OT:RR:NC:N:1:105
Douglas Jacobson
Jacobson Burton Kelley PLLC
1725 I Street NW
Washington, District of Columbia 20006
RE: The country of origin of coated ceramic substrate.
Dear Mr. Jacobson:
In your letter dated February 20, 2020, on behalf of your client, Johnson Matthey Inc. (“JMI”), you requested a country of origin ruling determination on coated ceramic substrate.
The merchandise under consideration is coated ceramic substrate, which is installed in catalytic converters of passenger cars, commercial trucks, and other vehicles in order to reduce the toxic gases and pollutants in the engine exhaust.
In your submission, you describe a scenario where JMI will export bare ceramic substrates manufactured in the United States and other countries to Mexico. JMI will also send certain platinum group metals (“PGM”), sourced from various countries, and jet milled zeolite, sourced from China, to Mexico. In Mexico, the bare ceramic substrates will be coated with a washcoat comprised of zeolite and/or PGM. The mixing process “affixes” the precious metal and coats the ceramic substrate. Once coated, the substrate is dried, and fired, creating a finished catalyst product.
In ruling N305867, issued to Johnson Matthey Inc. on September 12, 2019, we confirmed the classification of the coated substrate catalyst to be, subheading 8421.39.4000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Centrifuges including centrifugal dryers; filtering or purifying machinery and apparatus, for liquids or gases; parts thereof: Filtering or purifying machinery and apparatus for gases: Other: Catalytic converters.”
Because manufacturing of the coated ceramic substrate is completed in Mexico, we consider North American Free Trade Agreement (NAFTA) rules.
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 non-originating 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 (“GRI”) 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 coated ceramic substrate is classified under subheading 8421.39.4000, HTSUS. With respect to General Note 12(b)(ii)(A), the applicable tariff shift rule under General Note 12(t)/53 states that:
(A) a change to subheading 8421.19 through 8421.39 from any other heading; or, (B) A change to subheading 8421.19 through 8421.39 from subheadings 8421.91 through 8421.99, 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. Since the bare ceramic substrates imported into Mexico are classifiable under heading 6909, HTSUS, and the finished coated ceramic substrates are classified in heading 8421, HTSUS, this rule is met. Therefore, the coated ceramic substrates qualify for NAFTA preferential treatment.
This ruling letter has not addressed the actual Regional Value Content of the subject goods. If you desire a ruling regarding the RVC of your goods, provide the information noted in Section 181.93(b) of the Customs Regulations (19 CFR 181.93(b)), to U.S. Customs and Border Protection, Regulations and Rulings, 799 9th Street N.W.-7th Floor, Washington, DC 20229-1177, along with a copy of this letter.
Part 134, Customs Regulations (19 C.F.R. Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Pursuant to 19 C.F.R. Section 134.1(b), the country of origin is the country of manufacture, production or growth of any article of foreign origin entering the U.S. However, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. In accordance with 19 C.F.R. § 102.0, the 102 marking rules are applicable for the limited purposes of: “country of origin marking; determining the rate of duty and staging category applicable to originating textile and apparel products as set out in Section 2 (Tariff Elimination) of Annex 300–B (Textile and Apparel Goods); and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2 (Tariff Elimination).” See also HQ 563205, dated June 28, 2006; see also Belcrest Linens v. United States, 741 F.2d 1368, 1370-71 (Fed. Cir. 1984) (finding that “the term ‘product of’ at the least includes manufactured articles of such country or area” and that substantial transformation “is essentially the test used…in determining whether an article is a manufacture of a given country”). The 102 rules are, however, applicable for purposes of country of origin marking of NAFTA goods, as defined in 19 C.F.R. § 134.1.
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 coated ceramic substrate. Section 102.20 for 8421.11 through 8421.39 requires a change to subheading 8421.11 through 8421.39 from any other subheading, including another subheading within that group. Since the bare ceramic substrates imported into Mexico are classifiable under Chapter 69, HTSUS, the zeolite classified in Chapter 38, the PGM metals classified in Chapter 28 and the final coated ceramic substrates imported into the U.S. are classified in Chapter 84, HTSUS, this rule is met. Therefore, the coated ceramic substrates are considered country of origin Mexico for both duty and marking purposes.
Nevertheless, when determining the country of origin for purposes of applying current trade remedies under Section 301, Section 232, and Section 201, a substantial transformation analysis is applicable. In accordance with 19 C.F.R. § 102.0, the 102 marking rules are applicable for the limited purposes of: “country of origin marking; determining the rate of duty and staging category applicable to originating textile and apparel products as set out in Section 2 (Tariff Elimination) of Annex 300–B (Textile and Apparel Goods); and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2 (Tariff Elimination).” See also HQ 563205, dated June 28, 2006; see also Belcrest Linens v. United States, 741 F.2d 1368, 1370-71 (Fed. Cir. 1984) (finding that “the term ‘product of’ at the least includes manufactured articles of such country or area” and that substantial transformation “is essentially the test used…in determining whether an article is a manufacture of a given country”). As stated above, the 102 rules do however continue to be applicable for purposes of country of origin marking of NAFTA goods, as defined in 19 C.F.R. § 134.1.
With regard to country of origin marking of the coated ceramic substrate, 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.
As stated in HQ 735009 dated July 30, 1993, “The country of origin is the country where the article last underwent a ‘substantial transformation,’ that is, processing which results in a change in the article’s name, character, and use.” In addition, the court has held that “A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, and use that differs from the original material subjected to the processing.” However, if the manufacturing or combining process is merely a minor one that leaves the identity of the article intact, a substantial transformation has not occurred. In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, all factors such as the components used to create the product and manufacturing processes that these components undergo are considered in order to determine whether a product with a new name, character and use has been produced. No one factor is decisive. Assembly operations that are minimal will generally not result in a substantial transformation.
In this instance, the bare ceramic substrate from the U.S. exported to Mexico does not have the qualities necessary to act as a catalytic converter since it does not have the ability to reduce the toxic gases and pollutants in the exhaust gas without being coated with the catalytic agent. Once the washcoat (including zeolite from China and PGM from various countries) is added and the product is fired (baking on the washcoat) in Mexico the bare ceramic substrate takes on the essential qualities to act as a catalytic converter. It is this office’s opinion that the work performed in Mexico transforms the foreign components into a new and different product having a different function and purpose. In view of these facts, the country of origin for the coated ceramic substrate 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 Jason Christie at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division