OT:RR:CTF:VS H327000 AP
Mr. Han Hyun Woo
LG Chem
128, Yeoui-daero
Yeongdeungpo-gu, Seoul, 07336
South Korea
RE: USMCA Eligibility; Section 301 Measures; Cathode Materials
Dear Mr. Woo:
This is in response to your ruling request dated July 28, 2022, filed on behalf of LG Chem (“importer”) and supplemented on August 26, 2022, concerning the eligibility of certain semi-finished and finished cathode materials manufactured in Canada and imported into the United States, for preferential tariff treatment under the U.S.-Mexico-Canada Agreement (“USMCA”).
The importer has asked that certain information submitted in connection with this ruling 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 in italics in this ruling or in the attachments to the ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
The importer plans to manufacture the subject cathode materials in Canada and then import them into the United States. The manufacturing of the finished good will be a three-step process.
Process 1: In China, non-USMCA originating nickel sulfate, cobalt sulfate, and manganese sulfate will be dissolved and mixed. This mixture will be chemically synthesized with non-originating sodium hydroxide and liquid ammonia. Washing and dehydration processes will be performed. The resulting Cobalt Manganese Nickel Hydroxide, Chemical Abstracts Service Number (“CAS No.”) 189139-63-7 (“semi-finished good A”) classifiable in subheading 2825.90.90, Harmonized Tariff Schedule of the United States (“HTSUS”), will be evenly blended, sieved, de-ironed, packaged, and shipped to Canada. The semi-finished good A is defined as a “precursor” in the commercial market.
Process 2: In Canada, the non-USMCA originating semi-finished good A will be mixed with lithium hydroxide and doping compounds under a special manufacturing process where [X] (“proprietary substance 1”) and [X] (“proprietary substance 2”) are added and then fired at high temperature. The chemical reaction will turn the mixed powder into doped Cobalt Lithium Manganese Nickel Oxide, CAS No. 182442-95-1 (“semi-finished good B”) of subheading 3824.99.39, HTSUS, which will further undergo roll smashing and crushing processes and will be sieved and de-ironed to remove impurities, washed, dehydrated, and dried. The semi-finished good B is called a “doped-cathode active material” in the commercial market. The semi-finished good B will be imported into the United States for use in lithium-ion batteries or will be put into Process 3 below.
Process 3: In Canada, the semi-finished good B will be coated under a special coating process where USMCA originating or non-originating boric acid of subheading 2810.00.00, HTSUS, will be added at a high temperature to produce coated and doped Cobalt Lithium Manganese Nickel Oxide, CAS No. 182442-95-1 (“finished good”) of subheading 3824.99.39, HTSUS, which will be further de-sieved, de-ironed, and packaged. The net cost of the finished good will be approximately $[X] (1kg). The finished good is the same as the semi-finished good B except it is coated. It is the core material used in electric vehicle (“EV”) batteries that determines the voltage, energy density, lifespan, and output. The finished good will be imported into the United States.
ISSUES:
1. Whether the semi-finished good B and the finished good are each eligible for preferential treatment under the USMCA when produced in Canada and imported into the United States.
2. What is the country of origin of the semi-finished good B and the finished good for purposes of Section 301 trade remedies?
LAW AND ANALYSIS:
Eligibility for Preferential Treatment under USMCA
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)). General Note (“GN”) 11, HTSUS, implements the USMCA and sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA.
GN 11, HTSUS states, in relevant part:
Goods originating in the territory of a country named herein, pursuant to the United States-Mexico-Canada Agreement (USMCA), are subject to duty as provided herein, including any treatment set forth in subchapter XXIII of chapter 98 and subchapter XXII of chapter 99 of the tariff schedule. For the purposes of this note, as provided in the tariff schedule -- (i) 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; ….
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country … 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)); ….
GN 11(n)(iv), HTSUS, states, in relevant part:
A good of any heading in chapters 28 through 38, inclusive, that satisfies one or more of the provisions enumerated in this subdivision shall be treated as an originating good, except as otherwise specified in those rules. Notwithstanding the preceding sentence, a good is an originating good if it meets the applicable change in tariff classification or satisfies the applicable value content requirement specified in subdivision (o) of this note ….
If the rules of origin under GN 11(o), HTSUS, are satisfied, we do not need to consider whether the alternate rules of origin in GN 11(n)(iv), HTSUS, are also satisfied.
GN 11(o), HTSUS sets forth the applicable tariff shift rules:
Chapter 38
5. (A) A change to subheadings 3823.11 through 3826.00 from any other subheading, including another subheading within that group; or
(B) No change in tariff classification to a good of subheadings 3823.11 through 3826.00, 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.
Self-produced material may be considered as a material for determining applicability of rules of origin pursuant to 19 C.F.R. Part 182, Part II, Section 3(8), which states:
For the purpose of determining whether non-originating materials undergo an applicable change in tariff classification, a self-produced material may, at the choice of the producer of that material, be considered as a material used in the production of a good into which the self-produced material is incorporated.
The importer will use the semi-finished good A of subheading 2825.90.90, HTSUS to produce the input (the semi-finished good B of subheading 3824.99.39, HTSUS) that will be incorporated into the finished good classifiable in subheading 3824.99.39, HTSUS. The semi-finished good B undergoes a tariff shift (a change to subheading 3824.99, HTSUS, from subheading 2825.90.90, HTSUS) when produced from the non-USMCA originating semi-finished good A. Accordingly, the semi-finished good B will qualify for preferential treatment under the USMCA when imported into the United States from Canada.
When the semi-finished good B serves as an input to produce the finished good, the finished good may be considered USMCA-originating pursuant to GN 11(b), HTSUS, because the semi-finished good B may be considered self-produced material incorporated into the finished good under 19 C.F.R. Part 182, Part II, Section 3(8) and the non-originating boric acid of subheading 2810.00.00, HTSUS, meets the requisite tariff shift rule under GN 11(o)/38.5(A), HTSUS, since it is classified in a different chapter than the finished good.
Accordingly, both the semi-finished good B and the finished good each qualify for preferential treatment under the USMCA.
Section 301 Measures
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25 percent will be imposed on certain Chinese imports pursuant to its authority under Section 301(b) of the Trade Act of 1974 (“Section 301”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(e) and (f), HTSUS. Among the subheadings listed in U.S. Note 20(f) of Subchapter III, Chapter 99, HTSUS, is 3824.99.39, HTSUS.
When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 69 CCPA 151 (1982). To determine whether a substantial transformation has occurred, U.S. Customs and Border Protection (“CBP”) considers the totality of the circumstances and makes such determinations on a case-by-case basis. CBP has stated that a new and different article of commerce is an article that has undergone a change in commercial designation or identity, fundamental character, or commercial use. A determinative issue is the extent of the operations performed and whether the materials lose their identity and become an integral part of the new article. This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
In Nat’l Juice Prods. Ass’n v. United States, 10 CIT 48 (1986), the court considered whether foreign manufacturing concentrate processed into frozen concentrated orange juice or reconstituted orange juice in the United States was substantially transformed. In the United States, the manufacturing concentrate was mixed with purified and dechlorinated water, orange essences, orange oil, and in some cases, fresh juice. The court found that the U.S. processing added relatively minor value to the product and that the manufacturing concentrate imparted the essential character to the juice and made it orange juice. Therefore, the imported juice concentrate was not substantially transformed in the United States when it was processed into retail orange juice products.
Unlike the juice concentrate in Nat’l Juice Prods., the semi-finished good A manufactured in China will be substantially transformed into the semi-finished good B in Canada when it is mixed with lithium hydroxide and doping compounds under a special manufacturing process where [X] (“proprietary substance 1”) and [X] (“proprietary substance 2”) are added and fired at high temperature. As a result of the chemical reaction, the Cobalt Manganese Nickel Hydroxide, CAS No.189139-63-7 of subheading 2825.90.90, HTSUS, is transformed into a different product with a new name, character and use, namely doped Cobalt Lithium Manganese Nickel Oxide, CAS No. 182442-95-1 of subheading 3824.99.39, HTSUS. From a precursor, semi-finished good A is transformed into a “doped-cathode active material” for use as core material in EV batteries. Thus, the origin of the semi-finished product B will be Canada and Section 301 duties will not apply.
CBP has held that converting powder into coated microgranules that are subsequently covered with an enteric coating would not result in a substantial transformation. In Headquarters Ruling Letter (“HQ”) 562889, dated Jan. 21, 2004, lansoprazole was processed to produce enteric-coated lansoprazole microgranules. The active pharmaceutical ingredient was coated to alter the delivery rate of the drug into the human body. CBP found that the enteric-coating process did not cause a substantial transformation. The active pharmaceutical ingredient before and after the processing remained lansoprazole. There was no change in the generic name, lansoprazole, which appeared along with the trade name, Prevacid or Prevpac, on product marketing information. In addition, lansoprazole had the same CAS number regardless of whether it had an enteric coating. There was no change in the character of the product because the chemical and physiological properties of the active pharmaceutical ingredient remained the same after further processing. Finally, the medicinal use of lansoprazole, i.e., control of gastric acid, did not change as a result the enteric-coating process.
Similarly, in the instant case, the name, character and use of the finished good remains the same as the semi-finished good B. The only difference is that the finished good is put through a coating process using boric acid, the content of which is less than 1 percent and the value of which is less than $1. The finished good remains Cobalt Lithium Manganese Nickel Oxide with the same CAS number before and after the coating process. The chemical properties remain the same. Both the semi-finished good B and the finished good will be used as core material in EV batteries. Therefore, the origin of the finished good is also Canada and Section 301 duties will not apply.
HOLDING:
The semi-finished good B and the finished good, as described, each qualify for preferential tariff treatment under the USMCA when imported into the United States from Canada.
The country of origin of both the semi-finished good B and the finished good for purposes of Section 301 remedies will be Canada, and Section 301 duties will not apply.
This merchandise may be subject to the requirements of the Toxic Substances Control Act (“TSCA”), which are administered by the U.S. Environmental Protection Agency (“EPA”). Information on the TSCA can be obtained by contacting the EPA at 1200 Pennsylvania Avenue, N.W., Mail Code 70480, Washington, D.C., by telephone at (202) 554-1404, or by visiting https://www.epa.gov.
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,
Elif Eroglu, Acting Chief
Valuation and Special Programs Branch