OT:RR:CTF:VS H254791 RSD
Michael E. Roll, Esq.
Pisani & Roll, LLP
1629 K Street, NW, Suite 300
Washington, DC 20006
RE: North American Free Trade Agreement; Eligibility for NAFTA Duty Preference for J-Roller Ink Pens; Regional Value Content; Net Cost Method; General Note 12, HTSUS
Dear Mr. Roll:
This letter is in response to your letter, dated June 10, 2014, on behalf of Zebra Pen Manufacturera, S.R.L. de C.V. (“Zebra Pen-Mexico”), a wholly–owned subsidiary of Zebra Pen Corporation, requesting a ruling regarding the eligibility of a certain ink pen for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). A sample of the ink pen was submitted for our consideration.
You have asked that certain information submitted in connection with this ruling 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 contained within brackets and all attachments to this internal advice request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
The article that is the subject of this advanced NAFTA ruling is the J-Roller ink pen (J-Roller pen) classified under subheading 9608.10, Harmonized Tariff Schedule of the United States (HTSUS). It will be assembled in Mexico from Mexican, U.S. and
[ ] components. The Mexican components will be manufactured by Zebra Pen Manufacturera Monterrey-Mexico facility from consigned [ ], U.S. and Mexican raw materials.
The J-Roller pen assembly process in Mexico has four primary steps. First, the “refill assembly” will be made by an injecting inking machine. To make this item, a polypropylene refill tube will be placed into the conveyor of the machine and a laser device will place the date of production on the refill for traceability purposes. The ink will then be injected into the refill tube. A joint will be inserted into the refill tube, and the ballpoint tip will be inserted into the joint. Grease will be inserted into the tube to prevent ink from exiting the refill tube other than through the ballpoint tip. Once the refill is assembled, it will be run through a centrifuge operation allowing the ink to flow to the tip, and it will undergo a vacuum process to remove air bubbles from the ink. A second final centrifuge operation is performed to confirm the ink has reached the tip.
In the second step, the cap is printed. The third step involves what is known as the “cap-seal gum sub-assembly.” In this step, a seal gum will be inserted into the cap to protect the tip. This is a manual operation utilizing a small press device. The fourth and final step involves the assembly of the final item, an end plug, which is inserted in the pen body to keep the refill in the pen. The cap (with seal gum on it) is then assembled into the body with the refill and cone. The assembled J-Roller pen is then subject to a quality control process and packaged for retail sale.
The unit costs and the classification in the HTSUS of the materials manufactured in [ ] are as follows:
Item Unit Cost HTSUS Subheading
Resin for Body $[xxxxxxx] Chapter 39
Resin for Plug $[xxxxxxx] Chapter 39
Resin for Cap $[xxxxxxx] Chapter 39
Total [ ] Costs $[xxxxxxx]
The unit cost and classification of the [ ] materials are as follows:
Item Unit Cost HTSUS Subheading
Ink $[xxxxxxxx] Not in chapter 96
Total [ ] costs $[xxxxxxxx]
The unit costs and classification of the [ ] materials are as follows:
Item Unit Cost HTSUS Subheading
Tube for Refill $[xxxxxxx] 9608.99
Roller ball joint $[xxxxxxx] 9608.99
Tip $[xxxxxxx] 9608.99
Grease $[xxxxxxx] Not of chapter 96
Seal Gum $[xxxxxxx] Not of chapter 96
Cone $[xxxxxxx] 9608.99
Dummy Cap $[xxxxxxx] 9608.99
Total [ ] costs $[xxxxxxx]
The unit costs and classification of the [xxxxx] materials are as follows:
Item Unit Cost HTSUS Subheading
Heat transfer label $[xxxxxxx] Not in chapter 96
Master Batch -SAN $[xxxxxxx] Not in chapter 96
Master Batch-PB $[xxxxxxx] Not in chapter 96
Total [ ] costs $[xxxxxxx]
The direct labor costs for the assembly operations performed in Mexico are $[xxxxxxx]. Zebra Pen-Mexico determined that the indirect costs involved in manufacturing the J-Roller pen, including indirect labor, direct overhead, general manufacturing and administrative expenses, are $[xxxxxxx]. Adding up the amounts above indicates that the total cost to produce the J-Roller ink pen is $[xxxxxxxx].
ISSUE:
Whether the imported J-Roller ink pens will qualify for preferential tariff treatment under NAFTA?
LAW AND ANALYSIS:
General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12(a)(ii), HTSUS, 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 J-Roller pens will be eligible for the “Special” “MX” rate of duty provided: (1) they are deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS; and, (2) qualify to be marked as products of Mexico under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 CFR 102). In order to determine whether the J-Roller pens are NAFTA-originating, we must consult General Note 12(b), HTSUS, which provides, in pertinent 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
(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
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Because the J-Roller pens are comprised, in part, of non-originating materials, General Note 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the requisite tariff shift (or other applicable requirement) prescribed under General Note 12(b)(ii), HTSUS. Assuming the classifications in your submission are correct and the imported J-Roller pens are classified under subheading 9608.10, HTSUS, which provides for ball point pens, the applicable rule set forth in General Note 12(t)/96.7(A) and (B) provides:
A change to subheading 9608.10 through 9608.50 from any other chapter or
A change to subheading 9608.10 through 9608.50 from subheadings 9608.60 through 9608.99, whether or not there is also a change from any other chapter provided there is a regional value content of not less than:
60 percent where the transaction value method is used, or
50 percent where the net cost method is used.
