USMCA eligibility; Country of origin of aluminum billets for Section 232 and Section 301 duties; Marking; De Minimis

H332368 May 13, 2024 OT:RR:CTF:VS H332368 RRB CATEGORY: Origin Mr. Lawrence M. Friedman Barnes, Richardson & Colburn LLP 303 East Wacker Drive Suite 305 Chicago, IL 60601 RE: USMCA eligibility; Country of origin of aluminum billets for Section 232 and Section 301 duties; Marking; De Minimis Dear Mr. Friedman: This is in response to your ruling request, dated March 3, 2023, filed on behalf of HMA, Inc. (“HMA”). In your letter, you request a binding ruling regarding preferential tariff treatment under the United States-Mexico-Canada Agreement (“USMCA”) for aluminum billets produced in Mexico. You also request determinations on the country of origin of the finished aluminum billets for purposes of Section 232 and Section 301 duties and country of origin marking. Finally, you seek guidance on the applicability of the USCMA de minimis rule under General Note (“GN”) 11(e), Harmonized Tariff Schedule of the United States (“HTSUS”), and the de minimis rule for purposes of country of origin marking under 19 C.F.R. § 102.13. On March 5, 2024, we requested additional information that is necessary to respond to your ruling request. You submitted a supplemental submission, dated March 13, 2024, responsive to this request. In response to further email exchanges, you submitted additional comments in an email dated April 2, 2024. Our response below considers the information presented in both of your submissions and email exchanges. FACTS: The products at issue are identified as alloyed aluminum billets made with 0.5% by weight of silicon, which will be sold to manufacturers of commercial buildings and construction, trucks, trailers, and military motor vehicles. You state that the aluminum billets will be produced in Mexico under three different manufacturing scenarios carried out by HWM, the Mexican subsidiary of HMA, at their factory in Mexico. Under scenario 1, you state that non-alloyed aluminum materials in ingot form that are either domestic products of Mexico, foreign products of Canada, or commingled products of Mexico and Canada will be melted and mixed with other materials, consisting of silicon and copper from Korea, and iron, magnesium, manganese, titanium, and chromium from China, to create a newly alloyed aluminum billet. Under scenario 2, you state that non-alloyed aluminum materials in ingot form with the relative portions (by weight)1 likely to be 60% from China, 20% from South Korea, and 20% from Australia will be melted and mixed with other materials, consisting of silicon and copper from Korea, and iron, magnesium, manganese, titanium, and chromium from China, to create a newly alloyed aluminum billet. Under scenario 3, you state that non-alloyed aluminum materials in ingot form with the relative portions (by weight)2 likely to be 60% from South Korea or Australia, 10% from Canada, and the remaining 30% from alloyed aluminum scrap generated as a result of production in Mexico will be melted and mixed with other materials, consisting of silicon and copper from Korea, and iron, magnesium, manganese, titanium, and chromium from China, to create a newly alloyed aluminum billet. For all three production scenarios, you explain that melting the aluminum materials requires one multi-chamber furnace and two single-chamber furnaces. A pre- heat oven and electronic pot are required for stirring molten metal. A degassing pot is also used to remove impurities and hydrogen gas from the metal. The billets are formed in a casting machine. The billets also undergo stress-relieving heat treatment in a continuous homogenizing furnace and a batch homogenizing furnace area. Next, a billet cutter cuts the billets. A grinder is used to produce samples for analysis. The billets are inspected for cracking using an ultrasonic flaw detector. A spectrum analyzer is used to confirm the appropriate chemical composition of the billets. The billets undergo a final uniformity check before packaging for export and sale to customers in the United States. Based on the information provided, we confirm that the classification of the finished aluminum billets is under subheading 7601.20, HTSUS, as “[u]nwrought 1 You indicate in your submission, dated March 3, 2023, that non-alloyed aluminum materials are sourced from non-USMCA countries with the relative portions (by value) likely to be 60% from China, 20% from South Korea, and 20% from Australia. However, via email dated March 1, 2024, you corrected your submission, and stated that these percentages are by weight, and not by value. 2 You indicate in your submission, dated March 3, 2023, that non-alloyed aluminum materials are sourced from non-USMCA countries with the relative portions (by value) likely to be 60% from South Korea or Australia, 10% from Canada, and the remaining 30% from Mexican alloyed aluminum scrap. However, via email dated March 1, 2024, you corrected your submission, and stated that these percentages are by weight, and not by value. 2 aluminum: [a]luminum alloys.” We also confirm that the non-alloyed aluminum materials are classified in subheading 7601.10, HTSUS, as “[u]nwrought aluminum: [a]luminum, not alloyed,” while the aluminum scrap described in scenario 3 is classified in subheading 7602.00, HTSUS, as “[a]luminum waste and scrap.” ISSUES: (1) Whether the aluminum billets produced under three different manufacturing scenarios are eligible for preferential tariff treatment under the USMCA. (2) What is the country of origin of the aluminum billets for purposes of Section 232 and Section 301 trade measures? (3) What is the country of origin of the aluminum billets produced under three different manufacturing scenarios for marking purposes? LAW AND ANALYSIS: 1. Eligibility for preferential tariff treatment under USMCA The USMCA was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116- 113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). General Note (“GN”) 