CLA-2-73:OT:RR:NC:N5:116
Mr. Andrew K. McAllister
Holland & Knight, LLP
800 17th Street, N.W.
Washington, District of Columbia 20006
RE: A country of origin determination for purposes of eligibility under USMCA, for purposes of applicability of Trade Remedy Section 301, and for marking purposes of flanges and fittings from China, Italy, and India
Dear Mr. McAllister:
In your letter dated October 18, 2024, you requested a country of origin determination for purposes of eligibility under the United States-Mexico-Canada Agreement (USMCA), for purposes of applicability of Trade Remedy Section 301, and for marking purposes of flanges and fittings for your client, Gulf Manufacturing, Inc. (GMI).
According to your submission, GMI plans to import raw carbon steel forgings in the shape of flanges (weld-neck and threaded), crosses, and tees from China, Italy, and India. The forgings are then sent to Mexico to be manufactured into finished products.
The flanges are described as a forged ring of steel designed to connect mechanically sections of pipe or join pipe to a pressure vessel, pump, value (sic), or any other piece of equipment. The weld-neck flange is a flange with a long-tapered hub that provides an important reinforcement for use in several applications involving high pressure, sub-zero and/or elevated temperatures and enables a smooth transition from flange to pipe. The threaded flange is a flange with threaded grooves in the bore that can be attached to a steel pipe or fitting without welding, although a seal weld can be used in connection with the threaded connection.
The cross is used to connect, via welding, interacting steel pipes or fittings in an industrial pipeline. The cushioned end provides structural support and is designed to absorb pressure. The cross is often used in high-pressure pumping equipment and must be able to withstand demanding conditions.
The tee connects, via welding, to three steel pipes or fittings at 90 degree angles to form a T shape. It has one inlet and two outlets and is used to direct fluid, gas, or power flow in different directions.
GMI states the raw forgings from China, Italy, and India are manufactured in the following manner. A steel billet is cut into pieces that are roughly the same weight as the desired forging. The cut billet is then heated and forged by an open die or closed die hammer or press to create a rough forging. The rough forging is then heat treated to improve its physical characteristics and then packaged for shipment to Mexico.
After importation into Mexico, the forgings undergo descaling, CNC machining, trimming, milling, beveling, boring, drilling, deburring, smoothing, lathing, chamfering, dipping, painting, stamping, and inspection before they are considered to be finished products ready for shipment into the United States (U.S.)
A country of origin determination will use different criteria to reach a decision, based on the purpose of the request. For example, a country of origin determination for purposes of eligibility under USMCA will use the tariff shift rules set forth in General Note 11 of the Harmonized Tariff Schedule of the United States (HTSUS). A country of origin determination for marking purposes, for goods from a NAFTA or USMCA country, will use the marking rules set forth in Section 102. A country of origin determination for purposes of applicability of Trade Remedy Sections 232 and/or 301 will use the substantial transformation test. As you have requested a country of origin determination for all three of these purposes, we will address each request individually.
USMCA
Regarding the request for a country of origin determination for purposes of eligibility 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(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
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 non-originating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o));
Since the articles are not considered a good wholly obtained or produced entirely in a USMCA country under GN 11(b)(i), nor are the products produced exclusively from originating materials per GN 11(b)(ii), we must determine whether the product qualifies under GN 11(b)(iii). As previously noted, the fittings are classified under headings 7307, HTSUS, at the time of importation into the U.S. The applicable rule of origin for goods classified under heading 7307, HTSUS, is in GN 11(o), HTSUS, which provides in relevant part:
Heading rule: Beginning on July 1, 2023, and thereafter, the following rules of origin shall apply to headings 7305 through 7307:
(a) A change to headings 7305 through 7307 from any other heading, except from headings 7208 through 7229 or 7301 through 7326; or
(b) A change to headings 7305 through 7307 from headings 7208 through 7229 or 7301 through 7326, provided that at least 70 percent by weight of the materials of headings 7208 through 7229 or headings 7301 through 7326 is originating; or
(c) No change in tariff classification to a good of headings 7305 through 7307, provided there is a regional value content of not less than:
(i) 75 percent where the transaction value method is used
In your request you suggest that the raw forgings (flanges, crosses, and tees) are properly classified in subheading 7207.20.0075, HTSUS, which provides for Semifinished products of iron or nonalloy steel: Containing by weight 0.25 percent or more of carbon: Of circular cross section, prior to the finishing operations performed in Mexico. This office disagrees and is of the opinion that the forgings are not semifinished products of subheading 7207.20.0075, HTSUS, and are more specifically provided for elsewhere in the tariff schedule. We turn to the Explanatory Notes for guidance.
