CLA-2-40:RR:NC:2:237 G81159
Ms. Alyce K. Lyne, President
Harte & Lyne Limited
9 Brockley Drive
Hamilton, Ontario, Canada L8E 3C3
RE: Classification and NAFTA status for rubber from Canada.
Dear Ms. Lyne:
In your letter dated August 4, 2000 on behalf of Alphagary Canada Ltd., you requested a ruling on the tariff classification and NAFTA status of compounded synthetic rubber under the North American Free Trade Agreement (NAFTA).
The compounded rubber product, designated EXP982-17 800 Black, consists of the following NAFTA (Canadian) originating materials: 23.6% SBS rubber, 11.3% styrene, 30.6% oil and 13.9% carbon black, plus the following non-NAFTA materials: 20.5% SBS rubber and 0.1% stabilizer. The sample consisted of black rubber granules intended for molding purposes in the footwear industry.
CLASSIFICATION
Merchandise imported into the U.S. is classified under the Harmonized Tariff Schedule of the United States (HTSUS). Tariff classification is governed by the principles set forth in the General Rules of Interpretation (GRIs) and, in the absence of special language or context which otherwise requires, by the Additional U.S. Rules of Interpretation. The GRIs and the Rules of Interpretation are part of the HTSUS and are to be considered statutory provisions of law for all purposes.
GRI 1 requires that classification be determined first according to the terms of the headings of the tariff schedule and any relative section or chapter notes and, unless otherwise required, according to the remaining GRIs taken in order.
Chapter 40, Note 4(a) defines synthetic rubber as unsaturated synthetic substances which can be irreversibly transformed by vulcanization with sulfur into non-thermoplastic substances which, at a temperature between 18oC and 29oC, will not break on being extended to three times their original length and will return, after being extended to twice their original length, within a period of five minutes, to a length not greater than 1-1/2 times their original length.
Heading 4002, HTSUS, covers synthetic rubber as defined in Note 4(a). However, Chapter 40, Note 5(a)(iii) provides that heading 40.02 does not apply to any rubber or mixture of rubbers which has been compounded with plasticizers or extenders (except mineral oil in the case of oil extended rubbers), fillers, reinforcing agents, organic solvents or any other substances, except those permitted under 5(b). Because the product contains oil extenders, carbon black fillers and styrene reinforcing resins, it is excluded under heading 40.02.
Heading 40.05 provides for compounded rubber, unvulcanized, in primary forms. EN 40.02(B)(5) provides for compounded rubber in the form of granules, ready for vulcanization, and used as such for molding purposes (e.g., in the shoe-making industry).
Subheading 4005.10.0000, HTSUS, provides for unvulcanized rubber compounded with carbon black or silica. The rubber product is compounded with carbon black.
Therefore, EXP982-17 800 Black rubber, provided it meets the definition for synthetic rubber in Note 4(a), is classifiable in subheading 4005.10.0000, HTSUS, which provides for unvulcanized rubber compounded with carbon black. The rate of duty is free.
NAFTA PREFERENCE
Article 401 of the NAFTA is incorporated into General Note (GN) 12, HTSUS, which provides, in pertinent part, as follows:
(a)(i) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (whether or not the goods are marked), 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 “CA” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Implementation Act.
(b) For 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 [de minimis provision], 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....
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials....
Thus, by operation of GN 12, the eligibility of an article for NAFTA preferential treatment is predicated upon a finding that the goods are originating in the territory of a NAFTA party under GN 12(b) and that they are goods of Canada or Mexico under the NAFTA Marking Rules.
As stated above, if the compounded rubber product meets the definition for synthetic rubber in Note 4(a), it is classifiable in subheading 4005.10.0000, HTSUS. Because non-originating materials were used to produce the product, a transformation is evident if a change in tariff classification occurs which is authorized by GN 12(t)/40.1, HTSUS, which states:
1.(A) A change to headings 4001 through 4006 from any other chapter; or
(B) A change to headings 4001 through 4006 from
any other heading within chapter 40, including another heading within that group, whether or
not there is also a change from any other chapter, provided there is a regional value content of not less than:
60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Based on your submission, the following materials and costs are incorporated into the completed rubber product:
MATERIAL HTSUS NAFTA KGS/(%) COST/KG TOT COST
SBS RUBBER 4002 YES 77 (23.6%) 1.847 $142.219
SBS RUBBER 4002 NO 34 (10.4%) 1.9577 66.562
SBS RUBBER 4002 NO 33 (10.1%) 2.1208 69.986
STYRENE 3903 YES 31 (09.5%) 1.17 36.270
STYRENE RESIN 3903 YES 6 (01.8%) 2.9096 17.458
STABILISER N/A NO 0.16 (00.1%) 32.5 5.200
OIL 2710 YES 99.7 (30.6%) 0.4381 43.679
CARBON FILLER 2803 YES 45.4 (13.9%) 0.2612 11.858 TOTALS 326.26 $393.232
RAW MATERIAL COST PER KG (393.232/326.26) 1.205
VALUE OF NON-NAFTA MATERIALS PER KG (141.748/326.26) 0.434
SALES PRICE U.S.$0.73 PER LB ($2.366 PER KG) 2.366
PERCENT NON-NAFTA (0.434/2.366) 18.36%
GN 12(c) provides that, except as provided in subdivision (c)(iv) of this note, the regional value content of a good shall be calculated, at the choice of the exporter or producer of such good, on the basis of either the transaction value method set out in subdivision (c)(i) or the net cost method set out in subdivision (c)(ii). Based on your cost submission, you have chosen the transaction value method.
Under the transaction value method GN 12(c)(i), the regional value content of your product is calculated as follows:
RVC = TV - VNM X 100 = 2.366 - 0.434 X 100 = 81.6568%
TV 2.366
where RVC is the regional value content, expressed as a percentage; TV is the transaction value of the good adjusted to a F.O.B. basis; and VNM is the value of non-originating materials used by the producer in the production of the good.
Because the RVN at 81.66% exceeds the required 60% under GN 12(t)/40.1, the product is considered originating goods pursuant to the transaction value method in GN 12(b)(ii), HTSUS.
HOLDING:
EXP982-17 800 Black, provided it meets the definition for synthetic rubber in Note 4(a), qualifies as NAFTA originating goods and is classifiable in subheading 4005.10.0000, HTSUS, which provides for unvulcanized rubber compounded with carbon black. The rate of duty is free.
This merchandise may be subject to the requirements of the Toxic Substances Control Act which is administered by the U.S. Environmental Protection Agency. You may contact the Agency at 402 M Street, S.W., Washington, D.C. 20460; Tel. (202) 554-1404.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
If you have any questions in regard to this matter, please contact National Import Specialist Frank Cantone at 212-637-7018.
Sincerely,
Robert B. Swierupski
Director, National Commodity
Specialist Division