Customs Ruling HQ H332638 - USMCA eligibility; Country of origin of aluminum billets for Section 232 and Section 301 duties; Marking; De Minimis

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HQ H332638
May 13, 2024

Type : Origin • HTSUS :
Related: 071341; 735447; 561457; N301439; H264513

OT:RR:CTF:VS H332638 RRB

Mr. Lawrence M. Friedman
Barnes, Richardson & Colburn LLP
303 East Wacker Drive
Suite 305
Chicago, IL 60601

RE: USMCA eligibility; Country of origin of aluminum billets for Section 232 and Section 301 duties; Marking; De Minimis

Dear Mr. Friedman:

This is in response to your ruling request, dated March 3, 2023, filed on behalf of HMA, Inc. ("HMA"). In your letter, you request a binding ruling regarding preferential tariff treatment under the United States-Mexico-Canada Agreement ("USMCA") for aluminum billets produced in Mexico. You also request determinations on the country of origin of the finished aluminum billets for purposes of Section 232 and Section 301 duties and country of origin marking. Finally, you seek guidance on the applicability of the USCMA de minimis rule under General Note ("GN") 11(e), Harmonized Tariff Schedule of the United States ("HTSUS"), and the de minimis rule for purposes of country of origin marking under 19 C.F.R. 102.13.

On March 5, 2024, we requested additional information that is necessary to respond to your ruling request. You submitted a supplemental submission, dated March 13, 2024, responsive to this request. In response to further email exchanges, you submitted additional comments in an email dated April 2, 2024. Our response below considers the information presented in both of your submissions and email exchanges.

FACTS:

The products at issue are identified as alloyed aluminum billets made with 0.5% by weight of silicon, which will be sold to manufacturers of commercial buildings and construction, trucks, trailers, and military motor vehicles. You state that the aluminum billets will be produced in Mexico under three different manufacturing scenarios carried out by HWM, the Mexican subsidiary of HMA, at their factory in Mexico.

Under scenario 1, you state that non-alloyed aluminum materials in ingot form that are either domestic products of Mexico, foreign products of Canada, or commingled products of Mexico and Canada will be melted and mixed with other materials, consisting of silicon and copper from Korea, and iron, magnesium, manganese, titanium, and chromium from China, to create a newly alloyed aluminum billet.

Under scenario 2, you state that non-alloyed aluminum materials in ingot form with the relative portions (by weight)[1] likely to be 60% from China, 20% from South Korea, and 20% from Australia will be melted and mixed with other materials, consisting of silicon and copper from Korea, and iron, magnesium, manganese, titanium, and chromium from China, to create a newly alloyed aluminum billet.

Under scenario 3, you state that non-alloyed aluminum materials in ingot form with the relative portions (by weight)[2] likely to be 60% from South Korea or Australia, 10% from Canada, and the remaining 30% from alloyed aluminum scrap generated as a result of production in Mexico will be melted and mixed with other materials, consisting of silicon and copper from Korea, and iron, magnesium, manganese, titanium, and chromium from China, to create a newly alloyed aluminum billet.

For all three production scenarios, you explain that melting the aluminum materials requires one multi-chamber furnace and two single-chamber furnaces. A pre-heat oven and electronic pot are required for stirring molten metal. A degassing pot is also used to remove impurities and hydrogen gas from the metal. The billets are formed in a casting machine. The billets also undergo stress-relieving heat treatment in a continuous homogenizing furnace and a batch homogenizing furnace area. Next, a billet cutter cuts the billets. A grinder is used to produce samples for analysis. The billets are inspected for cracking using an ultrasonic flaw detector. A spectrum analyzer is used to confirm the appropriate chemical composition of the billets. The billets undergo a final uniformity check before packaging for export and sale to customers in the United States.

Based on the information provided, we confirm that the classification of the finished aluminum billets is under subheading 7601.20, HTSUS, as "[u]nwrought aluminum: [a]luminum alloys." We also confirm that the non-alloyed aluminum materials are classified in subheading 7601.10, HTSUS, as "[u]nwrought aluminum: [a]luminum, not alloyed," while the aluminum scrap described in scenario 3 is classified in subheading 7602.00, HTSUS, as "[a]luminum waste and scrap."

