CLA-2-84:OT:RR:NC:1:104
Mr. Daniel Smith
Joseph Smith Customhouse Broker, Inc.
210 East Sunrise Highway, Suite 301
Valley Stream, NY 11581-1328
RE: The tariff classification of drill bits and end mills from Brazil
Dear Mr. Smith:
In your letter dated November 21, 2011 on behalf of Sandvik Tooling, Inc., you requested a ruling addressing the classification, country of origin and eligibility from Brazil for duty-free treatment under the Generalized System of Preferences (GSP) of certain end mills and drill bits. Representative samples of (1) the material supplied from each vendor and (2) the finished articles were supplied with your submission.
The drill bits and end mills in question are designed for use in the metalworking industry. A variety of such end mills and drill bits are produced in factories located in Brazil from material supplied primarily from Germany, Switzerland and China. You have supplied the following information as to the various manufacturing processes involved in the production of the end mills and drill bits.
In Germany, the material will undergo the following operations:
Cemented carbide ready-to-press powder is mixed in a defined composition to produce tungsten carbide rods. The powder typically contains approximately 90% tungsten carbide. The percentage may be higher depending on the grade of powder being used.
Mixed powder extruded into rods, dried, cut and prepared for sintering and hipping.
After sintering, strengthened and hardened carbide rods ground to final diameter, coned on one end and chamfered on the other.
After quality checking, tungsten carbide rods are shipped to Brazil.
In Switzerland, the material will undergo the following operations:
Cemented carbide ready-to-press powder mixed in a defined composition to produce tungsten carbide rods. The powder typically contains approximately 90% tungsten carbide. The percentage may be higher depending on the grade of powder being used.
Mixed powder extruded into rods, each with a diameter and length specified by Sandvik.
Extruded rods, in a “green or chalk” state are placed in a Hip Sinter furnace to be sintered. This process strengthens and hardens the carbide rods.
After sintering, the rods are ground to a specified diameter and receive a 45 degree chamfer on one end.
After quality checking, the tungsten carbide rods are shipped to Brazil.
In China, the material will undergo the following operations:
Supplied material is High Speed Steel (HSS) bar or rod conforming to American Standard ASTM A600/Grades M2, M35 and M42.
Material (bar or coil) is cropped to length.
Outer diameter is ground.
Material is hardened to Sandvik specifications.
Material is chamfered and cone ground.
Outer diameter is ground to finished diameter.
Material is treated with anti-rust additive.
After quality checking, the material is shipped to Brazil.
In Brazil, the tungsten carbide German and Swiss rods used for drill and end mill production will undergo the following operations:
Rods are outer diameter ground.
Rods then undergo fluting, clearance grinding, pointing and finish grinding to achieve the final form.
If designated for coating or receiving a special finish, a rod will undergo chemical washes to clean and prepare the surfaces for the finish. After cleaning and surface preparation, the finish will be applied.
All articles undergo a tempering process to stabilize the materials and prevent brittleness.
In Brazil, the HSS Chinese rods may be used to create multiple types of drill bits. The Chinese material will undergo the following operations:
Each piece undergoes fluting, centerless grinding, clearance grinding, pointing and finish grinding and heat treatment.
Depending on the application for which they are intended, some pieces will undergo an additional coating process. After a series of chemical washes to clean and prepare the surfaces, the coating will be applied.
All pieces undergo a final tempering process to reduce brittleness.
Once all of the above described processes are completed, each individual piece is laser etched with the appropriate code and grade and oil misted to provide protection from rust. Finished pieces are packed in the appropriate index box or sleeve, labeled and delivered to the Brazilian facility’s export area for final export packing and delivery to the United States distribution center.
The applicable subheading for the tungsten carbide or HSS drill bits will be 8207.50.20, Harmonized Tariff Schedule of the United States (HTSUS), which provides for Interchangeable tools for handtools, whether or not power-operated, or for machine-tools (for example, for pressing, stamping, punching, tapping, threading, drilling, boring, broaching, milling, turning or screwdriving), including dies for drawing or extruding metal, and rock drilling or earth boring tools; base metal parts thereof: Tools for drilling, other than for rock drilling, and parts thereof: With cutting part containing by weight over 0.2 percent of chromium, molybdenum, or tungsten or over 0.1 percent of vanadium. The duty rate will be 5 percent ad valorem.
The applicable subheading for the tungsten carbide end mills will be 8207.70.3030, HTSUS, which provides for Interchangeable tools for hand tools, whether or not power-operated, or for machine tools …: Tools for milling, and parts thereof: With cutting part containing by weight over 0.2 percent of chromium, molybdenum, or tungsten or over 0.1 percent of vanadium. The rate of duty will be 5 percent ad valorem.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http://www.usitc.gov/tata/hts/.
