OT:RR:CTF:VS H318560 UBB
Louise Chevanelle
Louise Chevanelle, Inc.
Formation En Douanes
490, rue Providence
Granby (Québec)
Canada J2H 2H6
RE: USMCA Eligibility of certain chemical products
Dear Ms. Chevanelle,
This is in response to the ruling request you submitted on May 12, 2021 on behalf of your client, Galenova, Inc., concerning the eligibility of certain chemical products for duty-free treatment under the United States Mexico Canada Agreement (USMCA).
FACTS:
The subject merchandise under consideration is Gabapentin USP and Nifedipine USP. In your request, you indicate that Gabapentin is classified under subheading 2922.49.49, Harmonized Tariff Schedule of the United States (HTSUS), and Nifedipine is classified under subheading 2933.39.91, HTSUS. The products are imported in bulk to Canada, Gabapentin from China and Nifedipine from Hungary. At Galenova’s facilities in Canada the products are packaged into smaller portions and sold to pharmacies for the preparation of medicines.
In your request, you state that Galenova’s operations are conducted within the framework of a complex quality control system that complies with the standards of the pharmaceutical industry. You provide an overview of such activities related to the operations concerning the subject merchandise as qualification mapping of production rooms and warehouses, environmental control and continuous monitoring of production rooms, pest control, validation activities of all systems (e.g. ventilation, medical air, deionized water, nitrogen, etc.), hygiene programs for all premises and equipment, instrument calibration and preventative maintenance, product stability programs, transportation qualification according to storage conditions, insurance and overhead, quality management, internal audit, and maintenance of pharmaceutical quality facilities and production rooms. In the course of evaluating your request, we asked you to further elaborate on the operations to which the Gabapentin and Nifedipine are subjected in Canada, and you indicated operations such as obtaining regulatory compliance documents and certifications as part of the purchasing and procurement process, and quality control activities when the products are received at Galenova, including verifying receipt of the correct product, quarantining, sampling, and creating Galenova’s certificates of analysis. Further, you classified certain activities as “production,” including establishing production schedules, preparing containers, printing labels, verifying room clearance, cleaning status, pressure, humidity, performing repackaging, and applying security seals to production cages. Additional activities at Galenova include labeling for each batch (including verifying labels against manufacturing batch records, labeling and application of safety seals), quality control for each batch (including verifying proper labeling, weight, and safety seals), proper storage of the product, and selection and shipment of orders. Finally, you identified certain “operating cost” activities that are included in the total cost of producing the Gabapentin and Nifedipine and allocated to the products in equal shares. These include packaging and shipping, salaries, warehouse expenses, taxes, insurance, utilities and the cost of facilities.
In your request, you identify the USMCA chapter-specific rule of origin that applies to your product as found in General Note (GN) 11(o): Chapter 29
(A) A change to subheadings 2901.10 through 2942.00 from any other subheading, including another subheading within that group; or
(B) 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:
(1) 40 percent where the transaction value method is used; or
(2) 30 percent where the net cost method is used.
You note that neither the Gabapentin nor the Nifedipine satisfy 1(A), and state that both products qualify under 1(B) when using the transaction value method. In support of your statement, you provided us with a breakdown of the nonoriginating value of the Gabapentin and Nifedipine, your expected sale price in the U.S. (which you also indicate is your transaction value), and your calculation of RVC content. The information you provided is reproduced below:
Gabapentin USP
Nifedipine USP
[ ]g
[ ]g
[ ]g
[ ]g
Landed cost in Canada/non-originating value (in CAD)
[ ]
[ ]
[ ]
[ ]
Costs of Operations in Canada
Direct costs (in CAD)
[ ]
[ ]
[ ]
[ ]
General Manufacturing costs attributed per sold unit (in CAD)
[ ]
[ ]
[ ]
[ ]
Conformity activities per unit sold (in CAD)
[ ]
[ ]
[ ]
[ ]
Operating cost attributable (in CAD)
[ ]
[ ]
[ ]
[ ]
Total cost (in CAD)
[ ]
[ ]
[ ]
[ ]
Selling Price in USA (in CAD)
[ ]
[ ]
[ ]
[ ]
RVC
[ ]%
[ ]%
[ ]%
[ ]%
ISSUE:
Whether the chemical products Gabapentin USP, classified under 2922.49.49, HTSUS, and Nifedipine USP, classified under 2933.39.91, HTSUS, to be imported into the United States from Canada, are eligible for preferential treatment under the United States-Mexico-Canada Agreement.
LAW AND ANALYSIS:
The United States-Mexico-Canada Agreement (“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(a)(i) provides:
Goods that originate in the territory of Mexico, Canada or the United States (hereinafter referred to as “USMCA country” or “USMCA countries” as further defined in subdivision (l)(xxiv) of this note) under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury (including Uniform Regulations provided for in the USMCA), and goods enumerated in subdivision (p) 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 “S” in parentheses, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act; and . . .
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
…
The merchandise imported into the United States will qualify for preferential tariff treatment under USMCA if it meets one of the origin criteria enumerated in GN 11(b). You state that the chemical products Gabapentin USP and Nifedipine USP are sourced in bulk from China and Hungary, respectively, and undergo certain operations at Galenova’s facility in Canada. You have described these operations as consisting of activities to ensure regulatory compliance, quality control, and repackaging the bulk product into smaller containers to be sold directly to the United States. Therefore, the chemical products are not goods “wholly obtained or produced entirely” in Canada pursuant to GN 11(b)(i) or “produced entirely” in Canada “exclusively” from originating materials pursuant to GN 11(b)(ii).
It should be further noted that the chemical products are not “a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials” under GN 11(b)(iii) because they do not satisfy “all applicable requirements.” Under GN 11(l)(xvi), “production” means “growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing or assembling a good” or “the farming of aquatic organisms through aquaculture,” and does not include packaging or repackaging operations. Thus, the nonoriginating materials repackaged into smaller containers in Canada will not satisfy “all applicable requirements” of GN 11.
As the goods do not satisfy “all applicable requirements” of GN 11, we do not reach the question of whether they satisfy the chapter specific rule of origin set forth in GN11(o): Chapter 29 and do not need to evaluate whether there is sufficient regional value content in each of the goods under that rule.
HOLDING:
Based on the information provided, the chemical products Gabapentin USP and Nifedipine USP will not be eligible for preferential tariff treatment under USMCA when imported into the U.S. from 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