Therefore, we first must determine whether the non-originating materials undergo the appropriate tariff shift (or other applicable requirement) prescribed under General Note 12(t)/96.7(A), HTSUS. Since there are non-originating materials used in making the J-Roller pen that do not undergo a chapter change as a result of the processing done in Mexico, GN 12(t)/96.7(A) does not apply. Thus, we must examine GN12(t)/96.7(B). General Note 12(t)/96.7(B) requires that non-originating materials undergo a change in tariff classification and further specifies that the good, in this instance the pen, satisfy an applicable regional value content requirement determined either using the transaction value or the net cost method. The tariff classification change requirement of General Note 12(t)/96.7(B) is satisfied when the pen is produced in Mexico. Hence, we next must determine if the regional value content requirements of 12(t)/96.7(B) are met.
You have requested that CBP use the net cost method to determine the RVC. The net cost method is set forth in General Note 12(c)(ii), HTSUS, which provides as follows:
Net cost method. The regional value content of a good may be calculated on the basis of the following net cost method:
RVC = ((NC – VNM)/NC) x 100.
where RVC is the regional value content, expressed as a percentage; NC is the net cost of the good; and VNM is the value of non-originating materials used by the producer in the production of the good. See also 19 CFR Part 181, Appendix, Part III, Sec. 6(3).
The methods of calculating the net cost of a good are set forth in 19 CFR Part 181, Appendix, Part III, Sec. 6(11). Subsection (11) provides three methods from which the producer of a good may choose to calculate the net cost.
The calculation of net cost initially requires the proper calculation of the total cost. Subsection (12) of section 6 addresses “total cost” and states that “[t]otal cost … consists of the costs referred to in section 2(6), and is calculated in accordance with that subsection.” In this case, CBP was provided with cost information involved in manufacturing the J-Roller pens, but we note that you have not provided any supporting documentation or any indication how those costs were determined. However, for purposes of this ruling we will apply the costs that you have presented in your submission to determine the RVC. Based upon the information presented, the RVC as determined under the net cost method is as follows:
RVC= NC $[xxxxxx] – VNM $[xxxxxxx] X 100
NC $[xxxxxxx]
Performing the required calculation renders a result for the RVC of approximately [xxxx] percent. Since the RVC for the pens is in excess of the 50 percent required under Part 2 of General Note 12(t)/96.7(B), HTSUS, the imported finished J-Roller pens would have a RVC that meets the requirements of General Note 12(t)/96.7(B). Thus, based on the information before us, the applicable NAFTA rule of origin for the imported J-Roller pens would be satisfied.
Please be advised, however, that this calculation would be subject to appropriate review upon importation into the United States based upon the final appraised value of the merchandise, and assumes that all product costs, including labor and overhead, will be considered as well. We note also that pursuant to 19 CFR Part 181, Appendix, Part III, Section 6 (20) of the NAFTA Rules of Origin Regulations, section 6 (20) provides, in pertinent part that:
[i]f the good does not satisfy the regional value-content requirement on the basis of actual costs during that period, [the producer shall] immediately inform any person to whom the producer has provided a Certificate of Origin for the good, or a written statement that the good is an originating good, that the good is a non-originating good. 19 CFR Part 181, Appendix, Part III, Sec. 6 (20).
NAFTA MARKING
In addition to being a good that originates in the territory of a NAFTA party, General Note 12(a)(ii), HTSUS, establishes that NAFTA-originating goods must also qualify to be marked as goods of Mexico under the NAFTA Marking Rules before preferential tariff treatment is granted. In this regard, section 134.1(j) of the Customs and Border Protection Regulations (19 CFR §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.
Part 102, Customs and Border Protection Regulations (19 CFR Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. See 19 CFR 102.11. Applied in sequential order, the required hierarchy establishes that the country of origin of a good is the country in which:
(a)(1) The good is wholly obtained or produced;
(a)(2) The good is produced exclusively from domestic materials;
or
(a)(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 applicable requirements of these rules
are satisfied.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the imported J-Roller pens are neither wholly obtained or produced exclusively from “domestic” (Mexican, in this case) materials. Because the analysis of sections 102.11(a)(1) and 102.11(a)(2) does not yield a country of origin determination, we look to section 102.11(a)(3). “Foreign material” is defined in 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 applicable rule for subheading 9608.10, HTSUS, in section 102.20 requires “a change to subheading 9608 through 9608.40 from any other subheading, including another subheading within that group except subheading 9608.60.”
According to your submission, the finished J-Roller pen is classified in subheading 9608.10, HTSUS. According to the information presented, none of the raw materials used in manufacturing the J-Roller pens are classified under either subheading 9608.10 or 9608.60, HTSUS. Therefore, each of the foreign materials contained in the pen undergoes the requisite tariff shift, and the J-Roller pen will qualify to be marked as a good of Mexico.
HOLDING:
Based upon the information presented, the J-Roller pens will be eligible for NAFTA preferential tariff treatment pursuant to General Note 12(b), provided they satisfy the net cost method at the time of their entry into the United States. Moreover, the J-Roller pens qualify to be marked as goods of Mexico pursuant to the NAFTA Marking Rules.
U.S. Customs and Border Protection NAFTA Regulations, 19 CFR 181.100 (a)(2), provide that each NAFTA 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 an advance 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 advance ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the advance ruling was based. If any of the facts are materially different or a condition has not been satisfied, the treatment specified in the advance ruling will not be applied to the actual transaction. 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 & Special Programs Branch