CLA-2-90:OT:RR:NC:1:105
Tammy Hetrick
A.N. Deringer, Inc.
173 West Service Road
Champlain, NY 12919
RE: The tariff classification and status under the North American Free Trade Agreement (NAFTA), of modules used in the testing of fiber optic systems from Canada; Article 509
Dear Ms. Hetrick:
In your letter dated June 21, 2018, on behalf of EXFO, Inc., you requested a ruling on the status of five modules used in the testing of fiber optic systems from Canada under the NAFTA.
The products at issue in your submission consist of five modules said to be used in the testing of fiber optic systems. The modules are identified as the FTB-2, a 2-Slot Capacity Modular Mainframe; the FTBx-945, an Optical Loss Test (OLT) Module; and three Optical Time Domain Reflectometer (OTDR) modules, the FTBx-720C, the FTBx-730C, and the FTBX-750C. You indicate that the five modules are assembled in an EXFO facility in China, however the units undergo no testing or programming in China. After assembly, the modules are shipped to Canada where they are calibrated, programmed, and tested extensively. Per your submission, the un-programmed, untested modules imported into Canada have a much lower value than that of the finished units exported from Canada.
You indicate that the modules at issue are, by themselves, incapable of independently performing any function; they must be combined with other modules to operate. The FTB-2 is a platform that is designed to interface with 30 different modules and, when connected, enables the modules to perform their intended testing function. The FTB-2 operates in a manner similar to that of the FTB-200 described in New York Ruling Letter (NYRL) N255415, dated August 15, 2014. The OLT module and the OTDR modules are designed to test and troubleshoot fiber optic systems. They incorporate optical amplifiers, lasers, and wavelength detectors, however the units cannot operate independently. They must be combined with a platform to perform their measurement functions. The OLT and OTDR modules operate in a manner akin to that of the FTB 7300E described in NYRL N244795, dated August 28, 2013.
In your submission, you describe two scenarios in which the aforementioned modules may enter the United States from Canada. In the first scenario, a buyer places an order for one or more platforms and one or more modules. Each unit is packaged in its own customary commercial packaging but shipped in the same master container. The commercial invoice lists each part number with a quantity and individual serial numbers. In this scenario, you state that you have no knowledge if the units are intended to be used together as certain buyers may also sell to retailers. In the second scenario, a buyer requests that EXFO create a kit specifically to meet a buyer’s needs, for example one platform and one or more modules.
The scenarios outlined are largely identical to those addressed in NYRL N255415. In that ruling it was determined that the “kits” described in the latter scenario, wherein a customized order is determined by an individual customer, were not considered sets for tariff classification purposes.
The applicable tariff provision for the FTB-2, the FTBx-945, the FTBx-720C, the FTBx-730C, and the FTBX-750C, imported in both scenarios mentioned above, will be 9027.90.6400, Harmonized Tariff Schedule of the United States (HTSUS), which provides for Instruments and apparatus for physical or chemical analysis (for example, polarimeters, refractometers, spectrometers, gas or smoke analysis apparatus); instruments and apparatus for measuring or checking viscosity, porosity, expansion, surface tension or the like; instruments and apparatus for measuring or checking quantities of heat, sound or light (including exposure meters); microtomes; parts and accessories thereof: Parts and accessories: Other: Of optical instruments and apparatus: Of instruments and apparatus of subheading 9027.20, 9027.30, 9027.50 or 9027.80. The general rate of duty will be free.
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 the World Wide Web at https://hts.usitc.gov/current.
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.
As mentioned above, the FTB-2, the FTBx-945, the FTBx-720C, the FTBx-730C, and the FTBX-750C are classified under subheading 9027.90.6400. With respect to General Note 12(b)(ii)(A), the applicable tariff shift rule under General Note 12(t) Chapter 90/64 states that (A) A change to subheading 9027.90 from any other heading; or (B) No required change in tariff classification to subheading 9027.90, provided there is a regional value content of not less than: (1) 60 percent where the transaction value method is used, or (2) 50 percent where the net cost method is used.
Based on the facts provided, the goods described above qualify for NAFTA preferential treatment, because they will meet the requirements of HTSUS General Note 12(b)(ii)(A), provided the Regional Value Content requirements are met. The goods will therefore be entitled to a free rate of duty under the NAFTA upon compliance with all applicable laws, regulations, and agreements, including Regional Value Content requirements specified in General Note 12(t) Chapter 90/64.
This ruling letter has not addressed the actual Regional Value Content (RVC) of the subject goods. If you desire a ruling regarding the RVC of your goods and their eligibility for NAFTA preferential treatment, provide the information noted in Section 181.93(b) of the Customs Regulations (19 CFR 181.93(b)), to U.S. Customs and Border Protection, Regulations & Rulings, 799 9th Street N.W. - 7th floor, Washington, DC 20229-1177, along with a copy of this letter.
You have also requested a ruling on the country of origin marking of the FTB-2, the FTBx-945, the FTBx-720C, the FTBx-730C, and the FTBX-750C. 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 U.S. 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 U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.
The country of origin marking requirements for a “good of a NAFTA country” are also determined in accordance with Annex 311 of the North American Free Trade Agreement (“NAFTA”), as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat 2057) (December 8, 1993) and the appropriate Customs Regulations. The Marking Rules used for determining whether a good is a good of a NAFTA country are contained in Part 102, Customs Regulations. The marking requirements of these goods are set forth in Part 134, Customs Regulations.
Section 134.1(b) of the regulations defines “country of origin” as the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j) of the regulations provides that the “NAFTA Marking Rules” are the rules promulgated for the purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) of the regulations, defines a “good of a NAFTA country” as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. Section 134.45(a)(2) of the regulations, provides that “a good of a NAFTA country” may be marked with the name of the country of origin in English, French or Spanish.
The FTB-2, the FTBx-945, the FTBx-720C, the FTBx-730C, and the FTBX-750C are processed in Canada prior to being imported into the United States. Since Canada is defined under 19 CFR 134.1(g) as a NAFTA country, we must apply the NAFTA Marking Rules in order to determine if the goods are subject to the NAFTA marking requirements.
Part 102 of the regulations sets forth the NAFTA Marking Rules. Section 102.11 of the regulations sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) states that 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 as set out in section 102.20 and satisfies any other applicable requirements of that section.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the FTB-2, the FTBx-945, the FTBx-720C, the FTBx-730C, and the FTBX-750C modules. Section 102.20 for 9027.10-9027.90 requires a change to any other good of subheading 9027.10 through 9027.90 from any other subheading, including another subheading within that group. Since the modules do not undergo the appropriate tariff shift, section 102.11(a)(3) does not apply.
Section 102.19 states that except in the case of a good of paragraph (b), if a good which is originating within the meaning of 181.1(q) of this chapter is not determined under section 102.11(a) or (b) to be a good of a single NAFTA country, the country of origin of the good is the last NAFTA country in which the good underwent processing other than minor processing. Under Section 102.19, the NAFTA Preference Override, the country of origin of the FTB-2, the FTBx-945, the FTBx-720C, the FTBx-730C, and the FTBX-750C modules is Canada for marking purposes.
This ruling is being issued under the provisions of Part 181 of the Customs Regulations (19 C.F.R. 181).
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 Evan Conceicao at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division