OT:RR:CTF:VS H330975 RRB
Mr. Kim Tao
Merlon Limited
Nanyang Commercial Bank, Limited
151 Des Voeux Road
Central Hong Kong
HONG KONG
RE: Country of Origin; Marking; Section 301 Measures; Truck Bed Flooring Panels Processed in FTZ
Dear Mr. Tao:
This is in response to your ruling request, dated November 17, 2022, filed on behalf of Merlon Limited, concerning rough, red oak edge-glued wood boards imported from China and admitted into a U.S. Foreign Trade Zone (“FTZ”), where it will be manufactured into truck bed flooring panels and subsequently entered into the Customs territory of the United States. Specifically, you seek guidance regarding the applicability of Section 301 duties upon admission into the FTZ, the country of origin for duty and marking purposes, and the amount of duty that will be due upon removal from the FTZ and entry into the Customs territory of the United States.
FACTS:
The requester plans to manufacture truck bed flooring panels in a U.S. FTZ from red oak edge-glued wood boards admitted into the FTZ from China. The red oak edge-glued wood boards from China are classified in subheading 4421.99.9400, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”), as “Other articles of wood: Other: Other: Other: Edge-glued lumber.” Goods of subheading 4421.99.94, Harmonized Tariff Schedule of the United States (“HTSUS”), which are products of China, are subject to Section 301 trade remedies under subheading 9903.88.03, HTSUS.
While in the FTZ, the red oak edge-glued wood boards will undergo various types of processing to manufacture the boards into truck bed flooring panels. First, four sides of the wood boards will be machine-planed, while two sides of the boards will be machine-grooved with edge joinery. Next, the wood boards will be machine-puttied and machine-sanded. The underside of the boards will be painted with black hot-melt polyurethane coating while the topside will be painted with clear UV protective coating. The finished truck bed flooring panels will be subsequently packed for delivery prior to entry into the Customs territory of the United States. Truck bed flooring panels are classified in subheading 4421.99.9800, HTSUSA, as “Other articles of woods: Other: Other: Other: Other: Other.”
ISSUES:
What is the country of origin of the finished merchandise for duty purposes and Section 301 trade measures upon removal from the FTZ and entry into the Customs territory of the United States?
What is the country of origin of the finished merchandise for marking purposes upon removal from the FTZ and entry into the Customs territory of the United States?
LAW AND ANALYSIS:
Country of origin for duty purposes and section 301 trade measures upon removal from an FTZ and entry into the Customs territory of the United States
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(f)), HTSUS. Here, rough edge-glued wood boards from China will be processed into truck bed flooring panels in an FTZ. Accordingly, the duties owed on the merchandise will depend on the zone status of the edge-glued wood boards from China.
On September 21, 2018, USTR clarified how Section 301 measures are applied to products of China listed in U.S. Note 20(f) of Subchapter III, Chapter 99, HTSUS, when they are admitted into a U.S. FTZ. See “Notice of Modification of Section 301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property and Innovation” (September 21, 2018, 83 F.R. 47974). Per 83 F.R. 47974, any product of China listed in Annex A, except any product that is eligible for admission under “domestic status” as defined in 19 CFR § 146.43, and that is admitted into a U.S. FTZ, must be admitted as “privileged foreign status” as defined in 19 C.F.R. § 146.41. Such products will be subject upon entry for consumption into the Customs territory of the United States to any ad valorem rates of duty related to its classification under the applicable HTSUS subheading. 83 F.R. 47974. Annex A to 83 F.R. 47874 refers to Section 301 duties under subheading 9903.88.03, HTSUS, which covers “Articles the product of China, as provided for in U.S. note 20(e) and as provided for in the subheadings enumerated in U.S. note 20(f).” Since edge-glued wood boards from China, as merchandise classified in subheading 4421.99.94, HTSUS, are subject to Section 301 measures per U.S. note 20(f), and as identified in Annex A to 83 F.R. 47874, they must be admitted into the U.S. FTZ as “privileged foreign status.”
Merchandise admitted into an FTZ as privileged foreign status is treated, for tariff purposes, in its condition at the time of admission to the zone. In accordance with 19 C.F.R. § 146.41(e), “[a] status as privileged foreign merchandise cannot be abandoned and remains applicable to the merchandise even if changed in form by manipulation or manufacture…” Moreover, 19 C.F.R. § 146.65(a) states, in relevant part, that “[p]rivileged foreign merchandise provided for in this section will be subject to tariff classification according to its character, condition and quantity, at the rate of duty and tax in force on the date of filing, in complete and proper form, the application for privileged status.” Because the edge-glued wood boards are required to be admitted to the FTZ as privileged foreign status, once they are imported as finished truck bed flooring panels into the Customs territory of the United States, the merchandise must be classified under the tariff classification and country of origin for duty purposes of the unfinished edge-glued wood boards—i.e., based on its character and condition at the time of admittance into the FTZ. This means that because the character and condition of the merchandise at the time of its admittance into the FTZ was as merchandise of subheading 4421.99.9400, HTSUSA, with China as the country of origin for duty purposes, the tariff classification and country of origin remain in subheading 4421.99.9400, HTSUSA, with China as the country of origin upon entry into the Customs territory of the United States, regardless of any substantial transformation that has occurred in the FTZ.
