OT:RR:CTF:VS H325936 UBB
Center Director, Joanne Colonnello
CEE – Pharmaceuticals, Health and Chemicals
OFO Administration
1100 Raymond Blvd
Newark, NJ
RE: Country of Origin of imported ink base; Section 301 measures; Application for Further Review of Protest 3802-22-105086
Dear Center Director Colonnello:
This is in reference to Protest No. 3802-22-105086 and the Application for Further Review, dated January 24, 2022, timely submitted by Faegre, Drinker, Biddle and Reath, LLP, on behalf of Sun Chemical Corporation (“SCC”, “the importer” or “protestant”), contesting the liquidation-as-entered of an entry made in 2021. The merchandise in question is imported ink base, which was entered as Chinese-origin and Section 301 duties were assessed. The protestant is challenging the liquidation, arguing that the ink base was substantially transformed in Canada and is therefore a good of Canadian origin for the purpose of Section 301 duties. The protestant requests a refund of Section 301 duties paid.
On January 21, 2022, CBP liquidated a single entry from 2021 for which SCC was the importer of record. One item on the entry, “Gen III Carb. Violet” had been entered with a country of origin (“COO”) of China and Section 301 duties were assessed. Supporting documents submitted with the entry, including commercial invoices and the bill of lading, corroborate that the Gen III Carb. Violet was of Chinese origin. CBP liquidated the merchandise as entered. On January 24, 2022, SCC filed a protest challenging the liquidation, arguing that the Gen III Carb. Violet had been substantially transformed in Canada prior to its importation into the United States, and requesting a refund of Section 301 duties paid.
FACTS:
SCC is a manufacturer and distributor of printing inks, coatings and supplies. The product subject to this protest/AFR is an ink base product classified and entered under subheading 3204.17 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The protestant states that the ink base products are imported into the United States for final processing into ink that is used by the commercial printing industry. Prior to importation, the ink base undergoes processing in Canada.
According to the protestant, the Canadian production process is as follows: refined powder pigment is imported from China (or elsewhere). This refined powder pigment can be used in a wide array of applications, including coloring for pencils, plastics, rubber, paint, pellets, textiles and ink. The refined pigment is also suitable for further processing. A varnish or grinding vehicle is prepared in the United States by combining solvents, resins and additives. Formulation of the varnish/vehicle requires specific knowledge of the end use of the product and knowledge of the chemistry required to generate inks with the proper application properties, such as shear stability, viscosity stability and color uniformity, as well as the ability to adhere to the printed surface. In Canada, the U.S. origin varnish/vehicle and the China origin powder pigment (a dry powder) are combined and subjected to a dispersion process that uses physical energy to transform heavily aggregated and agglomerated particles into the finely dispersed discrete particles required to produce high performance ink bases. The mixture of pigment and varnish/vehicle are first mixed in a high rotary shear mixer. The mixer homogenizes the pigment and varnish/vehicle, and a rotor stator generates a shear to break down the resin and pigment particles. The substance is then passed through a media mill that de-aggregates and disperses the pigment particles and reduces particle size. This ensures uniform coating of the particles by the varnish/vehicle and generates smaller, stabilized discrete pigment particles. Once the process is complete, the resulting substance is an ink base with a pre-determined use for printing applications.
The ink base can no longer be used in plastic, rubber, or in textile fibers. Once the pigment is converted into an ink base the particle cannot be returned to its original pure pigment state. The new composition and particle size irreversibly dictate the applications in which the ink base can be used. The protestant notes that there are many types of printing inks and the subject merchandise can only be used for one or two of the many types of inks. As such, the generic pigment imported into Canada is transformed into a specialty product. According to the importer, after the Canadian processing, the resulting ink base can no longer be used for the same applications as the refined pigment; the resulting base is dedicated for use only as ink. The ink base is imported into the U.S., where it is combined with a blending varnish (made up of solvents, resins and additives) to produce the finished ink.
ISSUE:
Whether the country of origin of the subject ink base is Canada.
LAW AND ANALYSIS:
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty of 25 percent 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, Harmonized Tariff Schedule of the United States (“HTSUS”).
When determining the country of origin for purposes of applying Section 301 measures, the substantial transformation analysis is applicable. The test 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. Texas Instruments, Inc. v. United States, 681 F.2d 778 (C.C.P.A. 1982). This determination is based on the totality of the evidence. See Nat’l Hand Tool Corp. v. United States, 16 Ct. Int’l Trade 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). In order to determine whether a substantial transformation has occurred, CBP looks at the totality of the circumstances and makes such decisions on a case-by-case basis. The country of origin of the article’s components, the extent of the processing that occurs within a given country, and whether such processing renders a product with a new name, character, and use are primary considerations. For instance, in National Juice Products Ass’n v. United States, 10 CIT 48, 628 F. Supp. 978 (Ct. Int’l Trade 1986), the United States Court of International Trade (“CIT”) upheld CBP’s decision in Headquarters Ruling Letter (“HQ”) 728557, dated September 4, 1985, that imported orange juice concentrate was not substantially transformed when it was mixed with water, essential oils, flavoring ingredients and domestic fresh juice in order to produce frozen concentrated orange juice and reconstituted orange juice. CBP found that the manufacturing process did not create an article with a new name, character or use. The CIT agreed that the manufacturing process did not change the “fundamental character of the product” as “it was still essentially the juice of oranges”. See HQ H237605 dated June 25, 2014.
