CLA-2-84:OT:RR:NC:N1:104
Mr. Weihong Lee
Abrasive Technology Inc.
8400 Green Meadows Dr.
Lewis Center, OH 43035
RE: The tariff classification and country of origin of tool holders from Canada
Dear Mr. Lee:
In your letter dated April 17, 2017, you requested a ruling on the classification and country of origin of a tool holder from Canada. Representative samples, i.e., (1) a holder in its original condition as imported from Spain into Canada, (2) fabric cut to shape and size of the holder and (3) a finished product in its condition as imported into the United States, were submitted for examination and will be returned to you.
The good under consideration is a tool holder comprised of (1) a polypropylene holder from Spain and (2) hook material from Germany. An adhesive is present on the hook material at time of importation into Canada. You state that currently there are no components of Canadian origin in the final finished product. The holder has two end uses, i.e., as support for a diamond tool or as support for the hook material which will in turn hold diamond tool.
Subsequent to importation into Canada, the polypropylene holder and the hook material are further processed and assembled to form finished tool holders. The specific processes performed in Canada are as follows:
The polypropylene holder is produced in Spain on a plastic injection molding machine. In Canada, a lathe is used to perform precision rectification, also known as a facing operation, of the mating surface of the article which will subsequently receive either a diamond abrasive section or a hook fastener.
The knit hook and loop material is imported into Canada in rolls. The fabric represents the "hook" portion of a hook and loop fastener. One side is the hook side; one side is the loop side. The material is cut to shape in Canada and affixed to its respective polypropylene holder using the adhesive that is already present on the material.
Final product is a polypropylene holder onto which a hook/loop fastener has been affixed.
Subsequent to importation into the United States, the finished tool holder will be modified by using a rectifying process so that the article can run true and flat. In addition, holes are drilled radially so that a removal tool can be inserted to assist in the article’s removal after it is spent.
The applicable tariff provision for the tool holder, as imported into the United States, will be 8466.10.0175, HTSUS, which provides for “Parts and accessories suitable for use solely or principally with the machines of headings 8456 to 8465, including work or tool holders, self-opening dieheads, dividing heads and other special attachments for machine tools; tool holders for any type of tool for working in the hand: Tool holders and self-opening dieheads: Other”. The rate of duty will be 3.9 percent ad valorem.
While you do not request a ruling on the status of this good under the North American Free Trade Agreement (NAFTA), you do request a country of origin determination. You suggest that the polypropylene holder be classified under subheading 3926.90, HTSUS, the hook material under subheading 6001.92, HTSUS, and the finished product as imported into the United States under subheading 8466.10, HTSUS. The Annex 401 Specific Rules of Origin for heading 8466 reads “A change to heading 8466 from any other heading”. It is your opinion that the finished product has undergone the requisite tariff shift, i.e., from headings 3926 and 6001 to heading 8466. Thus, while you do not request a ruling on the status of this good under the North American Free Trade Agreement (NAFTA), we must address this status as your position is based upon the Annex 401 Specific Rules of Origin.
The hook material, imported into Canada in rolls and then cut to shape, does meet the required tariff shift. However, the polypropylene holder does not.
Merchandise is classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) in accordance with the General Rules of Interpretation (GRIs). GRI 1 states in part that for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes. GRI 2(a) extends the scope of the HTS headings to include unfinished parts, provided the unfinished parts have the essential character of the finished parts. GRI 2(a) further states that:
Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished (or failing to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled.
In addition, Explanatory Note (EN) II under GRI 2(a) states 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."
Thus, two criteria which an article must meet in order to be classified as a blank for purposes of GRI 2(a) are (1) it must possess the approximate shape or outline of the finished article, and (2) the sole use must be for completion into the finished article.
In this case, GRI 2(a) is applicable to the polypropylene holders of Spanish origin. In this office’s opinion, they are blanks by definition and by statements found in your submission. They do meet the two criteria stated above. Examination of the submitted samples reveals that the polypropylene holder is a net shape blank which closely approximates the outline of the finished article it will form. Although the polypropylene holder may not be to final tolerances and lacks the finished surfaces of the finished tool holder, it is readily recognizable as the finished article it will become. Further, there is nothing to suggest that the polypropylene holder has any practical use other than for completion into a finished tool holder. Thus, this office finds that the subject polypropylene holder is an unfinished article which has the essential character of a complete or finished good of subheading 8466.10.0175, HTSUS, which provides for “Parts and accessories suitable for use solely or principally with the machines of headings 8456 to 8465, including work or tool holders, self-opening dieheads, dividing heads and other special attachments for machine tools; tool holders for any type of tool for working in the hand: Tool holders and self-opening dieheads: Other”. .
General Note 12(b), HTSUS, sets forth the criteria for determining whether a good is originating under the NAFTA. General Note 12(b), HTSUS, (19 U.S.C. § 1202) states, in pertinent part, that:
For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if--
(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that--
(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials; or
(iv) they are produced entirely in the territory of Canada, Mexico and/or the United States but one or more of the nonoriginating materials falling under provisions for “parts” and used in the production of such goods does not undergo a change in tariff classification because--
(A) the goods were imported into the territory of Canada, Mexico and/or the United States in unassembled or disassembled form but were classified as assembled goods pursuant to general rule of interpretation 2(a), or
(B) the tariff headings for such goods provide for and specifically describe both the goods themselves and their parts and is not further divided into subheadings, or the subheadings for such goods provide for and specifically describe both the goods themselves and their parts,
provided that such goods do not fall under chapters 61 through 63, inclusive, of the tariff schedule, and provided further that the regional value content of such goods, determined in accordance with subdivision (c) of this note, is not less than 60 percent where the transaction value method is used, or is not less than 50 percent where the net cost method is used, and such goods satisfy all other applicable provisions of this note.
