HQ 0088505 - Headquarters Ruling Letter 084856, dated August 31, 1989, and Headquarters Ruling Letter 085894, dated February 14, 1990; United States-Canada Free Trade Agreement ("CFTA"); motherboard assembled in the United States with third country components, exported to Canada where it is incorporated with a power supply and a cabinet and then imported to the United States; Presidential Proclamation 6142, dated May 25, 1990; General 3(c)(vii)(B)(2) - United States International Trade Commision Rulings

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HQ 088505

March 11, 1991

CLA-2 CO:R:C:M 088505 JMH

CATEGORY: CLASSIFICATION

TARIFF NO.: 8471.91.00

Mr. William J. LeClair
Trans-Border Customs Services, Inc.
One Trans-Border Drive
P.O. Box 800
Champlain, NY 12919

RE: Headquarters Ruling Letter 084856, dated August 31, 1989, and Headquarters Ruling Letter 085894, dated February 14, 1990; United States-Canada Free Trade Agreement ("CFTA"); motherboard assembled in the United States with third country components, exported to Canada where it is incorporated with a power supply and a cabinet and then imported to the United States; Presidential Proclamation 6142, dated May 25, 1990; General 3(c)(vii)(B)(2)

Dear Mr. LeClair:

We have been asked to re-examine Headquarters Ruling Letter 084856 ("HQ 084856"), dated August 31, 1989, due to a change in the language of the United States-Canada Free Trade Agreement ("CFTA") as implemented in the Harmonized Tariff Schedule of the United States Annotated ("HTSUSA"). HQ 084856 was reconsidered in Headquarters Ruling Letter 085894 ("HQ 085894"), dated February 14, 1990. These rulings concern the eligibility under the CFTA of a motherboard which is assembled in the United States, exported to Canada where it is incorporated with a power supply and a cabinet, and then imported into the United States as a finished unit by Philips Electronics Ltd. of Montreal, Quebec, Canada.

FACTS:

The facts of the case are taken from submissions for the earlier rulings. HQ 084856 stated that factual statements were "accepted as presented" since evidence to support or refute the claims was not submitted.

The article in question begins as third country and United States components which are assembled in the United States into a motherboard. Motherboards are the main printed circuit board in a electronic device, and usually consist of the bus (the common
channel between hardware devices in a system), the microprocessor, and the chips used to control the functions of the electronic device. See Freedman, The Computer Glossary, pp. 468 and 81 (1989).

Motherboards are generally comprised of a printed circuit board containing a memory device (eg. ROM/RAM Type), sockets for math co-processor, arithmetical and logic elements, central elements, a real time clock and a back plain capable of receiving daughterboards. Revenue Canada Customs and Excise, Customs Notice No. 277 (October 29, 1990).

The components which are assembled to form a motherboard are classified in various provisions of chapter 85, HTSUSA. Motherboards are classified in subheading 8471.91.00, HTSUSA, as "Automatic data processing machines and units thereof...Other... Digital processing units, whether or not entered with the rest of a system..." The completed data processing unit which is imported from Canada to the United States is also classified in subheading 8471.91.00.

Once the motherboard is assembled it is exported to Canada. In Canada, the motherboard is assembled with a power supply and a cabinet. HQ 084856 states "[b]oth of these components are said to be of Canadian origin." However, no supporting documents were submitted to support this claim. The completed unit is then exported to the United States.

Both HQ 084856 and HQ 085894 denied the completed electronic unit the tariff preference eligibility under the CFTA because a "a change in tariff classification in Canada" had not occurred as required by General Note 3(c)(vii)(B)(2), HTSUSA. However, on May 25, 1990, the language of General Note 3(c)(vii)(B)(2) was amended by Presidential Proclamation 6142. The words "in Canada" were deleted to allow for a transformation "in the territory of Canada and/or the United States." See 55 Fed. Reg. 21835, 21837 (May 30, 1990). The effective date of this amendment was January 1, 1989.

ISSUE:

Whether the amended language of General Note 3(c)(vii)(B)(2) will alter the CFTA tariff preference eligibility of the completed data processing unit which consists of the motherboard, the cabinet and the power supply.