ISSUES:

1) Whether the aluminum billets produced under three different manufacturing scenarios are eligible for preferential tariff treatment under the USMCA. 2) What is the country of origin of the aluminum billets for purposes of Section 232 and Section 301 trade measures? 3) What is the country of origin of the aluminum billets produced under three different manufacturing scenarios for marking purposes?

LAW AND ANALYSIS:

1. Eligibility for preferential tariff 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 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-

i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;

ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;

iii) 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)); ...

In all three production scenarios, the aluminum billets may contain non-originating materials. Accordingly, they are not considered a good wholly obtained or produced entirely in a USMCA country under GN 11(b)(i), nor are they produced exclusively from originating materials per GN 11(b)(ii). Thus, we must determine whether the aluminum billets manufactured under each of the proposed production scenarios qualify for USMCA treatment under GN 11(b)(iii).

The applicable rule of origin for alloyed aluminum billets classified in subheading 7601.20, HTSUS, is set forth in GN 11(o)/76(1), and states the following:

A change to heading 7601 from any other chapter.

In scenario 1, all of the non-alloyed aluminum materials used to produce the aluminum billets are stated to originate in Canada or Mexico or to consist of commingled products from Canada and Mexico. Therefore, this component need not undergo any applicable tariff shift under GN 11. The alloying materials mixed with the non-alloyed aluminum include silicon, copper, iron, magnesium, manganese, titanium, and chromium. Based on the information regarding the purity levels of the alloying materials, we conclude that the silicon, copper, iron, magnesium, manganese, titanium, and chromium are classified in headings 2804, 7404, 7205, 8104, 8111, 8108, and 8112, HTSUS, respectively. All of the alloying materials are from non-USMCA countries and are therefore, non-originating. However, as all of the non-originating alloying materials are classified outside of chapter 76, they will undergo the requisite tariff shift to heading 7601, HTSUS, from any other chapter outside of chapter 76 when used in the manufacture of alloyed aluminum billets. Accordingly, alloyed aluminum billets produced under scenario 1 qualify for preferential tariff treatment under the USMCA.

In scenarios 2 and 3, while the non-originating alloying materials undergo the requisite tariff shift, we must conduct an additional tariff shift analysis, as non-originating, non-alloyed aluminum will be used in those production processes. In scenarios 2 and 3, the non-originating, non-alloyed aluminum materials are classified in subheading 7601.10, HTSUS, while the finished aluminum billets are classified in subheading 7601.20, HTSUS. Because the finished product remains classified in heading 7601, HTSUS, it does not undergo the requisite tariff shift under scenarios 2 and 3. Accordingly, alloyed aluminum billets produced under scenarios 2 and 3 do not qualify for preferential tariff treatment under the USMCA.

USMCA De Minimis Rule

Where the alloyed aluminum billets produced under scenarios 2 and 3 do not qualify for preferential tariff treatment under the USCMA, you seek confirmation that if the amount of non-originating aluminum is reduced to 10% or less of the transaction value of the billets or of the total cost of the billets, whether the billets would qualify as originating under the USMCA de minimis rule. In addition, you seek confirmation that the value of the alloying materials, which meet the requisite tariff shift rule, is not included in the 10% de minimis threshold but must be included in the total cost if that serves as the basis for the de minimis test.

Under the USMCA, an imported good that does not meet the relevant tariff shift rule under the agreement may still qualify for preferential tariff treatment if the good meets the requirements of the de minimis exception. The de minimis exception provided for in GN 11(e)(i), HTSUS, states, as follows:

(e) De minimis amounts of nonoriginating materials.

(i) In general.-Except as provided in subparagraphs (e)(ii) through (iv) below, a good that does not undergo a change in tariff classification or satisfy a regional value content requirement set forth in subdivision (o) of this note is an originating good if-

A) the value of all nonoriginating materials that are used in the production of the good, and do not undergo the applicable change in tariff classification set forth in subdivision (o) of this note-

1) does not exceed 10 percent of the transaction value of the good, adjusted to exclude any costs incurred in the international shipment of the good; or

2) does not exceed 10 percent of the total cost of the good;

B) the good meets all other applicable requirements of this note; and

. . .