In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes may be utilized. The Explanatory Notes (ENs), although not dispositive nor legally binding, provide a commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
Subpart B of the ENs to heading 7207, HTUS, states in pertinent part, that:
These are semi-finished products of rough appearance and large dimensional tolerances, produced from blocks or ingots by the action of power hammers or forging presses. They may take the form of crude recognisable shapes in order that the final article can be fabricated without excessive waste, but the heading covers only those pieces which require considerable further shaping in the forge, press, lathe, etc. The heading would, for example, cover an ingot roughly hammered into the shape of a flattened zig-zag and requiring further shaping to produce a marine crankshaft, but it would not cover a crankshaft forging ready for final machining [Emphasis added]. The heading similarly excludes drop forgings and pressings produced by forging between matrices since the articles produced by these operations are ready for final machining.
The subject forgings have the approximate final shape and outline prior to importation into Mexico. In addition, the crosses have stampings incorporated into the product. (See Headquarters Ruling H006377 dated August 28, 2007) Further, the forgings are made to an American Society for Testing and Materials (ASTM) specification.
Flanges: ASTM A105/A105M - (21)
Crosses: ASTM A234/A234M (18a) WBP/WPC
Tees: ASTM A234/A234M (18a) WBP/WPC
For tariff purposes, semifinished steel products are not made to an ASTM or other industry specifications. (See Headquarters Ruling HQ 958998, dated December 26, 1996). Therefore, classification of the forgings is precluded in heading 7207, HTSUS.
Since the goods, as entered into Mexico, have been precluded from classification in heading 7207, HTSUS, they do not meet the tariff shift rule and RVC must be analyzed. If the RVC requirement is met, the fittings will be eligible for preferential treatment under USMCA. This portion of your request has been forwarded to HQ for the RVC analysis.
Marking
In addition to USMCA eligibility, you are requesting a country of origin determination for the subject fittings 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 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.
The "country of origin" is defined in 19 CFR 134.1(b) as "the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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 the meaning of this part.
Regarding the country of origin 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 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. The marking will be 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 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 FR 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 required hierarchy for determining the country of origin of a good for marking purposes, with the exception of textile goods which are subject to the provisions of 19 C.F.R. 102.21. See 19 C.F.R. 102.11.
Applied in sequential order, 19 CFR Part 102.11(a) provides 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 intariff classification set out in Part 102.20 and satisfies any other applicable requirements of that section, andall other applicable requirements of these rules are satisfied.
The fittings are neither wholly obtained or produced nor produced exclusively from domestic materials. Therefore, paragraphs (a)(1) and (a)(2) cannot be used to determine the country of origin of the fittings, and paragraph (a)(3) must be applied next to determine the origin of the finished article.
The applicable tariff shift requirement in section 102.20 for the fittings of heading 7307, HTSUS, consists of the following:
A change to heading 7301 through 7307 from any other heading, including another heading within that group, or a change within heading 7307 from fitting forgings or flange forgings to fittings or flanges made ready for commercial use by:
(a) At least one of the following processes:
(1) Beveling;
(2) Threading of the bore;
(3) Center or step boring; and
(b) At least two of the following processes:
(1) Heat treating;
(2) Recoining or resizing;
(3) Taper boring;
(4) Machining ends or surfaces other than a gasket face;
(5) Drilling bolt holes; or
(6) Burring or shot blasting.
Based on the operations performed in Mexico, we find that the forgings have met the requirements set forth in 19 CFR Part 102.11(a)3(a) and (b). All of the flanges or fittings have been center bored, meeting the requirement in (a)3(a) and all of the flanges or fittings have also been resized after center boring and had their ends and surfaces machined, meeting the requirements in (a)3(b). The fittings have no commercial use until the manufacturing is completed in Mexico. The country of origin for marking purposes is Mexico.
Applicability of Trade Remedy Section 301 Duties
GMI has also requested a country of origin determination for the purposes of Trade Remedy Section 301 applicability. Please be advised when determining the country of origin for purposes of applying trade remedies under Section 301, Section 232 and Section 201, the substantial transformation analysis is applicable. The "country of origin" is defined in 19 CFR 134.1(b) as "the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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 the meaning of this part.
The courts have held that a substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing. United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940); National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff'd, 989 F. 2d 1201 (Fed. Cir. 1993); Anheuser Busch Brewing Association v. The United States, 207 U.S. 556 (1908) and Uniroyal Inc. v. United States, 542 F. Supp. 1026 (1982).
However, if the manufacturing or combining process is merely a minor one that leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026, 1029 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983). Substantial transformation determinations are based on the totality of the evidence. See Headquarters Ruling (HQ) W968434, date January 17, 2007, citing Ferrostaal Metals Corp. v. United States, 11 CIT 470, 478, 664 F. Supp. 535, 541 (1987).
In HQ 557346, dated September 3, 1993, unfinished flanges were bored, faced, back-faced, spot-faced, cut, and drilled. HQ found the additional processing substantially transformed the flanges. In Midwood Industries, Inc. v United States, 64 cust. Ct. 499, 313 F. Supp. 951 (1970), rough steel forgings were subjected to the additional processing of boring, facing, spot facing, drilling, tapering, threading, beveling and heating and compression. The court found the forgings had no commercial use until further processing and that this additional processing substantially transformed the rough steel forgings. In this case the forgings undergo a number of operations in Mexico, to include descaling, multiple machining processes, milling, lathing, beveling, boring, drilling, threading, deburring, chamfering, trimming, dipping, painting, stamping, and inspection in order to produce the finished products that are ready for their intended use. It is the office's opinion that a substantial transformation has occurred and that the country of origin for purposes of applicabililty of Trade Remedy Section 301 is Mexico. Since a substantial transformation has taken place in Mexico, Section 301 duties are not applicable.
However, effective July 10, 2024, U.S. imports of certain iron and steel from Mexico will be subject to a new melt and pour' requirement. Importers will be required to provide the countries of melt and pour' to U.S. Customs and Border Protection (CBP) at the time of importation as part of an update to the Section 232 tariffs.
Products of Mexico that are melted and poured' in a country other than Mexico, Canada, or the U.S. will face increased duties. An additional 25 percent will be assessed by applying the Harmonized Tariff Schedule of the United States (HTSUS) numbers 9903.81.85 and 9903.81.86.
Exempt from the tariffs are products melted and poured' in Mexico, Canada, or the United States.
The holding set forth above applies only to the specific factual situation and merchandise description as identified in the ruling request. This position is clearly set forth in Title 19, Code of Federal Regulations (CFR), Section 177.9(b)(1). This section states that a ruling letter is issued on the assumption that all of the information furnished in the ruling letter, whether directly, by reference, or by implication, is accurate and complete in every material respect. In the event that the facts are modified in any way, or if the goods do not conform to these facts at time of importation, you should bring this to the attention of U.S. Customs and Border Protection (CBP) and submit a request for a new ruling in accordance with 19 CFR 177.2. You should also be aware that the material facts described in the foregoing ruling may be subject to periodic verification by CBP.
The text of the most recent HTSUS and the accompanying duty rates are provided 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 Angelia Amerson at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division