HQ 0087687 - Colored incandescent light bulbs; foreign lamp bulbs that are colored in Canada do not qualify for duty treatment under the United States-Canada Free Trade Agreement because no change in tariff classification occurs; wholly obtained or produced; substantial transformation; 50% direct costs of processing; General Note 3(c)(vii); GRI 2(a) - United States International Trade Commision Rulings

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HQ 087687

December 5, 1990

CLA-2 CO:R:C:G 087687 JMH

CATEGORY: CLASSIFICATION

TARIFF NO.: 8539.29

Mr. Ron DuBoulay
Manager, Refunds & Remissions
MSAS Cargo International
P.O. Box 202, Toronto A.M.F.
Toronto, Ontario
Canada, L5P 1B1

RE: Colored incandescent light bulbs; foreign lamp bulbs that are colored in Canada do not qualify for duty treatment under the United States-Canada Free Trade Agreement because no change in tariff classification occurs; wholly obtained or produced; substantial transformation; 50% direct costs of processing; General Note 3(c)(vii); GRI 2(a)

Dear Mr. DuBoulay:

This is in response to your August 3, 1990 request for a determination of eligibility under the United States-Canada Free Trade Agreement ("CFTA") for certain colored lamp bulbs.

FACTS:

The articles in question are incandescent light bulbs shipped to Canada from a third country. The light bulbs are colored in Canada and then exported to the United States. You state that the bulbs are classified in subheading 8539.29, Harmonized Tariff Schedule of the United States Annotated ("HTSUSA"), when imported into Canada. They remain classified in that subheading when exported to the United States. Additionally, you assert that the direct cost of processing in Canada will be more than 50% of the value of the lamps when exported into the United States.

ISSUE:

Whether the incandescent lamp bulbs are eligible for duty treatment under the CFTA?

LAW AND ANALYSIS:

To be eligible for tariff preferences under the CFTA, goods must be "originating goods" within the rule of origin in General Note 3(c)(vii)(B), HTSUSA. There are two primary means in General Note 3(c)(vii)(B) by which articles imported into the United States may be "goods originating in the territory of Canada." The first method is if the goods are "wholly obtained or produced in the territory of Canada and/or the United States." General Note 3(c)(vii)(B)(1). The second method is if the goods are "transformed in the territory of Canada and/or the United States." General Note 3(c)(vii)(B)(2).

A product which is "wholly obtained or produced in the territory of Canada and or United States" is one which is grown, mined, harvested, born and raised in Canada and/or the United States, or otherwise intimately connected to the two countries and their land, air and sea territories as defined in General Note 3(c)(vii)(L), HTSUSA. The light bulbs are manufactured in a third country. Since they contain foreign materials and are manufactured in a foreign country, the light bulbs are not "wholly obtained or produced in the territory of Canada and/or the United States."

The second method to become an originating good for CFTA purposes is for an article made of foreign materials to be transformed in Canada and/or the United States in accordance with General Note 3(c)(vii)(B)(2). A transformation is evident when a change in tariff classification occurs that is authorized by General Note 3(c)(vii)(R), HTSUSA. In this instance, the lamp bulbs are classified in subheading 8539.29 when they enter Canada. Upon importation to the United States the same bulbs, now colored, remain classified in subheading 8539.29. No change in tariff classification occurs. The bulbs are not transformed in Canada. Therefore, they are not considered to be "goods originating in the territory of Canada."

Another method of establishing a transformation is by the 50% direct cost of processing test. The CFTA includes a provision that grants transformation status to certain goods of which 50% or more of the direct costs of processing are performed in Canada and/or the United States. General Note 3(c)(vii)(H). Such goods are considered to be originating goods and receive the CFTA duty treatment. However, there are only two types of goods subject to this provision. The first are those articles which are imported into Canada in an unassembled or disassembled form in accordance with GRI 2(a), HTSUSA. General Note 3(c)(vii)(G)(1). The second type of goods are those covered by tariff provisions which provide for both the goods themselves and their parts. General Note 3(c)(vii)(G)(2).

You state that more than 50% of the total direct costs of processing of the finished colored lamp bulb occurs in Canada. However, the light bulbs in question do not enter Canada in an unassembled or disassembled state in accordance with GRI 2(a). Thus, the bulbs are not of the first type of goods to which the 50% test may apply. Subheading 8539.29, the tariff provision for the incandescent bulbs, covers parts of such bulbs. However, parts of bulbs are not being imported. The bulbs imported to Canada are complete. The subject incandescent bulbs are not of the second type of goods covered by General Note 3(c)(vii)(G) and (H). Therefore, the light bulbs are not eligible for the 50% cost of direct processing test.

HOLDING:

The colored incandescent light bulbs in question are not goods "wholly obtained or produced in the territory of the Canada and/or the United States" in accordance with General Note 3(c)(vii)(B)(1). The bulbs are not transformed in Canada so to affect a required change in tariff classification in accordance with General Notes 3(c)(vii)(B)(2) and 3(c)(vii)(R). Thus, the light bulbs are not "goods originating in the territory of Canada" for CFTA purposes in accordance with General Note 3(c)(vii)(B). Furthermore, the light bulbs are not of the type of goods to which the 50% direct cost of processing test applies, in accordance with General Note 3(c)(vii)(H). The light bulbs are not originating goods under the CFTA and are not eligible for CFTA duty treatment.

Sincerely,

John Durant, Director
Commercial Rulings Division

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