OT:RR:CTF:VS H341787 AM
Joe Trulik
Cole International USA Inc.
441 Peace Portal Drive
Blaine, Washington 98230
RE: Enerzan L (20); United States-Mexico-Canada Agreement; Country of Origin; Marking
Dear Mr. Trulik:
This is in response to your request, dated August 26, 2024, filed on behalf of Canadian
Energy Services, Inc. (“Canadian Energy”). In your letter, you inquire about the eligibility of
Enerzan L (20) for preferential tariff treatment under the United States-Mexico-Canada
Agreement (“USMCA”), and the country of origin for purposes of marking and Section 301
trade remedies. Your request, submitted as an electronic ruling request, was forwarded to this
office from the National Commodity Specialist Division (“NCSD”) for response. Our ruling is
set forth below.
FACTS:
You state that Enerzan L (20) is used as a viscosifier added to water-based drilling fluids
in ground drilling activities, particularly in oil and natural gas drilling. Enerzan L (20) is a mix
of predominantly premium mineral oil and xanthan gum. The blending production of Enerzan L
(20) takes place in Canada.
According to your request, and confirmed by the NCSD, Enerzan L (20) is classified
under subheading 3824.99.49, Harmonized Tariff Schedule of the United States (“HTSUS”),
which provides for: “Prepared binders for foundry molds or cores; chemical products and
preparations of the chemical or allied industries (including those consisting of mixtures of
natural product), not elsewhere specified or included: Other: Cultured crystals (other than optical
elements of chapter 90), weighing not less than 2.5g each: Other:”
The components of Enerzan L (20) are as follows:
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Product Non-Trade Weight (%) Cost ($) Country of HTS
Breakdown Name Origin
Ces Premium Mineral Oil 73.40% $0.99 United States 2710.19.30
Mineral Oil
BYK GO 8730 Stability 2.00% $0.50 Germany 3824.99
Enhancer
Xanthan Gum Xanthan Gum 24.00% $1.95 China 3913.90.50
Water Water 0.06% $0 Canada 2853.90
Labor N/A N/A $0.08 Canada N/A
The manufacturing process for Enerzan L (20) is as follows:
1. Charge the vessel with Mineral Oil.
2. Pump in Stability Enhancer through hose into the vessel and allow 15 minutes to mix.
3. Pump in water through the hose into the vessel and allow 15 minutes to mix.
4. Add the Xanthan Gum bags through auger while mixing.
5. Circulate and mix for one hour.
6. Take samples to the lab for quality control, make any adjustments as required, and
package when ready.
You describe the role of mineral oil in Enerzan L (20) as a base solvent. When hydrated
in the application fluids, xanthan gum is the functional additive that enhances the rheological
properties to facilitate cleaning of the wellbore. The water serves as a polar activator for the
stability enhancer. Additionally, the stability enhancer provides anti-settling properties to
enhance stability during transportation and storage.
ISSUES:
1. Whether Enerzan L (20) is eligible for preferential tariff treatment under the USMCA
when imported from Canada into the United States.
2. What is the country of origin of Enerzan L (20) for marking purposes?
3. What is the country of origin of Enerzan L (20) for purposes of Section 301 trade
remedies?
LAW & ANALYSIS:
1. Eligibility of USMCA Preferential Tariff Treatment
The 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)). General Note (“GN”) 11 of the HTSUS implements the USMCA.
GN 11(a)(i) provides:
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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 . . .
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—
(i) the good is a good wholly obtained or produced entirely in the territory of
one or more USMCA countries;
(ii) the good is a good produced entirely in the territory of one or more
USMCA countries, exclusively from originating materials;
(iii) 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, Enerzan L (20) contains nonoriginating materials. As such, it is not considered a
good wholly obtained or produced entirely in a USMCA country under GN 11(b)(i), nor are the
products produced exclusively from originating materials per GN 11(b)(ii). Thus, we must
determine whether the products qualify under GN 11(b)(iii).
