic Tax Record reflecting the purchase of EO by LOTTE MCC from LOTTE Chemical; and a Certificate of Analysis of the EO completed by LOTTE Chemical upon its manufacture.
ISSUES:
Whether 2HEMA qualifies for preferential treatment under the UKFTA.
LAW AND ANALYSIS:
The requirements for eligibility for preferential tariff treatment under the UKFTA are set forth in GN 33 of the HTSUS (19 U.S.C. § 1202). Under GN 33(b), HTSUS, goods imported into the U.S. are eligible for duty-free treatment under the UKFTA if:
(i) the good is wholly obtained or produced entirely in the territory of Korea or of the United States, or both;
(ii) the good is produced entirely in the territory of Korea or of the United States, or both, and—
(A) each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (o) of this note; or
(B) the good otherwise satisfies any applicable regional value-content or other requirements set forth in such subdivision (o); and satisfies all other applicable requirements of this note and of applicable regulations; or
(iii) the good is produced entirely in the territory of Korea or of the United States, or both, exclusively from materials described in subdivisions (i) or (ii), above.
As referenced above, 2HEMA is classified under subheading 2916.14.20, HTSUS. The applicable rule set forth in GN 33(o) for goods classified under Chapter 29 of the HTSUS provides:
A change to headings 2902 through 2935 from any other heading.
Pursuant to GN 33(b)(ii) and the product-specific rule of origin for goods classified under Chapter 29, HTSUS, Kowa states that 2HEMA qualifies for UKFTA preferential treatment for the following reasons: (1) 2HEMA is produced entirely in the territory of Korea; (2) MCC, while classifiable in the same heading as 2HEMA and does not undergo a change in heading, is an originating self-produced material and therefore not required to undergo the applicable change in tariff classification; and (3) EO, classifiable under subheading 2910.10, does undergo the applicable change in tariff classification. In the alternative, Kowa states that 2HEMA is produced entirely in Korea exclusively from originating materials and is therefore originating under GN 33(b)(iii).
Based on the submitted production records, we are satisfied that the subject merchandise was produced entirely in Korea. On the issue of whether MCC may be considered a self-produced material, we note that a “self-produced material” is defined in the UKFTA as an originating material that is produced by a producer of a good and used in the production of that good. See 19 C.F.R. § 10.1013(v). The UKFTA provisions related to self-produced materials are intended to ensure that vertically integrated producers are not disadvantaged in meeting the relevant UKFTA rules of origin for their respective goods. There is no requirement for a self-produced material to be produced in a separate production process or to be marketed as a finished good, in and of itself, for it to be considered as a self-produced material. See Headquarters Ruling Letter (HQ) H301726, dated December 18, 2018 (holding that an automotive body can be designated as a self-produced material for purposes of meeting the tariff shift and regional value content rules under the UKFTA).
Taking into account these principles, we are of the view that MAA, classifiable under subheading 2916.13.00, HTSUS, may be considered a self-produced material if it meets the rule of origin under GN 33(o) for goods of Chapter 29, HTSUS. As discussed above, MAA is composed of three raw materials: isobutylene, classifiable under subheading 3815.90, HTSUS; oxygen, classifiable under subheading 2804.40, HTSUS; and a catalyst, classifiable under subheading 3815.90, HTSUS. Each of these raw materials, when manufactured into MAA, undergoes the requisite change in heading under GN 33(o). In addition, we are satisfied based on the submitted production records that MAA is produced entirely in Korea by the producer of the subject merchandise, LOTTE MCC. Therefore, we conclude that MAA is a self-produced originating material and does not need to meet the tariff-shift rule per GN 33(b)(ii), which applies only to non-originating materials, for 2HEMA to originate under the UKFTA.
Turning to the EO, we note that this material is classifiable under subheading 2910.10, HTSUS. Setting aside the question of whether EO is originating, we find that it undergoes the requisite change in tariff classification under GN 33(o) (a change from heading 2910 to heading 2916) when manufactured into 2HEMA. As a result, we find that 2HEMA qualifies for UKFTA preferential treatment under the rule of origin provided in GN 33(b)(ii). Accordingly, we do not need to address the issue as to whether 2HEMA is produced entirely in Korea exclusively from originating materials per GN 33(b)(iii).
HOLDING:
The protest is GRANTED.
In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail the decision together with the Customs Form 19 to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to the mailing of the decision. Sixty days from the date of the decision the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public at www.cbp.gov by means of the Freedom of Information Act and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division