CLA-2-90:OT:RR:NC:N1:405
Kim Caywood-Pierce
A.N. Deringer, Inc.
173 West Service Road
Champlain, NY 12919
RE: The tariff classification and status under the North American Free Trade Agreement (NAFTA), of the MAX-730C from Canada; Article 509
Dear Ms. Caywood-Pierce:
In your letter dated June 16, 2017, on behalf of EXFO, Inc., you requested a ruling on tariff classification, NAFTA eligibility, and country of origin of the MAX-730C handheld OTDR.
The MAX-730C is described as a dedicated handheld optical time domain reflectometer (OTDR). The device is used in the testing of fiber optic networks. Per the information provided, the MAX-730C operates by injecting a series of optical pulses into the fiber under test and extracting the light that is scattered or reflected back from points along the fiber. By measuring the strength of the return pulses, the device is able to characterize the fiber-optic line, thus enabling a user to troubleshoot an active network and identify potential faults.
In your submission you indicate that the hardware for the MAX-730C units is assembled at an EXFO facility in China. The myriad electrical, optical, and mechanical components of the MAX-730C devices are assembled together in China, however the units undergo no testing or programming prior to their shipment to Canada. Upon arrival in Canada the units are electrically tested and calibrated, software is installed, and the devices are programmed. After these steps are taken, the fully programmed MAX-730Cs are tested again to ensure they function properly prior to be being imported into the United States. Per your submission, the un-programmed, untested units imported into Canada have a much lower value than that of the (fully programmed and tested) finished units exported from Canada.
The finished MAX-730C is a standalone unit, capable of performing its testing function without the aid of other equipment. The MAX-730C serves a function similar to that of the OTDR described in New York Ruling Letter (NYRL) R04152, dated June 30, 2006.
The applicable tariff provision for the MAX-730C will be 9027.50.4060, Harmonized Tariff Schedule of the United States (HTSUS), which provides for Instruments and apparatus for physical or chemical analysis (for example, polarimeters, refractometers, spectrometers, gas or smoke analysis apparatus); instruments and apparatus for measuring or checking viscosity, porosity, expansion, surface tension or the like; instruments and apparatus for measuring or checking quantities of heat, sound or light (including exposure meters); microtomes; parts and accessories thereof: Other instruments and apparatus using optical radiations (ultraviolet, visible, infrared): Other: Electrical: Other. The general rate of duty will be free.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at https://hts.usitc.gov/current.
General Note 12(b), HTSUS, sets forth the criteria for determining whether a good is originating under the NAFTA. General Note 12(b), HTSUS, (19 U.S.C. § 1202) states, in pertinent part, that
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; or
(iv) they are produced entirely in the territory of Canada, Mexico and/or the United States but one or more of the nonoriginating materials falling under provisions for “parts” and used in the production of such goods does not undergo a change in tariff classification because--
(A) the goods were imported into the territory of Canada, Mexico and/or the United States in unassembled or disassembled form but were classified as assembled goods pursuant to general rule of interpretation 2(a), or
(B) the tariff headings for such goods provide for and specifically describe both the goods themselves and their parts and is not further divided into subheadings, or the subheadings for such goods provide for and specifically describe both the goods themselves and their parts,
provided that such goods do not fall under chapters 61 through 63, inclusive, of the tariff schedule, and provided further that the regional value content of such goods, determined in accordance with subdivision (c) of this note, is not less than 60 percent where the transaction value method is used, or is not less than 50 percent where the net cost method is used, and such goods satisfy all other applicable provisions of this note.
As mentioned above, the MAX-730C is classified under subheading 9027.50.4060. With respect to General Note 12(b)(ii)(A), the applicable tariff shift rule under General Note 12(t) Chapter 90/61 states that (A) A change to subheadings 9027.10 through 9027.50 from any other heading; or (B) A change to subheadings 9027.10 through 9027.50 from subheading 9027.90, whether or not there is also a change from any other heading, provided there is a regional value content of not less than (1) 60 percent where the transaction value method is used, or (2) 50 percent where the net cost method is used.
