CLA–2 OT:RR:CTF:TCM H263772 NCD
Port Director
Service Port of Laredo
Lincoln/Juarez Bridge, Administrative
Bldg. #2
Laredo, TX 78040
RE: Internal Advice Request; Eligibility of piping spools for preferential duty treatment under NAFTA and marking as goods of Mexico.
Dear Port Director:
This is in response to the memorandum, submitted to our office on February 11, 2015 by U.S. Customs and Border Protection (CBP) at the Port of Laredo (“the Port”), seeking internal advice as to whether piping spools imported from Mexico qualify for preferential duty treatment under the North American Free Trade Agreement (NAFTA) and for marking as goods of Mexico. The Port’s memorandum was submitted at the request of Shaw Rio Grande Valley Fabrication and Manufacturing, LLC (“Shaw”) set forth in a December 8, 2014 letter submitted to the Port on Shaw’s behalf (“Shaw’s letter”). Our determination as to the piping spools’ eligibility for preferential duty treatment under NAFTA and for marking as goods of Mexico is set forth below.
FACTS:
The instant internal advice request pertains to 80 units of piping spools entered at the Port on June 2, 2014. With respect to the subject piping spools, Shaw’s letter states, in relevant part, as follows:
Shaw imports into the U.S., prefabricated steel piping spools from Mexico which are fabricated to meet customer specifications for a designated job/work order and as per a specific engineering design. These piping spools are currently being imported into the U.S., classified under Chapter 73, and the headings will range from 7304 through 7307. The piping spools are composed of the following components: steel pipes (of Headings 7304 through 7306), reducers, flanges, elbows, couplings, caps, tees, swage nipples (of Heading 7307) and valves (of Heading 8481). All of the steel pipes and the rest of the components that are being used in the production of these piping spools are sourced in the U.S., but may be from various countries of origin. In Mexico, the steel pipes will be inspected, sandblasted, cut, machined, welded, fitted with attachments and painted to produce the required prefabricated steel piping spools, which will be used for different Industrial Construction projects such as Petroleum Refineries, Petrochemical Plants, Oil/Gas Production Facilities, Mineral Processing Plants and Energy Generation Facilities.
When the raw materials/components are received at Shaw’s Mexico plant, they are inspected to ensure that they meet the required specifications and quality controls. Once goods have been inspected and approved, the first step in the production process is cleaning the pipe, this is done by sandblasting it, which will remove any dirt or rust from the pipe. The next step is cutting the pipe to a specific length; this must be done as per the requirements of the designated job/work order and engineering design. The pipe is cut with either plasma or robotic plasma cutters to meet the required length and then it is machined beveled. Once the pipe has been cut and machined beveled to the specified length, the attachments (flanges, elbows, couplings, fittings, etc….) which are also sandblasted, will then be welded onto the pipe; they do a first fit and an auto weld, then a second fit and a final weld. After the welding has been completed, the piping spools must go through an X-ray process to ensure that there are no anomalies or imperfections in the welds made. If no anomalies or imperfections are found, the piping spools will then undergo their first painting process and will be sandblasted a second time. After the second sandblasting is done, the piping spools will go through their final painting process as well as any retouching that might be needed. Finally, the piping spools are inspected for quality control, if they pass the inspection, the piping spools are released to be packaged and loaded onto the flatbeds that will be used to import them into the United States.
Appended to the letter are several photos of the pipes and other component materials taken prior to, during, and following their integration and conversion into the finished piping spools. Also appended to the letter are diagrams and a manufacturing flow chart depicting the production process described in the above-cited excerpt.
