OT:RR:CTF:VS H329175 ARU
Oscar Palacios, LCB, CCS
Trade Policy Advisor
C.H. Robinson International
680 Knox Street, Suite 210
Torrance, CA 90502
RE: Country of Origin; USMCA; Section 301
Dear Mr. Palacios:
This is in response to your December 5, 2022 ruling request, filed on behalf of [XXXXX] (or “importer”), regarding United States Mexico Canada Agreement (USMCA) eligibility and the country of origin for purposes of marking and Section 301 applicability of various models of passenger vehicle, light truck, heavy truck, and industrial tires.
You have asked that certain information submitted in connection with this request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information designated as confidential in your request and contained within brackets in the ruling will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
The importer [XXXXX] currently produces several models of passenger vehicle, light truck, heavy truck and industrial tires in China from components obtained in China with the exception of the natural rubber, which is obtained from a non-USMCA country [XXXXX] and imported to the Chinese production plant. Subsequently, the produced tires are imported into the United States ‘as is’ and will not be fitted or affixed to any wheel or wheel assemblies.
In their request, the importer asks us to consider an alternative scenario in which the manufacturing operations would be undertaken in Mexico. The items under consideration have been identified as various models of passenger, light truck, heavy truck, and industrial tires. The importer states that the sizes will vary at time of production from 12 inches and higher, but all are of radial construction. The following information on five tire models is provided:
Passenger Vehicle Tire, Steel belt PCR tire, New pneumatic steel belt radial tire for passenger car, subheading 4011.10, Harmonized Tariff Schedule of the United States (HTSUS)
Passenger Vehicle/Light Truck Tire, Steel belt LTR tire, New pneumatic steel belt radial tire for passenger vehicle or light truck, subheading 4011.20, HTSUS
Passenger Vehicle/Light Truck Tire, All steel TBR tire, New pneumatic steel belt radial tire for passenger car or light truck, subheading 4011.20, HTSUS
Industrial Vehicle Tire, All steel wide off-the-road (OTR) tire, Radial tire for engineering application, non-directional pattern, RIM > 61cm, section width 24” (inclusive) or more, subheading 4011.80, HTSUS
Industrial Vehicle Tire, All steel narrow section OTR tire, Radial tire for engineering applications, non-directional pattern, RIM > 61cm, section width up to 24”, subheading 4011.80, HTSUS
According to the information provided, the raw materials will be sourced from multiple countries. The natural rubber will be sourced from [XXXXX], while the remaining components will be sourced from China. The raw materials will be imported directly to the manufacturing facility in Mexico where they will be used in the production of the completed tires. The raw materials are used to produce multiple components to be incorporated into the tires. The fabric and steel materials are used to produce cords, plies, and bead wires. The rubber is processed and turned into different sheets of rubber for use in the tire production. The chemicals are used throughout the production process to add cohesion between all the components.
The importer [XXXXX] describes the manufacturing process in Mexico as follows: start by rolling a thin airtight sheet of synthetic rubber over a rotating flexible cylinder. This thin sheet acts as the inner liner tube of the finished tire. The casing ply is then added over the liner tube. The casing ply is made up of individual cords that are twisted like cables of either fabric or steel, laid side-by-side and encased in rubber. Two strong hoops of steel wire called bead bundles are put in place to anchor the sidewall ply and eventually hold the tire against the rim. The casing ply is folded over the bead wire to lock the bead bundles in place. Next, additional bead rubber sheets are added along with the sidewall rubber sheet. The flexible cylinder then inflates the unfinished tire giving it its traditional round shape and additional tread piles are applied on the casing ply that will be under the final tread rubber. The tread rubber is comprised of multiple chemical components, such as carbon black and silica and are combined with the natural and synthetic rubber. The final tread rubber sheet is added and gives the finished tire its performance characteristics. Once the final tread rubber is applied, the unfinished tire is removed from the cylinder and taken to the mold for the vulcanization process. The vulcanization process begins when the unfinished tire is placed on a mold and inflated with hot water or steam, which causes the tire to press against the mold, the tire is heated to cure the rubber and bond the components. After this curing process is complete, the tire is removed from the mold for cooling and then testing. Each tire is inspected for flaws such as bubbles or voids in the rubber of the tread, sidewall, and interior of the tire. Then, the tire is placed on a test wheel, inflated, and spun. Once the tire has been inspected and run on the test wheel, it can be moved to its final staging point for packing and shipping. A flowchart of the production process was provided.
ISSUE:
Whether the passenger vehicle, light truck, heavy truck, and industrial tires are eligible for USMCA preferential tariff treatment and what the country of origin is for purposes of marking and Section 301 duties.
LAW AND ANALYSIS:
Country of Origin Marking
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 United States 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 United States the English name of the country of origin of the article. Part 134 of the U.S. Customs and Border Protection (“CBP”) Regulations (19 C.F.R. Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304.
To provide a more seamless transition to the USMCA for Canadian and Mexican traders, at this time, CBP continues to utilize the marking rules in 19 C.F.R. Part 102, with the exception of 19 C.F.R. § 102.19, for purposes of country of origin marking with respect to goods of those countries. Title 19, C.F.R. § 102.11(a) provides that 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
(3) 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.
“Material” means a good that is incorporated into another good as a result of production with respect to that other good, and includes parts, ingredients, subassemblies, and components.” 19 C.F.R. § 102.1(l).
“Foreign material” is defined in Section 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 product-specific rule of origin for goods classified within heading 4011 states:
4011.10-4012.90 A Change to subheading 4011.10 through 4012.90 from any other subheading, including another subheading within that group.
Based on the facts presented, the foreign materials are classified outside of heading 4011, HTSUS. As such, all foreign materials meet the tariff shift requirement and the country of origin of the tires for marking purposes will be Mexico.
Eligibility for Preferential Tariff Treatment under USCMA
The United States-Mexico-Canada Agreement (“USMCA”) was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). GN 11 of the HTSUS implements the USMCA. GN 11(a) provides:
Goods that originate in the territory of Mexico, Canada or the United States (hereinafter referred to as “USMCA country” or “USMCA countries” as further defined in subdivision (l)(xxiv) of this note) under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury (including Uniform Regulations provided for in the USMCA), and goods enumerated in subdivision (p) 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 “S” in parentheses, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act; and
Goods that originate in the territory of a USMCA country under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury, 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 “S+” in parentheses, or under a subheading whose article description provides for originating goods of one or more USMCA countries, as the case may be, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act.
GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a "good originating in the territory of a USMCA country" only if—
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or …
Here, the merchandise will be produced in Mexico using nonoriginating materials. Therefore, the merchandise will not qualify as originating pursuant to GN 11(b)(i) or (ii). We must therefore consider whether the merchandise qualifies as originating pursuant to GN 11(b)(iii).
In this case, the classifications for the tires at issue fall within headings 4011.10, 4011.20, and 4011.80. HTSUS. GN 11(o), provides the following product-specific rule of origin for these goods:
4011.10-4012.90 A change to subheading 4011.10 through 4012.90 from any other subheading, including another subheading within that group.
Based on the facts presented, the foreign materials are classified outside of heading 4011, HTSUS. As such, all foreign materials meet the tariff shift requirement. Accordingly, the tires are eligible for preferential tariff treatment under the USMCA.
Section 301 Measures
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25% will be imposed on certain Chinese imports pursuant to its authority under Section 301(b) of the Trade Act of 1974 (“Section 301”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(b) and (f), HTSUS. Among the subheadings listed in U.S. Note 20(b) and (f) of Subchapter III, Chapter 99, HTSUS, are 4011.10.10, 4011.10.50, 4011.20.10, 4011.20.50, 4011.80.10, 4011.80.20, and 4011.80.80, HTSUS.
U.S. Note 20(a), which provides additional guidance on the applicability of the Section 301 measures to the subheadings listed in U.S. Note 20(b), states:
Products of China that are classified in the subheadings enumerated in U.S. note 20(b) to subchapter III and that are eligible for special tariff treatment under general note 3(c)(i) to the HTSUS, or that are eligible for temporary duty exemptions or reductions under subchapter II to chapter 99, shall be subject to the additional 25 percent ad valorem rate of duty imposed by heading 9903.88.01.
Similarly, U.S. Notes 20(e), which applies to subheadings listed in U.S. Note 20(f), states:
Products of China that are classified in the subheadings enumerated in U.S. note 20(f) to subchapter III and that are eligible for special tariff treatment under general note 3(c)(i) to the tariff schedule, or that are eligible for temporary duty exemptions or reductions under subchapter II to chapter 99, shall be subject to the additional 25 percent ad valorem rate of duty imposed by heading 9903.88.03.
When determining the country of origin for purposes of applying current trade remedies under Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 69 C.C.P.A. 151 (1982). To determine whether a substantial transformation has occurred, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. CBP has stated that a new and different article of commerce is an article that has undergone a change in commercial designation or identity, fundamental character, or commercial use. A determinative issue is the extent of the operations performed and whether the materials lose their identity and become an integral part of the new article. This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
In this case, you state that the tire will be manufactured in Mexico, using parts from China and [XXXXX]. The importer provided a detailed explanation laying out the manufacturing practices in Mexico. The information provided demonstrates that the foreign parts would be imported into Mexico where they would undergo a manufacturing process to produce radial tires. The foreign parts do not have a pre-determined end-use before importation, but rather undergo a change in use due to the assembly process performed in Mexico. Based on the information provided, the production process performed in Mexico involves multiple steps to turn raw materials into components which are used to produce the completed tire – from processing the natural rubber, steel, and fiber reels, creating the casing plies, forming the tires, and finally molding the tire to specific tread and measurements using the curing mold. The foreign materials are therefore substantially transformed in Mexico. Accordingly, the merchandise should be considered a product of Mexico and exempt from the Section 301 Safeguard duties.
HOLDING:
Based on the information provided regarding the proposed manufacturing processes in Mexico, the tires may be considered a product of Mexico for purposes of marking and exempt from the Section 301 Safeguard duties. The goods at issue will also be deemed USMCA originating pursuant to GN 11(o).
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
A copy of this ruling letter 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 CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch