HQ 559587 - Eligibility of stainless steel bars for duty-free treatment under the CBERA; NAFTA Preference; country of origin marking; Article 509 - United States International Trade Commision Rulings

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HQ
559587

April 22,
1996

CLA-2 RR:TC:SM 559587 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 7218.90, 7222.10, 7222.20

Mr. Marvin Pohlman, President
Pohlman International Inc.
P.O. Box 3266
Florence, SC 29501

RE: Eligibility of stainless steel bars for duty-free treatment under the CBERA; NAFTA Preference; country of origin marking; Article 509

Dear Mr. Pohlman:

This is in reference to your letter dated October 5, 1995, requesting a ruling concerning the tariff treatment of stainless steel cold finished bars to be imported from Mexico.

FACTS:

Stainless steel billets ranging in size from four to seven inches will be purchased in Sweden and shipped to Trinidad. In Trinidad, the billets will be heated to 2,250 degrees F and hot-rolled into rounds, hexagons, squares and flat bars. The cross section of each billet will be reduced by a minimum of a five to one reduction ratio. The material is then annealed (heat treated) to the desired softness, straightened, cleaned by blasting to remove scale, and pickled (polished). After testing for physical and corrosive properties, the materials will be shipped from Trinidad to Mexico.

In Mexico, the bars will be cold drawn and reduced 7% to 12%. The ends will be cut and the bars straightened. The finished product will be the same shape as the hot rolled product, and will consist of 1/2" to 2" rounds, squares, and hexagons, and 3/16" x 1" to 1" x 4" flats. These products will then be imported into the U.S.

ISSUES:

1) Whether the stainless steel bars are entitled to duty-free treatment under the Caribbean Basin Recovery Act (CBERA) (19 U.S.C. 2701-2706) when imported
into the U.S.

2) Whether the stainless steel products will be eligible for NAFTA Preference upon importation into the U.S.

3) What are the country of origin marking requirements for the imported steel products?

LAW AND ANALYSIS:

1) CBERA Eligibility

Under the CBERA, eligible articles the growth, product or manufacture of designated beneficiary developing countries (BC's) may receive duty-free treatment if such articles are "imported directly" to the U.S. from a BC, and if the sum of 1) the cost or value of the materials produced in a BC or BC's, plus 2) the direct cost of processing operations performed in a BC or BC's, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See 19 U.S.C. 2703(a).

Trinidad is a BC. See General Note 7, Harmonized Tariff Schedule of the United States (HTSUS). Based on your description, we find that the imported steel bars are classifiable under subheading 7222.20, HTSUS, which provides for other bars and rods of stainless steel, not further worked than cold-formed or cold-finished, which is a CBERA eligible provision. However, since the steel products enter the commerce of Mexico, which is not a designated BC, they are not "imported directly" from a beneficiary country into the U.S., and therefore are not eligible for duty-free treatment under the CBERA. See section 10.193, Customs Regulations (19 CFR 10.193).

NAFTA Eligibility

To be eligible for tariff preference under the NAFTA, goods must be "originating goods" within the rules of origin in General Note 12(b), HTSUS. In this case, pursuant to General Note 12(b)(ii) the stainless steel bars imported into the U.S. may be originating if:

(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 subdivision (r), (s) and (t) of this note or the rules set forth therein, or

(B) the goods otherwise satisfy the applicable requirements of subdivision
(r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note...

Under the circumstances of this case, we must determine whether the imported steel bars are transformed in Mexico pursuant to General Note 12(b)(ii)(A), HTSUS. In this regard, we find that the stainless steel billets imported into Trinidad from Sweden are classifiable under subheading 7218.90, HTSUS, which provides for semi-finished products of stainless steel. The hot-rolled stainless steel bars which are produced in Trinidad from the billets are classifiable under subheading 7222.10, HTSUS, which provides for other bars and rods of stainless steel, not further worked than hot-rolled, hot-drawn or extruded. As noted above, the cold drawn stainless steel bars produced in Mexico from the hot-rolled bars imported from Trinidad are classifiable under subheading 7222.20, HTSUS, which provides for other bars and rods of stainless steel, not further worked than cold-formed or cold-finished. The rule applicable to goods of subheading 7222.20, HTSUS, is provided for in General Note 12(t)/72.9, HTSUS, which provides the following:

9. A change to headings 7218 through 7222 from any heading outside that group.

Since the processing in Mexico does not result in a change in heading of the hot-rolled bars imported from Trinidad, the steel bars do not become "originating goods" in Mexico pursuant to General Note 12(b)(ii)(A), HTSUS. Therefore, the stainless steel products will not qualify for preferential treatment under the NAFTA, when imported from Mexico.

Country of Origin Marking

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires 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 manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. 1304 are set forth in Part 134, Customs Regulations (19 CFR 134).