In the pharmaceutical context, CBP has consistently examined the complexity of the processing and whether the final article retains the essential identity and character of the raw material. HQ H299717 (August 27, 2018). For example, when various ingredients from different countries of origin are mixed together based on a specific formula to make dietary supplement tablets, and the combination of ingredients results in a product with a synergistic effect that promotes benefits that otherwise would only be possible by taking the individual ingredients separately, CBP has found that a substantial transformation has occurred. Id. This is because the combination of the various ingredients results in a product that has an identity, character and use that is different and more convenient than taking the individual raw materials. Id. Protestant also cites to New York Ruling Letter (“NY”) N301202, dated November 2, 2018, in support of its position. In NY N301202, CBP found that a substantial transformation took place when dimethicone was diluted with water and blended with other ingredients in a fixed percentage to make the final product, a dimethicone lotion. In addition to dimethicone, the final product consisted of water (approx. 77% of the final product), and various inactive ingredients that nevertheless added to the skin care benefit of the overall product (as moisturizing agents and fragrance). In their ruling request, the requestor argued that dimethicone was the active ingredient in the lotion and should therefore confer origin. CBP disagreed, noting that the dimethicone base was a chemical substance which could be used in a wide variety of products and that it only became a skin care product when it was mixed and formulated with the other listed ingredients. CBP found that these ingredients, although described as inert by the requestor, in fact added to the skin care benefit of the overall product. As a result, CBP found that the dimethicone was substantially transformed by the processing described by the ruling requestor.
In contrast, where the finished product retains the identity and character of the precursor ingredients, CBP has found that no substantial transformation occurs. See, e.g. HQ H304539 (April 20, 2020) (no substantial transformation occurs where perfume oil base is combined with ethyl alcohol and water, as the oil base is the essence of the eau de toilette). CBP has also ruled that no substantial transformation occurs when crude CVP-23 pigment is processed into finished CVP-23 pigment that has a smaller and more uniform particle size, even though the manufacturing process enhances the tinting power of the crude product. HQ H113256 (December 27, 2010).
In this case, refined powder pigment is combined with a varnish/vehicle made up of resins, solvents and additives, and subjected to a dispersion process that uses physical energy to transform heavily aggregated and agglomerated particles into the finely dispersed discrete particles required to produce high performance ink bases, which are used only in certain printing inks. Formulation of the varnish/vehicle requires specific knowledge of the end use of the product and knowledge of the chemistry required to generate inks with the proper application properties, such as shear stability, viscosity stability and color uniformity, as well as the ability to adhere to the printed surface. The varnish/vehicle is manufactured in the U.S. using mostly U.S. origin components. In Canada, the refined pigment (from China) and prepared varnish/vehicle (from the U.S.) are combined in a high rotary shear mixer; the mixer generates a vortex to homogenize the mixture and the rotor stator generates shear to break down the resin and pigment particles. Once the mixture is homogenized, it is passed through a media mill. Protestant states that the media mill is a highly engineered device that is designed for certain types of products and customized for specific applications, and that the choice of media, mill type, pigment to binder ratio, speed, time, and other process parameters will determine the quality of the finished vase. According to the protestant, once the process is complete, the resulting substance is an ink base with a pre-determined use for printing applications. It can no longer be used in plastic, rubber, or in textile fibers. It also cannot be returned to its original pure pigment state. Protestant also notes that there are many types of printing inks and the bases produced in Canada can only be used for 1 or 2 of the many types of inks. Protestant argues that in this way the generic pigment imported into Canada is transformed into a specialty product.
We find that this case is similar to HQ H299717 and NY N301212, where the nature of the processing resulted in a new and different product, with a new name, character and use. In this case, as a result of the processing, the refined powder pigment undergoes a change in name, from powder pigment to ink base. It also undergoes a change in character, from heavily aggregated and agglomerated powder pigment particles into finely dispersed discrete particles that are then mixed with varnish/vehicle and milled to de-aggregate and further reduce particle size, resulting in an ink base. Finally, the powder pigment undergoes a change in use, from a wide array of uses prior to processing, to an ink base with a pre-determined use for one or two types of printing inks. As such, the refined powder pigment has been substantially transformed into a new and different product. The country of origin for Section 301 purposes of the ink base is Canada.
HOLDING:
The protest should be GRANTED. The subject merchandise was substantially transformed in Canada and the country of origin for Section 301 purposes is Canada.
You are instructed to notify the protestant of this decision no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the publish on the Customs Ruling Online Search System (CROSS) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
For Yuliya A. Gulis, Director
Commercial Trade and Facilitation