The applicable rule of origin for goods classified under subheadings 3824.99.49, HTSUS, is
in GN 11(o)/38.5, HTSUS, which provides, in relevant part:
5. (A) A change to subheadings 3823.11 through 3826.00 from any other
subheading, including another subheading within that group; or
(B) No change in tariff classification to a good of subheadings 3823.11 through
3826.00, provided there is a regional value content of not less than:
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(1) 40 percent where the transaction value method is used; or
(2) 30 percent where the net cost method is used.
According to the facts presented, the German-origin stability enhancer (BYK GO 8730)
does not undergo a tariff shift as its six-digit subheading classification 3824.99, HTSUS, is the
same as Enerzan L (20). Thus, GN 11(o)/ 38.5(A) is inapplicable, and we apply GN 11(o)/
38.5(B).
You have provided us with information pertaining to the cost of the materials, and you
utilized the net cost in your calculations to calculate the regional value content (“RVC”) of the
originating materials. Under GN 11(c)(iii), the net cost method is set forth as follows:
Net cost method. – An importer, exporter or producer of a good may calculate the
regional value content of a good on the basis of the following net cost method:
RVC = ((NC - VNM)/NC) x 100
where NC means the net cost of the good; RVC means the regional value content,
expressed as a percentage; and VNM is the value of nonoriginating materials,
including materials of undetermined origin, used by the producer in the
production of the good.
You provided a product breakdown of Enerzan L (20) which includes the total costs of
the originating and nonoriginating components, as well as the production costs. Based on the
table provided, the net cost of the Enerzan L (20) is $3.52. The costed bill of materials indicates
that the value of the non-originating materials is $2.45. As such, the RVC is (($3.52 - $2.45)
/$3.52) * 100] = 30.40%. This is above the 30% minimum required by GN 11(o)/ 38.5(B)(2).
Accordingly, Enerzan L (20) qualifies as a USMCA originating good and will be eligible for
preferential tariff treatment under the USMCA when imported into the United States from
Canada.
2. Country of Origin for Marking Purposes
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 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. By enacting 19 U.S.C. § 1304,
Congress intended to ensure that the ultimate purchaser would be able to know by inspecting the
marking on the imported goods the country of which the goods are the product. “The evident
purpose is to mark the goods so that at the time of purchaser 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.” See United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302
C.A.D. 104 (1940).
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Part 134 of the U.S. Customs and Border Protection (“CBP”) Regulations (19 C.F.R. §
134) implements the country of origin marking requirements and exceptions of 19 U.S.C. §
1304. Title 19, § 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 in order to
render such other country the ‘country of origin’ within the meaning of [the marking laws and
regulations].”
Pursuant to section 102.0, interim regulations, related to the marking rules, tariff-rate
quotas, and other USMCA provisions, published in the Federal Register on July 6, 2021 (86 FR
35566), the rules set forth in §§ 102.1 through 102.18 and 102.20 determine the country of origin
for marking purposes with respect to goods imported from Canada and Mexico. Section 102.11
provides a hierarchy for determining the country of origin of a good for marking purposes. See
19 C.F.R. § 102.11.
Applied in sequential order, 19 C.F.R. § 102.11(a) provides that the country of origin of a
good is 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 § 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.”
Enerzan L (20) is neither “wholly obtained or produced” nor “produced exclusively from
domestic materials.” Therefore, paragraphs (a)(1) and (a)(2) cannot be used to determine the
country of origin, and we need to apply paragraph (a)(3). Enerzan L (20) will be classified under
subheading 3824.99.49, HTSUS. With respect to the Enerzan L (20), which is classified in
subheading 3824.99.49, HTSUS, the current edition of the Code of Federal Regulations (C.F.R.)
has omitted the rule in 19 C.F.R. § 102.20 for 3824.99 due to a technical error. Until a technical
correction is made, reference to the 2021 version of the C.F.R. needs to be made where the rules
for this subheading last appeared. Furthermore, since the 19 C.F.R. Part 102.20 rules have not
all been updated to reflect more recent changes made to the classification of certain articles,
reference to the prior classification of this article needs to be made. In 2017, the classification
was changed from 3824.90.48 to 3824.99.48, and in 2023, the classification was changed to
3824.99.49, HTSUS.
