OT:RR:CTF:VS H263571 RMC
Donald S. Stein
Greenberg Traurig, LLP
2101 L St. NW, Suite 1000
Washington, DC 20037
Re: Modification of New York Ruling Letter (NY) N261615, dated March 11, 2015; Country of Origin Marking of Boxes of Tissue Paper; NAFTA; UKFTA
Dear Mr. Stein:
This is in reference to New York Ruling Letter (NY) N261615 issued to you on behalf of your client, Kimberly Clark LLC, on March 11, 2015. In your ruling request, you ask CBP to confirm the country of origin of facial tissues manufactured in Canada, Mexico, Korea, or China from U.S. origin jumbo rolls of tissue paper. However, for Canada, Mexico, and Korea, you only cite to the preferential rules for Canada, Mexico, and Korea of the North American Free Trade Agreement (“NAFTA”) and the U.S.-Korea Free Trade Agreement (“UKFTA”), and for China you discuss the substantial-transformation test. Therefore, we will consider this as a request for preferential tariff treatment and country of origin marking for the goods imported from Canada, Mexico and Korea, and a request for marking for China.
NY N261615 held that the country of origin of the tissues in each of the three cases would be the country where the jumbo rolls are cut into facial tissues. It has come to our attention that several errors were made in NY N261615’s analysis.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. § 1625(c)(1)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), a notice was published in the Customs Bulletin, Vol. 49, No. 37, on September 16, 2015, proposing to modify NY N261615 and to revoke any treatment accorded to substantially identical transactions. No comments were received in response to this notice.
FACTS:
As described in NY N261615, you asked us to confirm the country of origin of boxes of facial tissues under three scenarios:
U.S. origin jumbo rolls of tissue paper are sent to Canada or Mexico and are converted into boxes of tissues. These finished products are then re-imported to the United States.
U.S. origin jumbo rolls of tissue paper are sent to Korea and are converted into finished boxes of tissues. These finished products are then re-imported to the United States.
U.S. origin jumbo rolls of tissue paper are sent to China and are converted into finished boxes of tissues. These finished products are then re-imported to the United States.
You state that the U.S. origin jumbo rolls of tissue paper are classified under subheading 4803.00, Harmonized Tariff Schedule of the United States (“HTSUS”), and that the finished boxes of tissues are classified under subheading 4818.20.00, HTSUS. In your submission, you included photographs of the jumbo rolls of tissue paper and the finished products, a diagram of the manufacturing process, and a description of each step in the manufacturing process.
ISSUES:
Whether the boxes of facial tissues are eligible for preferential tariff treatment under NAFTA and UKFTA.
What are the country-of-origin marking requirements of the boxes of facial tissue?
LAW AND ANALYSIS:
Eligibility for NAFTA Preference and Country of Origin Marking Requirements of Boxes of Tissues Cut in Mexico or Canada
Eligibility for NAFTA Preference
The NAFTA is implemented in General Note (GN) 12, HTSUS. GN 12(a) states that goods are eligible for the NAFTA rate of duty if they originate in the territory of a NAFTA party and qualify to be marked as goods of Mexico (or Canada). GN 12(b) sets forth the methods for determining whether a good originates in the territory of a NAFTA party and provides, in relevant 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—
(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, 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
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Here, counsel states that the jumbo rolls are made from U.S. originating materials. Provided that records and a certificate of origin are available to show that the rolls are made from originating materials, the finished boxes of tissues will be eligible for NAFTA preferential treatment under GN 12(b)(iii) as “goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.” If the rolls are not produced from U.S.-originating materials, the finished boxes of tissues may still qualify for NAFTA preference because they will meet the tariff-shift requirement per GN 12(t)48.6, which requires “[a] change to headings 4817 through 4822 from any heading outside that group, except from heading 4823.” A qualifying shift occurs here because the jumbo rolls are classified under heading 4803, while the finished product is classified under heading 4818.
Marking Requirements
We next have to determine whether the boxes of facial tissue qualify to be marked as a product of Mexico or Canada. The hierarchy set forth in 19 C.F.R. § 102.11 is applicable to determine the country of origin marking of goods produced in countries that are a party to the NAFTA. NY N261615’s analysis of the country of origin of the tissues imported from Canada or Mexico was incorrect because it did not apply the rules in 19 C.F.R. § 102. While counsel cites the GN 12 rules, those rules apply only when an importer is requesting preferential treatment under NAFTA. Goods still must qualify to be marked, and the rules contained in 19 C.F.R. § 102 must be applied.
Under 19 C.F.R. § 102.11, the country of origin for non-textile goods is determined to be the country in which:
The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
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 applicable requirements of these rules are satisfied.
Section 102.1(g), CBP Regulations (19 C.F.R. 102.1(g)), defines a good wholly obtained or produced as “[a] good produced in that country exclusively from goods referred to in paragraphs (g)(1) through (g)(10) of this section or from their derivatives, at any stage of production.” Here, because the tissues are cut from jumbo rolls from the United States, they cannot qualify as “a good wholly obtained or produced” in either Canada or Mexico. The country of origin of the tissues thus cannot be determined under 19 C.F.R. § 102.11(a)(1).
The next step in the hierarchy is to consider whether the country of origin may be determined under section 102.11(a)(2). Under this section, the origin of the good may be based on the origin of the materials used to produce the good, provided that the good is produced exclusively from domestic materials. Section 102.1(d), CBP Regulations (19 C.F.R. § 102.1(d)), defines domestic material as “a material whose country of origin as determined under these rules is the same country as the country in which the good is produced.” Because the tissues are produced from raw materials from the United States, the country of origin cannot be determined under section 102.11(a)(2). The analysis must continue to 19 C.F.R. 102.11(a)(3).
