Advance ruling; article 509; NAFTA; imported benzoyl chloride processed in Canada into benzoyl peroxide

HQ 545761 November 15, 1994 VAL CO:R:C:V 545761 CRS CATEGORY: Valuation Mr. John A. Slagle Barthco International, Inc. 7575 Holstein Avenue Philadelphia, PA 19153 RE: Advance ruling; article 509; NAFTA; imported benzoyl chloride processed in Canada into benzoyl peroxide Dear Mr. Slagle: This is in reply your letters of May 10, 1994, and July 28, 1994, addressed to our New York office, on behalf of Elf Atochem North America, Inc. You have asked whether benzoyl chloride from France, imported into Canada, will qualify as an originating good under the North American Free Trade Agreement (NAFTA) after undergoing further processing in the Canada. We regret the delay in responding. FACTS: In Canada, benzoyl peroxide (the "good") is produced from benzoyl chloride imported from France. Benzoyl peroxide is classified in tariff item 2916.32.10, Harmonized Tariff Schedule of the United States (HTSUS); benzoyl chloride is classified in tariff item 2916.32.20, HTSUS. ISSUE: The issue presented is whether the good in question qualifies as originating under NAFTA. LAW AND ANALYSIS: The Appendix to section 181.131, Customs Regulations, (19 C.F.R. § 181.131; the NAFTA Rules of Origin Regulations (ROR)), sets forth, at Part IV, section 4, the bases for determining whether a good originates in the territory of a NAFTA country. Section 4(2)(b) of the ROR provides that a good originates in the territory of a NAFTA country where each of the non-originating materials used in the production of the good undergoes the applicable change in tariff classification, set forth in Schedule I of the ROR (Annex 401 of NAFTA), as the result of production occurring entirely in the territory of one or more of the NAFTA countries, and the good satisfies the applicable regional value-content requirement. The good is produced in Canada from a non-originating material, benzoyl chloride. In this case the applicable rule of origin requires a change in classification and a regional value content test, specifically: A change to subheading 2901.10 through 2942.00 from any other subheading within Chapter 28 through 38, including another subheading within that group, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than: (a) 60 percent where the transaction value method is used, or (b) 50 percent where the net cost method is used. NAFTA, Annex 401-14. In accordance with section 4(2)(b) of the ROR, both of these requirements must be satisfied. However, in this instance, the processing operation in Canada does not result in a change in subheading since both benzoyl chloride and benzoyl peroxide are classified in subheading 2916.32. Accordingly, the benzoyl peroxide does not qualify as an originating good under NAFTA. In addition, since the production process does not result in a change in classification, there is no need to undertake a regional value-content calculation. HOLDING: The good in question does not qualify as an originating good under NAFTA since it does not satisfy the requirement of a change in tariff classification. Sincerely, John Durant, Director Commercial Rulings Division