In the instant case, in order for the tool holder to be eligible for preferential tariff treatment under GN 12 by application of the tariff-shift rule for subheading 8466, HTSUS, each of the non-originating materials used in the production of the good must undergo the required change in tariff classification. The Chapter 84 tariff shift rule for heading 8466, HTSUS, provides as follows: GN 12(t)/182. A change to heading 8466 from any other heading. Under the exception to the change in tariff classification requirement found in Part II, Section 4, Paragraph (4)(b)(ii) of the NAFTA Rules of Origin/Appendix to 19 C.F.R §181, two conditions must be met. First, the non-originating materials used to make the good that failed to meet the applicable tariff-shift rule must be classified in the Harmonized System as parts for the goods. Second, the heading in which the good is classified must also be the heading in which the parts for the good are classified, and the heading must not be further subdivided or the subheading in which the good is classified must also be the subheading in which the parts for the good are classified. Under this exception a part from a non-NAFTA country converted into a complete article in a NAFTA country (when the same HTSUS provision covers both the part and the complete article) may be eligible for NAFTA if the regional value content is not less than 60 percent determined under the transaction value method.
As stated above, you have proposed that the polypropylene holder of Spanish origin be classified in subheading 3926.90, HTSUS. Subheading 3926.90 is a residual (default) provision, otherwise known as a basket provision and is only applicable when two criteria are in place; the item is essentially made of plastic material and there is no other provision in the tariff schedule that more specifically provides for the article under consideration. Any provision that more specifically describes this type of merchandise would take precedence over subheading 3926.90, HTSUS, based on GRI 3(a). In the instant case, the non-originating plastic holder is classified in heading 8466, HTSUS, when imported into Canada and remains classified in that heading when assembled with the hook material into the product that will be imported into the United States. Therefore, classification under subheading 3926.90, HTSUS, is not appropriate.
The polypropylene holders, as blanks, are not parts of the finished tool holders but rather essentially tool holders themselves in an unfinished state. They have the shape and form of finished articles and simply require some additional working, such as rectification, to form the finished article. The polypropylene holders do not undergo a change in tariff classification and do not satisfy the tariff-shift requirement of the rule for heading 8466, HTSUS. In addition, the plastic holders do not qualify as originating materials under the exception to the change in tariff classification requirement. Therefore, the articles do not meet the tariff shift requirement of GN 12(t)/182, HTSUS, or the exception to that provision.
The merchandise does not qualify for preferential treatment under the NAFTA because the above requirements have not been met. However, the NAFTA Marking Rules will determine the country of origin for NAFTA purposes. Section 134.1(j), CBP Regulations (19 CFR § 134.1(j)), provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. A "good of a NAFTA country" is defined in 19 CFR§ 134.1(g) as an article for which the country of origin is Canada, Mexico, or the U.S. as determined under the NAFTA Marking Rules set out at 19 CFR Part 102.
Section 102.11, CBP Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. The following provisions must be applied sequentially, beginning with part (a)(1):
The following rules shall apply for purposes of determining the country of origin of imported goods other than textile and apparel products covered by §102.21: (a) The country of origin of a good is the country in which: (1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or
(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.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply because the tool holders are neither wholly obtained, nor produced exclusively from domestic materials. It is therefore necessary to apply §102.11(a)(3). The relevant §102.20 rules for this heading requires under HTSUS and Tariff shift and/or other requirements state, in pertinent part:
A change to subheading 8466.10 through 8466.94, other than a change to parts of water-jet cutting machines of subheading 8466.93, from any other heading outside that group, except from heading 8501 when resulting from a simple assembly; …
As stated above, the applicable heading for the polypropylene holders imported from Spain into Canada is heading 8466, HTSUS. The finished tool holders are also classified in heading 8466, HTSUS. Therefore, the Spanish polypropylene holder finished into the final tool holder as imported from Canada has not undergone the required tariff shift for NAFTA eligibility because it remains classifiable within heading 8466, HTSUS.
Since the country of origin cannot be determined under paragraph (a) of section 102.11, section 102.11(b) must be looked to under the marking rules of origin hierarchy. Under (b), the country of origin of the good is the: (1) country or countries of origin of the single material that imparts the essential character of the good. In our opinion, no one material imparts the essential character to the good. The issue of fungibility under 102.11 (b) (2) is also inapplicable. Thus, Section 102.11(b) is inapplicable. Since the fitting is neither a mixture, set nor a composite good, Section 102.11 (c) is also inapplicable. Section 102.11(d) is next in the rules of origin hierarchy. These rules state that the country of origin of a NAFTA good shall be determined as follows:
(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good. (2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin is the country of origin of those parts. (3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
The finished tool holder is not produced only as a result of minor processing and is not the result of simple assembly; therefore, Section 102.11 (d) (1) and (2) do not apply. The country of origin will be determined according to Section 102.11 (d) (3) as the last country in which the good underwent production. In view of the processing that took place in Canada, the finished tool holder is a product of Canada.
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 https://hts.usitc.gov/current.
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 [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division