Turning to the application of Section 301 measures, we note that subheading 9903.88.03, HTSUS, Subchapter III, Chapter 99, provides:
Except as provided in headings 9903.88.13, 9903.88.18, 9903.88.33, 9903.88.34, 9903.88.35, 9903.88.36, 9903.88.37, 9903.88.38, 9903.88.40, 9903.88.41, 9903.88.43, 9903.88.45, 9903.88.46, 9903.88.48, 9903.88.56, 9903.88.64, 9903.88.66, 9903.88.67 or 9903.88.68, articles the product of China, as provided for in U.S. note 20(e) to this subchapter and as provided for in the subheadings enumerated in U.S. note 20(f)
U.S. Note 20(e), Subchapter III, Chapter 99, provides in pertinent part:
For the purposes of heading 9903.88.03, products of China, as provided for in this note, shall be subject to an additional 25 percent ad valorem rate of duty. The products of China that are subject to an additional 25 percent ad valorem rate of duty under heading 9903.88.03 are products of China that are classified in the subheadings enumerated in U.S. note 20(f) to subchapter III….
Upon entry into the Customs territory of the United States, the finished truck bed flooring panels are classified as products of China in subheading 4421.99.94, HTSUS, which has a Free rate of duty, but is enumerated in U.S. Note 20(f), Subchapter III, Chapter 99, HTSUS. Therefore, the finished truck bed flooring panels will be subject to Section 301 measures upon entry into the Customs territory of the United States. Accordingly, the truck bed flooring panels with China as the country of origin for duty purposes are subject to an additional 25 percent ad valorem rate of duty under subheading 9903.88.03, HTSUS.
Country of origin for marking purposes upon removal from an FTZ and entry into the Customs territory of the United States
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. § 1304), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or 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. The 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 goods 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. Friedlander & Co., 27 C.C.P.A. 297 at 302 (C.A.D. 104) (1940).
Part 134, Customs and Border Protection Regulations (19 C.F.R. Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 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 to render such other country the “country of origin” within the meaning of this part.” A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, and use, which differs from the original material subjected to the process. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (C.A.D. 98) (1940); Texas Instruments v. United States, 681 F.2d 778, 782 (1982). However, if the manufacturing or combining process is merely a minor one that leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026, 1029 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983).
We note that since there are no materials from, nor any processing in Canada or Mexico, the NAFTA marking rules, which are currently applicable to goods originating under the USMCA, do not apply. Further, pursuant to 19 U.S.C.§ 3332(a)(2), the NAFTA tariff shift rules do not apply to non-originating goods that are processed in an FTZ. Therefore, only the substantial transformation analysis is applicable here. We further note that 19 C.F.R. § 146.65(a) is limited to the treatment of privileged foreign status merchandise based on its character, condition and quantity for purposes of tariff classification and rate of duty and does not apply to marking.
CBP has held that cutting materials to defined shapes or patterns suitable for use in the assembly of a finished article, as opposed to mere cutting to length and/or width, which does not render the article suitable for a particular use, constitutes a substantial transformation. See HQ 562156, dated July 5, 2001; and HQ 734539, dated June 8, 1992. CBP has also addressed the processing performed on similar solid wood or edge-glued lumber materials and whether such processing constituted a substantial transformation. For example, in NY N324885, dated April 4, 2022, CBP held that the following processes performed on solid red oak lumber manufactured into laminated truck bed flooring panels constituted a substantial transformation: cutting of lumber into strips; machining of finger joint tennons at two ends of each strip; connecting the strips in length by finger joints and bonding them together side-by-side with melamine glue; followed by grooving and planing before packaging. CBP held as such because the finished flooring manufactured from solid wood lumber had a new name, character, and use that was different from the raw lumber. In NY N320841, dated September 1, 2021, solid or edge-glued wood boards were processed into wood drawer components through shaping with radius-cut corners on one edge and with a deep groove on the panel face, followed by precision-trimming based on customer specifications and sanding. The multiuse solid or edge-glued boards with no dedicated use underwent radius-cut edging and groove profiling to transform the boards into wood panels that were continuously shaped throughout their lengths. There, CBP held that the manufacturing process constituted a substantial transformation as the finished products were no longer merely undedicated, multiuse materials, but were instead, new and different articles with a distinctive name, character or use. See also, NY N301686, dated December 7, 2018 (a substantial transformation of solid birch boards occurred when they were to cut to length, sanded, stamped and grooved in China).
