OT:RR:CTF:VS H313416 RMC
H. Michael Leightman
Ernst & Young LLP
5 Houston Center, Suite 2400
1401 McKinney St.
Houston, TX 77010
RE: USMCA Eligibility of MMDI and PMDI Chemicals
Dear Mr. Leightman:
This is in response to your correspondence dated August 4, 2020, in which you request a ruling on behalf of Wanhua Chemical US Holding, Inc. (“Wanhua”). Your request concerns whether certain monomeric methylene diphenyl isocyanate (“MMDI”) and polymeric methylene diphenyl isocyanate (“PMDI”) products are eligible for preferential tariff treatment under the United States-Mexico-Canada Agreement (“USMCA”). Your request, submitted as an electronic ruling request, was forwarded to this office from the National Commodity Specialist Division for response. A teleconference was held on January 13, 2021, during which you further explained the products at issue and production processes. An additional submission dated February 10, 2021, was also provided.
You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets and all attachments to this ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision.
FACTS:
Wanhua is a subsidiary of Wanhua Chemical Group Co., Ltd., a Chinese entity that is one of the world’s largest MMDI and PMDI manufacturers. MMDI and PMDI are chemicals that are used in the production of polyurethane, which you describe as “a versatile material having the advantages of both rubber and plastic.” Wanhua specifically markets its commercial grade MMDI and PMDI products to global polyurethane manufacturers.
Wanhua Chemical Group Co., Ltd. does not currently have a MMDI or PMDI manufacturing facility in North America. In your submission, you outline a proposed scenario in which Wanhua will establish a processing facility in Canada. “Crude” methylene diphenyl isocyanate (“MDI”) will be imported into Canada from various countries to undergo processing to produce MMDI and PMDI products for export to the United States. You state that crude MDI is a mixture of [ ]% two-ring isomers and [ ]% multiring isomers that do not have any functionality and cannot be used commercially. You state Wanhua currently sources Chinese- and Hungarian-origin crude, but will also consider sourcing [ ]-, [ ]-, and [ ]-origin crude in the future. You note that the crude MDI is classified in subheading 3909.31.00, Harmonized Tariff Schedule of the United States (“HTSUS”).
This ruling concerns five products that will be produced at the Canadian facility using the imported crude MDI:
MMDI-50 of 2929.10.80, HTSUS;
MMDI-100 of 2929.10.80, HTSUS;
PMDI-200 of 3909.31.00, HTSUS;
PMDI-400 of 3909.31.00, HTSUS; and
PMDI-700 of 3909.31.00, HTSUS.
As explained in your ruling request, each product has a specific percentage weight of two-ring and multi-ring isomers, which are compounds that share the same molecular formula (in this case, C15H10N2O2) but vary by the position of the isocyanate functional group around the rings. The various compositions of different isomers contribute to the final products’ different physical and chemical qualities. You describe the critical difference between MMDI and PMDI as the fact that PMDI is “heavier” with “a higher percentage of multi-ring MDI and a lower percentage of ‘lighter’ two-ring MDI isomers.” In contrast, MMDI has a relatively higher percentage of two-ring MDI isomers.
In sum, the various products generally have the following composition of two-ring and multi-ring isomers:
MMDI-50: [ ]% two-ring isomers, [ ]% multi-ring isomers;
MMDI-100: [ ]% two-ring isomers, [ ]% multi-ring isomers;
PMDI-200: [ ]% two-ring isomers, [ ]% multi-ring isomers;
PMDI-400: [ ]% two-ring isomers, [ ]% multi-ring isomers; and
PMDI-700: [ ]% two-ring isomers, [ ]% multi-ring isomers.
Although MMDI and PMDI have different compositions of isomers, Wanhua will produce both in similar processes described as “distillation.” In short, the Canadian distillation processes will involve separation of the crude MDI, blending, and—with respect to the PMDI products— curing.
Production of MMDI-50 and MMDI-100
The goal of the separation process will be to segregate the “lighter” stream of crude MDI, which contains more than [ ]% two-ring isomers, from the “heavier” stream of crude MDI. This will be accomplished using three separation processes: a separation column, short path evaporators, and an isomer column. The processing in the separation column involves placing the crude MDI under vacuum conditions for [ ] hours. This initial separation process will isolate the heavier stream, which is used to produce PMDI, from the lighter stream that will be further processed into finished MMDI-50 and MMDI-100.
The crude MDI will also be separated into heavier and lighter streams at the short path evaporators. Like the separation column, the short path evaporators also function by applying vacuum conditions to the crude MDI.
The lighter streams obtained from the separation column and the short path separators will be pumped into the isomer distillation column to undergo final separation. Under vacuum conditions, 2,4’-MDI and 4,4’-MDI isomers will be separated to produce two forms of MMDI product, MMDI-50 and MMDI-100.
After the separation process is completed, a small portion of antioxidant representing about [ ]% weight and [ ]% weight will be blended into the product using a venturi mixer system. At this point, the distillation process of the MMDI products is complete.
Production of PMDI-200, PMDI-400, and PMDI-700
The heavy streams obtained from the crude MDI in the separation column in the process described above form an intermediate PM-200, which contains less than [ ]% two-ring isomers (2,2’-MDI, 2,4’-MDI, and 4,4’-MDI) and more than [ ]% of three-ring and multi-ring isomers. The intermediate PM-200 will then undergo [ ] hours of curing in a storage tank, which involves applying a controlled temperature, nitrogen blanketing, and a slight positive pressure.