Under 19 C.F.R. § 102.11(a)(3), 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 § 102.20 and satisfies any other applicable requirements of that section.” Section 102.1(e), CBP Regulations (19 C.F.R. § 102.1(e)) defines “Foreign material” 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.” Here, the foreign materials are the jumbo rolls of tissue paper from the United States, which are classified under subheading 4803.00, HTSUS. The final product, made in either Mexico or Canada, is classified under subheading 4818.20.00, HTSUS.
For goods classified under HTSUS subheading 4818.20, 19 C.F.R. § 102.20 requires a shift “from any other heading, including another heading within that group, except for a change to heading 4818 from sanitary towels and tampons, napkin and napkin liners for babies, and similar sanitary articles, of paper pulp, paper, cellulose wadding, or webs of cellulose fibers, of heading 9619.” A qualifying shift occurs here because the jumbo rolls are classified under heading 4803. Because the foreign material in the tissue boxes undergoes the required tariff shift, we continue to hold, as in NY N261615, that the country of origin of the finished product will be the country where the conversion from jumbo rolls to tissue occurs (either Canada or Mexico).
Eligibility for UKFTA Preference and Marking Requirements of Boxes of Tissues Cut in Korea
Eligibility for UKFTA Preference
The requirements for eligibility for preferential tariff treatment under the UKFTA are set forth in Note 33 to the General Notes to the Harmonized Tariff System (“HTSUS”) (19 U.S.C. § 1202). This note provides in pertinent part:
(b) For the purposes of this note subject to the provisions of subdivisions (c), (d), (n) and (o) thereof, a good imported into the customs territory of the United States is eligible for treatment as an originating good of a UKFTA country under the terms of this note if-
The good is wholly obtained or produced entirely in the territory of
Korea or of the United States, or both.
The good is produced entirely in the territory of Korea or of the United
States, or both, and-
A. Each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (o) of this note; or
B. The good otherwise satisfies any applicable regional value-content or other requirements set forth in such subdivision (o); and satisfies all other applicable requirements of this note and of applicable regulations; or
The good is produced entirely in the territory of Korea or of the United States, or both, exclusively from materials described in subdivisions (i) or (ii), above.
Here, counsel states that the jumbo rolls are made from U.S. originating materials. Provided that supporting documents are available to show that the rolls are made from originating materials, the finished tissue boxes will be eligible for UKFTA preferential treatment under GN 33(b)(iii) as “goods produced entirely in the territory of Korea or of the United States or both.” If the rolls are not produced from U.S.-originating materials, the finished boxes of tissues may still qualify for UKFTA preference because they will meet the tariff shift requirement in GN 33(o)48.2, which requires “change to headings 4808 through 4823 from any other heading.” A qualifying shift occurs because the jumbo rolls are classified under heading 4803, while the finished product is classified under heading 4818.
Marking Requirements
As noted above, the tissues cut in Korea qualify for preferential treatment under UKFTA. Unlike NAFTA, however, UKFTA does not have special marking rules. NY N261615 therefore erred in applying General Note 33, which applies only in the context of determining eligibility for preference under UKFTA. The standard marking rules apply, and the finished product will be considered a product of Korea only if the jumbo rolls undergo a “substantial transformation” when they are converted into facial tissue.
19 C.F.R. § 134.1 implements the country-of-origin marking requirements and the exceptions set forth in 19 U.S.C. § 1304. Section 134.1(b), CBP 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 United States. 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.
CBP has previously found that cutting rolls of tissue to size does not constitute “substantial transformation” under 19 C.F.R. § 134.1. In Headquarters Ruling HQ 563306, dated Sept. 20, 2005, for example, we held that jumbo tissue rolls that are cut to size, folded, and packaged into gift tissue paper did not undergo a substantial transformation. Instead, that processing was considered “mere finishing operations.” See also HQ W967997, dated Oct. 5, 2006; HQ 956875, dated Feb. 6, 1995; HQ 557462, dated Sept. 13, 1994.
Here, as in the cases cited above, cutting rolls of tissues to size constitutes “mere finishing operations,” not substantial transformation. We therefore find that the country of origin of the finished tissues remains the United States, the country where the jumbo tissue rolls were produced.
Country of Origin of Boxes of Tissues Cut in China
NY N261615 applied the substantial-transformation test and concluded that “the jumbo rolls from the United States were substantially transformed as a result of the processing in China” and that “China is considered to be the country of origin of the boxes of tissues.” Based on the substantial-transformation analysis above, we disagree. Like the tissues cut in Korea, the tissues cut in China will remain a product of the United States because they will not be substantially transformed.
We note that marking the finished boxes of tissues as products of the United States is a matter under the jurisdiction of the Federal Trade Commission. If Kimberly Clark wants to mark the finished boxes of tissues with the phrase “Made in the USA” or a similar phrase, we recommend that you contact the agency at the following address: Federal Trade Commission, Division of Enforcement, 600 Pennsylvania Ave. NW, Washington DC 20580.
HOLDING:
We hold that the finished tissues imported from Canada (or Mexico) are eligible for preferential treatment under NAFTA, and should be marked as a product of Canada (or Mexico). The finished tissues imported from Korea are eligible for preferential treatment under UKFTA, but will remain a product of the United States for country of origin marking purposes as the jumbo rolls will not be substantially transformed in Korea. Similarly, the tissues imported from China will remain a product of the United States as the jumbo rolls will not be substantially transformed in China.
EFFECT ON OTHER RULINGS:
New York Ruling Letter (NY) N261615, dated Mar. 11, 2015, is hereby modified.
In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Sincerely,
Joanne Roman Stump
Acting Director, Commercial and Trade Facilitation Division