Here, the red oak edge-glued wood boards will be manufactured into truck bed flooring panels through machine planing and grooving with edge joinery, followed by machine sanding, painting of the undersides with black hot-melt polyurethane coating and painting of the topsides clear UV protective coating. The rough edge-glued wood boards are non-dedicated building materials with multiples uses. However, once they are shaped with customized edge joinery into floor boards through processing such as planing and grooving, they are no longer non-dedicated materials, but are rendered into new articles with a new name (truck bed flooring panels); new character (finished truck bed flooring panels that have been shaped into new dimensions with customized edge joinery to be fit together into a truck bed); and a new use (from multiuse raw materials into a specific and dedicated use as flooring in truck beds). The processing described in the requester’s proposed scenario is almost identical to the processing described in NY N324885, dated April 4, 2022, also issued to Merlon Limited, in which CBP found a substantial transformation had occurred when solid red oak lumber was manufactured into laminated truck bed flooring panels. The processing described in the requester’s submission is also akin to the processing performed on the wood drawer components in NY N320841, which underwent a substantial transformation upon shaping of solid or edge-glued wood boards with radius-cut corners on one edge, deep grooving of the panel face, customized precision-trimming and sanding. Like the finished products in NY N320841, the finished truck bed flooring panels are no longer merely undedicated, multiuse materials, but are instead, new and different articles with a distinctive name, character or use. Therefore, we find that a substantial transformation has occurred when the rough, edge-glued wood boards from China are machine planed and grooved with customized edge joinery, machine sanded, painted with a polyurethane coating on one side and a clear UV protective coating on the other side to produce a finished product with a new name, character, and use as dedicated truck bed flooring panels.
Because the substantial transformation of edge-glued wood boards from China will occur in a U.S. FTZ, the country of origin for marking purposes of the finished truck bed flooring panels will be the United States. See HQ W967896, dated February 5, 2008 (sugar and gelatin that that were substantially transformed in a U.S. FTZ were considered to be a good of the United States for marking purposes). Since the country of origin for marking purposes will be the United States, it will be excepted from country of origin marking requirements. Please note that if you wish to mark the truck bed flooring panels or the packaging containing these products to indicate that they are “Made in the USA,” the marking must comply with the requirements of the Federal Trade Commission (“FTC”). We suggest that you direct any questions on this issue to the FTC.
HOLDING:
No duties will be due on the edge-glued red oak wood boards from China upon admittance in the FTZ. Duties are not due on the merchandise until it is removed from the FTZ and entered into the Customs territory of the United States.
Per 83 F.R. 47974, edge-glued red oak wood boards from China must be admitted into the FTZ in privileged foreign status, as defined in 19 C.F.R. § 146.41. Accordingly, the country of origin of the finished truck bed flooring panels for duty purposes and Section 301 measures upon removal from the FTZ and entry into the Customs territory of the United States is China. Moreover, the finished truck bed flooring panels, admitted into the FTZ in privileged foreign status, will be classified in their condition upon admittance into the FTZ as edge-glued red oak wood boards. Therefore, upon entry into the Customs territory of the United States, the finished truck bed flooring panels will be liquidated in subheading 4421.99.94, HTSUS, as “Other articles of wood: Other: Other: Other: Edge-glued lumber,” even though they have been transformed from edge-glued lumber into finished truck bed flooring panels.
Because the country of origin of the finished truck bed flooring panels for duty purposes is China, the merchandise will be subject to additional Section 301 duties. Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 4421.99.94, HTSUS, unless specifically excluded, are subject to an additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.03, in addition to subheading 4421.99.94, HTSUS, listed above.
The country of origin of the finished truck bed flooring panels for marking purposes upon removal from the FTZ and entry into the Customs territory of the United States will be the United States. Since the country of origin for marking purposes will be the United States, the merchandise will be excepted from country of origin marking requirements.
The HTSUS is subject to periodic amendment, so you should exercise reasonable care in monitoring the status of goods covered by the Note cited above and the applicable Chapter 99 subheading. For background information regarding the trade remedy initiated pursuant to Section 301 of the Trade Act of 1974, including information on exclusions and their effective dates, you may refer to the relevant parts of the USTR and CBP websites, which are available at https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions and https://www.cbp.gov/trade/remedies/301-certain-products-china, respectively.
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 CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch