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HQ 563486




July 24, 2006

CLA-02 RR:CTF:VS 563486 JPP

CATEGORY: CLASSIFICATION

Mr. Sandra Wieckowski
Expeditors Tradewin, LLC
11101 Metro Airport Center Drive
Suite 110
Romulus, MI 48174

RE: Eligibility of Acoustic Ceiling Tiles for Preferential Treatment under the North American Free Trade Agreement (NAFTA)

Dear Ms. Wieckowski:

This is in response to your letter dated March 30, 2006, on behalf of Armstrong World Industries, Inc. (“AWI”) requesting a ruling concerning the eligibility of certain U.S.-manufactured acoustic ceiling tiles for preferential treatment under the North American Free Trade Agreement (“NAFTA”), when returned to the United States. Samples of the ceiling tiles were provided for our examination.

FACTS:

AWI is a U.S. manufacturer of floors, ceilings and cabinets. The merchandise at issue consists of acoustic ceiling tiles (“ceiling tiles”) that AWI manufactures from imported and domestic raw materials at its St. Helens plant in Oregon. The raw materials used to manufacture the tiles include mineral wool, paper, clay, perlite ore, and starch. You explain that the materials are sourced entirely from the United States, except for the mineral wool, which is non-NAFTA originating. The finished ceiling tiles are exported for sale to Canada.

You describe the U.S. manufacturing operations for the tiles as follows:

Dispersion of dry mineral wool bales in water to create a wool slurry; Mixing of the wool slurry with other ingredients, including perlite ore, paper and starch; Forming and drying of large boards;
Cutting and sizing of boards;
Fissuring and punching of sized boards, an operation that imparts acoustical properties; Creation of a visual image on the boards; and Painting of the boards.

You state that the mineral wool is classified in subheading 6806.10.00, Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for:

Slag wool, rock wool and similar mineral wools; exfoliated vermiculite, expanded clays, foamed slag and similar expanded mineral materials; mixtures and articles of heat-insulating, sound-insulating or sound absorbing mineral materials, other than those of heading 6811 or 6812, or of chapter 69:

.00 Slag wool, rock wool and similar mineral wools (including intermixtures thereof), in bulk, sheets or rolls

You further state that the subject finished ceiling tiles are classified in subheading 6806.90.00, HTSUS, which provides for:

Slag wool, rock wool and similar mineral wools; exfoliated vermiculite, expanded clays, foamed slag and similar expanded mineral materials; mixtures and articles of heat-insulating, sound-insulating or sound absorbing mineral materials, other than those of heading 6811 or 6812, or of chapter 69:

6806.90.00 Other

You explain that some of the finished ceiling tiles are exported for sale to Canada and occasionally returned to the United States due to shipping errors, product non-conformance, overstock, cancellation orders or as part of a recycling program. You further state that the returned tiles are not advanced in value or improved in condition while in Canada.

ISSUES:

Are the U.S.-manufactured ceiling tiles described above eligible for NAFTA preferential treatment upon importation into the United States from Canada?

LAW AND ANALYSYS;

I. NAFTA Duty Preference

To be eligible for preferential treatment under the NAFTA, goods must be “originating goods” within the rules of origin in General Note 12(b), HTSUS.

General Note 12(b), HTSUS provides in pertinent part:

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 –
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United states; or
they have been transformed in the territory of Canada, Mexico, and/or the United States so that –
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,
the goods otherwise satisfy the applicable requirements of subdivision (r), (s) and (t) where not change in tariff classification is required, and the goods satisfy all other requirements of this note;
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials . . . .

Since the acoustic ceiling tiles are comprised in part of material (mineral wool) which comes from a country other than Mexico, Canada and/or the United States, neither GN 12(b)(i) or 12(b)(iii) is applicable. Therefore, we must ascertain whether the non-originating material, in this case the non-NAFTA originating mineral wool is transformed in the United States, pursuant to GN 12(b)(ii)(A), HTSUS. To qualify under this provision, the non-originating mineral wool must undergo the requisite change in tariff classification rule described in GN 12(t), HTSUS.

As noted, the acoustical ceiling tiles are classifiable in subheading 6806.90.00, HTSUS; and the non-originating mineral wool is classifiable in subheading 6806.10.00, HTSUS. For purposes of this ruling, we assume these classifications are correct. General Note 12(t)/68.1, HTSUS, requires “A change to headings 6801 through 6811 from any other chapter.” Therefore, any non-originating materials used to produce the ceiling tiles must come from a heading other than 6801 through 6811.

Because the non-originating mineral wool does not undergo the required tariff shift, the ceiling tiles are not NAFTA originating and thus will not qualify for NAFTA preference upon importation from Canada. However, the ceiling tiles may qualify for the duty exemption available under subheading 9801.00.10, HTSUS, when returned to the United States.

II. Subheading 9801.00.10

Subheading 9801.00.10, HTSUS, provides for the duty-free entry of United States products that are exported and returned without having been advanced in value or improved in condition by any means while abroad. Articles satisfying the above conditions will be afforded duty-free treatment, provided the documentary requirements of section 10.1, CBP Regulations (19 C.F.R. 10.1), are satisfied. Although some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the United States. See Border Brokerage Co. v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 58 C.C.P.A. 165 (1970).

If an article consists wholly or partially of foreign components or materials, the article will be considered to be a product of the United States for purposes of subheading 9801.00.10, HTSUS, only if those components or materials have been substantially transformed during the production of the article in the United States. For the country of origin of the ceiling tiles in the instant case to be the United States, the mineral wool must be substantially transformed in that country. A substantial transformation occurs when an article is used in a manufacturing process or operation that results in a new article having a new name, character or use different from that of the original article. See Anheuser-Busch Brewing Ass’n. v. United States, 207 U.S. 556 (1907); United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (1940); Koru North America v. United States, 12 CIT 1120 (1988); National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).

With regard to the question of whether the non-NAFTA originating mineral wool is substantially transformed when processed in the United States, we find relevant Headquarters Ruling Letter (HRL) 554919, dated May 25, 1988. In HRL 554919, CBP determined that there was substantial transformation when imported polystyrene, polybutadine and bitumen were processed into bitumen roofing felt in Aruba. The manufacturing process involved heating and mixing the non-Aruban polystyrene, polybutadiene and bitumen. The mixture was molded into sheets which were coated with particles of slate and cooled. The resulting roofing felt sheets were then cut-to-length and rolled. CBP held that the non-Aruban materials were substantially transformed into a new and different article of commerce as a result of the processing. Thus, the roofing felt sheets were considered a “product of” Aruba.

Like HRL 554919, in the instant case, we find that the finished ceiling tiles emerge as new and different articles in comparison to the non-NAFTA originating raw mineral wool from which they are made. The raw mineral wool loses its separate identity when subjected to operations such as dispersion in water, mixing with the other inputs, forming, drying, cutting, fissuring, punching and painting to produce the ceiling tiles. The tile manufacturing operations change the name, character and use of the imported mineral wool. The non-NAFTA originating dry mineral wool bales used in the manufacturing of the tiles lose their separate identity and become an integral part of a new article, just like the polystyrene, polybutadiene and bitumen in HRL 554919, supra, lost their raw material form and character to become a new and distinct finished product. The ceiling tiles, as the roofing felt in HRL 554919, is subject to cutting operations. The finished ceiling tiles are visibly different from the mineral wool raw material, acquiring new properties, a new name and use., i.e., acoustical ceiling tiles. Accordingly, we find that the non-NAFTA originating mineral wool is substantially transformed by the manufacturing operations performed in the United States and the finished acoustical ceiling tiles will be a “product of” the United States. See also HRL 557277, dated September 3, 1993 (finished coal tar glass felt products emerged as new and different articles in comparison to the raw or refined coal tar from which they were made).

Therefore, assuming that the U.S.-manufactured ceiling tiles will be exported in a finished condition to Canada and will not be advanced in value or improved in condition while abroad, they will be eligible for the duty exemption under subheading 9801.00.10, HTSUS, upon importation into the United States. This also presumes that the documentation requirements of 19 C.F.R. 10.1 are met and that the port director of CBP at the port of entry is satisfied that the ceiling tiles are, in fact, of U.S. origin.

HOLDING:

On the basis of the information submitted and consistent with prior CBP decisions, we conclude that the U.S.-manufactured ceiling tiles that are exported to Canada and occasionally returned to the United States are not entitled to duty-free treatment under the NAFTA. However, the returned ceiling tiles will be eligible for duty-free treatment under subheading 9801.00.10, HTSUS, provided the documentary requirements of 19 C.F.R. 10.1 are satisfied.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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,

Monika R. Brenner, Chief

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