Thus, per GN 11(e)(i)(A) and (B), we confirm that the billets would qualify as originating under the USMCA de minimis rule if the amount of non-originating aluminum is reduced to 10% or less of the transaction value of the billets, or of the total cost of the billets, as long as they also meets all other applicable requirements under GN 11. Moreover, because the alloying materials meet the requisite tariff shift rule for goods of heading 7601, HTSUS, the value of the alloying materials is not included in the 10% de minimis threshold.

To determine whether the value of the alloying materials, which is not included in the 10% de minimis threshold, is included in the total cost if that serves as the basis for the de minimis test, we turn to section 5 of the USMCA Rules of Origin Regulations, (19 C.F.R. Part 182 App. A), which provide further guidance on the applicability of GN 11(e)(i). Subsection 5(12) states that the calculation of total cost "consists of the costs referred to in subsection 1(6) and is calculated in accordance with that subsection and subsection 1(7)." Under subsection 1(1) of the USMCA Rules of Origin Regulations, "total cost means all product costs, period costs, and other costs incurred in the territory of one or more of the USMCA countries, where: (a) [p]roduct costs are costs that are associated with the production of a good and include the value of materials, direct labor costs, and direct overheads" (emphasis added). Turning to subsection 1(6)(a), we note that "total cost consists of all product costs, period costs and other costs that are recorded, except as otherwise provided in subparagraphs b(i) and (ii), on the books of the producer without regard to the location of the persons to whom payments with respect to those costs are made." In calculating total cost under subsection 1(6)(b)(i), the value of materials, other than intermediate materials, indirect materials and packing materials and containers, is the value determined in accordance with subsections 8(1) and 8(2).

Here, the alloying materials that undergo the requisite tariff shift meet the definition of product costs that are associated with the production of the aluminum billets. Calculating such product costs associated with production of the aluminum billets for purposes of applying the 10% de minimis threshold under the total cost method set forth in GN 11(e)(i)(A)(2) includes the value of the alloying materials, even if they meet the requisite tariff shift rule. Therefore, we confirm that under the USMCA Rules of Origin Regulations set forth at 19 C.F.R. Part 182, Appendix A, although the value of the alloying materials is not included in the 10% de minimis threshold, it must be included in the total cost if that serves as the basis for the de minimis test.

2. Country of origin of aluminum billets for purposes of Section 232 and Section 301 trade measures

When determining the country of origin for purposes of applying trade remedies under Section 232 and 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. Texas Instruments, Inc. v. United States, 69 CCPA 151, 681 F.2d 778 (1982). In order 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 Nat'l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993).

In Headquarters Ruling Letter ("HQ") 071341, dated August 24, 1983, Customs considered the addition of alloying materials in the production of aluminum alloy ingots and billets for purposes of the Generalized System of Preferences ("GSP") requirements. There, Customs stated that "molten aluminum, produced by substantially transforming the imported alumina, was then passed to the holding furnace where other materials were added to produce aluminum alloy." Customs concluded that since aluminum alloy had different characteristics and uses from the non-alloy aluminum raw material and was recognized in the trade as a different product, the molten aluminum could be considered to have been substantially transformed into a new and different article of commerce in the holding furnace by the addition of the alloying materials. In concluding as such, Customs considered the changes to the character of the final product as a result of the alloying materials added to the aluminum.

CBP has applied the reasoning in HQ 071341, concerning the addition of alloying materials to non-alloyed metal and how they transform the character of the raw materials, in more recent rulings. For example, in NY N301439, dated November 21, 2018, CBP concluded that melting and mixing Australia-origin non-alloy aluminum ingots with U.S.-origin aluminum alloy scrap in South Korea resulted in a substantial transformation, such that the billets were a product of South Korea.

In determining whether a substantial transformation has occurred as a result of the various manufacturing processes performed in Mexico, we turn to the "name, character, and use test." See National Hand Tool Corp. Here, non-alloyed aluminum materials in ingot form are melted down, and mixed with other materials, consisting of silicon, copper, iron, magnesium, manganese, titanium, and chromium, to create a newly alloyed aluminum billet. In addition to alloying, the production process includes degassing, reprocessing, sampling, further alloying, casting, homogenization, cutting, crack inspection, and packaging to manufacture the finished aluminum billets. Where the imported raw materials consist of non-alloyed aluminum ingots and alloying materials such as silicon, copper, iron, magnesium, manganese, titanium, and chromium, and the finished product is a newly alloyed aluminum billet, we find that there is a change in name subsequent to processing in Mexico. The strongest factor weighing in favor of finding a substantial transformation in Mexico is a change in character subsequent to processing. As Customs noted in HQ 071341, and as applied more recently in NY N301439, because aluminum alloy has different characteristics and uses from non-alloyed aluminum and is recognized in the trade as a different product, the molten aluminum materials are considered to be transformed into a new and different article of commerce when they are manufactured into alloyed aluminum billets. Moreover, you explain that unlike the finished alloyed aluminum billets that will be sold to manufacturers of commercial building and construction, trucks, trailers, and military motor vehicles, non-alloyed aluminum is too lightweight on its own for such uses. As such, non-alloyed aluminum ingots are used instead to produce sheet metal, wire, tubing, etc. In sum, it is our determination that the processing performed in Mexico to manufacture newly alloyed aluminum billets from non-alloyed aluminum ingots and alloying materials, including silicon, copper, iron, magnesium, manganese, titanium, and chromium, result in a substantial transformation. Accordingly, the country of origin of the alloyed aluminum billets for purposes of Section 232 and Section 301 duties under all three proposed manufacturing scenarios will be Mexico.

3. Country of origin of the aluminum billets for marking purposes

The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134 of the CBP Regulations (19 C.F.R. Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

Pursuant to section 102.0, interim regulations, related to the marking rules, tariff-rate quotas, and other USMCA provisions, published in the Federal Register on July 6, 2021 (86 F.R. 35566), the rules set forth in 102.1 through 102.18 and 102.20 determine the country of origin for marking purposes with respect to goods imported from Canada and Mexico.

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 to any of the proposed production scenarios because the finished aluminum billets will neither be wholly obtained or produced nor produced exclusively from "domestic" (Mexican, in this case) materials.

"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." Any material used to produce the aluminum billets that is not of Mexican origin is a foreign material for purposes of the section 102 marking rules. Accordingly, each non-Mexican material must meet the applicable change in tariff classification set out in section 102.20 in order for the product to qualify to marked as a product of Mexico.

For the aluminum billets, which are classified in subheading 7601.20, HTSUS, the applicable tariff rule in section 102.20 requires:

A change to heading 7601 through 7604 from any other heading, including another heading within that group.

Scenario 1

With respect to production scenario 1, you state that the non-alloyed aluminum materials are either domestic products of Mexico, foreign products of Canada, or commingled products of Mexico and Canada; while the non-Mexican, foreign materials consist of the alloying materials, silicon, copper, iron, magnesium, manganese, titanium, and chromium, which are classified in headings 2804, 7404, 7205, 8104, 8111, 8108, and 8112, HTSUS, respectively.

As all of the non-Mexican alloying materials are classified outside of heading 7601, they will undergo the requisite tariff shift to heading 7601 from any other heading. Accordingly, where the non-alloyed aluminum materials in production scenario 1 are a domestic product of Mexico, and all the foreign alloying materials undergo the requisite the tariff shift, HMA should mark the aluminum billets produced with Mexican origin non-alloyed aluminum materials as products of Mexico.

When the non-alloyed aluminum materials used in production scenario 1 are a product of Canada or commingled products of Mexico and Canada, they will be considered foreign for purposes of the section 102 marking rules. Therefore, those non-alloyed aluminum materials must meet the applicable change in tariff classification set forth in section 102.20. Here, the non-alloyed aluminum materials are classified in subheading 7601.10, HTSUS. Because the non-alloyed aluminum materials are classified in the same heading as the finished aluminum billets, they do not meet the requisite tariff shift rule in section 102.20 for goods classified in heading 7601. Consequently, 19 C.F.R. 102.11(b) of the hierarchical rules must be applied to determine the country of origin of aluminum billets produced under scenario 1 where the non-alloyed aluminum materials are of Canadian origin or are commingled products of Mexico and Canada.