11 of the HTSUS implements the USMCA. GN 11(a)(i) provides: Goods that originate in the territory of Mexico, Canada or the United States (hereinafter referred to as “USMCA country” or “USMCA countries” as further defined in subdivision (l)(xxiv) of this note) under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury (including Uniform Regulations provided for in the USMCA), and goods enumerated in subdivision (p) of this note, 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 “S” in parentheses, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act; and . . . GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states: For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if— (i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries; (ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials; 3 (iii) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); … In all three production scenarios, the aluminum billets may contain non- originating materials. Accordingly, they are not considered a good wholly obtained or produced entirely in a USMCA country under GN 11(b)(i), nor are they produced exclusively from originating materials per GN 11(b)(ii). Thus, we must determine whether the aluminum billets manufactured under each of the proposed production scenarios qualify for USMCA treatment under GN 11(b)(iii). The applicable rule of origin for alloyed aluminum billets classified in subheading 7601.20, HTSUS, is set forth in GN 11(o)/76(1), and states the following: A change to heading 7601 from any other chapter. In scenario 1, all of the non-alloyed aluminum materials used to produce the aluminum billets are stated to originate in Canada or Mexico or to consist of commingled products from Canada and Mexico. Therefore, this component need not undergo any applicable tariff shift under GN 11. The alloying materials mixed with the non-alloyed aluminum include silicon, copper, iron, magnesium, manganese, titanium, and chromium. Based on the information regarding the purity levels of the alloying materials, we conclude that the silicon, copper, iron, magnesium, manganese, titanium, and chromium are classified in headings 2804, 7404, 7205, 8104, 8111, 8108, and 8112, HTSUS, respectively. All of the alloying materials are from non-USMCA countries and are therefore, non-originating. However, as all of the non-originating alloying materials are classified outside of chapter 76, they will undergo the requisite tariff shift to heading 7601, HTSUS, from any other chapter outside of chapter 76 when used in the manufacture of alloyed aluminum billets. Accordingly, alloyed aluminum billets produced under scenario 1 qualify for preferential tariff treatment under the USMCA. In scenarios 2 and 3, while the non-originating alloying materials undergo the requisite tariff shift, we must conduct an additional tariff shift analysis, as non- originating, non-alloyed aluminum will be used in those production processes. In scenarios 2 and 3, the non-originating, non-alloyed aluminum materials are classified in subheading 7601.10, HTSUS, while the finished aluminum billets are classified in subheading 7601.20, HTSUS. Because the finished product remains classified in heading 7601, HTSUS, it does not undergo the requisite tariff shift under scenarios 2 and 3. Accordingly, alloyed aluminum billets produced under scenarios 2 and 3 do not qualify for preferential tariff treatment under the USMCA. USMCA De Minimis Rule Where the alloyed aluminum billets produced under scenarios 2 and 3 do not qualify for preferential tariff treatment under the USCMA, you seek confirmation that if 4 the amount of non-originating aluminum is reduced to 10% or less of the transaction value of the billets or of the total cost of the billets, whether the billets would qualify as originating under the USMCA de minimis rule. In addition, you seek confirmation that the value of the alloying materials, which meet the requisite tariff shift rule, is not included in the 10% de minimis threshold but must be included in the total cost if that serves as the basis for the de minimis test. Under the USMCA, an imported good that does not meet the relevant tariff shift rule under the agreement may still qualify for preferential tariff treatment if the good meets the requirements of the de minimis exception. The de minimis exception provided for in GN 11(e)(i), HTSUS, states, as follows: (e) De minimis amounts of nonoriginating materials. (i) In general.—Except as provided in subparagraphs (e)(ii) through (iv) below, a good that does not undergo a change in tariff classification or satisfy a regional value content requirement set forth in subdivision (o) of this note is an originating good if— (A) the value of all nonoriginating materials that are used in the production of the good, and do not undergo the applicable change in tariff classification set forth in subdivision (o) of this note— (1) does not exceed 10 percent of the transaction value of the good, adjusted to exclude any costs incurred in the international shipment of the good; or (2) does not exceed 10 percent of the total cost of the good; (B) the good meets all other applicable requirements of this note; and . . . Thus, per GN 11(e)(i)(A) and (B), we confirm that the billets would qualify as originating under the USMCA de minimis rule if the amount of non-originating aluminum is reduced to 10% or less of the transaction value of the billets, or of the total cost of the billets, as long as they also meets all other applicable requirements under GN 11. Moreover, because the alloying materials meet the requisite tariff shift rule for goods of heading 7601, HTSUS, the value of the alloying materials is not included in the 10% de minimis threshold. To determine whether the value of the alloying materials, which is not included in the 10% de minimis threshold, is included in the total cost if that serves as the basis for the de minimis test, we turn to section 5 of the USMCA Rules of Origin Regulations, (19 C.F.R. Part 