Introduction

An importer A is considering importing Nickel Powder from Exporting Country United Kingdom, an FTA Contracting Country. The Nickel Powder is manufactured in United Kingdom using raw materials sourced from Non-Contracting Countries. Specifically, raw materials such as crude nickel (HS 7501.20) and various gases like carbon monoxide, hydrogen, sulfur dioxide, ammonia, and oxygen (HS 28) are utilized in the production process within United Kingdom. This raises the question: Does this method of production meet the rules of origin under the FTA, allowing for reduced tariffs?

Ruling Information

Ruling Date	May 1, 2024
Product Name	Nickel Powder
HS Code	7504.00
Applicable Origin Rule	Change to Tariff Subheading (CTSH)

Origin Criteria for Nickel Powder

To qualify for preferential tariff treatment under the FTA between Importing Country A and United Kingdom, the Nickel Powder must satisfy the product-specific rule (PSR) of origin. According to the agreement, the product-specific rule for Nickel Powder under HS code 7504.00 requires a change to the tariff subheading (CTSH) during production.

Raw Materials and Origin Classification

Raw Material	HS Code	Description	Origin Classification
Crude Nickel	7501.20	Sourced from Non-Contracting Country	Non-Contracting Country
Carbon Monoxide	28	Sourced within Contracting Country	Neutral Element
Hydrogen	28	Sourced within Contracting Country	Neutral Element
Sulfur Dioxide	28	Sourced within Contracting Country	Neutral Element
Ammonia, Oxygen	28	Sourced within Contracting Country	Neutral Element

Manufacturing Process

Description
Gas Production
Thermal Decomposition
Nickel Powder Production

Reason for Approval

For the application of the FTA, the first consideration is the non-originating material, Crude Nickel (HS: 7501.20). Since the HS code of the final product, Nickel Powder, is 7504.00, and there has been a change in the 6-digit level HS code during manufacturing and processing in the FTA contracting country, the product-specific rule of origin (CTSH) is met.

Here is a part of the list from the annex of the FTA agreement, which specifies the product-specific rules of origin for each HS code.

Next, regarding the presence of the non-originating materials, carbon monoxide, hydrogen, sulfur dioxide, ammonia, and oxygen (all classified under HS code chapter 28), these are considered Neutral elements under the relevant FTA agreement. Therefore, it is not necessary to consider the originating status of these materials when determining whether the Nickel Powder qualifies as an originating product from the contracting country.

In this case, the FTA agreement specifies Neutral elements in article 3.13.
in this case, these materials fall under (a) fuel, energy, catalysts, and solvents.

Summary

Therefore, the Nickel Powder is recognized as originating from the FTA Contracting Country and is eligible for tariff reduction.

A notable point in this case is that when manufacturing a product in the FTA contracting country, even if non-originating materials sourced from non-contracting countries are used, these materials can be considered Neutral elements according to the applicable agreement. Specifically, in this case, these materials fall under (a) fuel, energy, catalysts, and solvents. This means that there was no need to individually assess whether these non-originating materials met the rules of origin.

If non-originating materials are used and do not meet the rules of origin, but are classified as Neutral elements, they can still meet the rules of origin. Therefore, it is crucial to identify such exception provisions from the agreement text.

By following the above manufacturing processes, the importing company can benefit from the preferential tariff rates. Importing Nickel Powder through the usual methods incurs higher production costs, but by sourcing non-originating materials in compliance with the FTA rules of origin, the company can significantly reduce tariffs. This results in considerable cost savings, making the importation process more efficient and profitable.