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The 19 C.F.R. § 102.20(f), Customs Regulation (19 C.F.R. § 102.20(f) (2021)) rules for
subheading 3824.90, provides:
A change to naphthenic acids, their water-insoluble salts or their esters of
subheading 3824.90 from any other good of subheading 3824.90 or from any
other subheading; or
A change to any other good of subheading 3824.90 from naphthenic acids, their
water-insoluble salts or their esters of subheading 3824.90 or from any other
subheading, provided that no more than 60 percent by weight of the good
classified in this subheading is attributable to one substance or compound, except
from other chemical products or preparations of the chemical or allied industries
(including those consisting of mixtures of natural products), not elsewhere
specified or included, of subheading 3824.71, or 3824.73 through 3824.79; or
A change to any other good of subheading 3824.71 through 3824.90 from any
other subheading, including another subheading within that group, provided that
no more than 60 percent by weight of the good classified in this subheading is
attributable to one substance or compound.
In order to determine which of these rules will be used, we note that Enerzan L (20) is a
mix of predominantly premium mineral oil and xanthan gum. As such, we use the third rule
stated above. Based on the facts presented, the U.S.-origin mineral oil is over the 60 percent
weight threshold. Additionally, the German origin stability enhancer (BYK GO 8730) does not
undergo a tariff shift as its six-digit subheading classification 3824.99, HTSUS (the 2017 version
of the classification is used), is the same as Enerzan L (20). As a result, the tariff shift is not met.
Because an analysis of section 102.11(a) has not produced a country of origin
determination, we turn to section 102.11(b) of the regulations. Section 102.11(b)(1) provides as
follows:
(b) Except for a good that is specifically described in the Harmonized System as a
set, or is classified as a set pursuant to General Rule of Interpretation 3, where the
country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin
of the single material that imparts the essential character to the good, or
(2) If the material that imparts the essential character to the good is
fungible, has been commingled, and direct physical identification of the
origin of the commingled material is not practical, the country or countries
of origin may be determined on the basis of an inventory management
method.
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In determining the "essential character" of the finished good, Section 102.18(b)(1)
provides, in relevant part:
(b) (1) For purposes of identifying the material that imparts the essential character
to a good under §102.11, the only materials that shall be taken into consideration
are those domestic or foreign materials that are classified in a tariff provision
from which a change in tariff classification is not allowed under Part 102.20
specific rule or other requirements applicable to the good … (ii) Materials that
may be considered include materials produced by the producer of the good and
incorporated in the good. For example, if a producer of a good purchases raw
materials and converts those raw materials into a component that is incorporated
in the good, that component is a material that may be considered for purposes of
identifying the materials that impart the essential character to the good, provided
that the component is classified in a tariff provision from which a change in tariff
classification is not allowed under the specific rule…
Of the parts that do not undergo the applicable tariff shift requirement, specifically, the
origin stability enhancer (BYK GO 8730) and the U.S.-origin mineral oil, it is our opinion that
no single item imparts Enerzan L (20) with its essential character as none of these components
individually contribute significantly to the purpose of the merchandise. Therefore, 19 C.F.R. §
102.11(b) cannot be used to determine the country of origin of Enerzan L (20).
The country of origin of Enerzan L (20) cannot be determined by application of 19 C.F.R.
§ 102.11(c), because it is not specifically described in the Harmonized System as a set or
mixture, or classified as a set, mixture, or composite good pursuant to General Rule of
Interpretation 3. Accordingly, we next consider section 102.11(d) of the hierarchical rules,
which provides:
Where the country of origin of a good cannot be determined under paragraph (a),
(b), or (c) of this section, the country of origin of the good shall be determined as
follows:
(1) If the good was produced only as a result of minor processing, the country of
origin of the good is the country or countries of origin of each material that merits
equal consideration for determining the essential character of the good;
(2) If the good was produced by simple assembly and the assembled parts that
merit equal consideration for determining the essential character of the good are
from the same country, the country of origin of the good is the country of origin
of those parts; or
(3) If the country of origin of the good cannot be determined under paragraph
(d)(1) or (d)(2) of this section, the country of origin of the good is the last country
in which the good underwent production.
