CLA-2-82:OT:RR:NC:1:104
Mr. Daniel Smith
Joseph Smith Customhouse Broker, Inc.
210 East Sunrise Highway, Suite 301
Valley Stream, NY 11581-1328
RE: The tariff classification of inserts from Brazil
Dear Mr. Smith:
In your letter dated June 1, 2012, on behalf of Sandvik Tooling Inc., you requested a tariff classification ruling addressing the classification and eligibility from Brazil for duty-free treatment under the Generalized System of Preferences (GSP) of certain sintered metal carbide inserts.
The inserts in question are designed for use in the metalworking industry. A variety of such inserts are produced in factories located in Brazil from material supplied from Sweden or the United States. You have supplied the following information as to the various manufacturing processes involved in the production of the inserts in both the blank and finished states.
Blank Production
Premixed powder is supplied to the Brazilian facility in a ready to press state. This powder is manufactured either in the United States or in Sweden. The powder is premixed in a defined composition based on the type of inserts that will be manufactured from it. The powder is put in a pressing machine and pressed into the specific defined form. The un-sintered inserts in a green or chalk state are then placed into a sintering furnace. Sintering allows for the hardening and bonding of the material elements in the powder. Once sintering is completed, the insert blanks are examined. If they pass quality control, the blanks proceed to insert production.
Insert Production
Blanks for insert production may originate from blanks manufactured in Brazil or Sweden. Each blank undergoes a specific type of grinding as determined by the type of insert being produced. Once grinding is complete, some blanks may undergo additional edge rounding either by blasting with a dry oxide or shaping with a brush. After grinding and edge rounding operations, the inserts undergo surface cleaning and coating operations. Coatings may be applied by chemical vapor deposition or physical vapor deposition. Surface cleaning may again be needed after chemical vapor deposition to reduce the coatings on the top and bottom surfaces. After a final quality control check, the inserts are laser marked with the appropriate grade and packaged into boxes for labeling. After labeling, the inserts are delivered to the export area for final export packing and delivery to the United States distribution center in Hebron, Kentucky. No further work or processing is done on the finished inserts in the United States.
The applicable subheading for the inserts described above will be 8209.00.0030, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Plates, sticks, tips and the like for tools, unmounted, of cermets… Of sintered metal carbides. The rate of duty will be 4.6 percent ad valorem.
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 http://www.usitc.gov/tata/hts/.
Articles classifiable under subheading 8209.00.0030, HTSUS, which are products of Brazil, may be entitled to duty free treatment under the GSP upon compliance with all applicable regulations. The GSP is subject to modification and periodic suspension, which may affect the status of your transaction at the time of entry for consumption or withdrawal from warehouse. To obtain current information on GSP, check our Web site at www.cbp.gov and search for the term “GSP”.
You inquired as to whether the Swedish blanks used in the manufacturing process have undergone a double substantial transformation such that their cost may be included in the computation of the 35 percent value-content requirement under the GSP.
Explanatory Note (EN) II under GRI 2(a) in the Harmonized Commodity Description and Coding System provides guidance on the application of GRI 2(a), stating that:
The provisions of this Rule also apply to blanks unless
these are specified in a particular heading. The term
"blanks" means an article, not ready for direct use, having
the approximate shape or outline of the finished article or
part, and which can only be used, other than in exceptional
cases, for completion into the finished article or part.
Semi-manufactures not yet having the essential shape of
the finished articles (such as is generally the case with
bars, discs, tubes, etc.) are not regarded as "blanks."
In this case, GRI 2(a) is applicable to the blanks of Swedish origin. The Swedish blanks (1) possess the approximate shape or outline of the final product in that the finished inserts’ specifications and shapes are established in the essential shape of the blanks and (2) the sole use of the blanks is for the completion into finished inserts and cannot be used for any other purpose. It is noted that the degree or substantial nature of processing required to finish blanks is not addressed in GRI 2(a).
Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the customs territory of the
U.S. from a BDC may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BDC, plus 2) the direct costs of the processing operation in the BDC, is
equivalent to at least 35% of the appraised value of the article at the time of entry. See, 19 CFR §10.177 and §10.178.
Brazil is a BDC. See General Note 4(a), HTSUS. Therefore, the finished inserts manufactured from Swedish blanks will be eligible for duty-free treatment if (1) they are classified under a GSP-eligible provision, (2) they are considered to be a "product of" Brazil, (3) they are "imported directly" into the U.S., and (4) the 35 percent value-content requirement is satisfied. The finished inserts in question are classified under heading 8209, HTSUS, which is a GSP eligible provision.
Merchandise is considered the "product of" a BDC if it is either wholly the growth, product or
manufacture of a BDC or has been substantially transformed there into a new or different article of commerce. A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." Texas Instruments Incorporated v. United States, 2CIT 36, 520 F. Supp. 1216 (CIT 1981), reversed, 69 CCPA 151, 681F.2d 778 (CCPA 1982) noted.
However, if an article is produced or assembled from materials which are imported into the BDC, the cost or value of those materials may be counted toward the 35% value-content minimum only if they undergo a double substantial transformation in the BDC. That is, the cost or value of the imported materials used to produce the inserts may be included in the GSP 35% value-content computation only if they are first substantially transformed into a new or different intermediate article of commerce, which is itself substantially transformed in the production of the finished article.
In this case, based upon the submitted documentation, it is this office’s opinion that the Swedish blanks are not processed into a new or different intermediate article in Brazil, but rather is material undergoing a continuous manufacturing process which results in the creation of the finished inserts. The blanks merely represent one stage of the inserts, i.e., the blank stage. The Swedish blanks are not substantially transformed into separate and distinct intermediate articles of commerce which are then substantially transformed into the finished inserts. As the blanks imported into Brazil from Sweden are not subjected to a double substantial transformation in the production of the inserts, the cost or value of the Swedish blanks may not be included in the GSP 35% value-content calculation.
Accordingly, this office finds that the operations performed on the Swedish insert blanks do not create a new article with a new name, character or use. The insert blank is not substantially transformed by operations such as grinding and coating, it is merely further processed. As a substantial transformation does not occur in Brazil, the imported inserts manufactured using Swedish blanks will not be a product of Brazil for purposes of the GSP. As such, such inserts are not eligible for GSP treatment.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
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 Patricia O’Donnell at (646) 733-3011.
Sincerely,
Thomas J. Russo
Director
National Commodity Specialist Division