Mr. Donald S. Stein
Greenberg Traurig, LLP.
Attorneys at Law
2101 L. Street, N.W., Suite 1000
Washington, D.C. 20037
RE: The tariff classification, country of origin marking and North American Free Trade Agreement (NAFTA) eligibility of transformer toroids from Mexico
Dear Mr. Stein:
In your letter dated December 12, 2018, you requested a tariff classification and country of origin ruling on behalf of your client, Howard Industries, Inc.
The item concerned is referred to as a toroid. A toroid is a wound roll of grain-oriented silicon electrical grade steel that is used to make a core for an electrical distribution transformer. The toroid is often described as "donut shaped." This donut shaped article, is shipped to the United States. In the United States the toroid is further processed into a finished transformer core.
These toroids will be manufactured in Mexico, from large master coils of raw flatrolled grain-oriented silicon electrical steel imported into Mexico from either China, South Korea, Japan, or possibly other non-European Union countries.
The raw steel arrives in Mexico, and it is transported to facilities where it is slit into narrower widths. The steel is then transported to facilities in Matamoros, Mexico where it is manufactured into toroids. During the manufacturing process, specialized production equipment transversely cuts turns of steel into varying lengths, winds them into a donut shaped roll while layering each piece in a specific overlapping manner to produce air gaps in a specified pattern. The number of layers and the gap pattern for each toroid will differ depending on the design and specifications of the particular transformer into which it will be incorporated. The finished toroids are then shipped from Mexico to Howard Industries, Inc. in the United States. At the Howard facilities in Mississippi, they undergo further processing, forming the toroid into a rectangular shape, and heating it in an annealing oven. The finished core is then laced around a transformer coil to form a core/coil assembly, which is incorporated into an electrical distribution transformer manufactured by Howard.
The applicable subheading for the toroids will be 8504.90.9642, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Electrical transformers, static converters (for example, rectifiers) and inductors; parts thereof: Parts: Other: Other: Other parts: Of transformers: Wound core for incorporation into transformers”. The general rate of duty will be 0.6% 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 the 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.
Based on the facts provided, the goods described above qualify for NAFTA preferential treatment, because they will meet the requirements of HTSUS General Note 12(b)(ii)(A). The goods will therefore be entitled to a Free rate of duty under the NAFTA upon compliance with all applicable laws, regulations, and agreements.
Section 304 of the 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 container) will permit in such a manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article. The regulations implementing the requirements and exception to 19 U.S.C. § 1304 are set forth in Part 134, Customs and Border Protection Regulations (19 C.F.R. Part 134).
19 C.F.R. § 134.1(b) provides as follows: Country of origin means 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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Whether or not NAFTA preference is claimed at time of entry into the United States, the NAFTA Marking Rules would be used to determine country of origin of a good of a NAFTA country.
Since Mexico is a NAFTA country, the NAFTA Marking Rules must be applied in this case for purposes of determining the country of origin for the purposes of marking.
Part 102, Customs and Border Protection Regulations (19 C.F.R. Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. See 19 C.F.R. § 102.11. Applied in sequential order, the required hierarchy establishes that the country of origin of a good is the country in which:
(a)(1) The good is wholly obtained or produced;
(a)(2) The good is produced exclusively from domestic materials; or
(a)(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.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the imported toroids are neither wholly obtained nor produced exclusively from “domestic” (Mexican, in this case) materials. Because the analysis of sections 102.11(a) (1) and 102.11(a) (2) does not yield a country of origin determination, we look to section 102.11(a) (3). “Foreign material” is defined in 19 C.F.R. § 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.” The applicable rule in section 102.20 requires a change to subheading 8504.90 from any other heading.
The foreign steel used in the manufacture of the toroids is classified under subheading 7225.11, HTSUS, when imported into Mexico. The manufacturing process results in a new product (toroid) which satisfies the tariff shift requirement. Therefore, the country of origin, for purposes of marking, is Mexico.
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 Steven Pollichino at firstname.lastname@example.org.
Steven A. Mack
National Commodity Specialist Division