H329195

H329195 July 18, 2024 OT:RR:CTF:VSP H329195 JMV CATEGORY: Origin John M. Peterson Neville Peterson LLP One Exchange Plaza at 55 Broadway New York, NY 10006 RE: U.S. – Morocco Free Trade Agreement; Cigarettes; Double Substantial Transformation Dear Mr. Peterson: This is in response to your request, dated December 27, 2022, on behalf of your client Japan Tobacco International (“JTI”). In your letter, you request a binding ruling regarding whether cigarettes produced in Morocco qualify for preferential tariff treatment under the U.S. – Morocco Free Trade Agreement (“UMFTA”). FACTS: JTI intends to produce cigarettes in Morocco using non-originating “raw” tobacco. Various other originating and non-originating materials will also be used to manufacture the filter and the finished cigarette sticks. Tobacco Production Leaf tobacco single grades and final blended strips (unmanufactured tobacco) and reconstituted tobacco (manufactured tobacco) will be imported into a facility in Morocco to be conditioned by increasing the moisture levels and breaking up the mass by adding steam and water. This material will then be stored in bulking silos. When removed from the silos, the materials will be placed in casing cylinders, where glycerin and water are sprayed upon the tobacco. The glycerin protects the tobacco from drying out and helps to facilitate the tobacco cutting process. After the glycerin treatment, the product is once again stored in bulking silos, and is cut and dried yielding an intermediate material known as “cut rag.” Thereafter, non-originating cut rolled expanded stem (“CRES”), which is stated to be an intermediate tobacco product and provides the cigarette designer with various options to improve quality, lower deliveries and reduce blend costs, and expanded tobacco lamina (“ETS”) are added to the cut rag. This blend is put into a rotating cylinder, where specific flavors are mixed in, resulting in “cut-filler” tobacco. JTI asserts that cut-filler tobacco, suitable for use directly in the manufacture of cigarettes with no further or intermediate processing, is often sold to cigarette production plants which do not have their own tobacco processing machinery. However, in this case, the cut-filler tobacco will go into the “make pack process” to create finished cigarettes. Filter Production The cigarette filters for the imported cigarettes will also be produced in Morocco through a complex, highly automated process. Filters are made from cellulose acetate tow, which is derived from wood pulp and converted into the form of cellulose fibers. Cigarette filters are usually made from cellulose acetate tow, which is a fiber derived from wood pulp. Each cigarette filter contains between 10,000-15,000 cellulose fibers. To create the filters, the tow is lifted off a bale in a continuous strip and fed into the filter maker. The precise weight of the tow gathered per centimeter determines the draught resistance and efficiency of the filter. The tow is stretched by machine rollers, gathered and crimped by nozzles, then fixed with a plasticizer (a hardening agent). The tow is fed into a channel to form an endless filter rod, which is wrapped in filter “plug wrap paper.” Modern filter machines can make two rods simultaneously, which are produced in continuous rods. The rod is sliced into segments according to the specified filter length of the cigarette and are then transported to the plant or plant area where the final “make pack” process is performed. JTI asserts that the filter is a “self-produced” component. Final Production The cut-filler tobacco is sent from the final blending silo and is gravity-fed into the cigarette rod-forming channel, or garniture. Cigarette paper is fed into the garniture and wrapped around the tobacco. The paper is glued to form an endless cigarette rod. Filter rods are fed in parallel and attached by the mouthpiece paper or “tipping” to the cut tobacco rods to form double cigarettes. Laser devices burn precise holes through the tipping paper into the filter to ensure the correct level of ventilation or smoke dilution for the cigarette. The double cigarettes are cut into singles and the finished cigarettes are fed into a reservoir system, which is usually linked directly with the packing machine. Cigarettes are sometimes stored in trays for greater packing flexibility. Cigarettes are channeled in the correct arrangement, or “collation,” to form a block ready to be wrapped. For their protection, cigarettes are wrapped in an inner liner, which is usually aluminum or aluminum-coated paper. The inner liner is glued at points to the inside of the pack to ensure stability of the cigarette block. Stacks of unfolded and ready cut cigarette packs, or “blanks,” are fed to the packer. Glue is applied to the appropriate surfaces of the blanks before folding and pack-forming begins. Folding takes place along the pre-impressed crease lines. The glued surfaces stick together, and closure or tax stamps are