According to invoices and an invoice summary enclosed with Shaw’s letter, the piping spools were entered under various subheadings within heading 7304 and heading 7306 of the Harmonized Tariff Schedule of the United States Annotated (HTSUSA). All 80 units are described as “prefabricated piping spool composed primarily of…pipe” and are categorized for tariff classification purposes according to their steel type in the invoices. The piping spools’ unit names and quantities, corresponding HTSUSA classification upon entry, and component pipes’ countries of origin, are as follows:
Unit Name and Quantity
Classification Upon Entry
Subheading Description
Country of Origin
Seamless carbon steel pipe (1 in and smaller NPS, all wall thickness)
6
7304.39.0020
Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or steel: Other, of circular cross section, of…nonalloy steel: Other: Having an outside diameter less than 38.1 mm
Czech Republic
Seamless carbon steel pipe (1.25 in to 4 in NPS, <0.250 wall thickness)
21
7304.39.0024
Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or steel: Other, of circular cross section, of…nonalloy steel: Other: Having an outside diameter of 38.1 mm or more but not exceeding 114.3 mm: Having a wall thickness less than 6.4 mm
Czech Republic,
Austria
Seamless carbon steel pipe (4.5” to 6” NPS, <0.500 wall thickness)
2
7304.39.0036
Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or steel: Other, of circular cross section, of…nonalloy steel: Other: Having an outside diameter exceeding 114.3 mm but less than 190.5 mm: Having a wall thickness less than 12.7 mm
Czech Republic
Seamless carbon steel pipe (8” to 10” NPS, <0.500 wall thickness)
5
7304.39.0048
Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or steel: Other, of circular cross section, of…nonalloy steel: Other: Having an outside diameter of 190.5 mm or more but not exceeding 285.8 mm: Having a wall thickness less than 12.7 mm
Czech Republic
Seamless carbon steel pipe (12” to 16” NPS, <0.500 wall thickness)
2
7304.39.0062
Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or steel: Other, of circular cross section, of…nonalloy steel: Other: Having an outside diameter exceeding 285.8 mm but not exceeding 406.4 mm: Having a wall thickness less than 12.7 mm
Romania
Seamless stainless steel pipe (all NPS, wall thickness)
1
7304.49.0060
Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or steel: Other, of circular cross section, of stainless steel: Other: Other: Other: Other
Japan
Welded carbon steel pipe (4” and smaller NPS, =0.065 wall thickness)
37
7306.30.5055
Other tubes, pipes and hollow profiles (for example, open seamed or welded, riveted or similarly closed), of iron or steel: Other, welded, of circular cross section, of iron or nonalloy steel: Having a wall thickness of 1.65 mm or more: Other: Other: With an outside diameter not exceeding 114.3 mm: Other: Other
South Korea
Welded carbon steel pipe (4.5” to 16” NPS, =0.065 wall thickness)
5
7306.30.5090
Other tubes, pipes and hollow profiles (for example, open seamed or welded, riveted or similarly closed), of iron or steel: Other, welded, of circular cross section, of iron or nonalloy steel: Having a wall thickness of 1.65 mm or more: Other: Other: With an outside diameter exceeding 114.3 mm but not exceeding 406.4 mm: Other
South Korea
Welded 300 Series stainless steel pipe (all NPS, =0.065 wall thickness)
1
7306.40.5040
Other tubes, pipes and hollow profiles (for example, open seamed or welded, riveted or similarly closed), of iron or steel: Other, welded, of circular cross section, of stainless steel: Having a wall thickness of 1.65 mm or more: Other: Other, cold-drawn or cold-rolled (cold- reduced): Containing more than 0.5 percent but less than 24 percent by weight of nickel
United States
In a March 9, 2016 telephone discussion with a representative of Shaw, it was confirmed that the listed HTSUSA classification of each piping spool type corresponds to the classification of its component pipe. It was also confirmed that the listed country of origin of each piping spool type corresponds to the country of origin of its component pipe. For example, each piping spool entered in subheading 7304.39.0020, HTSUSA, contains a pipe of that heading that was produced in the Czech Republic. However, the countries of origin of the piping spools’ valves and fittings have not been identified.
ISSUE:
Whether the subject piping spools qualify for preferential duty treatment under NAFTA or for marking as goods of Mexico?
