MAR-2-5 RR:CR:SM 561986 WAS
Michael D. Sherman, Esq.
Collier, Shannon, Scott, PLLC
Washington Harbour, Suite 400
3050 K Street, N.W.
Washington, D.C. 20007-5108
RE: Country of origin of gasoline; blending operations; NAFTA
Dear Mr. Sherman:
This is in response to your letter dated January 17, 2002, requesting a ruling on behalf of Vitol S.A., Inc. concerning the country of origin of a gasoline product produced from certain blending operations performed either in a North American Free Trade Agreement (NAFTA) country or in a non-NAFTA country. Your January 17, 2002, letter modified a ruling request which you was previously submitted by letter on November 30, 2000. A meeting was held at Customs Headquarters on November 15, 2001, to discuss your ruling request.
FACTS:
The facts as set forth in your January 17, 2002, letter, are as follows: reformate and light straight run naphtha are blended together in a NAFTA or non-NAFTA country in percentages of 44.50% and 54.50%, respectively, to produce 87 octane regular gasoline that meets all ASTM specifications for gasoline and the requirements of the U.S. Environmental Protection Agency (EPA) for the sale of gasoline in the U.S. The gasoline’s sole use is as motor fuel, and you advise that the gasoline, as well as the reformate and light straight run naphtha, are classified in heading 2710, Harmonized Tariff Schedule of the United States (HTSUS), as “petroleum oils other than crude.”
You state that neither the reformate nor the light straight run naphtha individually meets the ASTM specifications for gasoline. You advise that the physical and chemical changes to the characteristics of the reformate and light straight run naphtha resulting from the blending operations are as reflected in the table below:
Density
API
R+M/2
RVP
Benzenes
Sulfur
Olefins
Aromatics
Reformate
.831
38.8
96.1
2.64
1.68
10
1.4
78.6
Light Straight Run Naphtha
.735
61.1
79.75
10.45
1.36
288
7.5
21.0
Gasoline
.788
5.1
87.1
6.94
1.49
163
4.7
46.9
% Change (Reformate)
-5.2%
31.7%
-9.4%
162.9%
-11.3%
1530%
235.7%
-40.3%
% Change (Light Straight Run Naphtha)
7.2%
-16.4
%
9.2%
-33.6%
9.6%
-43.4%
-37.3%
123.3%
You state that both reformate and light straight run naphtha have uses other than as blend stocks for gasoline. By way of example, you indicate that reformate may be further processed and used as a coating for textiles, and light straight run naphtha may be used in manufacturing various plastic products. You maintain that for both NAFTA and non-NAFTA purposes, the country of origin of the finished gasoline is the country in which the blending process is performed.
Regardless of whether the blending process is performed in a NAFTA or non-NAFTA country, you advise that both the reformate and light straight run naphtha are produced elsewhere than the country of blending.
ISSUE:
Whether the country of origin of the gasoline, produced as described above in a NAFTA country as well as in a non-NAFTA country, is the country in which the blending is performed.
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 (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 Part 134).
According to section 134.1(d), Customs Regulations (19 CFR 134.1(d)), the “ultimate purchaser” is generally the last person in the U.S. who will receive the article in the form in which it was imported. However, for a good of a NAFTA country, the ultimate purchaser is the last person in the U.S. who purchases the good in the form in which it was imported. Section 134.1(b), 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.
Blending performed in a NAFTA country
Section 134.1(j), Customs Regulations (19 CFR 134.(j)), 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) 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.
Part 102, Customs Regulations (19 CFR Part 102), 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 sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides that "[t]he country of origin of a good is the country in which:
The good is wholly obtained or produced;
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.
A “foreign material” is defined in section 102.1(e), Customs Regulations (19 CFR 102.1(e)), 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 finished gasoline is neither “wholly obtained or produced,” nor “produced exclusively from domestic materials.” Therefore, for purposes of determining the origin of the imported good, section 102.11(a)(3) is the applicable rule that next 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. You advise that the reformate, light straight run naphtha, and finished gasoline are all classified in heading 2710, HTSUS. For purposes of this ruling, we are assuming the correctness of the above classifications. The applicable change in tariff classification set forth in section 102.20 provides as follows:
2710 ......... A change to heading 2710 from any heading; or
A change to any good of heading 2710 from any other good
of heading 2710, provided that the good resulting from such change is the product of a chemical reaction.
The above tariff shift rule is not satisfied as a result of the blending operation performed in the NAFTA country. You concede that no chemical reaction occurs during the blending process.
Therefore, as the requisite tariff shift rule is not met, 19 CFR 102.11(b) of the hierarchal rules must be applied next to determine the origin of the gasoline. This provision states, in pertinent part, the following:
Except for a good that is specifically described in the Harmonized Tariff Schedule as a set, or is classified as a set pursuant to General Rule of Interpretation 2, 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....
Section 102.18(b)(1), provides as follows:
For purposes of identifying the material that imparts the essential character to a good under section 102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the section 102.20 specific rule or other requirements applicable to the good.
Section 102.18(b)(2) provides that:
For purposes of determining which one or two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under section 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are limited to, the following:
The nature of each material, such as its bulk, quantity, weight or value; and
the role of each material in relation to the use of the good.
In this case, both the reformate and the light straight run naphtha fail to undergo the requisite tariff shift in section 102.20. Therefore, both are to be considered in determining the single material that imparts the gasoline’s essential character. We find that neither material can be said to impart the essential character to the good. While the light straight run naphtha exceeds the reformate in volume (54.5% to 44.5%), both blend components play an approximately equal role in the development and use of the gasoline. As we are unable to determine the origin of the gasoline by reference to section 102.11(b), we turn to section 102.11(c) which provides as follows:
Where the country of origin cannot be determined under paragraph (a) or (b) of this section and the good is specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture or composite good pursuant to General Rule of Interpretation 3, the country of origin of the good is the country or countries of origin of all materials that merit equal consideration for determining the essential character of the good.