In your submission you state that in previous rulings issued to EXFO, namely NYRLs N244795 and N255415 (dated August 28, 2013 and August 15, 2014 respectively), CBP determined that un-programmed and untested OTDR devices were classified in subheading 9027.90 as “parts and accessories…of instruments and apparatus of subheading 9027.20, 9027.30, 9027.50, or 9027.80.” Consequently, you aver that the un-programmed and untested MAX-730C units imported into Canada would be classified in subheading 9027.90, and thus would meet the tariff shift outlined in General Note 12(t) Chapter 90/61 (B) (as the complete, fully programmed MAX-730C subsequently exported from Canada would be classified in subheading 9027.50). This office disagrees with that assertion. In the rulings that you cite, the products at issue were not classified in subheading 9027.90 because they were un-programmed, but rather because the components could not independently perform a testing function without being combined with one another (or conceivably with other instruments). Indeed, NYRL N244795 determined that the programmed devices exported from Canada were classified in subheading 9027.90, and made no evident distinction between the un-programmed and programmed devices in respect to classification. In the scenario you describe concerning the MAX-730C, the units do not undergo a tariff shift in Canada, and thus do not meet the terms of General Note 12(b)(ii)(A). As a result, the MAX-730C does not qualify for preferential treatment under NAFTA.
You have also requested a ruling on the country of origin marking of the MAX-730C. The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. 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 U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.
The country of origin marking requirements for a “good of a NAFTA country” are also determined in accordance with Annex 311 of the North American Free Trade Agreement (“NAFTA”), as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat 2057) (December 8, 1993) and the appropriate Customs Regulations. The Marking Rules used for determining whether a good is a good of a NAFTA country are contained in Part 102, Customs Regulations. The marking requirements of these goods are set forth in Part 134, Customs Regulations.
Section 134.1(b) of the regulations defines “country of origin” as the country of manufacture, production, or growth of any article of foreign origin entering the U.S. 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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j) of the regulations provides that the “NAFTA Marking Rules” are the rules promulgated for the purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) of the regulations, 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. Section 134.45(a)(2) of the regulations, provides that “a good of a NAFTA country” may be marked with the name of the country of origin in English, French or Spanish.
The MAX-730C is processed in Canada prior to being imported into the United States. Since Canada is defined under 19 CFR 134.1(g) as a NAFTA country, we must apply the NAFTA Marking Rules in order to determine if the goods are subject to the NAFTA marking requirements.
Part 102 of the regulations sets forth the NAFTA Marking Rules. Section 102.11 of the regulations sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) states 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 as set out in section 102.20 and satisfies any other applicable requirements of that section.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the MAX-730C. Section 102.20 for 9027.10-9027.90 requires a change to any other good of subheading 9027.10 through 9027.90 from any other subheading, including another subheading within that group. Since the MAX-730C does not undergo the appropriate tariff shift, section 102.11(a)(3) does not apply.
Section 102.11(b) states that except for a good that is specifically described in the Harmonized System as a set, or classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of section 102.11, then 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. This section does not apply to the MAX-730C.
Section 102.19 states that except in the case of a good of paragraph (b), if a good which is originating within the meaning of 181.1(q) of this chapter is not determined under section 102.11(a) or (b) to be a good of a single NAFTA country, the country of origin of the good is the last NAFTA country in which the good underwent processing other than minor processing. Under Section 102.19, the NAFTA Preference Override, the country of origin of the MAX-730C is Canada for marking purposes.
This ruling is being issued under the provisions of Part 181 of the Customs Regulations (19 C.F.R. 181).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Evan Conceicao at [email protected].
Should you wish to request an administrative review of this ruling, submit a copy of this ruling and all relevant facts and arguments within 30 days of the date of this letter, to the Director, Commercial Rulings Division, Headquarters, U.S. Customs and Border Protection, Regulations & Rulings, 90 K Street, N.E. – 10th floor, Washington, DC 20229-1177.
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division