Eligibility for NAFTA; Country of Origin Marking; Brass Angle Valve

HQ H041916 January 23, 2009 OT-RR:CTF:VS H041916 GOB CATEGORY: NAFTA Eunice D. Martinez Operations Manager Norman Krieger, Inc. 9635 Heinrich Hertz, Suite 5-8 San Diego, CA 92154 RE: Eligibility for NAFTA; Country of Origin Marking; Brass Angle Valve Dear Ms. Martinez: This is in response to your submission of August 26, 2008 to the U.S. Customs and Border Protection (“CBP”) National Commodity Specialist Division (“NCSD”) on behalf of Brasstech, Inc. The NCSD forwarded your submission to this office by memorandum of September 25, 2008. Our ruling follows. FACTS: The article in question is a brass, hand-operated angle valve (the “valve”) assembled in Mexico from the following eleven components: nytril bonnet (a rubber seal); oval handle; two compression sleeves; stem/washer (a plastic stem with rubber and teflon seals); washer (an acetal plastic seal); brass valve body; brass bonnet packing nut; two brass compression nuts; and a screw. You state that: the oval handle and screw are of Taiwanese origin; the nytril bonnet is of Canadian origin; and the remaining eight components are of United States origin. These valves are used in residences to shut off the water supply to faucets and similar fixtures. The name, origin, and cost of the parts are as follows: Part Origin Cost Stem/washer U.S. xxx bonnet packing nut U.S. xxx nytril bonnet Canada xxx washer U.S. xxx compression nut U.S. xxx compression sleeve U.S. xxx compression nut U.S. xxx compression sleeve U.S. xxx brass valve body U.S. xxx oval handle Taiwan xxx screw Taiwan xxx Total xxx Total originating parts (U.S. and Canada) xxx Total non-originating parts (Taiwan) xxx ISSUES: (I) Whether the subject valve is eligible for preferential treatment under the North American Free Trade Agreement (“NAFTA”). (II) What is the country of origin of the subject valve for marking purposes? LAW AND ANALYSIS: The National Commodity Specialist Division has advised this office of the following with respect to the tariff classification of the valve and its components. The valve is classified as a hand-operated valve of copper in subheading 8481.80.10, Harmonized Tariff Schedule of the United States (“HTSUS”). The oval handle, stem washer, valve body and bonnet packing nut are classified as parts of valves in subheading 8481.90, HTSUS. The remaining seven components are classified in headings other than heading 8481, HTSUS. NAFTA General Note 12, HTSUS, incorporates Article 401 of the North American Free Trade Agreement (“NAFTA”) into the HTSUS. General Note 12(a)(ii) provides, in pertinent part: Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked) … 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 “MX” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act. For the purpose of qualifying for NAFTA preference, the components of U.S. and Canadian origin are originating. Therefore, nine of the eleven components are originating for preferential treatment under NAFTA. The remaining two components, the oval handle and the screw, are non-originating. The applicable NAFTA preference rule for subheading 8481.80.10, HTSUS, in General Note 12(t)/239 provides: A change to subheadings 8481.10 through 8481.80 from any other heading; or A change to subheadings 8481.10 through 8481.80 from subheading 8481.90, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: 60 percent where the transaction value method is used, or 50 percent where the net cost method is used. General Note 12(t)/239(A) is not satisfied as one of the non-originating components is classified in heading 8481, HTSUS (i.e., the oval handle is classified in subheading 8481.90, HTSUS). Therefore, we examine the applicability of General Note 12(t)/239 (B). Pursuant to this rule, there is “[a] change to subheadings 8481.10 through 8481.80 from subheading 8481.90, whether or not there is a change from any other heading[.]” Accordingly, General Note 12(t)/239 (B) will be satisfied if there is a regional value content of not less than 60 percent where transaction value is used or not less than 50 percent where the net cost method is used. You have provided information concerning the net cost method. Part 181, Appendix (Part III, Section 6), CBP Regulations (19 CFR Part 181, Appendix) provides in pertinent part as follows: The net cost method for calculating the regional value content of a good is as follows: RVC = NC-VNM x 100 NC where RVC is the regional value content of the good, expressed as a percentage; NC is the net cost of the good, calculated in accordance with subsection (11); and VNM is the value of non-originating materials used by the producer in the production of the good, determined, except as otherwise provided in sections 9 and 10, in accordance with section 7. Based upon the information which you have provided, we note that the formula under the net cost method of determining regional value content is: RVC = xxx - xxx x 100 xxx This calculation renders a result of over xxx percent, a RVC in excess of that required in General Note 12(t)/239. Therefore, based upon the information provided, we find that the terms of General Note 12(t)/239 (B) are satisfied. Accordingly, the subject valve is eligible for NAFTA preferential treatment. Marking The marking statute, 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, CBP Regulations (19 CFR Part 134) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 134.1(b), CBP Regulations, provides: “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. Section 134.1(j), CBP Regulations, provides that “[t]he ‘NAFTA Marking Rules’ are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country.” Section 134.1(g), CBP 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 102.11, CBP Regulations, sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11(a), CBP Regulations, 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. Because the valve is assembled in Mexico from non-originating components, it is neither wholly obtained or produced (19 CFR § 102.11(a)(1)), nor produced exclusively from domestic materials (19 CFR § 102.11(a)(2)). Accordingly, 19 CFR 102.11(a)(3) is the applicable rule that must next be applied to determine the origin for marking purposes of the valves. Pursuant to 19 CFR § 102.20, the tariff shift rule for a good of subheading 8481.80.10, HTSUS, is as follows: “A change to subheading 8481.10 through 8481.80 from any other heading, or from subheading 8481.90 except when resulting from a simple assembly.” Based upon the HTSUS classifications, above, this tariff shift rule is satisfied provided there is no simple assembly. “Simple assembly” is defined in 19 CFR § 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.” Because the valve is assembled from more than five components, excluding fasteners such as bolts, screws, etc., there is no simple assembly. Therefore, the applicable tariff shift rule under 19 CFR § 102.11(a)(3) is satisfied. The country of origin for marking purposes is Mexico. HOLDINGS: Based upon the facts presented, the subject valves are eligible for preferential treatment under NAFTA. Pursuant to 19 CFR § 102.11(a)(3), the country of origin of the subject valves for marking purposes is Mexico. The valves should be marked “Made in Mexico.” A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy, this ruling letter should be brought to the attention of CBP. Sincerely, Monika R. Brenner Chief Valuation & Special Programs Branch