The gasoline involved in this case is neither described in the HTSUS as a set or mixture, nor classified as a set, mixture or composite good pursuant to General Rule of Interpretation 3. Therefore, the origin of the gasoline cannot be determined pursuant to section 102.11(c).
The next rule in the hierarchy is section 102.11(d) which provides that, where the country of origin cannot be determined under paragraph (a), (b) or (c) of section 10.11, the country of origin of the good shall be determined as follows:
(1) if the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good;
(2) if the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts; or
(3) if the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
In this case, the blending operation performed in a NAFTA country constitutes more than a “minor processing” operation” and, in addition, is not the result of a “simple assembly.” See 19 CFR 102.1(m) and (o). Therefore, we must apply paragraph (3) to determine the country of origin of the good. Under this paragraph, the country of origin of the gasoline is the country in which the blending is performed--the last country in which the good underwent production. See 19 CFR 102.1(n).
Blending performed in a non-NAFTA country
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. Congressional intent in enacting 19 U.S.C. §1304 was “that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the good is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlaender & Co. 27 C.C. P. A. 297 at 302; C.A.D. 104 (1940).
Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), 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 the meaning of the marking laws and regulations. For country of origin marking purposes, a substantial transformation of an imported article occurs when it is used in the U.S. in manufacture, which results in an article having a name, character, or use differing from that of the imported article. In such circumstances, the manufacturer or processor in the U.S. who converts or combines the imported article into the different article will be considered the “ultimate purchaser” of the imported article, and the article is excepted from marking, although the outermost container of the imported article is required to be marked. See 19 CFR 134.35(a).
To find a substantial transformation in this case, it is necessary to conclude that the blending of the fuel oil in a non-NAFTA country results in a new and different article of commerce. Generally, Customs has held that the mere mixing of two substances in a BC, not involving a chemical reaction and without additional processing, does not result in a product of that BC. See 19 CFR 10.195(a)(2)(i) (articles which have undergone only a simple combining or packaging operation in a BC, such as the addition of anti-caking agents, preservatives, wetting agents, etc., are precluded from duty-free treatment under the CBERA).
In determining whether a substantial transformation occurs in the manufacture of products from chemicals, Customs has consistently examined whether a chemical reaction occurs when two chemicals are mixed in the production of the final article. See Headquarter Ruling Letters (HRL's) 555248 dated April 9, 1990; 556064 dated March 29, 1990; 555403 dated June 6, 1990. When chemical compounds are mixed together to form a different substance and the individual properties of each ingredient are no longer discernable, they have undergone a substantial transformation. See HRL 555989 dated June 24, 1991, in which we held that raw materials used to produce three varieties of antioxidants undergo a double substantial transformation in the Bahamas.
However, in Headquarters Ruling Letter (HRL) 071357 dated July 18, 1983, Customs held that the mixing of gasoline from the Virgin Islands with foreign ethyl alcohol in a 9 to 1 ratio in the Virgin Islands results in an article which is considered to be produced in the Virgin Islands based on the fact that 90 percent of the content thereof was subjected to a substantial manufacturing process in the Virgin Islands. [See also HRL 544195 dated February 26, 1990 which held that although the addition of non-BDC gelling agent to ethanol produced in St. Kitts may not constitute a substantial transformation, the ethanol, which constitutes over 95 percent of the content of the products and the largest percentage of its value, is the result of a substantial manufacturing operation in St. Kitts from cane grown in St. Kitts.] Therefore, de minimis amounts of non-BC material included in the products should not preclude their duty-free treatment under the CBERA.
In Coastal States Marketing, Inc. v. United States, 646 F. Supp. 255 (CIT 1986), the court addressed the issue of whether the blending of gas oil from the Soviet Union and fuel oil from Italy constituted a substantial transformation so as to render the oil a "product of" Italy. Because there was no change in the appearance, character, identity or use of the Russian oil, the court held that the blending of gas oil from the Soviet Union and fuel oil from Italy did not result in a substantial transformation. The court stated that the imported components were each simply variant grades of the same product identified as fuel oil, with the resulting blend also identified as merely commingled fuel oil and not a new product distinct from the original Russian gas oil.
In the instant case, the mere blending of the fuel oils in a non-NAFTA country does not constitute a substantial transformation. The production of the gasoline from the reformate and light straight run naphtha results from a simple blending or mixing of the two chemicals which does not result in a chemical reaction of the chemicals. Moreover, based on the information provided, the basic underlying chemical properties of each blendstock remain essentially unchanged during the processing and the blending process does not create a substantially different substance. In addition, there is no evidence that any other processing was done to the product in the non-NAFTA country other than the simple mixing of the fuel oils, or that the value was significantly enhanced by this process. The de minimis principle that we applied in HRL's 071357 and 544195 would not apply in this case because the final product is not the result of any substantial manufacturing operation in the non-NAFTA country. Finally, although a change in tariff classification is not determinative of a substantial transformation, here, the same classification of the component products and the final product indicates that the imported blend is not a new and different product.
HOLDING:
On the basis of the information submitted, the country of origin of gasoline produced as described above from the blending in a NAFTA country of reformate and light straight run naphtha is the country in which the blending is performed pursuant to section 102.11(d)(3).
However, we find that the mere blending of the light straight run naphtha and reformate in a non-NAFTA country does not constitute a substantial transformation of the fuel oil into a "product of" the non-NAFTA country.
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,
Myles B. Harmon, Acting Director
Commercial Rulings Division