LAW AND ANALYSIS:
Because the subject piping spools are imported from Mexico, a NAFTA country, they are eligible for preferential duty treatment under NAFTA if they satisfy General Note 12, HTSUSA, which incorporates Article 401 of the NAFTA into the HTSUSA. GN 12(a)(ii), HTSUSA, provides, in pertinent part, that:
Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
Accordingly, the subject goods will be eligible for the “Special” “MX” rate of duty provided that: (I) They qualify as NAFTA-originating under General Note 12(b), HTSUSA; and (II) they qualify for marking as goods of Mexico under the NAFTA Marking Rules set forth in Part 102 of the Code of Federal Regulations (19 C.F.R. § 102).
NAFTA-Originating under General Note 12(b)
GN 12(b), HTSUSA, provides, in relevant part, as follows:
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—
(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
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Here, the subject piping spools are composites of various components, including pipes, reducers, flanges, elbows, couplings, caps, tees, swage nipples, and valves. With the lone exception of the single “Welded 300 Series” unit, all piping spools contain pipes that originated in non-NAFTA countries. While the pipe in the Welded 300 Series originated in the U.S., it is unclear whether the unit’s remaining components similarly originated in NAFTA countries. Consequently, it cannot be established that any of the piping spools were wholly obtained or produced entirely in Mexico or, alternatively, produced entirely in Mexico exclusively from originating materials. In effect, the piping spools qualify as goods originating in a NAFTA country only if they have undergone changes in classification required by GN 12(t).
The invoices enclosed with Shaw’s letter indicate that the piping spools were entered in subheadings 7304.39, 7304.49, 7306.30, and 7306.40, HTSUSA. Accordingly, the following changes in classification listed in GN 12(t) are pertinent here:
Chapter 73
A change to subheadings 7304.11 through 7304.39 from any other chapter.
…
A change to subheadings 7304.49 through 7304.90 from any other chapter.
A change to headings 7305 through 7307 from any other chapter.
According to Shaw’s letter, the piping spools’ component pipes are products of heading 7304 or 7306, HTSUS, the fittings are products of heading 7307, HTSUS, and the valves are products of heading 8481, HTSUS. Thus, only the valves underwent relevant changes in classification listed in GN 12(t). The non-originating pipes and fittings, all of which were already products of Chapter 73 prior to their incorporation into the piping spools, did not undergo qualifying classification changes. In effect, the piping spools do not qualify as “goods that originate in the territory of a NAFTA party” pursuant to GN 12(b), HTSUSA. They are, therefore, ineligible for preferential duty treatment under NAFTA.
Country of Origin for Marking Purposes
Marking of imports is governed by section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), which mandates 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. Part 134, CBP Regulations (19 C.F.R. Part 134) implements the requirements of and exceptions to 19 U.S.C. §1304. 19 C.F.R. §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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(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, which are set forth in 19 C.F.R. Part 102. Section 102.11(a) establishes the following hierarchy for determining country of origin for marking purposes:
The following rules shall apply for purposes of determining the country of origin of imported goods other than textile and apparel products covered by § 102.21.
The 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
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, and all other applicable requirements of these rules are satisfied.
Here, as discussed above, the subject piping spools are not wholly obtained or produced in Mexico. Nor are they produced exclusively from domestic materials, insofar as none of the pipes were produced in Mexico. Consequently, pursuant to Section 102.11(a)(3), the subject piping spools qualify for marking as goods of Mexico only if each of their component materials has undergone a change in classification enumerated in 19 C.F.R. §102.20. Section 102.20(n) describes the following relevant change: “A change to heading 7301 through 7307 from any other heading, including another heading within that group.”
Again, the pipes are products of heading 7304 or 7306, HTSUSA, the fittings are products of heading 7307, HTSUSA, and the valves are products of heading 8481, HTSUSA. Classification of each piping spool at entry was governed by the classification of its component pipe. Specifically, piping spools entered in heading 7304 contain pipes of heading 7304, whereas piping spools entered in heading 7306 contain pipes of that heading. In effect, while the fittings and valves underwent changes in classification described in Section 102.20(n), the pipes did not. The piping spools’ country of origin consequently cannot be determined through application of Section 102.11(a).