Section 102.11(b) provides that:

Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:

1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good.

2) If the material that imparts the essential character to the good is fungible, has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the basis of any inventory management method.

For purposes of 19 C.F.R. 102.11(b), "fungible goods or fungible materials" refers to "goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical." 19 C.F.R. 102.1(f).

Under 19 C.F.R. 102.1(l), an "inventory management method" means: 1) Averaging; 2) "Last-in, first-out;" 3) "First-in, first-out;" or 4) Any other method that is recognized in the Generally Accepted Accounting Principles (GAAP) of the country in which the production is performed or is otherwise accepted by that country.

In addition, under section 102.18(b), the only materials that shall be taken into consideration for identifying the material that imparts the essential character are "those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the 102.20 specific rule or other requirements applicable to the good."

Where the non-alloyed aluminum materials are products of Canada, the only materials used in producing the aluminum billets from which a change in tariff classification is not allowed under the requisite tariff shift rule are the Canadian origin non-alloyed aluminum materials. Accordingly, where the non-alloyed aluminum materials are products of Canada, the country of origin of the non-alloyed aluminum materials is also the country of origin of the finished aluminum billets, i.e., Canada.

To determine the country of origin of the finished aluminum billets produced under scenario 1 where the non-alloyed aluminum materials are commingled products of Canada and Mexico, we turn to 19 C.F.R. 102.11(b)(2). As stated above, section 102.11(b)(2) provides that if the material that imparts the essential character has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the basis of any inventory management method. Here, the non-alloying aluminum materials from Canada and Mexico will be melted down and commingled. To the extent that HMA can provide documentation showing that the non-alloyed aluminum materials from Canada and Mexico have been commingled, then a single country of origin may be determined on the basis of an inventory management method in accordance with 19 C.F.R. 102.11(b)(2). See, e.g., Headquarters Ruling Letter ("HQ") 561457, dated December 17, 1999 (holding that the countries of origin of a product were the United States and the Netherlands, but it could be marked as a product of the Netherlands, a product of the United States and the Netherlands, or on the basis of an inventory management method); HQ 735447, dated December 2, 1994 (provided that the conditions set forth in 19 C.F.R. 102.11(b)(2) are satisfied, an importer may use an inventory management method to determine the country or countries of origin of repackaged flashlight bulbs); HQ H264513, dated July 9, 2015 (noting that the importer of non-fortified frozen concentrate orange juice chose a multi-country label for country of origin marking, even though certain entries could qualify to be marked as the product of a single country through an inventory management method under 19 C.F.R. 102.11(b)(2)).

Scenario 2

With respect to production scenario 2, sections 102.11(a)(1) and 102.11(a)(2) do not apply because the aluminum billets will neither be wholly obtained or produced nor produced exclusively from "domestic" (Mexican, in this case) materials. Thus, under section 102.11(a)(3), the foreign materials that must meet the applicable change in tariff classification set forth in section 102.20 include the non-Mexican origin alloying materials of silicon, copper, iron, magnesium, manganese, chromium, and titanium, and the non-alloyed aluminum materials that are likely to be 60% from China, 20% from South Korea, and 20% from Australia. We have already confirmed that the alloying materials make the requisite tariff shift under the applicable rule in section 102.20. Here, the non-alloyed aluminum materials are classified in subheading 7601.10, HTSUS. Because the non-alloyed aluminum materials are classified in the same heading as the alloyed aluminum billets, they do not meet the requisite tariff shift rule in section 102.20 for goods classified in heading 7601. Consequently, 19 C.F.R. 102.11(b) of the hierarchical rules must be applied to determine the country of origin of aluminum billets produced under scenario 2.

Pursuant to section 102.11(b) and section 102.18(b) the only materials used in producing the aluminum billets for which a change in tariff classification is not allowed are the non-alloyed aluminum materials classified in subheading 7601.10, which are supplied in relative portions of 60% from China, 20% from South Korea, and 20% from Australia. Accordingly, the country of origin of the non-alloyed aluminum materials is also the country of origin of the aluminum billets, which is China, South Korea, and Australia.