applied if necessary. The pack is then sealed in polypropylene film which keeps the product fresh by providing a moisture barrier. Usually, 10 packs are bundled together and, depending on the brand or the market, are either packed into printed cartons or overwrapped in polypropylene or printed paper. Cartons or bundles are sent to the distribution chain customers. The shipping case is often the final transport and storage unit of the distribution chain customers - both wholesale and retail. Quality checks are conducted throughout production to ensure the final products meet all internal and external regulatory standards. ISSUE: Whether the cut-filler tobacco and cigarette filters processed as described above are subject to a double substantial transformation in Morocco so that the value of each may be considered in calculating the Moroccan value content for purposes of meeting the 35 percent value content requirement of the UMFTA. LAW AND ANALYSIS: On June 15, 2004, the United States and the Government of the Kingdom of Morrocco signed the UMFTA. The provisions of the UMFTA were adopted by the United States with the enactment of the United States – Morrocco Free Trade Agreement Implementation Act (the “Act”), Public Law 108–302, 118 Stat. 1103 (19 U.S.C. 3805 note), on August 17, 2004. On December 22, 2005, the President signed Proclamation 7971 (published in the Federal Register on December 27, 2005 (70 Fed. Reg. 76649) which modified the HTSUS as set forth in Annexes I and II of Publication 3721 of the U.S. International Trade Commission to implement the Act. The modifications to the HTSUS included the addition of General Note (“GN”) 27, incorporating the relevant UMFTA rules of origin as set forth in the Act, and the insertion throughout the HTSUS of the preferential duty rates applicable to individual products under the UMFTA where the special program indicator “MA” appears in parenthesis in the “Special” rate of duty sub-column. In order to qualify for preferential tariff treatment under the UMFTA, goods must meet certain requirements set forth in GN 27, HTSUS. GN 27(b) provides, in pertinent part: For the purposes of this note, subject to the provisions of subdivisions (c), (d), (e), (g) and (h) thereof, a good imported into the United States is eligible for treatment as an originating good of a UMFTA country under the terms of this note only if – the good is a good wholly the growth, product or manufacture of Morocco, the United States, or both; the good is a new or different article of commerce that has been grown, produced or manufactured in the territory of Morocco or of the United States, or both, and that falls in a heading or subheading of the tariff schedule that is not covered by the product-specific rules of subdivision (h) of this note; and the sum of— the value of each material produced in the territory of Morocco or of the United States, or both, and the direct costs of processing operations performed in the territory of Morocco o

On June 15, 2004, the United States and the Government of the Kingdom of Morrocco signed the UMFTA. The provisions of the UMFTA were adopted by the United States with the enactment of the United States – Morrocco Free Trade Agreement Implementation Act (the “Act”), Public Law 108–302, 118 Stat. 1103 (19 U.S.C. 3805 note), on August 17, 2004. On December 22, 2005, the President signed Proclamation 7971 (published in the Federal Register on December 27, 2005 (70 Fed. Reg. 76649) which modified the HTSUS as set forth in Annexes I and II of Publication 3721 of the U.S. International Trade Commission to implement the Act. The modifications to the HTSUS included the addition of General Note (“GN”) 27, incorporating the relevant UMFTA rules of origin as set forth in the Act, and the insertion throughout the HTSUS of the preferential duty rates applicable to individual products under the UMFTA where the special program indicator “MA” appears in parenthesis in the “Special” rate of duty sub-column. In order to qualify for preferential tariff treatment under the UMFTA, goods must meet certain requirements set forth in GN 27, HTSUS. GN 27(b) provides, in pertinent part:For the purposes of this note, subject to the provisions of subdivisions (c), (d), (e), (g) and (h) thereof, a good imported into the United States is eligible for treatment as an originating good of a UMFTA country under the terms of this note only if –the good is a good wholly the growth, product or manufacture of Morocco, the United States, or both;the good is a new or different article of commerce that has been grown, produced or manufactured in the territory of Morocco or of the United States, or both, and that falls in a heading or subheading of the tariff schedule that is not covered by the product-specific rules of subdivision (h) of this note; and the sum of—the value of each material produced in the territory of Morocco or of the United States, or both, andthe direct costs of processing operations perf