182 App. A), which provide further guidance on the applicability of GN 11(e)(i). Subsection 5(12) states that the calculation of total cost “consists of the costs referred to in subsection 1(6) and is calculated in accordance with that subsection and subsection 1(7).” Under subsection 1(1) of the USMCA Rules of Origin Regulations, “total cost means all product costs, period costs, and other costs incurred in the territory of one or more of the USMCA countries, where: (a) [p]roduct costs are costs that are associated with the production of a good and include the value of materials, direct 5 labor costs, and direct overheads” (emphasis added). Turning to subsection 1(6)(a), we note that “total cost consists of all product costs, period costs and other costs that are recorded, except as otherwise provided in subparagraphs b(i) and (ii), on the books of the producer without regard to the location of the persons to whom payments with respect to those costs are made.” In calculating total cost under subsection 1(6)(b)(i), the value of materials, other than intermediate materials, indirect materials and packing materials and containers, is the value determined in accordance with subsections 8(1) and 8(2). Here, the alloying materials that undergo the requisite tariff shift meet the definition of product costs that are associated with the production of the aluminum billets. Calculating such product costs associated with production of the aluminum billets for purposes of applying the 10% de minimis threshold under the total cost method set forth in GN 11(e)(i)(A)(2) includes the value of the alloying materials, even if they meet the requisite tariff shift rule. Therefore, we confirm that under the USMCA Rules of Origin Regulations set forth at 19 C.F.R. Part 182, Appendix A, although the value of the alloying materials is not included in the 10% de minimis threshold, it must be included in the total cost if that serves as the basis for the de minimis test. 2. Country of origin of aluminum billets for purposes of Section 232 and Section 301 trade measures When determining the country of origin for purposes of applying trade remedies under Section 232 and Section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation will occur is whether an article emerges from a process with a new name, character, or use, different from that possessed by the article prior to processing. Texas Instruments, Inc. v. United States, 69 CCPA 151, 681 F.2d 778 (1982). In order to determine whether a substantial transformation has occurred, U.S. Customs and Border Protection (“CBP”) considers the totality of the circumstances and makes such determinations on a case-by-case basis. CBP has stated that a new and different article of commerce is an article that has undergone a change in commercial designation or identity, fundamental character, or commercial use. A determinative issue is the extent of the operations performed and whether the materials lose their identity and become an integral part of the new article. This determination is based on the totality of the evidence. See Nat’l Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). In Headquarters Ruling Letter (“HQ”) 071341, dated August 24, 1983, Customs considered the addition of alloying materials in the production of aluminum alloy ingots and billets for purposes of the Generalized System of Preferences (“GSP”) requirements. There, Customs stated that “molten aluminum, produced by substantially transforming the imported alumina, was then passed to the holding furnace where other materials were added to produce aluminum alloy.” Customs concluded that since aluminum alloy had different characteristics and uses from the non-alloy aluminum raw material and was recognized in the trade as a different product, the molten aluminum could be considered to have been substantially transformed into a new and different 6 article of commerce in the holding furnace by the addition of the alloying materials. In concluding as such, Customs considered the changes to the character of the final product as a result of the alloying materials added to the aluminum. CBP has applied the reasoning in HQ 071341, concerning the addition of alloying materials to non-alloyed metal and how they transform the character of the raw materials, in more recent rulings. For example, in NY N301439, dated November 21, 2018, CBP concluded that melting and mixing Australia-origin non-alloy aluminum ingots with U.S.-origin aluminum alloy scrap in South Korea resulted in a substantial transformation, such that the billets were a product of South Korea. In determining whether a substantial transformation has occurred as a result of the various manufacturing processes performed in Mexico, we turn to the “name, character, and use test.” See National Hand Tool Corp. Here, non-alloyed aluminum materials in ingot form are melted down, and mixed with other materials, consisting of silicon, copper, iron, magnesium, manganese, titanium, and chromium, to create a newly alloyed aluminum billet. In addition to alloying, the production process includes degassing, reprocessing, sampling, further alloying, casting, homogenization, cutting, crack inspection, and packaging to manufacture the finished aluminum billets. Where the imported raw materials consist of non-alloyed aluminum ingots and alloying materials such as silicon, copper, iron, magnesium, manganese, titanium, and chromium, and the finished product is a newly alloyed aluminum billet, we find that there is a change in name subsequent to processing in Mexico. The strongest factor weighing in favor of finding a substantial transformation in Mexico is a change in character subsequent to processing. As Customs noted in HQ 071341, and as applied more recently in NY N301439, because aluminum alloy has different characteristics and uses from non-alloyed aluminum and is recognized in the trade as a different product, the molten aluminum materials are considered to be transformed into a ne