LAW AND ANALYSIS:

General Note 3(c)(vii) of the HTSUSA provides the rules which determine what products imported into the United States
from Canada are entitled to duty treatment under the CFTA. Eligible goods must be "goods originating in Canada". General Note 3(c)(vii)(A), HTSUSA. The General Note also states the following:

(B) For the purposes of subdivision (c)(vii) of this note, goods imported into the customs territory of the United States are eligible for treatment as "goods originating in the territory of Canada" only if--

(1) they are goods wholly obtained or produced in the territory of Canada and/or the United States, or

(2) they have been transformed in the territory of Canada and/or the United States, so as to be subject--

(I) to a change in tariff classification as described in the rules of subdivision
(c)(vii)(R) of this note...

General Note 3(c)(vii)(B), HTSUSA, as amended by Presidential Proclamation 6142 of May 25, 1990.

Thus, the 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" are (1) the goods are "wholly obtained or produced in the territory of Canada and/or the United States", or (2) the goods are "transformed in the territory of Canada and/or the United States."

A product which is "wholly obtained or produced in the territory of Canada and/or the 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 motherboards are assembled in the United States with components from third countries. Since the motherboards contain foreign materials they are not "wholly obtained or produced in the territory of Canada and/or the United States", and thus, are not originating goods under General Note 3(c)(vii)(B)(1). We do not have adequate information to make this determination for the cabinet and the power supply.

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 foreign components incorporated into the motherboard are classified in various subheadings of chapter 85 when they enter the United States. Once incorporated into the motherboard, the components' classifications change to the classification of the motherboard, subheading 8471.91.00. A change in classification occurs. However, the change in classification must be one that is authorized by the CFTA.

The authorized classification changes which confer tariff preference eligibility under the CFTA are found in General Note 3(c)(vii)(R). In this case, the foreign electronic components are classified in provisions of chapter 85. The completed motherboard assembly is classified in subheading 8471.91.00. Since the completed product being exported from the United States to Canada is classified within Chapter 84, the General Note 3(c)(vii)(R) subsections applicable to Chapter 84 must be examined.

General Note 3(c)(vii)(R)(16)(ee), HTSUSA, states that for articles classified in subheadings 8471.20 through 8471.91, a change to that group from any subheading outside that group effects the required transformation. The subheadings within Chapter 85 in which the motherboard components are classified are outside subheadings 8471.20 through 8471.91. Thus, the subject motherboard is an originating good under the CFTA when it is exported to Canada, in accordance with General Note

The two prior rulings stated that the completed data processing unit was not an originating good because the unit did not effect a necessary change of classification "in Canada". The motherboard was classified in subheading 8471.91.00 when exported to Canada, and the completed unit was classified in the same subheading when imported into the United States. A transformation "in Canada" had not occurred.

The requirement that a classification transformation must occur "in Canada" existed prior to January 1, 1989. However, as of that date the language of General Note 3(c)(vii) was amended. Currently, a good must be transformed "in the territory of Canada and/or the United States." Thus, the completed data processing unit may be an originating good under the CFTA if it is transformed in Canada and/or the United States. As of January 1, 1989, it is no longer an issue that a classification change does not occur in an originating good sent between the United States and Canada. If the originating good from one of the two
territories is sent across the border and then returned to the original territory without non-originating articles being combined with the good, then the article retains its CFTA eligibility.

The foreign components included in the motherboard are transformed in the United States so that the motherboard is an originating good. For the completed unit to be an originating good when it returns to the United States the cabinet and the power supply must also be originating goods under the analysis set forth above. We do not have adequate information to make this determination. However, the cabinet and the power supply must be either "wholly obtained or produced" in Canada or the United States, or any foreign components included in the cabinet and the power supply must be transformed in accordance with General Note 3(c)(vii)(R). Providing that this is the situation, the components assembled in Canada are all originating goods of Canada and/or the United States. Therefore, the completed data processing unit is an originating good under the CFTA when it enters the United States.

HOLDING:

The motherboard in question is assembled in the United States from United States and foreign components. The foreign components affect an authorized classification change when incorporated into the motherboard in accordance with General Note 3(c)(vii)(R). Therefore, the motherboard is an originating good under the CFTA when it is exported to Canada in accordance with General Note 3(c)(vii)(B)(2).

As of January 1, 1989, the complete data processing unit assembled in Canada is an originating good under the amended General Note 3(c)(vii)(B) and is eligible for tariff preferences under the CFTA. However, this eligibility is contingent upon the cabinet and the power supply either being "wholly obtained or produced" in Canada and/or the United States, or any foreign components included in the cabinet and the power supply being transformed in accordance with General Note 3(c)(vii)(R). That the motherboard does not affect a classification change while in Canada no longer prevents the granting of CFTA tariff preference eligibility.

Sincerely,

John Durant, Director
Commercial Rulings Division

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