The country of origin marking requirements for goods of a NAFTA country are determined in accordance with Annex 311 of the North American Free Trade Agreement, as implemented under the North American Free Trade Agreement Implementation Act ("NAFTA") (Pub. L. 103-182, 107 Stat. 437 (December 8, 1993)). The marking rules used for determining whether a good is a good of a NAFTA country are contained in interim regulations set forth in 19 CFR Part 102. The marking requirements for these goods are set forth as interim amendments to various provisions of Part 134, Customs Regulations.

Section 134.1(b) of the Customs Regulations (19 CFR 134.1(b)), 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 interim regulations provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) of the interim 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 interim 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.

In this case, stainless steel billets produced in Sweden are imported into Trinidad for processing, and then shipped to Mexico for further processing before being imported into the U.S. Thus, in order to determine the appropriate marking requirements for the imported merchandise, we must determine under the NAFTA

Marking Rules the country of origin of these stainless steel products.

Part 102 of the interim regulations sets forth the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11(a) of the interim regulations provides 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."

The imported steel products are neither "wholly obtained or produced," or "produced exclusively from domestic (Mexican) materials." Therefore, for purposes of determining the origin of the imported good, section 102.11(a)(3) is the applicable rule that first must be applied. Under this rule, the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20. Section 102.20 of the rules sets forth the specific tariff classification changes and/or other operations which are specifically required in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good. As noted, the stainless steel products imported from Mexico are classifiable under subheading 7222.20, HTSUS. When imported into Mexico, the stainless steel bars from Trinidad are classifiable under subheading 7222.10, HTSUS. The applicable change in tariff classification set out in section 102.20(o), Section XV, Chapters 72 through 82, 7221-7222 of the interim regulations provides:

7221-7222 .... A change to heading 7221 through 7222 from any other heading outside that group.

In this case, we find that the hot-rolled steel bars from Trinidad do not undergo the applicable change in tariff classification set out in section 102.20(o), and, as a result, section 102.11(b) of the hierarchal rules must be applied next to determine the country of origin of the stainless steel products.

Section 102.11(b) of the interim regulations provides that:

Except for a good that is specifically described in the
Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph
(a), the country of origin of the good:

(1) Is the country or countries of origin of the single material that imparts the essential character of the good, or

(2) If the material that imparts the essential character of the good is fungible, has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the basis of an inventory management method provided under the
Appendix to part 181 of the Customs Regulations.

In this instance, because section 102.11(b)(2) is not applicable, the rule that must be applied to determine the country of origin of the imported products is section 102.11(b)(1). Applying this rule, we find that the single material that imparts the essential character of the finished stainless steel products is the hot-rolled stainless steel bars. Since the origin of these materials does not change as a result of the processing performed in Mexico under section 102.20(o), as explained above, the country of origin of the imported products is the country of origin of the steel bars when imported into Mexico. Since these bars are processed in Trinidad from billets imported from Sweden, we must again apply the NAFTA Marking Rules to determine whether the country of origin of the imported merchandise is either Sweden or Trinidad.

As noted above, the stainless steel billets imported into Trinidad from Sweden are classified under subheading 7218.90, HTSUS, and the hot-rolled stainless steel
bars produced in Trinidad are classifiable under subheading 7222.10, HTSUS.
The applicable change in tariff classification is set out in 102.20(o), Section XV, Chapters 72 through 82, 7221-7222, which rule is set forth above. Since there is a change in this case to heading 7222 from heading 7218, the billets do undergo the applicable tariff shift in Trinidad. Therefore, the country of origin of the stainless steel products imported into the U.S. is Trinidad.

HOLDING:

1) Stainless steel billets processed in Trinidad, a designated beneficiary developing country (BC) under the Caribbean Basin Recovery Act (CBERA) (19 U.S.C. 2701-2706), and further processed in Mexico, are not "imported directly" into the U.S. from Trinidad and therefore are not eligible for duty-free treatment under the CBERA.

2) Hot-rolled stainless steel bars imported into Mexico from Trinidad and cold-drawn are not transformed in Mexico pursuant to General Note 12(b)(ii)(A), HTSUS. Therefore, the stainless steel products will not be eligible for preferential treatment under the NAFTA, when imported into the U.S.

3) Hot-rolled stainless steel bars imported into Mexico from Trinidad and cold-drawn, in the manner described above, do not undergo the applicable tariff change set forth in section 102.20(o), Customs Regulations (19 CFR 102.20(o)). Pursuant to section 102.11(b)(1), the essential character of the steel products imported into the U.S. is imparted by the hot-rolled stainless steel bars imported into Mexico. Since the applicable tariff shift set out in 19 CFR 102.20(o) occurs in Trinidad as the result of producing hot-rolled stainless steel bars from steel billets imported from Sweden, the country of origin of the stainless steel products imported into the U.S. from Mexico is Trinidad.

A copy of this ruling 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

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