We accordingly apply Section 102.11(b), which states, in relevant part, as follows:
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) of this section:
The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good…
With respect to “essential character” as referenced in Section 102.11(b)(1), Section 102.18(b)(1) provides as follows:
For purposes of identifying the material that imparts the essential character to a good under § 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 §102.20 specific rule or other requirements applicable to the good. For purposes of this paragraph (b)(1)…
The materials to be considered must be classified in a tariff provision from which a change in tariff classification is not allowed under the specific rule or other requirements applicable to the good under consideration…
If there is only one material that is classified in a tariff provision from which a change in tariff classification is not allowed under the §102.20 specific rule or other requirements applicable to the good, then that material will represent the single material that imparts the essential character to the good under §102.11.
A “non-allowed” change in classification within the meaning of Section 102.11(b)(1) may include a complete absence of classification change where such change is required. See, e.g., HQ H039564, dated October 16, 2009 (ruling that fish oil imparted essential character of Thera Tears® capsules where it did not undergo a change in classification between its importation into Canada and entry into the U.S.); see also HQ H046759, dated June 29, 2009; and HQ H039564, dated January 16, 2009. Here, as discussed above, the pipes are the sole components of each piping spool that have not undergone any changes in classification. They consequently impart the essential characters of the piping spools into which they are incorporated for purposes of Section 102.11(b)(1). In effect, the country of the piping spools’ origin is not Mexico. Instead, the countries of the spools’ origin are the countries of their component pipes’ origin, as determined by application of Section 134.1(b). According to the invoice summary appended to Shaw’s letter, these countries are the Czech Republic, Austria, Romania, Japan, South Korea, and the United States.
Shaw contends in its letter that the piping spools’ country of origin is Mexico because the spools underwent a “substantial transformation” within the meaning of Section 134.1(b). While Section 134.1(b) does establish a “substantial transformation” test for non-NAFTA countries, it provides that “however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.” Because Mexico is a “NAFTA country” within the meaning of Section 134.1, the NAFTA Marking Rules apply. It is, in effect, immaterial whether the piping spools underwent a “substantial transformation” while in Mexico. As discussed above, application of the NAFTA Marking Rules indicates that the piping spools’ country of origin is not Mexico.
Shaw additionally contends that the piping spools qualify for marking as products of Mexico pursuant to Section 102.11(d), which states, in relevant part, as follows:
Where the country of origin of a good cannot be determined under paragraph (a), (b) or (c) of this section, the country of origin of the good shall be determined as follows:
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.
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.
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.
Shaw argues that the piping spools are products of Mexico under Section 102.11(d)(3) because they underwent more than “minor processing” or “simple assembly” and because Mexico is the last country in which the spools underwent production. By its own terms, however, Section 102.11(d) applies only where the country of origin cannot be determined by application of paragraphs (a), (b), or (c) of Section 102.11. Because, as discussed above, the spools’ countries of origin have been determined under Section 102.11(b), Section 102.11(d) is inapplicable.
HOLDING:
In accordance with the above analysis, the instant piping spools are not eligible for preferential duty treatment under NAFTA and do not qualify for marking as goods of Mexico.
We note, with respect to the piping spools whose component pipes are produced in the United States, that use of the phrase "Made in the USA" and similar claims of U.S. origin must comply with requirements set forth by the Federal Trade Commission (FTC). Any inquiries regarding this issue should be directed to the FTC at the following address: Federal Trade Commission Division of Enforcement, 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20508.
You are to mail this decision to counsel no later than sixty days from the date of this decision. At that time, Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public, on the CBP Home Page on the World Wide Web at http://www.cbp.gov, by means of the Freedom of Information Act, and other methods of publication.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division