19 C.F.R. § 102.11(d).
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“Minor processing” is defined in 19 C.F.R. § 102.1(m) as including, in part, the mere
dilution with water or another substance, cleaning, application of preservative or decorative
coatings, trimming, filing, or cutting off small amounts of excess materials, unloading, reloading,
putting up in measured doses, packing, repacking, packaging, repackaging, testing, marking,
sorting, or grading, ornamental or finishing operations incidental to textile good production,
repairs and alterations, washing laundering, or sterilizing. “Simply assembly” is defined in
section 102.1(o) as “the fitting together of five or fewer parts all of which are foreign (excluding
fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means
without more than minor processing.
Based on the facts provided, we find that the operations performed in Canada constitute
more than “minor processing” and exceed a “simple assembly.” Therefore, subparagraphs (1)
and (2) of 19 C.F.R. § 102.11(d) are inapplicable. Consequently, by application of 19 C.F.R. §
102.11(d)(3), the country of origin of Enerzan L (20) is the last country in which the goods
underwent production. The term “production,” as defined in 19 C.F.R. § 102.1(n), includes
manufacturing, processing, and assembling a good. The operations performed in Canada
constitute production. Accordingly, we find that the country of origin of Enerzan L (20) is
Canada for marking purposes.
3. Country of Origin for Purposes of Section 301 Trade Remedies
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, Harmonized Tariff Schedule of the United States (“HTSUS”).
When determining the country of origin for purposes of applying current trade remedies
under Section 301, the substantial transformation analysis is applicable. See, e.g., Headquarters
Ruling (“HQ”) H301619, dated November 6, 2018. 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, 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 CIT 308
(1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). If the manufacturing or combining process is a
minor one which leaves the identity of the article intact, a substantial transformation has not
occurred. See United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 (1940).
To determine whether a substantial transformation occurs, CBP considers the totality of
the circumstances and makes such determinations on a case-by-case basis. The country of origin
of the item’s components, extent of the processing that occurs within a country, and whether
such processing renders a product with a new name, character, and use are primary
considerations in such cases. Additionally, factors such as the resources expended on product
design and development, the extent and nature of post-assembly inspection and testing
procedures, and worker skill required during the actual manufacturing process will be considered
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when determining whether a substantial transformation has occurred. No one factor is
determinative.
CBP has generally held that the mere mixing of two substances in another country, not
involving a chemical reaction and without additional processing, does not result in a product of
such other country. See HQ 561986 (dated Aug. 21, 2001). However, certain types of blending
operations where the finished product could be considered to have a new name, character, or use
over its constituent inputs could lead to a finding of substantial transformation. See HQ 562468
(dated Oct. 4, 2022). CBP also made a similar finding in New York Ruling (“NY”) N127337,
dated November 2, 2010, where we determined that the ingredients of a fluid loss cement
additive while being blended in Canada underwent a substantial transformation as the finished
product had a distinct identity over its ingredients.
In the instant matter, we find that blending xanthan gum with mineral oil, stability
enhancer, and water makes it suitable for a particular purpose in ground oil drilling. Similar to
HQ 562468, the end product, Enerzan L (20), has an identity that is distinct from the materials
from which it was produced. Therefore, we hold that the materials will undergo a substantial
transformation as a result of the operations performed in Canada in making Enerzan L (20), and
that the country of origin is Canada and, therefore not subject to Section 301 measures.
HOLDING:
Based on the information provided, Enerzan L (20) is eligible for preferential tariff
treatment under USMCA. Pursuant to 19 C.F.R. § 102.11(d), the country of origin for marking
purposes of Enerzan L (20) is Canada and the country of origin for purposes of section 301 trade
remedies is Canada.
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 [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
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