You indicate that the non-alloyed aluminum materials from China, South Korea, and Australia are fungible materials used in the production of the aluminum billets and will be commingled prior to manufacturing such that direct identification of the input aluminum will not be practical. To the extent that HMA can provide documentation showing that the non-alloyed aluminum materials used to manufacture aluminum billets under scenario 2 are fungible per 19 C.F.R. 102.1(f), then a single country of origin may be determined on the basis of an inventory management method in accordance with 19 C.F.R. 102.11(b)(2). See HQ 561457; HQ 735447; HQ H264513.

Scenario 3

With respect to production scenario 3, sections 102.11(a)(1) and 102.11(a)(2) do not apply because the aluminum billets will neither be wholly obtained or produced nor produced exclusively from "domestic" (Mexican, in this case) materials. Thus, under section 102.11(a)(3), the foreign materials that must meet the applicable change in tariff classification set out in section 102.20 include the non-Mexican alloying materials of silicon, copper, iron, magnesium, manganese, chromium, and titanium, and the non-alloyed aluminum materials that are likely to be 60% from South Korea or Australia, 10% from Canada, and the remaining 30% from alloyed aluminum scrap generated as a result of production in Mexico, which is classified in subheading 7602.00, HTSUS.

To determine the country of origin of the alloyed aluminum scrap, we again apply the section 102 rules. You cite to 19 C.F.R. 102.1(g)(9)(i) in support of your assertion that the country of origin of the scrap is Mexico. This provision defines what "a good wholly obtained or produced" in a country means for purposes of the Part 102 rules. Under 19 C.F.R. 102.1(g)(9)(i), a good "wholly obtained or produced" includes waste and scrap derived from production in a country. Here, the alloyed aluminum scrap is derived from production in Mexico. Accordingly, we conclude that the country of origin of the alloyed aluminum scrap is Mexico. Thus, it will not need to meet an applicable tariff shift rule.

We have already confirmed that the non-Mexican alloying materials make the requisite tariff shift under the applicable rule in section 102.20. Under scenario 3, the non-alloyed foreign aluminum materials from South Korea, Australia, and Canada are classified in subheading 7601.10, HTSUS. Because these non-alloyed aluminum materials are classified in the same heading as the alloyed aluminum billets, they do not meet the requisite tariff shift rule in section 102.20 for goods classified in heading 7601. Consequently, 19 C.F.R. 102.11(b) of the hierarchical rules must be applied to determine the country of origin of aluminum billets produced under scenario 3. Here, the only materials used in producing the aluminum billets for which a change in tariff classification is not allowed are the non-alloyed aluminum materials classified in subheading 7601.10, which are supplied in relative portions of 60% from South Korea or Australia and 10% from Canada. Accordingly, the country of origin of the aluminum billets produced under scenario 3 will be either South Korea and Canada or Australia and Canada (depending on the final sourcing of the 60% portion by weight from South Korea or Australia).[3]

You indicate that the non-alloyed aluminum materials will be 60% from South Korea or Australia. While you do not specifically indicate whether the non-alloyed aluminum materials in scenario 3 are commingled and fungible, based on the definition of fungible goods under 19 C.F.R. 102.1(f), we construe the 60% materials from South Korea or Australia to be interchangeable for commercial purposes with identical properties, i.e., fungible. To the extent that HMA can provide documentation showing that the non-alloyed aluminum materials used to manufacture aluminum billets under scenario 3 are fungible per 19 C.F.R. 102.1(f), then a single country of origin may be determined on the basis of an inventory management method in accordance with 19 C.F.R. 102.11(b)(2). See HQ 561457; HQ 735447; HQ H264513.

You assert that the country of origin of the finished aluminum billets produced under scenario 3 will be Mexico because the alloyed aluminum scrap generated in Mexico imparts the essential character to the finished billets. You argue that the alloyed aluminum scrap imparts the essential character because it most closely resembles the composition and characteristics of the finished billets without the addition of alloying materials. However, as we already explained above, the alloyed aluminum scrap generated in Mexico cannot be considered as imparting the essential character under 19 C.F.R. 102.18 because it makes the requisite tariff shift for aluminum billets classified in heading 7601, HTSUS, under the applicable tariff shift rule.