Articles classifiable under subheading 8207.50.20 and 8207.70.3030, HTSUS, which are products of Brazil, may be entitled to duty free treatment under the GSP upon compliance with all applicable regulations. The GSP is subject to modification and periodic suspension, which may affect the status of your transaction at the time of entry for consumption or withdrawal from warehouse. To obtain current information on GSP, check our Web site at www.cbp.gov and search for the term “GSP”.
You inquired as to (1) the country of origin of the finished drill bits and end mills and (2) whether the non-Brazilian materials used in the manufacturing process have undergone a double substantial transformation such that their cost may be included in the computation of the 35 percent value-content requirement under the GSP.
Explanatory Note (EN) II under GRI 2(a) in the Harmonized Commodity Description and Coding System provides guidance on the application of GRI 2(a), stating that:
The provisions of this Rule also apply to blanks unless
these are specified in a particular heading. The term
"blanks" means an article, not ready for direct use, having
the approximate shape or outline of the finished article or
part, and which can only be used, other than in exceptional
cases, for completion into the finished article or part.
Semi-manufactures not yet having the essential shape of
the finished articles (such as is generally the case with
bars, discs, tubes, etc.) are not regarded as "blanks."
In this case, GRI 2(a) is applicable to the German, Swiss and Chinese supplied material. The non-Brazilian material (1) possesses the approximate shape or outline of the final product in that the finished tools’ specifications and shape are established in the essential shape of the rods and (2) the sole use of the rods is for the completion into finished drill bits and end mills and cannot be used for any other purpose. It is noted that the degree or substantial nature of processing required to finish blanks is not addressed in GRI 2(a). This office also notes that the vendor samples submitted to this office are labeled as blanks.
Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the customs territory of the
U.S. from a BDC may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BDC, plus 2) the direct costs of the processing operation in the BDC, is
equivalent to at least 35% of the appraised value of the article at the time of entry. See, 19 CFR §10.177 and §10.178.
Brazil is a BDC. See General Note 4(a), HTSUS. Therefore, the finished drill bits and end mills will be eligible for duty-free treatment if (1) they are classified under a GSP-eligible provision, (2) they are considered to be a "product of" Brazil, (3) they are "imported directly" into the U.S., and (4) the 35 percent value-content requirement is satisfied. The finished drill bits and end mills in question are classified under heading 8207, HTSUS, which is a GSP eligible provision.
Merchandise is considered the "product of" a BDC if it is either wholly the growth, product or
manufacture of a BDC or has been substantially transformed there into a new or different article of commerce. A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." Texas Instruments Incorporated v. United States, 2CIT 36, 520 F. Supp. 1216 (CIT 1981), reversed, 69 CCPA 151, 681F.2d 778 (CCPA 1982) noted.
However, if an article is produced or assembled from materials which are imported into the BDC, the cost or value of those materials may be counted toward the 35% value-content minimum only if they undergo a double substantial transformation in the BDC. That is, the cost or value of the imported materials used to produce the drill bits and end mills may be included in the GSP 35% value-content computation only if they are first substantially transformed into a new or different intermediate article of commerce, which is itself substantially transformed in the production of the finished drill bits or end mills.
In this case, the blanks supplied from Germany, Switzerland and China are transformed in Brazil into functional drill bits and end mills. The operations performed on the blanks in Brazil are substantial rather than minor. As a result of the manufacturing in Brazil, the blanks are advanced in condition and value and take (1) a new name (drill bits and end mills as opposed to blanks), (2) a new character (finished good rather than intermediary manufacturing blank) and (3) a new particular use (may now be used in various metalworking applications). As the blanks are transformed into functional tools, it is this office’s opinion that a substantial transformation has occurred and the country of origin is Brazil.
However, based upon the submitted documentation and samples, it is this office’s opinion that the non-Brazilian material is not processed into a new or different intermediate article in Brazil, but rather is material undergoing a continuous manufacturing process which results in the creation of the finished drill bits and end mills. The rods merely represent one stage of the drill bits or end mills, i.e., the blank stage. The German, Swiss and Chinese rods are not substantially transformed into separate and distinct intermediate articles of commerce which are then substantially transformed into the finished drill bits and end mills. As the blanks imported into Brazil from Switzerland, Germany and China are not subjected to a double substantial transformation in the production of the drill bits and end mills, the cost or value of the Swiss, German and Chinese blanks may not be included in the GSP 35% value-content calculation.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Patricia O’Donnell at (646) 733-3011.
Sincerely,
Robert B. Swierupski
Director
National Commodity Specialist Division