The heavy stream split from the crude MDI in the short path evaporators forms PM-700, which contains less than [ ]% by weight of two-ring MDI isomers and [ ]% by weight of three-ring and multi-ring isomers. The heavy stream is further processed for [ ] hours in the short path evaporators, with an additional [ ] hours of curing in the storage tank. As with the heavy split obtained from the separation column, the curing process will involve applying a controlled temperature, nitrogen blanketing, and a slight positive pressure.
Finally, blending processes will be carried out to produce the final PMDI-200 and PMDI-400. Additional two-ring isomers will be added to the intermediate PMDI-200 to obtain the finished PMDI-200. The PMDI-400 will be obtained by blending PMDI-200 and PMDI-700 together for [ ] hours in venturi mixer with a ratio of [ ]% to [ ]%, respectively.
ISSUES:
Whether the merchandise eligible for USMCA preferential tariff treatment under the USMCA when it is imported from Canada into the United States.
LAW AND ANALYSIS:
The USMCA was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). GN 11 of the HTSUS implements the USMCA. GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if—
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
…
Here, the merchandise will be produced in Canada using non-originating materials. Therefore, the merchandise will not qualify as originating pursuant to GN 11(b)(i) or (ii). We must therefore consider whether the merchandise qualifies as originating pursuant to GN 11(b)(iii).
MMDI-50 and MMDI-100
You assert that the MMDI products will qualify as originating under the tariff shift rule in GN 11(o). The applicable rule of origin in GN 11(o)/29.1 requires:
A change to subheadings 2901 through 2942.00 from any other subheading, including another subheading within that group; or
No change in tariff classification to a good of subheadings 2901.10 through 2942.00, except for a good of subheading 2916.32 whether or not there is also a change from any other subheading, provided there is a regional value content of not less than:
40 percent where the transaction value method is used; or
30 percent where the net cost method is used.
Here, you have provided the information necessary to apply the tariff shift rule in GN 11(o)/29.1(A). The sole non-originating material used in the production of the MMDI products is the crude MDI of subheading 3909.31, HTSUS. Because no non-originating materials of subheading 2929.10, HTSUS, are used in the production of the MMDI products, the goods will qualify as originating pursuant to GN 11(o)/29.1(A) and, provided that all other requirements are met, they will be eligible for preferential tariff treatment under the USMCA when imported into the United States from Canada.
PMDI-700
You acknowledge that the PMDI-700 product will not meet the applicable tariff shift rule in GN 11(o). Accordingly, you argue that the PMDI-700 will qualify as an originating good pursuant to GN 11(n)(v)(G), which states that “[a] good of chapter 39 is an originating good if the isolation or separation of isomers from mixtures of isomers occurs in the territory of one or more of the USMCA countries.” As relevant here, a “separation” is defined as “[t]he action of separating or parting, of setting or keeping apart; the state of being separated or parted.” See Separation, Oxford English Dictionary Online, Oxford University Press, March 2021. For purposes of this rule, an “isolation or separation of isomers” therefore occurs when processing results in isomers being separated or parted from a mixture.
Here, you state that the crude MDI of 3909.31, HTSUS, is a “mixture” – specifically, a mixture consisting of [ ]% two-ring isomers and [ ]% multiring isomers. In Canada, the heavy streams split from the separation column and the short path evaporators are used to produce PMDI-700, which has a desired isomer composition of less than [ ]% two-ring isomers and [ ]% multi-ring isomers. Accordingly, we find that the rule in GN 11(n)(v)(G) has been satisfied and that the PMDI-700 will qualify as a USMCA originating good. Provided that all other requirements are met, it will be eligible for preferential tariff treatment under the USMCA when imported into the United States from Canada.
PMDI-200 and PMDI-400
With respect to the PMDI-200 and PMDI-400 products, you also concede that the rule of origin in GN 11(o) is not met and argue that the products will qualify as originating goods either under GN 11(n)(v)(G) (provided for above) or under GN 11(n)(v)(D), which states that “[a] good of chapter 39 is an originating good if the deliberate and proportionally-controlled mixing or blending (including dispersing) of materials, other than the addition of diluents, to conform to predetermined specifications occurs in the territory of one or more of the UMSCA countries, resulting in the production of a good having essential physical or chemical characteristics that arerelevant [sic] to the purposes or uses of the good and are different from the input materials.”
As described above, the production of the PMDI-200 and PMDI-400 in Canada involves processing the crude MDI consisting of [ ]% two-ring isomers and [ ]% multiring isomers into products with differing levels of isomers. Specifically, the PMDI-200 contains [ ]% two-ring isomers and [ ]% multi-ring isomers, and the PMDI-400 contains [ ]% two-ring isomers and [ ]% multi-ring isomers. Accordingly, we find that the rule in GN 11(n)(v)(G) has been satisfied and that both the PMDI-200 and the PMDI-400 will qualify as USMCA originating goods. We therefore need not decide whether the PMDI-200 and PMDI-400 would also qualify as originating under GN 11(n)(v)(D). Provided that all other requirements are met, they will be eligible for preferential tariff treatment under the USMCA when imported into the United States from Canada.
We note that “[w]hen determining the country of origin for purposes of applying current trade remedies under Section 301, Section 232, and Section 201, the substantial transformation analysis is applicable.” See HQ H301619, dated November 6, 2018. As this ruling applies the GN 11 rules for purposes of determining whether the merchandise is eligible for preferential tariff treatment under the USMCA, it does not address substantial transformation and the country of origin for purposes of Sections 301, 232, and 201.
HOLDING:
Based on the information provided, the MMDI-50, MMDI-100, PMDI-200, PMDI-400, and PMDI-700 will be eligible for preferential tariff treatment under the USMCA when imported from Canada into the United States.
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 Customs Service 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