Under all three production scenarios, you suggest that where the billets made from commingled non-alloyed aluminum materials are marked on the basis of an inventory management method, country of origin will be determined consistent with section 102.11(d)(3) as Mexico, the country of last production. We disagree. First, we note that the rules set forth in section 102.11 are hierarchical. Because the country of origin where the non-alloyed aluminum materials are commingled can be determined under 19 C.F.R 102.11(b), it is unnecessary to consider 19 C.F.R. 102.11(d).

HMA also seeks confirmation of whether the results of an inventory management system under 19 C.F.R 102.11(b) will be a single country of origin for marking purposes or whether individual billets must be marked as having more than one country of origin. In HQ H264513, dated July 9, 2015, although the importer of non-fortified frozen concentrate orange juice chose a multi-country label for country of origin marking, CBP noted that certain entries could qualify to be marked as the production of a single country through an inventory management method under 19 C.F.R. 102.11(b)(2)). Additionally, in HQ 735447, dated December 2, 1994, Customs held that provided that the conditions set forth in 19 C.F.R. 102.11(b) are satisfied, an importer may use an inventory management method to determine the single country or countries of origin of repackaged flashlight bulbs. Thus, to the extent that HMA can provide documentation showing that the non-alloyed aluminum materials used to produce the finished aluminum billets have been commingled and are fungible, then a single country of origin may be determined on the basis of an inventory management method in accordance with 19 C.F.R. 102.11(b)(2).

In alternative to the inventory management method approach under 19 C.F.R. 102.11(b)(2), you assert that under 19 C.F.R. 102.18(b)(2), HMA may look to the weight or value of the aluminum material by source country and use the single country of origin that provides the greatest portion of the weight or value as determined under the inventory management system. We disagree with this approach. Section 102.18(b)(2) deals with determining which one of two or more materials described under 19 C.F.R. 102.18(b)(1), i.e., which among the competing domestic or foreign materials that do not meet the relevant tariff shift rule, imparts the essential character of a good. Here, there are no competing materials under consideration for imparting the essential character pursuant to 19 C.F.R 102.18(b)(1) because the only material that qualifies is the non-alloyed aluminum materials that have been commingled and are fungible. We have already applied 19 C.F.R. 102.11(b) and 19 C.F.R. 102.18(b)(1) to determine which material imparts the essential character for purposes of country of origin marking, so there is no need to resort to 19 C.F.R. 102.18(b)(2).

De Minimis Rule Under Part 102 Marking Rules

Finally, HMA seeks confirmation that the de minimis rule in the Part 102 marking rules, 19 C.F.R. 102.13, applies to the finished aluminum billets. Further, HMA seeks confirmation that if the value of materials that fail to make the tariff shift required under the Part 102 marking rules is not more than 7% of the value of the finished billet, the country of origin for marking purposes will be Mexico. We need only consider the application of the de minimis rule to scenario 1 where the non-alloyed aluminum materials are either of Canadian origin or commingled products of Canada and Mexico. We will also consider the application of the de minimis rule to scenarios 2 and 3.

Section 102.13 provides for a de minimis exception for materials that do not undergo the applicable change in tariff classification required in section 102.20. Section 102.13(a) provides:

Except as otherwise provided in paragraphs (b) and (c) of this section, foreign materials that do not undergo the applicable change in tariff classification set out in 102.20 or satisfy the other applicable requirements of that section when incorporated into a good shall be disregarded in determining the country of origin of the good if the value of those materials is no more than 7 percent of the value of the good or 10 percent of the value of a good of Chapter 22, Harmonized System.

Under production scenario 1, where the non-alloyed aluminum materials are either of Canadian origin or commingled products of Canada and Mexico, those materials do not undergo the applicable change in tariff classification set forth in section 102.20 for foreign materials. Under production scenario 2, the non-alloyed aluminum materials from China, South Korea, and Australia do not satisfy the applicable tariff shift rule. Under production scenario 3, the non-alloyed aluminum materials from South Korea or Australia and Canada do not satisfy the applicable tariff shift rule.

Pursuant to 19 C.F.R. 102.13, if any foreign material that does not undergo the applicable change in tariff classification is valued at no more than 7% of the value of the aluminum billet, then it shall be disregarded in determining the country of origin of the aluminum billet. Thus, under production scenario 1, where the non-alloyed aluminum materials are either of Canadian origin or commingled products of Canada and Mexico, if those same materials are valued at no more than 7% of the value of the aluminum billet, then they shall be disregarded in determining the country of origin of the aluminum billet. Similarly, if the non-alloyed aluminum materials from China, South Korea and Australia used in scenario 2 are valued at no more than 7% of the value of the aluminum billet, then those materials shall be disregarded in determining the country of origin of the aluminum billet. Under scenario 3, if the non-alloyed materials from Canada and South Korea or Australia are valued at no more than 7% of the value of the aluminum billet, then those materials shall be disregarded in determining the country of origin of the aluminum billet. Accordingly, we confirm that if the total value of foreign materials that do not meet the requisite tariff shift rule in production scenarios 1, 2, and 3 is no more than 7% of the value of the aluminum billet, then the de minimis rule may be applied such that the country of origin for marking purposes under those scenarios will be Mexico.

HOLDING:

USMCA

Based on the information provided, we find that the aluminum billets produced under scenario 1 are eligible for preferential tariff treatment under the USMCA. We also find that the aluminum billets produced under scenarios 2 and 3 are not eligible for preferential tariff treatment under the USMCA.

Country of Origin for Purposes of Section 232 and Section 301 Duties

Based on the information provided, we find that the country of origin of the aluminum billets for purposes of Section 232 and Section 301 trade remedies under all three proposed production scenarios will be Mexico.

Country of Origin Marking

Based on the information provided, we find that the country of origin marking for aluminum billets produced under scenario 1, where the non-alloyed aluminum materials are of Mexican origin, will be Mexico. The country of origin marking for aluminum billets produced under scenario 1, where the non-alloyed aluminum materials are of Canadian origin, will be Canada. The country of origin marking for aluminum billets produced under scenario 1, where the non-alloyed aluminum materials are commingled products of Canada and Mexico, will be determined on the basis of an inventory management method in accordance with 19 C.F.R. 102.11(b)(2).

The country of origin marking for aluminum billets produced under scenario 2 will be South Korea, Australia, and China. To the extent the non-alloyed aluminum materials used to produce aluminum billets are commingled and fungible, the country of origin may be determined on the basis of an inventory method in accordance with 19 C.F.R. 102.11(b)(2).

The country of origin marking for aluminum billets produced under scenario 3 will be either South Korea and Canada or Australia and Canada (depending on the final sourcing of the 60% portion by weight of non-alloyed aluminum materials from South Korea or Australia). To the extent the non-alloyed aluminum materials used to produce aluminum billets are commingled and fungible, the country of origin may be determined on the basis of an inventory method in accordance with 19 C.F.R. 102.11(b)(2).

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

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[1] You indicate in your submission, dated March 3, 2023, that non-alloyed aluminum materials are sourced from non-USMCA countries with the relative portions (by value) likely to be 60% from China, 20% from South Korea, and 20% from Australia. However, via email dated March 1, 2024, you corrected your submission, and stated that these percentages are by weight, and not by value.

[2] You indicate in your submission, dated March 3, 2023, that non-alloyed aluminum materials are sourced from non-USMCA countries with the relative portions (by value) likely to be 60% from South Korea or Australia, 10% from Canada, and the remaining 30% from Mexican alloyed aluminum scrap. However, via email dated March 1, 2024, you corrected your submission, and stated that these percentages are by weight, and not by value.
[3] As we stated in HQ H063621, dated October 29, 2009, CBP's policy is that in most circumstances, it is not acceptable for purposes of 19 U.S.C. 1304 to mark an article with the legend "Product of ____ or ____". In C.S.D. 89-111, certain effervescent enzymatic cleaner tablets from either West Germany or the U.S. were packaged into retail containers. Customs held that the package must be marked with only the actual country of origin. Otherwise, the disjunctive marking would do no more than indicate the possibility that the tablets may be of foreign origin.