HQ 558955 - NAFTA; Article 509; Country of origin marking; 19 CFR 102.11; 19 CFR 102.18; - United States International Trade Commision Rulings

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HQ 558955

May 24, 1995

MAR-2-05 R:C:S 558955 DEC

CATEGORY: MARKING

Mr. Gilles Desjardins
Milgram
407, rue McGill - Suite 500
Montreal (Quebec), Canada H2V 2G7

RE: NAFTA; Article 509; Country of origin marking; 19 CFR 102.11; 19 CFR 102.18;
Sanding disks; 19 CFR 134.35

Dear Mr. Desjardins:

This is in response to your facsimile transmission of December 13, 1994, on behalf of your client in which you seek a ruling with respect to the country of origin marking required for sanding disks pursuant to the North American Free Trade Agreement (NAFTA).

FACTS:

You indicated in your ruling request and in a telephone conversation with an attorney on my staff that a Japanese company proposes to obtain emery and paper that is either of United States or Canadian origin in order to manufacture jumbo rolls of sandpaper in Japan. Your Canadian client will purchase the jumbo rolls, forty-eight inches in width, and cut them to three hundred or four hundred foot lengths. Your client will then send these rolls of sandpaper to a United States manufacturer who will affix an adhesive with a non-stick backing and die-cut the sandpaper into sanding disks. Upon completion of this process, the sanding disks are returned to Canada where your client will package the articles into non-reusable printed cardboard pouches that are destined for retail sales. These retail packages will then be sent to the United States.

ISSUE:

What are the country of origin marking requirements applicable to the sanding disks that are processed in the manner described above?

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the United States 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 United States the English name of the country of origin of the article. The Customs Regulations implement the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Part 134 of the Customs Regulations implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.41(b), mandates that the ultimate purchaser in the United States must be able to find the marking easily and read it without strain.

The country of origin marking requirements for a "good of a NAFTA country" are also determined in accordance with Annex 311 of the NAFTA, as implemented by section 207 of the NAFTA Implementation Act and the interim amendments to the Customs Regulations. These interim amendments took effect on January 1, 1994, to coincide with the effective date of the NAFTA. The Marking Rules used for determining whether a good is a good of a NAFTA country are contained in Part 102, Customs Regulations (19 CFR Part 102).

Applying the NAFTA Marking Rules to the production of the sanding disks as described above, we must analyze each of the production processes that occur in each country involved in the manufacturing of the sanding disks. The first step in the production of the sanding disks involves emery and paper. You indicated that these materials will be sourced in the United States or Canada and sent to Japan to be manufactured into sandpaper rolls.

Section 102.11 (Customs Regulations (19 CFR 102.11)) of the interim regulations sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) of the interim regulations states that

[t]he 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 requirements of these rules are satisfied.

"Foreign Material" is defined in section 102.1(e) of the interim regulations as "a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced."

Section 102.11(a)(1) and section 102.11(a)(2) do not apply to the facts presented in this case because the sandpaper is not wholly obtained or produced in Japan nor is it produced exclusively from domestic (Japanese) materials. In fact, the sandpaper is produced from materials from the United States and/or Canada. Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, we look to section 102.11(a)(3). Section 102.11(a)(3) provides that the country of origin is the country in which "[e]ach foreign material incorporated in that good undergoes an applicable change in tariff classification in ? 102.20. . .."

The finished sandpaper that is produced in Japan is classified under subheading 6805.20, Harmonized Tariff Schedule of the United States (HTSUS). The applicable tariff shift rule found in section 102.20(m) provides as follows:

HTSUS Tariff Shift and/or other requirements 6801-6811 ........... A change to heading 6801 through 6809 from any other heading, including another heading within that group.

Since the tariff classifications for the emery and the paper are in other headings in the HTSUS, the emery and paper that are transported to Japan to be processed into sandpaper undergo an applicable tariff shift. Consequently, the country of origin of the sandpaper when imported from Japan into Canada is Japan.

After the sandpaper is imported into Canada in jumbo rolls, it will be cut into smaller rolls three hundred to four hundred feet in length. Japan remains the country of origin when we apply the NAFTA Marking Rules to this operation. No origin determination may be made under section 102.11(a) because the sandpaper rolls are not wholly obtained or produced or produced exclusively from domestic materials. In
addition, the cutting of the jumbo rolls of sandpaper into smaller rolls does not produce an applicable tariff shift. Since a country of origin determination cannot be made applying section 102.11(a), the analysis continues with section 102.11(b) which instructs us to examine the article's essential character to determine its country of origin. Section 102.11(b) provides that where the country of origin cannot be determined under section 102.11(a), and the good is not specifically designated as a set pursuant to the Harmonized System nor classified as a set under General Rule of Interpretation 3, the country of origin of the article is "the country or countries of origin of the single material that imparts the essential character of the good. . .."

In regard to determining the "essential character" of the sandpaper rolls, section 102.18(b)(2) of the interim regulations provides as follows:

For purposes of applying ?102.11, only domestic and foreign materials (including self-produced materials) that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the good set out in ? 102.20 shall be taken into consideration in determining the essential character of the good.

In this case, the material that does not undergo the applicable tariff shift is the sandpaper. Therefore, the Japanese-origin sandpaper is the material that imparts the essential character of the good. The country of origin of this item at this point in the analysis is Japan.

When the sandpaper is imported back into the United States in three hundred to for hundred foot rolls of sandpaper, the country of origin of the sandpaper will be Japan. Since the country of origin of the imported sandpaper is Japan, the NAFTA Marking Rules do not apply in determining whether the subsequent processing performed in the United States results in the sandpaper being excepted from marking. Section 134.35(a), Customs Regulations (19 CFR 134.35(a)), provides that a manufacturer or processor in the United States who substantially transforms an imported article will be considered the ultimate purchaser of the imported article and the article will be excepted from marking. The outermost container must still be marked in accordance with Part 134, Customs Regulations (19 CFR Part 134).

Customs finds that the U.S. processing, consisting of die-cutting the sandpaper and adding an adhesive to the back of the sandpaper, will not substantially transform the imported sandpaper. The imported product is sandpaper and after it is processed it
is still sandpaper. The die-cutting of the bulk sandpaper rolls into sandpaper disks does not substantially transform the imported sandpaper. The country of origin remains Japan. Similarly, the packaging operations that will then be performed in Canada will not substantially transform the sandpaper. The finished sandpaper disks or their retail packages must be marked with Japan as the country of origin.

HOLDING:

The sanding disks are a product of Japan. Accordingly, country of origin marking for the ultimate purchaser is required to indicate Japan as the country of origin of the finished sanding disks.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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