OT:RR:CTF:VS H270640 RMC
William R. Rucker
Drinker Biddle & Reath LLP
191 North Wacker Dr., Suite 3700
Chicago, IL 60606-1698
Re: Eligibility of Copper Cathode Sheets for NAFTA Duty Preference
Dear Mr. Rucker:
This is in response to your letter dated October 28, 2015, and referencing your letter dated September 14, 2015, concerning Glencore’s request for a ruling on the eligibility of certain copper cathode sheets for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”).
FACTS:
Your client Glencore Canada Corporation operates a copper refinery located in Montreal, Quebec, Canada. The products at issue are refined copper cathode sheets, classified in heading 7403, Harmonized Tariff Schedule of the United States (“HTSUS”), that Glencore will manufacture at this refinery.
Glencore’s typical manufacturing process for copper cathode sheets includes the following steps. First, both originating and non-originating copper anodes classified in heading 7402, HTSUS, are submerged in a tank containing a sulfuric-acid solution. Next, stainless steel “mother blank” sheets are placed in the tank between each copper anode. The sulfuric acid begins to dissolve the copper anodes, and an electric current activates the refining process. The pure copper dissolved in the solution is attracted to and deposited onto the stainless steel blank, forming a pure copper cathode sheet by process of electrolysis. The copper anodes stay in the refining tank for 21 days, and the stainless steel blanks (with new copper cathode sheets) are removed and replaced every seven days. After removal from the electro-refining tank, the finished copper cathode sheets are removed from the steel mother blanks and are ready for sale to customers after they are washed and inspected.
In addition to finished copper cathode sheets, this manufacturing process also creates “spent” or “partially-consumed” anodes classified in heading 7404, HTSUS. These anodes are processed in the refinery’s re-melt furnace to produce new copper anodes for use in the typical manufacturing process.
When the spent copper anodes are placed in the re-melt furnace, Glencore will also add off-grade copper cathodes classified in heading 7403, HTSUS from non-NAFTA sources along with other high-copper-content materials of unknown origin classified in various headings of Chapter 74, HTSUS. This will result in new anodes that Glencore will treat as self-produced, non-originating materials for purposes of the NAFTA. These anodes will then be used in Glencore’s ordinary course of business producing refined copper cathode sheets in the manufacturing process described above.
ISSUE:
Whether the copper cathode sheets are eligible for preferential tariff treatment under the NAFTA.
LAW & ANALYSIS:
The NAFTA is implemented in 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.
You argue that the final product’s sole input—the copper anodes—should be considered a non-originating, self-produced material for purposes of the NAFTA. The NAFTA Rules of Origin Regulations set forth in 19 C.F.R. Part 181, App. define a “self-produced material” as “a material that is produced by the producer of a good and used in the production of that good.” See 19 C.F.R. Part 181, App., sec. 2(1). Here, because Glencore will produce copper anodes in a re-melt furnace using spent anodes, off-grade copper cathodes, and possibly other high-copper-content materials, we agree that the copper anodes qualify as self-produced materials.
We also agree that the self-produced copper anodes will be considered non-originating for purposes of NAFTA. Section 4(8) of the NAFTA Rules of Origin Regulations, 19 C.F.R. Part 181, App. sec. 4(8), states that:
For purposes of determining whether non-originating materials undergo an applicable change in tariff classification, a self-produced material may, at the choice of the producer of a good into which the self-produced material is incorporated, be considered as an originating material or non-originating material, as the case may be, used in the production of that good.
For example, as explained in 19 C.F.R. Part 181, App., sec. 4(9):
Producer A, located in a NAFTA country, produces Good A. In the production process, Producer A uses originating Material X and non-originating Material Y to produce Material Z. Material Z is a self-produced material that will be used to produce Good A.
The rule set out in Schedule I for the heading under which Good A is classified specifies a change in tariff classification from any other heading. In this case, both Good A and the non-originating Material Y are of the same heading. However, the self-produced Material Z is of a heading different than that of Good A.
For purposes of determining whether the non-originating materials that are used in the production of Good A undergo the applicable change in tariff classification, Producer A has the option to consider the self-produced Material Z as the material that must undergo a change in tariff classification. As Material Z is of a heading different than that of Good A, Material Z satisfies the applicable change in tariff classification and Good A would qualify as an originating good.
Here, the final product is analogous to Good A, the spent copper anodes are analogous to Material X, and the non-originating, off-grade copper cathodes are analogous to Material Y. In other words, Glencore will use two materials to self-produce the input that will go into the final product. Moreover, as in the example above, the final product would not qualify as originating under the GN 12 tariff shift rules based on one material (the off-grade copper cathodes, which are classified in heading 7403, HTSUS) but would qualify as originating based on the other material (the spent copper anodes, which are classified in 7404) because the GN 12 rule for the finished product requires: “a change to headings 7401 through 7403 from any other heading, including from any other heading within that group, except from heading 7404.” Thus, as illustrated in the example in 19 C.F.R. Part 181, App. sec. 4(8), Glencore may choose to treat the self-produced copper anode as the raw material that must undergo a change in tariff classification under GN 12, rather than the non-originating, off-grade copper cathode. Because the copper anodes undergo the required tariff shift, the copper cathode sheets are considered originating under GN 12.
In addition to meeting the requirements in GN 12, the copper cathode sheets must also qualify to be marked as a product of Mexico or Canada in order to receive preferential tariff treatment under the NAFTA. Under the marking rules in 19 C.F.R. § 102.11, the country of origin for non-textile goods is determined to be the country in which:
(1) The good is wholly obtained or produced;
(2) 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 [section] 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
Here, because the copper cathode sheets are neither “wholly obtained or produced” in Canada nor “produced exclusively from domestic materials” in Canada, they must meet the tariff shift rule in 19 C.F.R. § 120.11 in order to be marked as a product of Canada. The applicable tariff shift rule for articles of heading 7403, HTSUS is: “a change to heading 7401 through 7407 from any other heading, including another heading within that group.” Because the copper anodes are classified in heading 7402, HTSUS, the required tariff shift occurs, and the copper cathode sheets qualify to be marked as products of Canada.
HOLDING:
The copper cathode sheets will be considered as originating in Canada for NAFTA preferential tariff treatment under GN 12(b). Moreover, in accordance with the NAFTA Marking Rules, the copper cathode sheets will also qualify to be marked as goods of Canada.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch